BEIJING • Chinese e-commerce firm Alibaba Group announced it will invest 100 billion yuan (S$20.4 billion) over five years to build a global logistics network and also take control of a US$20 billion (S$27 billion) unit, underpinning an aggressive overseas expansion.
Alibaba is investing 5.3 billion yuan in Cainiao Smart Logistics Network to boost its stake to 51 per cent from 47 per cent. The investment would value Cainiao, a joint venture of top Chinese logistics firms, at around US$20 billion.
Under the deal, Alibaba plans to consolidate Cainiao's financials into its own books, eroding Alibaba's bottom line, and will get an additional seat on Cainiao's board, taking its representation to four out of seven seats.
"Our commitment to Cainiao and additional investment in logistics demonstrate Alibaba's commitment to building the most efficient logistic network in China and around the world," Alibaba chief executive Daniel Zhang said in a statement yesterday.
The announcement comes as Alibaba is rapidly expanding its e-commerce and logistics network abroad, including newly announced direct sales channels in Indonesia, Thailand and the Philippines, facilitated by a US$2 billion investment in South-east Asian online retailer Lazada Group.
Alibaba's latest investment in Cainiao also signals its intention to boost control over the domestic warehousing and delivery market, which has become increasingly competitive as firms seek to capitalise on logistics data assets.
The rapidly growing business is run with partners and sits at the heart of Alibaba's expansion - both in China and abroad. It oversees more than a dozen shipping partners, orchestrating deliveries carried out by about two million people across more than 600 cities.
Cainiao's operation had enabled Alibaba to maintain what it called an asset-light model that eschewed expensive warehouse construction.
Taking control of Cainiao will help Alibaba address US regulators' questions about why the unit was not previously included. But it also takes Alibaba deeper into the business of setting up and controlling its own infrastructure.
The unit made a net loss of 2.2 billion yuan in calendar year 2016, tripling from 2015. Revenue, however, also tripled, to 9.4 billion yuan.
"They're realising that it's much more capital-intensive than they expected to build this out," said Professor Christopher Balding, an associate professor at the HSBC School of Business at Peking University in Shenzhen. "Right now, they are essentially obligating themselves to report profit and loss on the income statement every quarter, which they probably should have been doing."
Alibaba created Cainiao with department store chain Intime Retail Group and industrial conglomerate Fosun International. The trio led an initial investment of 100 billion yuan into the firm to build out its logistics network.