Alibaba set to ramp up acquisitions in wake of IPO

E-commerce giant likely to boost domestic ecosystem and global distribution

With more resources at its disposal after its public listing, China's e-commerce behemoth Alibaba is likely to ramp up acquisitions on two fronts: building up its digital ecosystem domestically and expanding distribution channels overseas, say analysts.

Set up in 1999 by former English-language teacher Jack Ma in Hangzhou, Alibaba has become the country's biggest e-commerce player. Its initial public offering (IPO) yesterday is expected to raise more than US$20 billion (S$25.2 billion), making it the biggest in US history.

Analyst Vanessa Zeng of Forrester Research, a technology and market research agency, believes Alibaba will continue its aggressive investment in both domestic and global markets, reflecting the company mission to "make it easy to do business anywhere".

"To better achieve this promise, Alibaba will invest in any assets that help the company to strengthen its ecosystem," she told The Straits Times.

The aim of acquisitions would be to "generate data analytics that give a comprehensive view of a customer at any given phase of his purchasing journey, resulting in a very successful e-commerce and marketing business that generates significant revenue", said Ms Zeng.

University of Michigan assistant professor of strategy Brian Wu, who has been following Alibaba since its early days, believes it would invest more in overseas logistics firms, like it did in May with a US$249 million stake in Singapore's SingPost.

"Alibaba has been fortunate that courier services are cheap in China. Going forward, they would want to ensure quality in distributing products overseas," he added.

But while the company will step up overseas expansion, particularly into the US, after the IPO, analysts believe Alibaba will tread carefully as it cannot afford to neglect the domestic market.

China has more than 630 million Internet users, and its e-commerce growth potential is set to rise as millions more Chinese leave their villages for cities as part of the urbanisation trend.

"It sounds sexy for Chinese firms to say they are pursuing overseas expansion, probably for national pride, but if you think about it, the biggest market is going to be in China," said Prof Wu.

Also, Alibaba's focus will not shift to global expansion as the company is not able to disrupt major players in the US or Europe in the short term, said Ms Zeng.

Financial journalism lecturer Doug Young of Shanghai's Fudan University, who follows China's tech firms, thinks a closer partnership between Alibaba and global search engine Yahoo, which owns 23 per cent of the Chinese firm, might follow after the listing.

He cited the re-emergence of Yahoo co-founder Jerry Yang in recent media reports as a broker of deals between Alibaba and other tech firms like messaging start-up TangoMe. Mr Yang is expected to join the Alibaba board after the listing.

"If Alibaba wants to expand globally, Yahoo is a useful partner given its global reach especially in the US," said Mr Young.

Despite its domestic dominance, Alibaba faces stiff competition from rivals, such as social media giant Tencent, which has partnered Web portal Baidu and property developer Wanda to set up a new e-commerce ecosystem.

Analysts say a post-IPO Alibaba will have to work more on its weaknesses, such as ridding its online marketplace of fake goods to reduce the risk of regulatory action in the US.

"After IPO, the small and medium-sized sellers might be the target of Alibaba's cleaning-up efforts," analyst Wu Yue of Shenzhen Zero Power Intelligence consultancy told The Straits Times.

Asked if Alibaba might become too big for Beijing's liking, Mr Young said: "There is always the possibility in China... There are state banks that have complained of the lax regulation over financial products from e-commerce firms like Alibaba."