[Analysis of Chinese Ali] "Open Up, Korea" Targets Korean Distribution Market

The Biggest Overhaul Since Founding... 'Jikgu' Sector Rises
Entry into Korea Diversifies Risk... Also an Opportunity for Expansion

Alibaba is reorganizing its business and accelerating the exploration of new markets ahead of the official return of its founder Jack Ma to management. This is a preparatory move for Ma’s comeback, who has fallen out of favor with the Chinese government amid the ‘internal and external troubles’ of big tech regulations, sluggish domestic demand, and US-China conflicts.

In particular, AliExpress’s movements are noteworthy. Targeting the direct purchase market in South Korea, it announced an investment of 100 billion KRW this year solely in logistics and marketing, and recently expanded its Korea-exclusive logistics center warehouses in Shandong Province, Weihai, and Yantai to the size of four soccer fields (over 30,000 square meters). This strategy aims to penetrate the domestic market through price competitiveness and a fast logistics network, drawing significant market attention.

The Biggest Reorganization Since Founding... ‘Direct Purchase’ Sector on the Rise

Last March, Alibaba announced a major business restructuring plan dividing its e-commerce sector into six independent business groups: Taobao & Tmall Commerce, Global Digital Commerce, Cloud Intelligence, Local Services, Cainiao Smart Logistics, and Digital Media & Entertainment. Alibaba plans to pursue independent initial public offerings (IPOs) for all groups except Taobao and Tmall.

[Image source=Yonhap News]

This appears to be a preparatory step for founder Jack Ma’s return. After criticizing fintech industry regulations in October 2020, Ma fell out of favor and has since faced intense government regulation and scrutiny. During this period, he lost control of management and remained out of the public eye, only recently reappearing at official events. When regulators imposed a record fine of 18.228 billion yuan on Alibaba in 2021, the official reason was ‘antitrust law violations.’ This move seems to reflect the expectation that dismantling Alibaba Group’s internal concentration of power and authority will be welcomed by regulatory authorities.

Among the six independent business groups, the core pillars are the e-commerce platforms represented by ‘Taobao’ and ‘Tmall.’ These account for over 65% of revenue and have effectively driven Alibaba Group’s growth, with little chance of being overtaken by other sectors in the short term. However, the business outlook is bleak. Despite the transition to a post-COVID era at the end of last year, consumer sentiment has not revived, raising concerns about an economic downturn both domestically and internationally. China’s retail sales in May increased by 12.7% year-on-year but fell short of both the previous month’s 18.4% and the forecasted 13.7%.

Alongside e-commerce, Alibaba’s cloud business (Aliyun), which has been a growth driver, is also showing signs of decline. Alibaba Cloud holds about a 36% market share in China, ranking first locally, but recent performance has been on a downward trend. With major companies like Huawei, Tencent, and Baidu entering the cloud market, price competition has intensified. In the first quarter of this year, Alibaba Cloud’s revenue was 24.559 billion yuan (approximately 4.4142 trillion KRW), down 3% year-on-year. At the end of March, it conducted layoffs affecting 7% of its workforce, and in April, it cut cloud prices, signaling a move toward a price war.

The logistics business, Cainiao Smart Logistics, and delivery services such as Ele.me and Amap account for about 7% and 5% of revenue, respectively. Both sectors face fierce competition within the industry, making rapid growth difficult to guarantee.

Entry into South Korea Diversifies Risks... Also an Opportunity for Expansion

While growth prospects for each business group are not promising, the direct purchase sector is considered a new business within Alibaba with expected growth. As global inflation continues, demand for inexpensive Chinese products is likely to increase, making the direct purchase sector relatively optimistic. The global digital commerce group, including AliExpress and Lazada, accounts for about 8% of Alibaba Group’s total revenue.

In particular, AliExpress has strengthened its offensive in the Korean market, which is fast-growing and sensitive to trend changes. This appears to be part of a strategy to leverage experience gained from expanding into third countries to not only grow the direct purchase business but also to enter other business sectors.

Recently, Alibaba decided to launch Tmall operations in Europe, where AliExpress has already entered. Last month, Michael Evans, President of Alibaba Group, attended a conference in Paris, France, stating, “We are focusing on building local online platforms overseas,” and “We will bring Tmall to Europe.” A pilot project is already underway in Spain. This is interpreted as an effort to strengthen the unique role of the ‘platform’ by selling European goods within Europe, leveraging the know-how accumulated from operating AliExpress, which sells affordable and diverse Chinese products in Europe.