JD.Com Eyes South East Asia E-commerce Marketplace With $500 Million Joint Venture
JD.Com Inc. is in talks with Central Group as it looks to expand and grow its business empire, in pursuit of more online sales opportunities overseas. The two have signed a deal to set up e-commerce and Fintech joint ventures worth US$500 million in Thailand.
The Chinese e-commerce giant generates a good chunk of its revenues and earnings from operations in China. In a bid to strengthen and diversify its revenue streams Jd.com has in the recent past set its eyes on emerging e-commerce markets as it looks to reduce its dependence on China’s e-commerce landscape.
Focus On South East Asia E-Commerce
South East Asia has emerged as the new battle ground for Chinese tech giants, looking for new opportunities for growth overseas. JD setting eyes on the emerging e-commerce market does not come surprise as it is poised to grow 16 fold to US$88 billion by 2025.
Talks of an investment in Thailand comes after JD ended talks last month to invest in Indonesia online retailer Tokopedia. The fact that the firm went on to raise US$1.1 billion from a group of investors led by Alibaba Group Holding underscores the fierce battle for market share in South East Asia.
Alibaba has already committed a US$2 billion investment in Lazada Group. Tencent is also expanding its footprint in Singapore after investing in online gaming and mobile commerce firm Sea Ltd. Increased focus on South East Asia is because the region boast of almost similar demographics as China. The market is also characterised by young urbanites with rising disposable incomes.
High smartphone penetration is another driver of South East Asia e-commerce. The region also offers an attractive proposition for investment, given that more than half of the regions 650 million people have access to the internet through mobile devices.
Lazada which is partially owned by Alibaba is the dominant player in the region but given the size of the market, its position could be under threat as the likes Jd.com and Amazon.com push for a piece of the pie.
“Thailand’s mobile-driven population, with its increasing consumer spending power, means that e-commerce is ready to explode, and this partnership is poised to capture the country’s consumers as they migrate online,” said Tos Chirathivat, chief executive officer of Central Group.
Indonesia has accounted for all of JD.Com Inc. overseas investment, in contrast to Amazon and Alibaba that have a global a footprint. Faced with the risk of always playing second fiddle to the two e-commerce giants, the Chinese second largest e-retailer believes now is the time to expand its footprint in more countries.
The proposed Joint venture with Capital Group is not only geared towards servicing customers in Thailand but will also act as a hub service for operations In South East Asia. According to Chief Executive Officer, Richard Liu, Thailand will act as the nerve center for operations in Vietnam and Malaysia.
“Thailand’s large population and developed infrastructure, including strong national logistics networks, give it tremendous potential for both e-commerce and Fintech services, said Richard Liu, chairman, and CEO of JD.com.
US$500 Million Joint Venture with Capital Group
JD.com is to provide half of the $500 investment as part of the agreement reached with Capital group. In addition, the e-commerce firm is to provide expertise in technology, e-commerce, and logistics to get the business running.
Capital Group, on the other hand, is to provide information on local consumer behavior in a bid to enhance targeted sales and marketing. The joint venture is also to leverage the company’s physical store network which is to serve as Omni-channel and payment locations. The company is also to open new flagship stores in a bid to target more customers.
“JD’s proven track record of successfully building out national online retail businesses made it the obvious choice for our e-commerce partner,” said Tos Chirathivat, chief executive officer of Central Group.
Thailand high-speed power makes it an attractive market for JD, which is aggressively looking for new markets for its offerings. The country’s government has developed a tech sector and innovation-based economy that continues to spur e-commerce growth.
Brick and Mortar Push
In addition to pursuing opportunities on the international scene, Jd.com is also teaming up with brick and mortar store chains. The purpose is to enable customers who buy goods on its online portal pick up their purchases in convenient locations.
The company has already bought a 10% stake in Chinese’s supermarket operator Yonghui Superstores for $689 million. Its own subsidiary, O2O company JD daojia has also merged with Dada Nexus limited as it continues to expand its brick and mortar footprint.
Jd.com has opened 1700 physical appliances stores with plans to open 10,000 brick and mortar stores before the end of the year, as it seeks to expand its home appliance business in rural areas as well as populated countries and townships.
Capital Expenditure Surge
The pursuit of growth in Thailand comes after JD posted second-quarter earnings that fell short of Wall Street expectations. A wider than expected quarterly loss of US$74 million, attributed to increased marketing expenditure, did not go well with investors fuelling a sell-off wave of the stock.
While the earnings report was a big disappointment, it also provided an insight of the plans the company has put in place to steer the next phase of growth. Marketing expenses were up by 63% in the recent quarter. Increased spending on marketing is part of an effort that seeks to expand JD’s footprint beyond its traditional focus on electronics.
JD is also investing heavily in delivery networks as it looks to gain a competitive edge against its fiercest rival Alibaba on online sales. Capital expenditure should continue to rise as the company expands seven distribution centers in China and overseas.
JD expects revenue for the September quarter to come in between CNY81.8 billion and CNY84.2 billion compared to analysts’ estimates of US$82.5 billion. The guidance translates to a growth of 39% affirming the company’s robust growth.