Alibaba crowned king of online retail world

The massive size of the IPO is yet another illustration of the huge scale of China. More than 600 million Chinese people use the Internet and Alibaba’s listing success was due to its phenomenal growth in this market.

Alibaba has no warehouses and no inventory but it is highly profitable. Its earnings for the second quarter jumped by 200 per cent from the year before. In addition to the Alibaba site, which connects Chinese exporters with companies around the world,it operates Taobao, China’s biggest shopping site, and Tmall, which specialises in online sales of branded goods to China’s fast-growing middle classes, with most of its revenue coming from Taobao and Tmall. It also owns stakes in sites such as alipay.com, which is similar to eBay and Weibo, the popular Chinese microblogging service.

Up to 80 per cent of Chinese e-commerce is said to go through Alibaba sites, and last year it hosted $248 billion of online shopping transactions, more than Amazon and eBay combined. It is these kinds of statistics that led to the success of the listing, overcoming some unsettling aspects of the company. China bans foreigners from holding a majority share in any company if they are in strategic or emerging industries such as the internet; as a result shareholders in Alibabaown onlya piece of a shell company in the Cayman Islands with a contractual right to a share of the profits. As mentioned in my column last October, the unusual structure of Alibaba was one of the reasons it didn’t list on the Hong Kong stock exchange.

The listing price assumes Alibaba’s total sales will rise by 500 per cent over the next decade – to do this it needs to tap into mobile marketing and so recent investments have focused on online services popular among smartphone users. About a third of Alibaba’s transaction volume of $81.58 billion already comes through smartphones and tablets, and this is growing fast – a year ago they were only 12 per cent.

Another potential area of growth is companies from outside China tapping into the Chinese marketand as part of this strategy it has educatedSMEs in other countries, including holding seminars about online trade for SMEs at Bangkok Bank.

Expansion of sales into emerging markets is another avenue of growth. Up until now, Alibaba has been almost exclusively focused on domestic sales within China. While this is huge, tapping into emerging markets in Asia and Africa would provide even more scope for expansion. Balanced against this is the fast-growing competition within China.

The massive scale of the Alibaba IPO created a great buzz on the markets. Let’s hope that the business reality proves to be as good as the promise.