While the Chinese retail sector is dominated by the almighty Alibaba and Tencent, there are ways for other retailers to gain entry.
Duelling giants Alibaba and Tencent, China’s first and second-largest ecommerce firms, are each valued at around $500 billion. Together they control 80% of the world’s largest ecommerce market, as well as stakes in most of the country’s top supermarket chains. In the past 12 months alone, they have invested over $20 billion expanding into a variety of consumer sectors and essentially reshaping China’s retail sector. So great is their investing power, they serve as the SoftBank or Berkshire Hathaway of the Chinese economy, investing in hundreds of companies at all stages.
Both companies are rapidly expanding their portfolios of digital and physical assets. Alibaba was the first to take its retail wizardry into the offline world, investing in bricks-and-mortar supermarkets, department stores and electronics retailers. Its latest large-scale endeavour, a national initiative called Ling Shou Tong, will bring millions of independent shops all over China into its distribution network, effectively integrating traditional retail into Alibaba’s vast ecommerce ecosystem.
Tencent started as a social networking services company and expanded broadly online, into gaming, electronic payments and media, as well as cloud computing and devices. It entered the retail industry only four years ago, growing rapidly through investments in ecommerce company JD.com, in which it now owns a nearly 20% stake. Like arch-rival Alibaba, Tencent has also invested in a grocery chain, and partnered with department stores Carrefour and Walmart.
Despite this near total domination, it is possible to carve out a place in the Chinese retail market. But in doing so, a retailer has two key decisions to make, the first of which is to pick a side – Alibaba or Tencent. As the Harvard Business Review explains, “For any retailer hoping to earn its slice of China’s expanding retail pie, at least for now, there is no alternative but to play alongside one team or the other — and there are pros and cons with each.”
Alibaba is all about integrating the companies it acquires, including their data, marketing and logistics, while Tencent allows retailers the choice of connecting and upgrading. The two companies also have different strengths with regards to data. Tencent has more data on social media behaviour, while Alibaba has more on purchasing behaviour. As for retail expertise in areas like supply chain and logistics, Alibaba has more to offer, since retail is its core.
The second big decision is choosing a partnering strategy, which depends on whether the retailer wants to use its big partner as a way to test and learn the market, enhance its core business, or fully integrate. The “test and learn” option is best for those who do not yet have a presence in China. Retailers who already have a presence can build on it through a partnership that gives them access to the leader’s data and technology – as long as they’re willing to share a lot of information. Full integration comes with all of the benefits, but relinquish some operational power.
As Alibaba and Tencent ramp up for global expansion in the ecommerce market and beyond, the same set of options could await retailers on other continents.
