Daily Management Review

Race to Gain Chinese Online Supramacy, Alibaba buying 20% Stake in Suning


Race to Gain Chinese Online Supramacy, Alibaba buying 20%  Stake in Suning
The race to gain supremacy in the Chinese on-line market is on.
A 28.3 billion yuan ($4.63 billion) deal is expected to conclude between China’s on-line retail giant Alibaba Group Holding  Chinese electronics retailer Suning Commerce Group.

Alibaba will invest the money to acquire 19.99% stake in Suning Commerce Group, and the deal would set the stage for the integration of the online and offline retail of both the companies.
While the deal makes Alibaba the second largest shareholder in Nanjing-based Suning, the electronics retailer would also Alibaba’s buy 27.8 million newly issued ordinary shares for 14 billion yuan ($2.28 billion).
The deal entails the opening up of a flagship store on Alibaba’s Tmall.com platform by Suning which would sell consumer electronics, home appliances and baby products.
For Alibaba, Suning would prove to be a critical logistics boosting partner as the electronics retailer has a powerful nationwide logistics network that covers 2,800 counties and cities. Alibaba would benefit from the strong distribution network to ensure that its customers are able to get products delivered on time. This would also open up certain sectors of the Chinese market that the company had not been able to reach so far. It is expected that Alibaba would also save on operational expenses from this deal.
“The deal would ensure that Alibaba is able to deliver products to its customers as fast as within two hours in some places,” said a source.
Suning would also make use of Alibaba’s payment gateway service Alipay at the electronic retailers more than 1,600 physical retail stores in 289 Chinese cities. Alibaba on the other hand would be able to take advantage of the service capabilities of Suning as its customers would be able to send electronics products purchased on Tmall to Suning for maintenance or repairs.

 “Over the past two decades, e-commerce has become an inextricable part of the lives of Chinese consumers, and this new alliance brings forth a new commerce model that fully integrates on-line and offline,” Alibaba Executive ChairmanJack Ma said in a statement.
This agreement would be in line with the latest internet policy of the Chinese government that is trying to draw out a broad Internet sector strategy combine on-line and offline industries.
The policy known as "Internet Plus" encourages such agreements to use the technology-driven, high-value economic output even as the world's second-largest economy wrestles with slowing growth.
The alliance with Suning would provide market leverage to Alibaba against its main e-commerce rival JD.com. Electronics gadget sale by JD.com has been more than Alibaba for quite some time.  
Earlier, Alibaba had inked agreements with electronic companies like Gome Electrical Appliances Holding Ltd and Haier Electronics Group Co Ltd to help it offer more home appliances on-line as a part of the on-line giant’s efforts to strengthen its electronics offerings in recent years.

Daniel Zhang , Chief executive of Alibaba, informed that the company was contemplating drawing up more such deals in the near future with brick-and-mortar stores other than electronic companies provided that such agreements brought in additional customers and traffic to the site.

 (Source: www.forbes.com & www.reuters.com)