Here’s How Alibaba Can Benefit From Its Stake In Grab

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Reports suggest that Chinese e-commerce giant Alibaba (NYSE:BABA) could participate in the next funding round for Grab, a ride hailing start up based out of Singapore. Grab is Uber’s major competitor in Southeast Asia and Alibaba’s Alipay platform is already part of the Grab app. A stake in the latter will cement Alibaba’s relationship with Grab giving it a stronger holding in the ride sharing segment. As the e-commerce market in China matures, Alibaba is looking at various ways to diversify revenues. While the company is working on an “integrated retail” strategy to merge the offline and online channels and monetizing data captured via e-commerce transactions on its platform, investments in emerging opportunities where significant growth is likely can help the company participate in this growth. Ride hailing is at a nascent stage in Southeast Asia, and a Google report suggests that by 2025 this market could grow to as much as $13 billion, with 29 million monthly riders, up from around 7 million in 2016. A stake in a ride hailing company can give Alibaba exposure to this growing segment and help the company diversify its business.

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Stake In Growth Opportunity, Positive Impact On E-Commerce Business

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Alibaba’s payment platform Alipay is extremely popular in China and the company has already incorporated it in Grab’s app. A stake in the ride hailing company can further this partnership and allow Alibaba to tap into the growing Southeast Asian internet economy. Its competitor Tencent is also looking to capture this market and has taken stake in Go-Jerk, a ride hailing start up in Indonesia. Expanding in Southeast Asia ties well with Alibaba’s strategy of going beyond China to grow and capture customers to meet its goal of serving 2 billion customers in the next decade.

Grab is innovating to increase its customer base in Southeast Asia, and has been targeting consumers who don’t have credit cards or bank accounts. It recently acquired Indonesian company Kudo to help achieve this goal. Kudo has access to 400,000 agents who can help the significant population of South East Asia without bank accounts to access Grab. Alibaba could potentially leverage this eventually to attract new customers to its online shopping platform.

Ride sharing is a growing opportunity in Asia, and with its integrated retail goal and offline to online focus Alibaba can look at various innovative ways of leveraging a ride sharing business for its e commerce growth. We believe an investment in Grab can give a strategic advantage to Alibaba and allow the company to diversify its sources of revenues in the long term.

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