How Significant Is Australia For Alibaba’s Global Expansion?

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Recently, Alibaba (NYSE:BABA) announced that it will open its first office in Melbourne, Australia, as it plans to expand its presence internationally. This expansion is part of the company’s globalization strategy to reach two billion customers in the next two decades. 1300 Australian brands are already sold through Alibaba’s online stores and the company is well known in the region.  By opening an office in the country, Alibaba plans to support existing merchants on its platform, encourage more companies to come onto its platform and develop relationships with the government and industry. Its strategy is two pronged:   1) Get more Australian sellers on its platform, which will increase foreign inventory for its Chinese buyers; and,   2) Expand its presence in the Australian e-commerce market to increase its user base. Alibaba also plans to go beyond its core business and introduce its cloud services and payment system (Alipay) in the region.  We believe this expansion is important for Alibaba as it looks to become a global player and meet its ambitious growth target.

See our complete analysis for Alibaba

High Digital Penetration But Small Market Size

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According to eMarketer, digital buyer penetration in Australia is the second highest in Asia Pacific. eMarketer estimates that nearly 80% of internet users in the region purchase via a digital channel, second only to Japan. However, due to its low population, digital buyers in the country are very low at around 12 million.  While Alibaba has a presence in the region, it does not have a significant market share.  In 2014, Alibaba’s Aliexpress had less than 1% share in the total e-commerce retail sites in the region, capturing the ninth place. eBay (including eBay Australia) had a nearly 20% market share. E-commerce in Australia is growing at a fast pace, outstripping growth in physical stores with most transactions happening between 6pm and 9 pm.

As per our estimates, international commerce accounts for around 6% of Alibaba’s valuation and we expect its international commerce retail revenue to increase nearly fourfold from RMB 2.5 billion to more than RMB 10 billion by the end of our forecast period.

Australia can contribute to this growth and the company’s increased focus  on the region can lead to higher growth. The company plans to expand in Australia beyond its core business. In e-commerce it plans to export from Australia to foreign markets and import to Australia. It also plans to build Alipay (its payment business) for Australian residents and tourists. Alibaba also plans to expand its cloud business in Australia, where it plans to target smaller companies, and is also looking at building a logistics infrastructure in the region.

We believe, global expansion is critical for Alibaba’s sustained growth. The company’s strategy to target regions that are familiar with its platform and already use its products will work well to establish its presence outside China. Australia is a small region, but should provide Alibaba a significant boost in its international e-commerce.

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