To decode Alibaba's India strategy, look no further than Paytm Mall

To decode Alibaba's India strategy, look no further than Paytm Mall
Photo Credit: Reuters
13 Feb, 2018

As foreign players hone in on India, Alibaba is doing things its own way as it seeks to gain a foothold in the online retail space. On the surface, the Chinese e-commerce giant is spreading its wings through significant equity investments in diverse verticals. Beneath it, a strategic integration plan appears to be at play.

Over the past fortnight, Alibaba has pumped large sums into Zomato (food), BigBasket (grocery) and Xpressbees (logistics) - all among the leading players in their respective segments. Alibaba-backed Chinese firm DingTalk, which offers team messaging and collaboration applications for enterprises, also recently announced its India foray.

Over time, the Jack Ma-led behemoth is expected to exert more influence over all its India investments. But it's Paytm Mall, the online shopping platform run by Paytm and in which Alibaba holds a majority stake, that will be the common point of integration for these diverse services.

"Paytm accounts for their mall and payments play, the two important things that align with its core area of interests," said an Indian entrepreneur who has worked closely with Alibaba. "Now they are focusing on verticals such as grocery, food, logistics and probably many other verticals.”

It's all about synergy

Alibaba recently led a $300 million (around Rs 1,921 crore) Series E round of funding in online grocer BigBasket, paving the way for a close strategic partnership with Paytm Mall.

The synergies are already clear. 

BigBasket co-founder and chief executive officer Hari Menon told TechCircle that while Paytm Mall  has not invested in his firm, there is a business support agreement with Paytm's payments and mall divisions.

"We will also use the Paytm payment gateway. We will be the grocery partner for Paytm Mall," he said. "They ship to more cities, so we can use their network. We can also use common warehouse spaces.”

AliExpress, Alibaba's online retail service which offers products to international buyers, delivers to Indian customers as well. Its B2B offering has also gained traction in India.

The integration suggests that Alibaba is fortifying its arsenal, given that a three-way contest for the online grocery market in India is on the cards.

Flipkart, India’s largest e-commerce company, is currently running pilots for its foray into groceries. Experts see SoftBank possibly arranging a marriage between Flipkart and online grocer Grofers, given that the Japanese conglomerate is the largest investor in both companies.

Walmart, the world's biggest brick-and-mortar retailer, is also said to be looking to buy a big stake in Flipkart.

Amazon has a licence to run an online grocery business in the country. Analysts say its two nascent grocery offerings under Pantry and Amazon Now have not scaled up, but talk of a possible alliance with Kishore Biyani's Future Group has been doing the rounds.

Groceries aside, there is also integration afoot between Paytm Mall and Xpressbees, in which Alibaba recently invested Rs 225 crore (around $35 million).

According to The Economic Times, XpressBees currently fulfills half of Paytm Mall's shipments and the number will soon go up to 60%.

Paytm Mall's chief operating officer Amit Sinha was quoted as saying that the duo is working closely to develop logistics solutions for a seamless delivery experience. In turn, Paytm Mall will offer these solutions to all its logistics partners.

Here to stay

It remains to be seen whether Alibaba continues this integration drive with its other India investments, but industry experts are welcoming the behemoth's growing influence.

“It is good to see that these Chinese and Japanese investors are taking a keen interest in the market,” said Parag Dhol, managing director at Inventus Capital Partners said. 

Dhol said investors like Alibaba typically look at a 10-year or longer-term horizon which includes probable synergies with Indian companies. 

“This will bring a lot of exits in the ecosystem. They [Alibaba] will understand the frictions of a developing market better and that these things will take time,” he said.

BigBasket's Menon, who said he had rejected a 100% buyout offer from Amazon before striking a deal with Alibaba, also feels his new backer is in it for the long haul.

“Alibaba is an incremental investor. At what point they (Alibaba) will become the majority (stakeholder), I cannot say," he said. "Strategic investors come on board to do a creeping acquisition at some point. From Alibaba’s perspective, the understanding is that they will make an incremental investment, get to know the company and markets better, and then help in growing them.”