International Joint Ventures and Merger & Acquisitions

Alibaba in Talks with Big Indian Companies for a Joint Venture

September 04, 2018

Alibaba has expressed interest to enter into Joint venture with Indian big brands to establish its roots yet again in Indian market after its successful deal with Paytm.

Alibaba has expressed interest to enter into Joint venture with Indian big brands to establish its roots yet again in Indian market after its successful deal with Paytm. Alibaba Group Holding Limited is a giant China Based multinational e-commerce and retail company. It’s been reconnoiter that in the recent past, senior executives from Alibaba have held several meetings with the Mukesh Ambani- led Reliance Industries, Noel Tata from Tata Groups and Kishore Biyani’s Future Retail.  Some reports also claim that the company has already initiated talks with Reliance Retail and is keen on making an investment of at least $5 billion.

It’s been suggested that the rising interest of the Alibaba to invest in India is basically to challenge the rising popularity and market of its archrival Amazon and Walmart acquired Flipkart who have been making significant inroads in the Indian e-commerce industry.

Analyzing the situation, market analysts are of the opinion that Alibaba’s proposal of JV could be an overture to a major e-commerce battle in India over the next few years as competition continues to grow rapidly in the industry.
The companies Alibaba chose for JV have significant retailing footprint in India which Alibaba can employ later to launch its popular omni-channel blueprint in the country. Omni-channel or multi-channel retailing provides shoppers with a consistent and seamless buying experience across both online and offline stores.

While the news of Alibaba Group to acquire a significantly large stake (approximately 50% per cent stake) in Reliance Retail for a whooping amount of $5-6 billion were going round the markets; Reliance Retail Limited denounced any such discussion or meetings related to acquisition between Jack Ma and Reliance head, Mukesh Ambani.

Kishore Biyani, CEO of Future Group earlier mentioned that their company could close a deal with foreign investors in the coming months. Unlike, Alibaba Group he didn’t reveal the name of the potential alliance partner. Biyani, although confirmed that he hasn’t had any discussion with Alibaba for the same. Moreover, some reports have shown the probability of a JV between Alibaba’s rival Amazon and Biyani’s Future Group. Also, Google is looking to join forces with Alibaba-backed Paytm Mall to form a consortium and invest Rs 3,500-4,000 crore for a 7-10% stake in Future Retail.

Global financial services company Goldman Sachs has also advised the Chinese group on the proposed venture. There is speculation that Alibaba along with Goldman Sachs could be the part of consortium that Samara Capital is putting together to acquire more supermarkets from the Aditya Birla Group. Whereas, if the Reliance & Alibaba deal gets finalized then it would be the largest investment by Alibaba in an Indian entity.

At present, Alibaba holds stakes in Indian companies like Paytm, BigBasket, Zomato and TicketNew. The proposed deal is crucial for Alibaba, especially after the Reserve Bank of India (RBI) directed Paytm – in which Alibaba holds 49 per cent stake – to stop on-boarding new customers due to the shareholding pattern of Paytm. RBI was concerned regarding the access of the Chinese company to the Paytm’s customer data and wants the data of the customers to stay within the country only. Alibaba picked up a significant stake in Paytm with the idea of benefiting from Paytm’s thriving e-commerce and digital wallet business in India.

Paytm Mall has made only a placid progress even after the backing of Alibaba and SoftBank. It logs about one lakh shipments daily, which is quiet less as compared to the daily shipments of the Flipkart and Amazon. Alibaba has also pushed Paytm to try O2O (Online-to-Offline) model, which has not been employed by any of its existing competitions.

 Reliance Retail is planning a model similar to O2O as Ambani mentioned that the biggest growth prospect for Reliance’s consumer facing business is in creating a “hybrid, online-to-offline commerce platform”. By now, the retail business of Reliance was performing well but with the introduction of new age technologies like augmented technology and virtual technology, the shopping experience of the customers can be enhanced manifold.

Alibaba’s Taobao and Tmall are two of the world’s largest and most popular online retail marketplaces. Together, they achieved a total transaction volume of more than $478 billion in 2016. The company has plans to double it by 2020 and to make that happen, the firm is expanding aggressively overseas and plans to spend 100 billion Yuan over the next five years on global logistics network.

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