Vanke’s Internet Obsession: Real Or Imaginary?

Vanke eyes the Internet

Many companies from traditional sectors have been taking a serious look at the Internet these days, worried that failure to develop a solid web strategy could result in their eventual demise. For sectors like retail and some other traditional product categories, I agree that strategy makes sense as the Internet radically changes the way that these industries operate. But I find the recent Internet obsession by the CEO of Vanke (HKEx: 1036; Shenzhen: 000002), one of China’s leading real estate developers, a bit more difficult to understand, since property doesn’t seem like a sector that can easily migrate to the web.

Vanke’s Internet obsession has been well documented in the Chinese media over the last few weeks, covered in a wide range of reports on trips by CEO Yu Liang to the offices of Internet giants like e-commerce leader Alibaba and social networking giant Tencent (HKEx: 700). The latest reports say he also plans to visit appliance giant Haier (HKEx: 1169) and smartphone sensation Xiaomi, which have both been active on the Internet lately. (Chinese article)

Yu’s high-profile visits come as another major property firm, Wanda Group, forms its own new tie-up with Alibaba. (prevous post) But Wanda is quite a different company from Vanke, for reasons I’ll discuss shortly; thus a strong Internet strategy makes more sense for Wanda than for Vanke, leading me to question the sincerity and wisdom of Yu’s recent Internet obsession.

Yu’s visits come as a growing number of traditional firms rush to embrace the Internet through their own initiatives and tie-ups with major web firms. One of the earliest companies to embrace the trend was traditional retailer Suning (Shenzhen: 002024), which has invested millions of dollars to transform itself into an e-commerce company. More recently, Haier has announced major new tie-ups with Alibaba and leading web portal Sina (Nasdaq: SINA).

In most cases, traditional companies are realizing the importance of online sales to their future survival, as China looks set to soon pass the US to become the world’s largest e-commerce market. Many major retailers that failed to recognize the trend are now suffering as a result, with names like sports retailer Li Ning (HKEx: 2331) and French retailing giant Carrefour (Paris: CA) now struggling in China. In the Haier-Sina tie-up, Haier is also trying to tap into the “Internet of things” trend that envisions development of products that can speak to each other and be operated remotely by their owners using the Internet and other wireless networks.

Against all the backdrop, let’s return to Vanke and Yu Liang’s recent visits to Alibaba and Tencent. Yu certainly doesn’t seem to be trying to keep his visits secret, as reflected by the wide media coverage. That fact makes me just slightly suspicious, since it makes Yu’s visits look almost more like a publicity stunt aimed at trying to generate some high-tech hype like that enjoyed by names like Alibaba and Xiaomi.

I also find it just a bit strange that Yu isn’t making similar high-profile visits to more logical online real estate services firms, most notably sector leaders SouFun (NYSE: SFUN) and E-House (NYSE: EJ). Those companies would be much more logical partners for Vanke, especially since SouFun has recently stated that it wants to boost its real estate services by expanding into new areas like the property finance business. (previous post)

What’s more, I really don’t see a huge place for the Internet in Vanke’s future, since the company is primarily a developer of residential properties. That contrasts sharply with Wanda, whose main focus is commercial properties like shopping malls, hotels and movie theaters — all of which could potentially benefit from a strong e-commerce partner like Alibaba. I’m sure there must be a place on the Internet for residential property firms like Vanke, which could perhaps use the web as a marketing tool. But I really don’t see Yu’s latest Internet obsession as very logical, especially his choice of potential business partners. Accordingly, I wouldn’t expect to see any major new initiatives coming from this latest high-profile campaign.

Bottom line: Vanke’s recent high-profile Internet obsession seems unfocused and may be more designed at generating buzz than producing any serious new high-tech initiatives.

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