Alibaba Group Gears Up to Compete with Amazon on the Logistics Front
Alibaba completes a round of funding for its logistics unit, Cainiao
The amount raised by Cainiao, or its net value after funding has not been disclosed by Alibaba as yet. Sources close to the Chinese media company, Caixin, believe that Cainiao is now worth $7.7 billion. The division was established in 2013 and Alibaba — in collaboration with certain Chinese logistics groups — had pledged to invest over $15 billion in the unit, to develop the national logistics infrastructure in the next 5-8 years.
Alibaba’s Role in the Chinese E-Commerce and Logistics Sectors
Cainiao caters to more than 70% of China’s express package delivery, and as of March, it has a network that spans over 2,800 local counties and 224 countries. Its 700 employees strong workforce operates a network of self-owned warehouses, and uses software systems to mobilize delivery companies to complete the package fulfillment process. Greater computing of delivery data will facilitate Alibaba in commanding greater control over supply-chain, to improve efficiency.
Alibaba vs AmazonThrough expansion into logistics, Alibaba aims to counter the growth of American e-commerce giant Amazon.com, Inc. (NASDAQ:AMZN). The former has exposure to a greater market than Amazon, considering the size of the Chinese population. The company is also making ground against Amazon, in the global market. This is corroborated by the fact that on Single’s Day, an event similar to Cyber Monday in the US, Alibaba’s global gross merchandise volume crossed a whopping $14 billion.
However, despite Alibaba’s greater sales volumes, its revenues still lag behind Amazon’s. The former’s $5.3 billion net sales from all divisions in the quarter ended December 31 2015 were dwarfed by Amazon’s $35.7 billion, during the same period. This difference can be attributed to Amazon’s closed business model, which involves handling everything from storage to delivery. Alibaba’s business model is more reliant on third-party logistics partners, and is similar to the role of a middle-man.
Cainiao appears to be a positive start, for Alibaba. Efficient planning through the delivery network data computing can help the Chinese company scale costs and attain a large share of logistics, in both local and international markets. We believe that the company that manages to deliver goods quickly and safely with favorable margins, will steam ahead, in the race to capture the largest market share in the global logistics segment.