Ask a consumer in the West where to buy something online and chances are their first recommendation will be Amazon, however ask the same globally and Chinese digital marketplace Alibaba will come out on top. With Alibaba turning over $463 billion in less than a year and looking to announce record results today, will investors be better off heading out of the jungle in search of their own cave full of riches?
Many investors like Alibaba’s recent investment in Groupon and also the company is set to gain from its spin-off, Ant Financial’s potential public listing.
However, Alibaba needs to reduce its transport costs in its domestic market of China particularly.
Alibaba wants to make more sales with the growing number of Chinese from remoter areas who are now joining in the e-commerce revolution. But the logistics are not in Alibaba’s favour. Inland China is difficult to access in some areas, and the infrastructure, though growing apace, is not yet fully developed in many areas. That means deliveries are slower, and it costs more to fulfill them.
Alibaba also has a cunning plan to invest further in Singapore Post. The idea is that the e-commerce giant will hold a total 14.51% stake in SingPost. One of the reasons SingPost is so attractive is because of its subsidiary, Quantium Solutions International. QSI provides end-to-end ecommerce fulfilment across the Asia Pacific region. QSI will become the joint venture vehicle of SingPost and Alibaba.
SingPost/QSI will then look after everything from setting up websites to managing inventories and transportation, operating across over 50 distribution centres across at least 18 countries — including major e-commerce markets in the U.S., Europe, China and the rest of the Asia Pacific region. A logistics hub in the city-state costing 182 million Singapore dollars ($132 million) is scheduled for completion this year. Once in operation, it will consolidate e-commerce deliveries from across the world.
The deal would help transform Alibaba’s supply chain, particularly in its key market of Asia. But, and it’s a big but, that deal has been slower to complete than expected and was recently postponed again from April 7 to May 31st. Both companies are still in the process of fulfilling some a number of conditions according to SingPost. It’s a deal that really has to succeed.
Amazon shares have come good partly because of its bold investment in logistics. Alibaba needs similar development of its own fulfilment operation to achieve the same long term results. The e-commerce giant needs ensure its logistics plans come to fruition before Alibaba’s shares truly become a cave full of treasures.