HONG KONG: The dominance of Alibaba and Tencent in China’s retail landscape – both online and offline – means that global retailers seeking to enter the market have little choice but to pick one or the other, according to a leading analyst.
As well as commanding an 80% share of the country’s e-commerce market, they own or control four of the five largest supermarket chains, James Root, a partner in Bain & Company, told CNBC.
“I’m describing a world of highly concentrated control amongst these two firms and the ecosystems around them,” Root said. “There is no real path for other retailers other than to choose one side here and then figure out the right partnership option to achieve their own objectives.”
That’s the case for both local Chinese retailers and grocery firms and multinationals, he clarified. And he cited the example of Kroger, the US supermarket chain which earlier this month announced it was setting set up a store on Alibaba’s Tmall Global platform.
“Kroger has no presence in China today so it makes perfect sense to open a Tmall Global site,” said Root. “Put a limited amount of product on there and just learn – maybe make an incremental amount of revenue, but learn as best they can.”
Companies like Alibaba and Tencent – and JD.com – exhibit the characteristics of “the firm of the future”, he added. That’s evident in “the way they use agile innovation techniques, the way they organise themselves as firms, the way they manage their talent – and particularly the way they think about scale.”
In the past, retailers have felt it necessary to own everything from stores to distribution centres to trucks, he explained. But that’s not the “radical” approach of these three Chinese companies.
“With scale comes complexity and with complexity comes the death of growth,” Root said. “These firms are avoiding that. They’re big, they’re fast and that’s what makes them so remarkable.”
As well as commanding an 80% share of the country’s e-commerce market, they own or control four of the five largest supermarket chains, James Root, a partner in Bain & Company, told CNBC.
“I’m describing a world of highly concentrated control amongst these two firms and the ecosystems around them,” Root said. “There is no real path for other retailers other than to choose one side here and then figure out the right partnership option to achieve their own objectives.”
That’s the case for both local Chinese retailers and grocery firms and multinationals, he clarified. And he cited the example of Kroger, the US supermarket chain which earlier this month announced it was setting set up a store on Alibaba’s Tmall Global platform.
“Kroger has no presence in China today so it makes perfect sense to open a Tmall Global site,” said Root. “Put a limited amount of product on there and just learn – maybe make an incremental amount of revenue, but learn as best they can.”
Companies like Alibaba and Tencent – and JD.com – exhibit the characteristics of “the firm of the future”, he added. That’s evident in “the way they use agile innovation techniques, the way they organise themselves as firms, the way they manage their talent – and particularly the way they think about scale.”
In the past, retailers have felt it necessary to own everything from stores to distribution centres to trucks, he explained. But that’s not the “radical” approach of these three Chinese companies.
“With scale comes complexity and with complexity comes the death of growth,” Root said. “These firms are avoiding that. They’re big, they’re fast and that’s what makes them so remarkable.”
Sourced from CNBC, Alizila; additional content by WARC staff
