Strategic Management

Why India is a lucrative market for Alibaba?

Alibaba is the 2 nd largest (1) ($204.8 Billion) e-commerce company in the world by maret !al"e. #t declared $11 billion billion in net income in 201 and has cash and near cash reser!es o% o!er $& Billion (2) indicating e'tremely strong nancial o% the aggregator. "rther* #ndia has a h"ge cons"mer base with rob"st growth rate and promising digitali+ation digitali+ation indictors. ,ince 2010* e-commerce ind"stry in #ndia has shown phenomenal growth with A/ o% o!er 41. otal 201 sales amo"nted to $1&. Billion which grew to $2& Billion in 201 and are e'pected to reach $80 Billion mar by 2020. Also* all the e-retail maret players are m"ch smaller as compared to Alibaba (e'cept (e'cept Ama+on) which p"ts this maret high on in!estment perspecti!e. All these %actors combined* maes #ndian ecommerce a !ery l"crati!e maret %or Alibaba* both as in!estor and standalone player. player. ollowing ollowing data indicates the growth tra3ectory o% the ecommerce ind"stry. ind"stry. (&)  ear  ear 2015 818.&& !otal "etail #ales 14.0 --% change $1&.&1 "etail $commer ce 125. --% change 1. %%& of  total retail sales 6ro3ected (All g"res in Billions)

2016 541.08

2017 1082.24

2018 1244.8

201 1418.82

2020 155.01

1.0

1.06

1.06

14.06

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$2&.&5

$&7.0

$2.

$

$80

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226

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A9 aytm was originally la"nched in 2010 as prepaid online mobile recharge website. #t can be accessed %rom a browser or the aytm app is a!ailable on mobiles compatible with Android* :indows and i;, operating systems.aytm wallet was la"nched in 2014. As o%

4usiness (odel of 'aytm

1.

Web 'ortal (?-ommerce > Already ?'plained abo!e so will not get into the depth o% this model again)

2.

istin. ee and onvenience ee (,ellers are charged listing %ee %or selling on ay9 and onboarding %ee %or doorstep ser!ice o% e'plaining e!erything related to selling online G pretty sel% e'planatory so won=t nose di!e into this either.

&.

!A 4ookin.s ay9 recently !ent"red into ;nline ra!el Agency 9odel (;A) where it is pro!iding air* b"s etc ticeting and hotel booing ser!ices (the model here is again commissions similar to e-commerce model highlighted abo!e)

4.

'ayments Inte.ration o" can now "se yo"r ay9 wallet to pay all sorts o% "tility bills incl"ding cable* internet* mobile* gas* electricity etc.

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(obile Wallet #ntegrating its wallet across ma3or e-commerce and epayment enabled online sellers (replaces a traditional payment gateway with the e'act same b"siness model b"t lower %ee and ransaction isco"nting /ates (/) ).

Alibaba became the largest shareholder thro"gh its in!estment o% $80 million. Be%ore that* Ant inancial had made the rst ro"nd o% in!estment in ebr"ary.As per the c"rrent shareholding pattern o% ;ne57 omm"nication* AlibabaHs direct stae is 20 and thro"gh Ant* it has another o!er 20 while ,A# artners has &0 and promoter Ci3ay ,hehar ,harma holds 21. he other in!estors incl"de ,A Cent"res* /eliance apital* ,ilcon Calley Ban and others. he last ro"nd o% %"nding raised by aytm !al"ed it at $&.4 billion.he Iac 9a-promoted hinese e-commerce and online payment ma3or has also in!ested in ,napdeal and is aggressi!ely p"rs"ing its interest in the #ndian e-tailing space.ompetition in the digital wallet and e-commerce sector is getting erce with e!ery player looing to e'pand its maret share. #n their bid to corner a higher ch"n o% the e-commerce maret* they are considering both organic and inorganic strategies.

Why #na-deal *ould be a .ood ac9uisition for Alibaba?

 he ind"stry c"rrently has & big players in terms o% ross 9erchandising Cal"e* namely Ama+on* lipart and ,napdeal. Ama+on has been growing at an "nprecedented pace in the last 2 years. lipart is bleeding money and E"icly losing its maret share to Ama+on.B"t it is still the maret leader. ,napdeal was pipped by Ama+on in 9arch=1 E"arter to become the 2nd largest player in e-retail maret.

#na-deal

,napdeal has raised aro"nd $2billion in total* %rom abo"t two do+en in!estors incl"ding ,o%tBan (&&)* Alibaba (&)* o'conn* eBay #nc.* Bennett oleman @ o. td* and !ent"re capital in!estors s"ch as Bessemer Cent"re artners* #ntel apital* Jalaari apital* among others.

