Alibaba Group said today its 2016 goal will be to expand and refine its products and service offerings in China, especially large tier-one cities like Beijing, and to push its brand further into the hinterlands.
Alibaba’s corporate news blog quoted the company’s Chief Executive Daniel Zhang as saying a key goal this year was to “consolidate and expand” the China market. At first blush, this might seem like an odd pronouncement.
Why would Alibaba, already China’s largest e-commerce company by a huge margin make its home market a focus when 2015 was Alibaba’s year of globalization?
Alibaba’s 2016 bet on China is a prudent one because for Alibaba to thrive this year, it has to face three factors head-on: a slowing economy, intensified e-commerce competition and new vertical and horizontal markets opening up in the country. So while other companies in China may look to expand overseas to offset the China slowdown, Alibaba needs to play defense and offense on its home turf in order to unlock growth opportunities in the medium and long term.
Slowing economy
China’s stock market plunged nearly 7 percent on the first trading day of the year after official data and a private survey showed manufacturing activity slowing in December. Alibaba, which made 83 percent of its revenue from China commerce business in its September quarter, is intimately tied to China’s economy. Yet, a slowing China may not necessarily mean a slowing Alibaba as some 44 percent of Chinese Internet users (668 million strong as of June 2015) have not accessed online shopping. The renewed focus on China will allow Alibaba to pool resources and steer its giant organization to tap that 44 percent with greater intensity and avoid the ill-effects from a China slowdown.
Alibaba’s 2016 goal to target urban consumers in megacities like Beijing comes as its main rival, JD.com , spent 2015 ramping up partnerships with foreign brands to attract urban Chinese consumers. Alibaba believes it can reach 400 million people in northern China through its Beijing hub. Competition in China’s rural regions is also heating up as both companies pour resources into logistics and training centers. In 2015, JD.com and Alibaba Group signed agreements with various provincial governments across China to open e-commerce training centers and hubs in villages, in hopes of boosting customer traffic to their platforms. While China’s urban consumers are known to sip Starbucks SBUX -1.75%, shop on their mobile phones and linger in malls, China’s backwaters, where 46 percent of the population live according to the World Bank, is the next frontier for consumption. Alibaba’s goal this year to continue the rural push will ensure it doesn’t lose ground to competition in this critical battle.