Is Alibaba Group Holding Ltd Really Affected By the Counterfeited Goods Scandal?

The Chinese e-commerce giant recently signed a deal with Mars, Mondelez, and Nestle SA.

Is Alibaba Group Holding Ltd Really Affected By the Counterfeited Goods Scandal?

By: Abdullah Saeed Qureshi Published:
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The Chinese e-commerce giant recently signed a deal with Mars, Mondelez, and Nestle SA

On Thursday, Alibaba Group Holding Ltd (NYSE:BABA) announced to enter in a strategic partnership with and Mars Inc., the maker of popular chocolates such as Snickers bars and M&M’s. Under the deal, Mars will “become the latest global consumer-foods brand to partner with Alibaba to grow its online presence in China.” In a joint statement released by the companies, Mars highlighted that the Chinese consumers will now get access to all of its brands including its famous Pedigree, Royal Canin pet foods, and Dove chocolate. The products will be traded on Alibaba’s leading online platform, including Rural Taobao and Tmall.com.

In addition, the Virginia-based chocolate maker said: “We would leverage Alibaba’s marketing and data capabilities to drive engagement with those consumers, while using Alibaba’s logistics network to extend its reach in the Chinese market.”

Alibaba Group Vice President Jet Jing stated: “Mars is an invaluable addition to our ecosystem, and this collaboration is a significant milestone for Alibaba as we now have established close partnerships with three of the world's top food and beverage companies.”

Mars seems inclined to keep driving China's food retail showcase with its emphasis on quality and development. The company, with the help of its established brand names and e-business platforms around the world, will put in coordinated efforts to make its worth in the mainland. This will improve its R&D, marketing and sales, and other important functions related to each of its products.

According to the e-commerce giant, many foreign companies aim to enter Chinese market and are eager to expand their position in the country. Alibaba’s official blog Alizila says: “Alibaba offers these brands an ecosystem of related services from marketing to cloud computing to logistics in order to better target and engage consumers.” In the past, companies such as Unilever, Pfizer, Hershey’s, and Germany’s Metro Group, have all teamed up with the Chinese e-commerce giant to expand their operations in China.

Recently, Nestle SA also collaborated with Alibaba; a move to shore up its e-commerce sales in the world’s populous country. Under the new initiative announced on June 5, Nestle will launch nearly around 60 brands that range from coffee to baby formula. These will be placed on Alibaba’s top online stores including Taobao and Tmall.

Similarly, Mondelez International Inc. (NASDAQ:MDLZ), the world’s leading snack company and producer of leading brands, such as Cadbury eggs and Oreo cookies, joined hands with the Chinese e-commerce giant to strengthen and expand its footsteps in the highly-potential Chinese market. The tie up between the two was also the first ever between a US-based snack maker and a Chinese e-commerce firm. By partnering with Alibaba, Mondelez has set a target of $1 billion sales from global e-commerce network. Mondelez said: “We will also increase our investment in our existing storefront on Tmall.com, Alibaba’s business-to-consumer online marketplace, by offering Tmall shoppers a wider range of products and launching new products exclusively through the platform.”

China E-Retail Growth:

The country’s e-commerce segment has grown significantly amid increasing consumption power of China’s middle class and greater Internet penetration in country’s rural areas. According to the report published by a leading research firm Kantar Health, e-commerce sales in China of fast-moving consumer goods (FMCG) have grown at a high rate. In 2015, the growth was estimated at 37%, compared to 34% in 2014.

According to Alizila, in 2015 about 419 million people in the Mainland shopped online, mostly from Taobao and Tmall.com.

The Chinese consumers spend nearly $672 billion online in 2015, which is twice the amount the US consumers spent online the same year. Analysts believe that the consumption will be driven by younger Chinese generation.

“China's younger generation is the new driving force of consumption. They rely on e-commerce, and place great value on the trustworthiness of the companies behind their brands and products,” says Wrigley China Vice President and Managing Director Cecilia Li, a subsidiary of Mars Incorporated.

According to a report, by 2019 Chinese online consumption will be the largest in the entire world. Chinese consumers will spend nearly $2 trillion, more than 3.6 times the US consumers.

Likewise, the world’s second-largest economy will also have the highest number of online customers by 2019, as depicted by the following graph.

The aforementioned diagram shows that China is going to lead the e-shoppers market by 2016, followed by India and the US. Astonishingly, India is going to surpass the US according to the data complied. At present, Indian e-commerce market is in the early stages of development. However, e-commerce giants, such as Alibaba and Amazon Inc. have bet bullish stance on the Indian market.

Counterfeited Goods Scandal:

Alibaba has been fighting against counterfeited goods since last year and met serious opposition from leading foreign brands. Recently, Jack Ma released his “observation” stating that counterfeited goods are better than the original. The response was the result of continuous criticism faced by the company from the brand owners, citing that the e-commerce group promotes counterfeit goods and receive most of its profits from the sale of knock-offs. However, he immediately clarified himself terming the statement as just an observation, with no link to the reality.

The company has assured investors that it is doing its best to quickly resolve the issue and implement effective techniques to eliminate the risk of fake items on its online portal.

Mr. Ma said in his article: “When Alibaba went public in 2014, I told our customers, employees and investors that what we had earned was trust—in myself, my team, and our company’s mission, vision and values.” Mr. Ma further highlighted that with trust come great responsibility and Alibaba’s responsibility is to protect all of its stakeholders."

Despite serious warnings from the trade officials and being thrown out of the International Anti-Counterfeiting Coalition (IACC), we believe that this partnership with world’s leading brands seems to be the right move and shows that many foreign brands seek Alibaba’s assistance to enter and expand into the Chinese market. The counterfeited goods scandal is a long-term crusade, and a cooperation spread globally is what’s needed to resolve the issue. However, it is evident that Alibaba is indeed in the control of Chinese e-commerce market.