The importance of logistics to e-commerce giant Alibaba was underscored this week after the company founded by Jack Ma agreed to invest RMB 5.3 billion (USD 807 million) to take its stake to 51 per cent (up from 47 per cent), in order to take majority ownership in its logistics subsidiary, Cainiao Smart Logistics Network.
“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 CEO Daniel Zhang said in a statement this week.
With this investment Cainiao is theoretically valued at around RMB 132.5 billion (USD 19.9 billion), but clearly Alibaba’s interests go beyond the monetary as part of its greater grand plan. Although not currently profitable, investors see its tight relationship with Alibaba as the ticket to developing a lucrative business.
Alibaba has previously said the goal is to enable e-commerce services in China to fulfill customer orders within 24 hours and those overseas within 72 hours and Cainiao – which currently oversees roughly 57 million deliveries a day – is key to that plan. As part of this strategy Alibaba said it plans to invest over USD 15 billion in the next five years to develop its data technology and improve its warehousing and delivery.
The announcement comes as Alibaba rapidly expands its e-commerce and logistics network abroad to diversify its consumer base, including newly announced direct sales channels in counties around Southeast Asia, including Indonesia, Thailand and the Philippines. This move was made possible by a USD 2 billion investment in Southeast Asian online retailer Lazada Group earlier this year and Singapore e-grocer Redmart last year.
Cainiao was created four years ago with eight other backers to bring organisation to China’s highly fragmented logistics sector, particularly around e-commerce express deliveries. The company raised its first outside funding in March 2016 – estimated at RMB 10 billion (USD 1.54 billion) at a RMB 50 billion (USD 7.7 billion) valuation – from backers including Singapore’s government investment arms Temasek Holdings and GIC, Malaysia’s Khazanah Nasional and China-based Primavera Capital. Other investors include department store owner Intime Group, conglomerate Fosun Group and a handful of smaller logistics companies.