Alibaba Group Holding Ltd (BABA)

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Why Alibaba Is a New Threat to Amazon
By: Investopedia | May 13, 2019

China’s $460 billion e-commerce giant Alibaba (BABA) is ramping up its global aspirations, expanding even further beyond its home turf and threatening the dominance of the world’s current leader, the $930 billion Amazon.com (AMZN). Alibaba, through its subsidiary AliExpress, already sells goods from Chinese retailers to customers in over 150 countries, but is now in the process of making changes that will allow retailers from the rest of the world to sell products on its platform, according to the Financial Times.

“From the very first day that Alibaba was founded we had a ‘global dream,’” said president of Alibaba’s wholesale marketplaces division, Trudy Dai. Dai, along with the company’s founder Jack Ma, formed part of the company’s first executive team in 1999.

What It Means for Investors

Alibaba has begun implementing what it is calling its "local to global" strategy with AliExpress now offering small and medium-sized enterprises (SMEs) in Russia, Turkey, Italy and Spain the opportunity to register and begin selling their wares on the company’s platform. After gaining initial experience in these four markets, the plan is to expand into even more countries.

Alibaba already has a strong presence in Asia with equity stakes in Indonesia’s Tokopedia and India’s Snapdeal, as well as its subsidiary Lazada, Southeast Asia’s largest e-commerce platform. But the recent move to expand further west into European markets is reflective of slowing growth in its home markets.

“We are seeing Alibaba trying to expand globally because they are trying to offset declining growth in China itself,” Bill Leung, director at brokerage firm Haitong, told FT. “They are at the point when they need a lot of growth to come from AliExpress and Lazada and other international businesses.”

Amazon, the leading global e-commerce company, is beginning to show signs of stress from Alibaba’s growing presence. Within China itself, Amazon has suffered some setbacks in competing with both Alibaba and JD.com. This July, the U.S.-based company is set to close down its Amazon China store, which first opened some 15 years ago.

Looking Ahead

While Amazon is the current leader in the U.S. and abroad, Alibaba’s expansion is a threat that will only continue to grow. The winner may depend on who can be the first and most effective at penetrating new foreign markets. Investors betting on Alibaba may consider scooping up the company’s shares at discounted prices as they fell nearly 10% last week as trade tensions between the U.S. and China escalated. Of course, they are up nearly 30% on the year.

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