Will Alibaba Group Holding Ltd Be Able to Achieve the Same Success in International Markets?

The Chinese e-commerce giant is opening an office in Australia.

Will Alibaba Group Holding Ltd Be Able to Achieve the Same Success in International Markets?

By: Abdullah Saeed Qureshi Published:
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The Chinese e-commerce giant is opening an office in Australia

Alibaba Group Holding Ltd’s (NYSE:BABA) plans to expand its operations outside the mainland territory reaches another milestone as the Chinese e-commerce giant announced earlier on Tuesday the opening of its first local office in Australia this year. Alibaba’s planned objective is to make more than half of its revenue from international markets by 2036.

Michael Evans, President of Alibaba’s global operations told The Australian Financial Review that: “Australia was a huge part of his company's long-term globalization strategy to raise its 423 million customers to 2 billion in another 10 years.” Mr. Evans also pointed out that as the company looks to expand its international presence, it needs a capable group of people who are sincere and committed to Alibaba from every front. He also highlighted that as per Alibaba’s globalization strategy, New Zealand and Australian market holds significant importance.

Alibaba’s e-commerce business, valued at about $200 billion, is expected to surpass Amazon Inc. (NASDAQ:AMZN) to become the world’s largest e-commerce store; global expansion would play a vital role in achieving that milestone. According to the data published on BestTheNews, at present, the company stands at fifth position in terms of revenue generation.

Following is the list of top five retail companies in terms of revenue generation:

Though Alibaba is the market leader and China’s biggest e-commerce store, it faces stiff competition from both local and international e-commerce players. Presently in China, amid significant controversies, the company has also gone behind its arch rival JD.com (NASDAQ:JD), which is gradually snatching market share from the Chinese e-commerce giant. To restore itself on top of the pack, it is important for Alibaba to push for global expansion and re-gain confidence of investors, traders and customers.

According to Mr. Evans: “Alibaba currently has eight staff in Australia. However, with plans to open up its first office in the city of Melbourne by the end of 2016, Alibaba will target Australian consumers as it plans to boost its business over the next three to five years."

Alibaba’s international revenue has grown in the past five years, but analysts believe that the growth is far below expectations. The recent counterfeited goods scandal has cost the company about 41% of revenue in the past five years. Now, as it enters the Australian market, the Chinese e-commerce giant should avoid any more controversies or its revenues will take another hit.

The country’s economic slump has also affected Alibaba’s revenue in the mainland region. In order to re-gain momentum, it has to transform itself into a global e-commerce company, which would require an efficient global strategy. Some analysts believe that Alibaba’s customer base in China has already reached its peak and it was essential for the company to expand its customer base, which is only possible through globalization.

Mr. Evans further highlighted that Alibaba already holds about half a million non-Chinese speaking customers in Australia. He also stated that the company’s proposed plan will be to “engage in e-commerce going both ways; export to foreign markets, import to Australia." Presently, Alibaba’s e-commerce store holds about 1,400 Australian brands and more than 80% of them have never entered the Chinese market before setting up shops on Alibaba’s online portal. Mr. Evans indicated that “most of Australia's dealings with Alibaba will centered on milk powder.”

However, we believe that the company’s path globalization won’t be an easy ride. The company might have to face potential risks, gain consumer confidence and has to eliminate the sale of counterfeited goods on its platform.

For the past one year, Alibaba has been under the lime light due to its involvement in the counterfeited goods scandal, which has already resulted in several customers and international leading brands leaving its platform. Back in 2015, many leading international brands filed lawsuits against the Chinese e-commerce giant, blaming it of deliberately promoting counterfeited goods traded on its leading e-commerce stores, like Taobao and Tmall.com.

Kering SA, a leading French luxury brand filed a lawsuit against Alibaba last year, accusing the e-commerce giant of profiting from the sale of fake goods. The French luxury goods maker also accused Alibaba of having direct involvement in the promotion of counterfeits.

Similarly, Alibaba, back in 2015, also narrowly escaped the US black list for notorious goods; however, it received an official warning from the US trade officials. Moreover, in May 2016, the company was also handed a suspension from International Anti-counterfeiting Coalition (IACC), a regulatory body overlooking the retail industry. The decision was taken after several leading members from the organization protested against Alibaba’s inclusion in the body and threatened to step down if the company’s membership wasn’t terminated. Those members included Gucci America, Tiffany, and Michael Kors. However, despite such controversies, the Chinese e-commerce giant gets to attract more brands as its platform is the gateway to China’s highly lucrative market.

Though the company is surrounded by controversies, it is doing its best to resolve the issue and provide its clients a clean business environment free from fakes. Alibaba’s founder Jack Ma once said: “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.”

He termed the fight against fakes a long term crusade, which is filled with human greed. To completely eliminate the issue, a global alliance is essential and there are no short-term fixes. Additionally, Mr. Ma also denied all the allegations and in response said: “Failing to protect original designs, trademarks, and technology is akin to thievery, and it is detrimental not only to innovation but also to the integrity of the marketplace, and Alibaba will never forgive any act of stealing.”

The Chinese e-commerce giant has invested heavily and devoted significant efforts to develop an unparalleled level of technology to put a stop to the sale of counterfeit goods. Also, the company has adopted the full-bodied data processing and analytics system to allow real time scanning of about 10 million new items a day by looking at key features such as trademarks, pricing and buyers and seller’s identity.

Recently, Alibaba also said that it is working with Eastman Kodak Company (NYSE:KODAK) on a start-up eApeiron to counter the counterfeit-goods issues. The start-up will work on a technology that places an “invisible, digitally traceable marker on products to ensure they are authentic.” The technology will focus mainly towards the e-commerce industry.

In order to challenge other big market players in international markets like Amazon, which already hold most of the market share, Alibaba first has to work on repairing its image and reputation. Presently, many international brands don’t enjoy a healthy relationship with the Chinese e-commerce giant. Customers aren’t fully sure if the products they are purchasing are original or counterfeited. Alibaba needs to repair the damage that has been done to its platform due to the sale of counterfeit goods if it wants to push for global expansion.