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What’s Alibaba Up to in Its Deal with India’s Paytm?

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Alibaba pumps $177 million into Paytm

Alibaba (BABA) recently upped its stake in Paytm e-commerce in an escalating competition with Amazon (AMZN) for control of India’s e-commerce industry. Amazon has invested billions of dollars since 2014 to expand its operations in India, and Alibaba is hot on Amazon’s trail.

Alibaba doled out $177.0 million for a 36.3% stake in Paytm, an e-commerce subsidiary. The Indian startup offers digital payment services.

But the slowing pace of India’s e-commerce industry has recently been a matter of concern. The industry rose 12.0% to $14.5 billion in 2016, slowing down from a 13.0% rise in 2015, according to research firm RedSeer Management Consulting.

The above graph shows the growth rate of India’s e-commerce market.

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Alibaba’s influence in India

Alibaba’s stake in Paytm is part of its effort to increase its influence in India, the world’s fastest growing Internet market. Paytm is a perfect fit for Alibaba due to its e-commerce and mobile payments exposure.

Competition in e-commerce means that it’s no longer enough to simply operate a marketplace. E-commerce providers are trying to woo shoppers and increase their sales by offering additional services such as payment processing and order delivery.

That’s what recently put companies such as Amazon on a collision course with payment providers PayPal (PYPL) and Square (SQ) and shipping companies FedEx (FDX) and United Parcel Service (UPS).

Alibaba believes that a close tie with Paytm could boost its efforts to penetrate the Indian e-commerce market by appealing to Indian online shoppers with a seamless digital payment service.

Homegrown startups face tougher competition

The supremacy war between Alibaba and Amazon is threatening to cause havoc for homegrown e-commerce firms such as Snapdeal and Flipkart as they struggle to secure funding and retain talent.

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