Escaping China’s challenging environment
Alibaba (BABA) is making an aggressive push to grow its business overseas, and there are several motivators behind this push. Going international is a way for Alibaba to escape China’s (MCHI) challenging e-commerce sector. Alibaba is coming under increasingly intense competition from JD.com (JD) and other players in China’s e-commerce industry.
The other challenge for Alibaba is that e-commerce penetration has nearly peaked in many of China’s large urban markets, yet the shift to rural China to hunt for new growth could take time before it pays off meaningfully.
$4 trillion e-commerce revenue opportunity
Expanding abroad is also Alibaba’s way to increase its growth potential. According to eMarketer, worldwide retail e-commerce sales could exceed $4.0 trillion by 2020 from $1.9 trillion in 2016, as shown in the chart above. Although China is a prominent contributor to this burgeoning online retail sector, the bulk of the market is outside China.
However, the Asia-Pacific region is expected to retain its position as the world’s largest retail e-commerce market over the next several years. Asia-Pacific’s retail e-commerce market is forecast to cross $2.7 trillion by 2020 from about $1.0 trillion in 2016, according to eMarketer.
Wooing overseas vendors
Considering the competition it faces from Amazon (AMZN) and eBay (EBAY) in the battle for control of the expanding global online retail market, Alibaba has stepped up its campaigns to spread its international influence. It has recently made strategic investments and acquisitions in Southeast Asia.
Alibaba is also attracting businesses in the US (SPY) and Canada to connect to Chinese customers through its marketplaces. Earlier this year, Alibaba held a business summit in Detroit to inform US businesses about China’s market opportunities for their products. The company plans to hold a similar summit in Canada in September.
Alibaba’s international push is starting to bear fruit. The company reported that its international commerce retail revenues for fiscal 1Q18[1. fiscal 1Q18 ended June 2017] rose 136% to $389 million.