Sagar Malviya &
Chaitali Chakravarty, The Economic Times
Mumbai/New Delhi, 21 March 2016
ecommerce giant Alibaba has approached Tata Sons for a possible
partnership as it looks to set up shop in India later this year in a
development that looks set to shake up the country's rapidly growing
online retail market.
Alibaba Group president Michael Evans and
global managing director K Guru Gowrappan met Tata Group's Chairman
Cyrus Mistry recently to discuss a partnership possibility.
will take two quarters for Alibaba to finalise a joint venture partner.
It may or may not go with the Tata Group in the end but they are
definitely talking," said a person with knowledge of the meeting. "They
would have discussed initial deal contours beyond online retail."
discussion would have also covered areas such as logistics, offline
stores and omni-channel to support Alibaba's core ecommerce business,
the person said. Alibaba could have approached others, including
another ecommerce company. "India is set for a big consolidation in
ecommerce," said the person. An Alibaba spokesperson said it does not
comment on speculation as a matter of policy.
A Tata Sons
spokesperson said, "Several entities have appreciated our model and
have expressed interest in it at different points of time. We do not
wish to comment any further." Evans had said in Delhi on Friday that
the company plans to enter India's ecommerce segment this year. "We
have been exploring very carefully the ecommerce opportunity in this
country, which we think is very exciting against the backdrop of
Digital India," Evans told reporters after meeting Communications and
IT Minister Ravi Shankar Prasad.
FDI is still not allowed in the
ecommerce sector but there are no restrictions on foreign funds in
online marketplaces—the model adopted by the big three of Amazon,
Flipkart and Snapdeal— that connect sellers with buyers. Morgan Stanley
estimates the total Indian internet market size will grow to $159
billion by 2020 to emerge as the fastest-growing ecommerce market
globally, from $16 billion now.
To put things in perspective,
Alibaba sold goods worth $377 billion in 2015, compared with around $16
billion by all of India's ecommerce companies put together, according
to Morgan Stanley.
Tata Group, a salt-to-steel conglomerate with
combined sales of $108.78 billion, has been a launch pad for several
marquee consumer brands in the country. Retail arm Trent has two major
partnerships— with the world's largest apparel firm Inditex to sell its
Zara brand and an equal joint venture with UK's Tesco, the world's
second largest retailer. The biggest coffee chain Starbucks has entered
India through an alliance with Tata Global Beverages.
the best match for Alibaba given the scale and capabilities both these
players possess," said the person cited above. "Alibaba is keen to
create a strong back-end network before launching its online portal."
Unlike Amazon, which relies on third-party service providers for most
of its logistics, Alibaba owns a consortium of companies connecting a
network of logistics providers, warehouses and distribution centres to
create a platform that serves smaller towns and the hinterland well.
China, its arm Cainiao works with 15 strategic partners, collectively
operating 1,800 distribution centres, 1 million delivery stations and
25,000 pickup spots.
THE TATA EDGE: Experts
feel Tatas could give Alibaba an immediate boost in terms of
infrastructure capability as well as understanding of the consumer
"Tatas are viewed as a
fairly good partner across sectors and bring with them a strong retail
infrastructure created over the years and awell-structured, transparent
management," said Devangshu Dutta, chief executive officer at retail
consultancy Third Eyesight.
Tatas also have a history of cordial relations even with those they
have split up, experts said. In India, electronics and fashion are the
dominant categories as in China and the US. Online penetration in these
two categories is set to increase from 3-5% in 2014 to 25-30% in 2020,
resulting in an online market of $88 billion, according to Morgan
Stanley. Within retail, Tatas gets a bulk of its revenue from watch
brand Titan and jewellery company Tanishq. It also runs the Westside
department stores and electronics chain Croma.
venture is also in the offing. "Tata Unistore will shortly be launching
a unique omni-channel in e-retail. This is entirely a Tata venture with
over 200 international and domestic brands and, at launch, presence of
over 200 omnienabled stores all India along with the app and web
presence," added the Tata Sons spokesperson. In India, Alibaba is a
fringe player in its core business-to-business online trade but it has
an indirect presence in Indian ecommerce through its investments.
and its financial-services affiliate Zhejiang Ant Small & Micro
Financial Services Group last year invested over $500 million for a 40%
stake in One97 Communications, which runs Paytm, a wallet and ecommerce
company. Snapdeal raised $500 million from a clutch of investors
including Alibaba last year. Snapdeal and Paytm also have Tata Sons
chairman emeritus Ratan Tata as an investor.
stake in Snapdeal and Paytm, it can leverage both these companies into
some sort of consolidation with Tata at a later stage that will give
them a real clout in the Indian consumer market," said the person cited
above. Some experts feel that Alibaba will have to increase its stake
in the Indian companies to dictate any sort of merger strategy though.
needs to bring its stake to a level when it can control the
consolidation process seamlessly in these three businesses. It may not
happen in the short term but there will be a serious consideration for
such a move after few years," said Ruchi Sally, director at retail
consultancy firm Elargir.
While global rival Amazon and the
country's largest player Flipkart controls a majority of the Indian
online market, there is still scope for Alibaba. Total online shoppers
in India as a proportion of internet users stood at 12% in 2015.
expect online shopper penetration to reach 20% by 2017, which could be
a turning point for ecommerce in India. Alibaba's active buyers as a
percentage of total internet users in China has doubled from 28% to 54%
in the past few years, cementing its dominance. In comparision, that of
Flipkart is 12% in India, added the Morgan Stanley report.
(Published in The Economic Times)