The following Supply Chain Matters blog is part of our ongoing series of deep dives into each of our previously unveiled ten 2017 Predictions for Industry and Global Supply Chains.
At the start of the New Year, our parent, the Ferrari Consulting and Research Group along with our Supply Chain Matters blog as a broadcast medium, provide a series of predictions for the coming year. These predictions are shared in the spirit of assisting industry specific and global supply chain cross-functional teams in helping to set management objectives for the year ahead. Our further goal is helping our readers and clients to prepare supply chain management and line-of-business teams in establishing impactful programs, initiatives, and educational agendas.
The context for these predictions includes a broad cross-functional umbrella of supply chain strategy, planning, execution, product lifecycle management, procurement, manufacturing, transportation, logistics and customer service management.
In an earlier Supply Chain Matters blog postings, we provided deep dives related to:
In this deep-dive series posting, we drill down on our next prediction.
2017 Prediction Eight: Amazon and Alibaba Continue to Position for Global Online Platform Dominance
Included in our 2016 Predictions was an anticipation that dominant online B2C and B2B-to-B2C customer platform providers Alibaba and Amazon would continue to expand their presence in last-mile customer fulfillment capabilities that included transportation and logistics. These strategies support the strategic goal for creating a dominant online retail platforms and eventually broader B2B selling platforms, either by premium buying services such as Amazon Prime or ubiquitous online presence and fulfillment control capabilities such as Alibaba.
This 2016 prediction turned out to be what occurred.
During the 2016 holiday customer fulfillment period, Amazon is believed to have taken even more market share in the B2C online area among major online providers in the North America market. In addition to leasing upwards of 40 branded air freighters and hundreds of semi-trailers, the U.S. based online retailer began offering 3PL and freight forwarding services as an ocean freight broker for shipment of goods from Chinese suppliers to its warehouses and customer fulfillment centers across the United States. A Wall Street Journal published report cites data indicating that Amazon helped in the shipping of at least 150 containers of goods from China to the U.S. from October through December of 2016, for inventory stocking on behalf of Chinese producers. Amazon is thus well positioned on the road towards not only being a powerful online marketplace but a global scale logistics and last mile customer fulfillment provider as well.
As of December 2016, Alibaba’s two core online market platforms, T-Mall and Taobao, reportedly included 493 million monthly users, which accounted for $6.71 billion in revenues in Q3 2016 alone. The China based online provider discloses less information regarding Cainao, its logistics other than that entity is: “enabling 57 million package deliveries per day.” Also in 2016, Alibaba managed to build various direct or indirect footprints all over Southeast Asia.
Looking to 2017 and Beyond
In 2017, we predict that Amazon and Alibaba will aggressively continue to deploy strategies directed at global online buying platform dominance, but will remain cautious to perceptions of outright head-to-head competitors. We further anticipate that both will step-up efforts to market respective B2B platform capabilities among strategic geographies. This will be a competitive battle focused on individual capabilities among various levels of online marketplace maturity levels.
We concur with Asia based business publications and industry observers that one of the primary battle grounds in 2017 will be India and Southeast Asia. We further anticipate an increased presence by Alibaba in the United States, offering U.S. businesses direct online platform presence across China and other Asian countries.
This country is on-track for becoming the third largest nation of Internet users over the next few years. The B2C online sector in India, is expected to reap the benefit of this growth given the rising middle class in this country and prospects for large numbers of added consumers turning to online for the first time. By some estimates, upwards of 75 percent of India’s Internet users span an age group of 15-34 years old, a population that aspires to growing aspirations and is quite comfortable in shopping online for the latest trends. Another compelling trend is the increased adoption of mobile and smartphone use among India’s population, now expected to further increase across rural based areas. This is expected to accelerate the notions of online buying convenience utilizing such mobile devices. Some forecasts currently predict upwards of $120 billion in e-commerce sales by 2020 from a current level of approximately $50 billion. India has also upped its in-country logistics capabilities, rising 19 places in the World Bank’s Logistics Performance Index.
The government of India currently restricts Foreign Direct Investment in that country’s established brick and mortar retail sectors, but not so for the online retail segment. Thus, online retail efforts will come from joint investments, ownership alliances and technology exchange among existing in-country players and foreign investors. An increased emphasis in online B2C further adds to the attraction of B2B-to-B2C capabilities as well, a capability that both online providers has been nurturing for some time in their core geographic markets.
Amazon Founder Jeff Bezos visited India in 2014 and provided a direct message to executives of Amazon’s start-up venture in India at the time. According to news accounts, he was perturbed by Amazon’s failure to capture a significant share of China’s online retail sector, and he did not want that to happen again in India. He essentially directed India executives to do whatever it takes to succeed, and true to Amazon’s corporate culture, don’t worry about the cost.
Since that time, Amazon has plowed upwards of a reported $5 billion in current and planned future investments, a considerable strategic sum. Areas have included logistics and online customer fulfillment capabilities that feature smaller and more localized fulfillment capabilities. The largest Amazon fulfillment center, opened in 2015, has a size of 280,000 square feet. Investments have included many highly-automated customer fulfillment centers and the logistics that control of bulk of last mile delivery to consumers. India’s overall logistics infrastructure is undeveloped, thus online providers must take on localized delivery challenges through more direct control of last-mile fulfillment. Regarding the latter, such deployment includes multitudes of motorcycle delivery persons with huge backpacks that can process cash transactions on delivery.
Because of the local ownership rules, Amazon essentially operates a marketplace platform, selling only goods offered by local producers, regional or local brick and mortar retailers or small businesses. Some reports point to hundreds of thousands of India’s small business owners being recruited for the Fulfilled by Amazon online platform.
