Analysis-Alibaba uses rookie buybacks to target competitors’ overseas expansion

Kathy Hall

SHANGHAI (Reuters) – Alibaba plans to acquire full control of its logistics unit rather than spin it off, analysts said, in a possible sign that the Chinese giant is taking more seriously in overseas markets from e-commerce rival Shein Competition with Temu.

The company said on Tuesday it had decided not to list Cainiao, a year after announcing its intention to go public, citing a “downturn” in Hong Kong’s stock market, among other reasons.

At the same time, it outlined further investment in Cainiao’s global network, reducing delivery times from five days to three in markets such as the United States.

Against the background of the domestic macroeconomic downturn and the booming foreign e-commerce market, this communication technology company has returned to its core business. Although it has consolidated its number one position in the country, it is still far from being the overseas hegemon.

“We’re seeing a lot of players in the market being very aggressive, but it’s going to be a bigger market in the future and we want to be a part of it,” Chairman Joseph Tsai told analysts on a conference call on Tuesday.

Alibaba has been grappling with how to become more competitive in global marketplaces such as AliExpress and Lazada. That early lead has faded in recent years, with sales and growth being surpassed by Chinese peers Temu and Shein of Nasdaq-listed Pinduoduo (PDD). .

Brian Wong, a former Alibaba employee and author of “The Alibaba Way,” said investing in Cainiao’s global infrastructure and leveraging that infrastructure could be a way to attract rivals.

Cainiao is the logistics backbone of Alibaba, the founder of Alibaba and currently holds 67% of the shares – a figure that may drop to more than 50% after the listing. Cainiao has warehouses as far away as Indonesia and Belgium and provides supply management solutions to other logistics companies.

“This is quite strategic for international market development. Temu and Shein do not have their own logistics infrastructure, so this will be a differentiator and give Alibaba an advantage in this overseas battle,” Wong said .

In addition to shortened delivery times, a convenient returns process and customer data that Alibaba can keep internally are potential advantages, Wang said.

According to its website, Temu’s current standard delivery time to the United States is 6 to 22 days. Shein’s website says 75% of U.S. orders arrive within 10 days.

synergistic effect

Alibaba announced the spin-off of Cainiao as part of a broader restructuring that includes transforming its international e-commerce unit into a separate business led by Jiang Fan, the former president of Alibaba’s domestic Taobao and Tmall markets.

The business, known as Alibaba International Digital Commerce, is much smaller than the domestic market but has been one of Alibaba’s brightest growth areas. Profits from October to December increased by 44% compared with the same period last year, and AliExpress’s order volume increased by 60%. Choice uses Cainiao.

Alibaba hopes to “win” in e-commerce by regaining market share, with Cainiao playing a central role, Tsai said on Tuesday.

“It is critical to achieve deep integration between the Cainiao business and the e-commerce business,” Cai said. He said it would involve “patient” investment and that Alibaba had enough capital for it, with net cash of $60.5 billion as of December. end.

Tsai said taking Cainiao private would allow management to “focus on the business rather than being distracted by the listing.”

Cainiao CEO Wan Lin told Reuters: “We will focus on developing key businesses, expanding our global logistics network, and building global competitiveness. Alibaba will provide strong support for Cainiao’s global expansion plans.”

Saurav Sen, senior emerging markets analyst at Gimme Credit, said Alibaba has been setting the agenda in the domestic e-commerce field for many years. Overseas, Alibaba decided to acquire Cainiao instead of reducing its stake. This is a 180-degree change, which shows the extent of Alibaba’s overseas development. This depends on market conditions.

(Reporting by Kathy Hall; Editing by Brenda Wu and Christopher Cushing)

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