:ith the last ro"nd o% %"nding %or ,napdeal in eb 201* the company was !al"ed at $. Billion.  he reason being that the losses %or ,napdeal ha!e more than do"bled in 201 Khttp>LLwww.li!emint.comLompaniesLMt7!yAN1yw;0y5e&193c#L,napdeal-lossesmore-than-do"bled-in-2011.htmlO ,napdeal posted a 10 increase in loss %rom /s1*&28 crore pre!io"s year to the year ending 9arch 201 K loss o% /s&&27 croreO. /e!en"e posted a growth o%  %rom /s5&& crore to /s1*47 crore. he year-to-9arch 201 n"mbers incl"de the nancials o% digital payments plat%orm reecharge* which was acE"ired by ,napdeal in April 201. #n 201 the company in!ested capital in b"ilding capabilities across technology* logistics and seller ecosystem to s"pport the long term growth o% the b"siness. As per the company oFcials* P#n order to deli!er the best in class c"stomer e'perience and to set "p the necessary in%rastr"ct"re %or %"t"re growth* there was an increase in %"llment and o!erhead e'pensesQ

,napdeal is trying to see new %"nding at a !al"ation o% $&-$4 Billion*b"t hasn=t been s"ccess%"l so %ar.

or Alibaba* %or an entry to the e!er growing #ndian online retail maret* ,napdeal seems to be a good acE"isition where it already holds & minority stae* %or the %ollowing reasons> •

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,napdeal is c"rrently R& and has a good online presence #t is c"rrently cash stripped* with no %"nding coming in %rom other in!estors and only a player lie Alibaba with its deep pocets is the need o% the ho"r #ndian online retail maret is growing leaps and bo"nds* as clear %or the graph abo!e. his presents a good b"siness opport"nity %or Alibaba to enter #ndian maret which is still at its nascent stage Alibaba had la"nched Ali?'press in #ndia G mobile app thro"gh which c"stomers co"ld place orders %rom sellers in hina. B"t this wasn=t able to mae any inroads with the #ndian c"stomer  he in%ormation aro"nd cons"mer beha!io"r can be "nderstood better with the help o% a ma3or e'isting player %or the last 7 years* against an independent !ent"re into #ndian maret

(er.in. 'ay!( and #na-deal

Alibaba completed an acE"isition o% 0 stae in ay9=s online maretplace* th"s becoming the ma3ority shareholder.  he online maretplace was recently demerged %rom its parent S online wallet and digital payments rm ;ne57 omm"nications S which owns the ay9 brand. Alibaba along with its payments aFliate Ant inancial had a combined shareholding o% 40 in the "nit. :ith the latest in!estment* the hinese ma3or will increase its holding to 2. A%ter acE"iring ,napdeal* Alibaba can merge the operations o% both ay9 and ,napdeal to b"ild a etailing powerho"se. By le!eraging ,napdeal=s maret penetration* logistics ser!ices and technological progress acE"ired o!er the years with ay9=s brand !al"e* reliability and s"ppliers* Alibaba is set to be a ma3or player in the online retail game. By pitting Alibaba baced etailing directly against Ama+on and lipart* the maret is going to become more competiti!e* with Alibaba ha!ing the ability and reso"rces to co"nter Ama+on=s deep pocets.  he retail ind"stry in general and etail ind"stry in partic"lar are growing at a %ast pace. As per a w report* #ndian retail maret is going to be the & rd largest retail maret in the world a%ter hina and T,A "rthermore* Alibaba ha!ing already operated in a m"ch larger hinese maret can le!erage its strengths in the #ndian conte't. By "nderstanding the #ndian maret "sing ay9 as a stepping stone* Alibaba can "nderstand the #ndian maret and then ,napdeal acE"isition will help it to be a ma3or etailing player. /e%erences> 1. T, ,ec"rities and ?'change ommission. http>LLwww.alibabagro"p.comLenLirLpd%Lagm1024Uar.pd%  2. ist o% largest internet companies in the world. https>LLen.wiipedia.orgLwiiListUo%UlargestU#nternetUcompanies &. #ndia=s retail ecommerce sector is small b"t growing. https>LLwww.emareter.comLArticleL#ndias-/etail-?commerce-,ector-,mall,till-rowingL1014&42 4. http>LLwww.li!emint.comLompaniesLMt7!yAN1yw;0y5e&193c#L,napdeallosses-more-than-do"bled-in-2011.html . http>LLwww.li!emint.comLompaniesL%?+BJc4g%45+eJIL,napdeal-intals-with-,o%tBan-to-raise-%"nds-at-lower-!al".html . http>LLwww.pwc.inLassetsLpd%sLp"blicationsL201Lecommerce-in-indiaaccelerating-growth.pd%  7. https>LLyo"rstory.comL2017L0&Lpaytm-mall-indias-latest-"nicornL 8. http>LLeconomictimes.indiatimes.comLind"stryLser!icesLretailLama+on-pipssnapdeal-to-become-indias-2nd-largest-online-maretplace-a%terVipartLarticleshowL201717.cms 5. http>LLtechcircle.!ccircle.comL201L11L08Lsnapdeal-ola-!al"ation-noceddown-again-by-so%tbanL

10.http>LLwww.iamwire.comL201L02Lsnapdeal-%"nding-ontario-teacherspensionL1&2147 11.http>LLwww.ibe%.orgLind"stryLindian-retail-ind"stry-analysis-presentation 12.http>LLwww.ibe%.orgLdownloadL/etail-ebr"ary-2017.pd%  1&.http>LLeconomictimes.indiatimes.comLsmall-bi+LmoneyLalibaba-to-hie-staein-paytms-maretplace-%or-177-millionLarticleshowL7428717.cms