Already this year, Amazon India has opened its platform to support individual sellers in peer-to-peer online sales for product categories such as refurbished mobile phones or laptops, used books, watches or video games, or local artisans and craft sellers. The model reportedly takes aim at existing classified sites such as OLX and Quickr. The service, like others, is customized for customers in India, with user-friendly features, door-to-door pickup and delivery and seller aides in areas such as pricing and promotion.
According to a published report by The Wall Street Journal in November 2016, Amazon reportedly has 80 million products on its India website, and cited data from Bank of America Merrill Lynch estimated that by the end of 2016, Amazon would control 28 percent of India’s total online gross merchandise sales compared to current industry leader Flipkart’s 43 percent share. At the time of penning this prediction, Wal-Mart was reportedly in talks to invest a significant investment in Flipkart.
Today, the top three e-commerce platforms in India are Flipkart, Snapdeal and Amazon.
The collective countries that make-up Southeast Asia, countries such as Malaysia, Singapore, Thailand, the Philippines, Vietnam, and other countries have a growing Middle Class that is highly mobile enabled. The region also represents a fast-growing online Internet marketplace dominated by a younger population. Estimates point to upwards of 250 million smartphone users. The region further consists of a number of smaller but growing regional online marketplaces.
One of the more dominant has been Singapore based Lazada.com. Founded in 2012, this online marketplace serves six different countries and has a building capability for delivering goods to Southeast Asian online consumers from merchants in other countries. Logistics capabilities include 12 warehouses and over 90 distribution centers while leveraging over 100 logistics partners for last-mile delivery. In April of 2016, Alibaba made one of its largest overseas investments with a $1 billion deal for control of Lazada Group. Business media and industry watchers characterized this deal as acquiring more leverage to expand online activities beyond just China.
China’s Alibaba has a strategic business goal for having 40 percent of its revenues flowing from outside of China over the next ten years. Its business model has always included the ownership and control of its own buying platform and logistics subsidiaries, but also includes initial equity investments in local start-ups with innovative online focused technology.
The Chinese online retailer’s co-founder Jack Ma wrote to investors in October 2016 indicating that now that China’s explosive double-digit growth in Internet users is now flattening to single-digit growth: “in the coming years we anticipate the birth of a reimagined retail industry, driven by the integration of online, offline, logistics and data.” There was a further vision expressed by some Alibaba executives that Amazon and Alibaba could one-day collaborate on a singular global online platform, but that statement did not get a lot of global visibility.
While Amazon continues an aggressive B2C presence in India, Alibaba’s plans for India have been somewhat elusive. China’s online dominant retail platform enterprise understands the strategic importance of India, although it has not revealed a detailed strategic plan up to now. In March of 2016, Alibaba group president J Michael Evans visited the country and declared plans to enter India’s e-commerce market. Thus far, Alibaba’s investments have been multi-million-dollar equity investments in online payments technology provider Paytm and e-commerce provider Snapdeal. Regarding the former, the Caixin News Service reported that since 2015, Paytm has seen its user numbers grow from 40 million to 140 million, with online payment services offered in 50 major Indian cities, which now accounts for upwards of 74 percent of the country’s online payments. Part of the equity investment included advanced technology sharing from Alibaba subsidiary Ant Financial, which holds a dominate mobile payments presence in China. That includes promoting quick-response (QR) code payment technology that allows consumers to pay by scanning a bar code with their mobile devices.
In 2016, the Chinese online provider’s finance arm was in talks with two e-commerce logistics firms, Delhivery and Xpressbees in investments to build out logistics infrastructure.
Alibaba’s strategy for India therefore appears to focus on three areas: platform, payments and logistics capabilities. Speculation continues as to whether Alibaba continues to invest in various online infrastructure interests or attempts a full-blown platform presence to compete directly with other existing players including Amazon. The provider’s success in China initially came from an online B2B capability and later expanded to online B2C. Speculation is that a similar model may evolve in India.
Alibaba is not the only China e-commerce firm with interests in India. Internet firms Tencent Holdings and Baidu have been actively scouting investments in India’s online sector.
The Wild Card
From our lens, what makes Alibaba a wild card is its built-out capabilities for supporting large-scale mobile payments based transactions in online B2C commerce along with its network of logistics infrastructure delivery vehicles and delivery persons who navigate complex or vague delivery addresses or who must utilize ingenious means to transport these significant volumes of packages among dense urban streets, alleyways or rural addresses. The rest of Southeast Asia still lacks cohesive or dominant online payment systems. Overall logistics infrastructure to support higher volume individual parcel deliveries remains a work-in-progress, but maturity levels are being addressed.
As we pen these predictions, Alibaba’s founder Jack Ma has been traveling quite a bit, making overtures to various governments and existing online focused technology providers. In late December, after visiting with government officials in Thailand, an agreement was signed to assist that country’s small-and-mid-sized businesses to succeed in E-commerce.
In early January, Ma was making direct overtures to then U.S. President-Elect Donald Trump, promising new jobs and opportunities for upwards of one million U.S. small businesses and farmers to directly market and sell their products across China and the rest of Asia. We believe that this will present a threat to Amazon in its core home market and will motivate more aggressive investments across Asian and Middle East online markets.
In 2017, the dominant online strategic battleground may well involve India, the United States and Southeast Asia and do not be surprised if additional major moves and announcements revolve around these and regions involving the B2B-toB2C online area. This is all about strategic presence, online platform, and logistics fulfillment capabilities among challenging but online commerce growing regions. The stakes are obviously high.
This concludes our Prediction Eight drill-down. In our next posting of this series, we will explore Prediction Nine reflecting our belief that business self-interest will fuel continued momentum in supply chain sustainability initiatives.
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