Bottom line: New global initiatives by Alibaba and JD.com are largely cosmetic and could bring some short-term support to their stocks, but both will need to show results to satisfy investors over the longer term.
China’s 2 leading e-commerce firms are in a sudden migratory mood, with Alibaba (NYSE: BABA) and JD.com (Nasdaq: JD) both announcing the opening of new offices in the US and Europe. At the same time, Alibaba has also declared that the headquarters for its annual November 11 Singles’ Day shopping extravaganza will migrate, leaving its original location in the company’s hometown of Hangzhou to set up a new shop in Beijing.
The sudden migratory story looks squarely aimed at investors, who want to see these domestic e-commerce giants laying the groundwork for future growth beyond their home China market. But while opening new offices may look nice on the surface, the US and European markets that both companies are targeting will be extremely tough due to competition from entrenched local players and global giant Amazon (Nasdaq: AMZN).
Frankly speaking, these companies would be better advised to target developing markets for their global expansion, and Alibaba and Baidu (Nasdaq: BIDU) have actually done just that by making strategic acquisitions in India and Brazil, respectively. These moves in the west look more cosmetic, and are aimed at pleasing the companies’ investors, most of whom are based in those countries.
Let’s begin our migratory round-up with Alibaba, which somewhat ironically chose its home base of Hangzhou to announce its latest outbound moves. Many media focused on the company’s announcement that it would relocate the headquarters for its annual Singles’ Day shopping extravaganza to Beijing. (English article; Chinese article)
That move followed reports last month that Alibaba would set up a second headquarters in the Chinese capital, acknowledging the importance of being closer to Beijing regulators who oversee the sensitive Internet space. (previous post) In this latest case Alibaba’s decision looks more practical, since far more media have reporters in Beijing and thus are more likely to cover the November 11 event that has become China’s equivalent of “Black Friday” in the US.
Heading to Europe
Alibaba used the same press conference to reveal it will open new offices in France, Italy and Germany in the next few months. It also said it would expand further in the US, where one of its early ventures failed to gain any traction. Notably, Alibaba trotted out former investment banker and recently named President Michael Evans to discuss the expansion.
The company named Evans to his post in August (previous post), with a special mandate to spearheading its global expansion campaign. Evans’ appointment didn’t do much to prop up Alibaba’s flagging stock at the time, though the shares have rallied in the last 2 weeks and last week passed the important milestone of rising back above their IPO price. Look for more buzz to build as Singles’ Day approaches, though the company will need to show some real results in its global drive to excite investors over the longer term.
Next let’s look quickly at JD.com, which said it will open a research and development center in Silicon Valley. (company announcement) The office is JD’s first outside of Asia, and is distinctly focused on technology development rather than opening a website for US customers. Baidu opened a similar Silicon Valley office last year, and this kind of move seems mostly symbolic by showing a company’s commitment to developing cutting-edge high-tech products.
More broadly speaking, JD’s globalization noises are more domestically focused than Alibaba’s. The company has rolled out a steady stream of country-specific online sites this year, each dedicated to selling imported products to Chinese buyers. Such a strategy looks relatively smart for JD.com, whose smaller size means it still has plenty of room for growth in its home market as it aims to steal share from Alibaba and other smaller rivals.
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