Alibaba can be a bellwether of future US-China cooperation

As China's online commerce behemoth prepares to list on the NYSE, some eyes are focused on the opportunities for further cooperation between the two largest economies in the world.

The lines stretched out of the door this week at the Waldorf-Astoria as investors gathered to hear the start of Alibaba’s much-anticipated roadshow prior to the internet giant going public on the US market.

Alibaba bills itself as the largest online and mobile commerce company in the world, with its mixture of product offerings that contains elements of eBay, Amazon, Facebook, Google, YouTube, Twitter and much more.

The noise around its listing on the New York Stock Exchange shines the spotlight on US-China business relations at a crucial time in the development and alignment of the two largest economies in the world.

President Xi Jinping has embarked on a process of reform in China that could ultimately be beneficial to US companies, including PR firms, which struggle with some business practices that don’t comply with their global ethical and operational standards. However, some companies have got caught up in aggressive enforcement of anti-monopoly laws that cast doubt on China’s stated intent to let the market play a stronger role in moderating competition.

Some things are beyond doubt, however. China will at some point in the next decade usurp the US as the world’s largest economy. But the Chinese internal market also represents a massive opportunity for US and other foreign companies to exploit, as long as existing market barriers are eased and more of a level playing field is constructed.

The US-China Business Council estimates that China is currently an approximately $300 billion market for US companies. Chinese investment in the US stands at about $25 billion, while about $100 billion has been invested in China by US companies. These are relatively small figures that will inevitably grow significantly.

But US companies watching Alibaba’s listing and developments such as Wanda’s acquisition of the AMC theater chain in 2012 will look forward to a day when similar deals can be done in China by US companies, for there are still significant barriers to investment and particularly closed economic sectors such as media, internet, and content.

That’s why Alibaba becomes such a bellwether for the US-China relationship. As the biggest online and mobile commerce company in the world, it has 279 million active shoppers on its platforms conducting 14.5 billion orders, with $296 billion in gross merchandise volume in 2013 (money spent on its channels.)

Trend-wise, $71 billion of that commerce was conducted via mobile devices in the 12 months to June 2014 – and it had 188 million active mobile users in June 2014.

These numbers are staggering when you consider the company only started 15 years ago when 18 people gathered in founder Jack Ma’s apartment in 1999 to plot the new venture.

It now owns the largest online payment service in China in Alipay, online shopping marketplace Taobao.com, international and branded goods outlet Tmall, group buying marketplace Juhuasuan.com, wholesale marketplace 1688.com, global wholesale marketplace Alibaba.com, and global online shopping site AliXpress.

It acquired mobile internet company UCWeb and took strategic investments in iconic microblogging site Weibo and online TV and video platform Youku. It is also heavily into logistics via partnerships with 16 delivery providers across more than 1,800 delivery centers that deliver in excess of six billion packages to consumers each year.

Its scope encompasses online shopping, data, search, logistics, and cloud-based technology infrastructure used by app and gaming/gambling partners. It added 25 million mobile customers in just two months earlier this year.

And its business model is totally scalable, as evidenced by the group’s expansion into food and beverage, healthcare, and entertainment.

In China, 86% of total gross merchandise volume is completed on Alibaba marketplaces. Despite this, founder Jack Ma still says Alibaba "fights for the little guy" who can sell their goods on the company’s e-commerce platforms. But, whatever your take on it, his assertion that Alibaba has "changed commerce in China" is certainly true.

Its mission is to "make it easy to do business anywhere," both within China and between China and the world. And, despite the eye-watering numbers outlined above, the company states it is only at the start of its journey.

The scale of its operations means it has unique insights into consumer behavior in China through its volume of sales and platforms – insights and access that are going to be incredibly attractive to US and global brands wanting to access the burgeoning Chinese middle class, which is set to double in the next decade.

There is still such a large market opportunity in China, with an entire consumption market that is worth $3.4 trillion, of which still only 9% is from online shopping. At the end of 2013, 46% of the Chinese population was online, compared to 82% in the US - 49% of users shop online, compared to 64% in the US. There is 37% mobile internet penetration, compared to 68% in the US.

And consumption represents just 36% of GDP in China, compared to 67% in US. So when Alibaba says there is still "exciting potential for growth" it sure ain’t kidding. It plans to continue to develop cross-border business, enable foreign brands to access these hundreds of millions of nascent Chinese consumers, and bring the wares of Chinese manufacturers abroad.

There will be further strategic alliances and acquisitions and Alibaba’s prospectus states it will "continue to grow our international business by connecting overseas branded retailers to Chinese consumers (Tmall Global) and connecting Chinese suppliers to international retail markets (AliExpress) and international wholesale markets (Alibaba.com)."

Its prospectus is also realistic about the barriers it will face, expecting to "encounter skepticism from different directions due to differences in cultural perspectives, values and even geopolitical positioning." It adds: "While it may be difficult for a public Alibaba to side-step controversy, we hope that controversies generate constructive debate and add fresh perspectives to the dialogue on globalization."

That for me is the key opportunity that Alibaba’s listing represents. As President Obama prepares for his first visit to China for four years, in November, there is an opportunity on both sides to foster a bilateral investment landscape that will open up a new environment within which brands and corporations on both sides can prosper and access new markets.

There are a lot of barriers to be overcome before this is achieved, but let’s hope the narrative on both sides is positive and a framework can be established that will be mutually beneficial and a global engine of growth for the two largest economies in the world.

That’s a sentiment I suspect all marketers and communicators, as well as the throngs of potential Alibaba investors spilling onto the streets outside the Waldorf this week, can buy into.

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