E-commerce: JD In Russia, Vipshop In Lending

JD.com makes Russian acquisition

Two of China’s most dynamic e-commerce firms are in the headlines today with new strategic moves, including JD.com’s purchase of a Russian rival and Vipshop’s (NYSE: VIPS) plans to open a small loan operation. Both of these moves look well conceived, taking their respective companies into new but related areas with big growth potential. The 2 moves come as JD prepares to launch a $1 billion-plus IPO in New York as soon as this week, and as Vipshop looks for acquisitions following a big fund raising exercise earlier this year.

Let’s begin with JD, China’s second largest e-commerce company, whose upcoming IPO would be the largest so far this year by a Chinese tech company in New York. According to the latest reports, JD has completed its acquisition of a Russian e-commerce company that is one of the nation’s top 5 players, and has also acquired a logistics company. (English article) No names were given in the report, which cited an unnamed company source.

Media had reported back in 2012 that JD was developing a Russian e-commerce site with a local partner, though it’s unclear if this latest acquisition is part of that same initiative. JD’s choice of Russia for its first overseas foray looks logical, since one of the company’s biggest investors is Russian technology investor Digital Sky Technologies (DST), which has many of its own connections in the market. As one of the BRICS countries, Russia also has many similar qualities to China.

JD’s move is interesting because it looks a bit more aggressive than anything from its chief rival, Alibaba, which has been far more low-key about exploring markets outside China. Alibaba, which is also preparing for a blockbuster New York IPO, has made a few minor acquisitions in the US and had a high-profile failure in Japan.  It also made a timid move into several developing markets including Russia last year through its AliExpress, an English-language platform whose main users are small Chinese businesses seeking to sell their products to consumers.

I prefer JD’s more focused, relatively aggressive move into Russia, as it looks more definitive and serious, and should have a good chance of success due to the company’s ties with DST. By comparison, Alibaba’s far more conservative moves are unlikely to produce any spectacular failures but also won’t provide any major new gains.

Next let’s look quickly at Vipshop, China’s leading discount e-commerce firm that is trying to find new business opportunities to help justify a meteoric rise in its share price that has made it the nation’s most valuable e-commerce firm since its 2012 IPO. Reports say Vipshop is in talks with the Shanghai district of Jiading to set up a small loan subsidiary with registered capital of 200 million yuan ($32 million). (English article)

The same reports add that leading online travel agent Ctrip (Nasdaq: CTRP) and top online real estate services provider SouFun (NYSE: SFUN) are in similar talks, also with Jiading, which has more favorable and open rules for such ventures. JD and search leader Baidu (Nasdaq: BIDU) are also reportedly preparing to launch similar small loan subsidiaries in Jiading later this year.

From a purely strategic standpoint, this kind of subsidiary looks the most logical for e-commerce companies like Vipshop and JD, which have thousands of suppliers who could become instant customers for such small loan services. Vipshop probably isn’t expecting too much from the service in the beginning, since its initial investment is quite small. The foray looks like it could enjoy modest success, though I would advise Vipshop to focus more on expanding its core e-commerce business and acquiring related companies.

Bottom line: JD.com’s move into Russia looks like well conceived and could form a template for similar overseas expansion, while Vipshop’s new small loan venture could also enjoy modest success.

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