Chinese tech company Alibaba is to combine its Taobao and Tmall Group and Alibaba International Digital Commerce Group, according to an announcement on November 21. The new business unit, Alibaba E-commerce Business Group, will cover both domestic and international markets.
Fan Jiang, who has managed both the domestic and international e-commerce businesses, has been appointed to lead the merged e-commerce segment. Alibaba’s wholesale platform, 1688 Marketplace, and second-hand platform, Idle Fish (Xianyu), are also part of the new business.
Taobao and Tmall are China’s largest domestic e-commerce platforms, with monthly active users of over 800 million and a combined market share of around half of the industry. Abroad, the international group has been operating brands including AliExpress, Lazada, Trendyol, Daraz and Miravia, spanning across Europe, Southeast Asia (SEA), South Asia and Turkey.
Both businesses were independent from each other and were two of the six subunits announced early last year –as the firm tried to restructure after a regulatory crackdown on its antitrust issues.
The company’s inhouse newsroom, Alizila, suggested that the decision will be able to “drive significant synergies across global supply chains and support merchant growth opportunities with expanded market access”.
Alizila added that this is the first time that all of Alibaba’s e-commerce businesses are under one single leadership.
Global competition
Chelsey Tam, senior equity analyst at Morningstar, told FinanceAsia that the combination “bodes well from a collaboration perspective”.
“With Taobao expanding overseas, there is a need for their overseas unit to work more closely with their domestic counterpart and leverage their existing domestic business seller base,” she said.
The domestic e-commerce brand has bet big on Hong Kong, as one of its first offshore markets, during the most recent “Double 11” shopping festival. The company has reportedly invested Rmb1 billion ($138 million) to roll out a city-wide campaign of Taobao, offering free shipping for orders over Rmb99.
Alizila underlined that the merger will help facilitate Alibaba’s domestic merchants’ global expansion, and also enhance supply chain integration at home and overseas.
“This will enable [the overseas units] to strengthen their competitiveness through a more diversified range of product offerings,” said Tam at Morningstar.
The announcement comes as the group faces intensifying competition from its peers.
JD.com, Pinduoduo (PDD) and Douyin (Chinese-version TikTok) continue to put pressure on its main business in mainland China; while Temu, owned by PDD, and Shein, have both made significant progress entering western markets, especially the US.
Revenue in the third quarter, ending September 30, for the Taobao and Tmall Group recorded a marginal 1% year-on-year growth, with a 5% drop in direct sales. Despite contributing the most to Alibaba’s cash flow, the domestic e-commerce group has been one of the slowest growing segments.
The international division saw growth of 29% in the same quarter, the fastest growing ahead of local services, cloud intelligence and Cainiao logistics.
However, earnings before interest, taxes and amortisation (EBITA) for the international unit recorded a Rmb2.9 billion loss. The statement attributed the 657% year-on-year increase in losses to investments in AliExpress and Trendyol’s cross-border businesses.
Attending the Global Financial Leaders’ Investment Sumit in Hong Kong last week, Alibaba’s chairman Joe Tsai acknowledged the “China +1” strategy will benefit SEA markets, as they gradually climb up the global value chain due to a continued steady outflow of manufacturing from China.
A Citi Research report said that the decision to combine is beneficial from a mid-to-long term internal operation and cost optimisation perspective, and with possible improvements in profitability.
“We believe there will be no change on segment reporting in the near-term and believe it might take some time for the integration to take effective on financial performance,” it added.
