The founder of e-commerce giant Alibaba and China’s richest man, Jack Ma, is in India after apparently being swayed by the persuasive powers of prime minister Narendra Modi to come and do business in the subcontinent.
And expectedly, his visit to New Delhi has got India’s fledgling e-commerce industry rather excited. Alibaba, after all, is one of the world’s largest internet companies and raised an astounding $25 billion in its initial public offering (IPO) this September.
Yet, Ma and Alibaba need India just as much as India need the Chinese e-commerce behemoth.
For one, India has been a strong sourcing destination for Alibaba for some years now. The company established a customer service operation (PDF) in Mumbai in 2010, when it was adding over 30,000 new users to its Indian base of 1.45 million small businesses (as of June 2010).
In 2010, India was the largest supplier market outside of mainland China for Alibaba.com and the second largest buyer market.
“Indian small businesses are savvy and they understand the advantages that the internet can bring to them both in domestic and foreign trade,” David Wei, the CEO of Alibaba.com had said.
Four years on, Indian vendors on Alibaba still comprise the second largest group of sellers after the Chinese.
Size does matter
After its record IPO, “Alibaba is looking for growth opportunities across the globe,” said Arvind Singhal, chairman of retail advisory firm Technopak.
For Ma, India’s geographical proximity to China, a sprawling manufacturing sector and unorganized distribution make it an ideal market to expand Alibaba’s core business-to-business (B2B) model, said Singhal
India already permits 100% foreign direct investment in B2B e-commerce—but the fastest growing e-commerce market in Asia is being led by business-to-consumer (B2C) focused firms.
With the country’s e-commerce market projected to grow to $6 billion in 2015, a 70% increase over 2014 revenues, according to Gartner, the size of India’s marketplace makes it important for Alibaba. “The sheer numbers do create a momentum,” said Devangshu Dutta of Third Eyesight, a retail consulting firm.
Indian e-commerce firms could have an interest in Alibaba’s arrival for one of three possible reasons, according to Singhal.
First, as a potential joint venture partner to benefit from Alibaba’s size, expertise and financial clout. India’s largest e-commerce companies are still only a fraction of Alibaba’s size, and there is much to learn from a company that can sell goods worth $1.8 billion in 60 minutes.
Second, domestic firms may be seeking a strategic investment from Alibaba, along the lines of what Softbank has been doing in India lately. Masayoshi Son—Softbank chief, Japan’s richest man and an early investor in Alibaba—poured in over $600 million in Snapdeal late last month.
And finally, investors in Indian e-commerce companies might want to pull out as the marketplace heats up and look to sell their stakes to the likes of Alibaba. “The competitive intensity might get too much,” said Singhal.