In 2015, Hangzhou-headquartered internet giant Alibaba had a big and elaborate plan to replicate the success it achieved at home in e-commerce and online payments in the world’s second-most populous country.
That year, it had made a number of big-ticket investments in Indian startups like homegrown e-tailer Snapdeal and digital payments platform Paytm. The South Asian nation was also fast becoming an incredibly important market for the Jack Ma-owned company as two of its services—B2B marketplace Alibaba.com and mobile browser UC Browser—were on their way to making it big in the country.
However, Alibaba’s future really started to look promising when India demonetized two of its most widely used currency denominations in November 2016, inadvertently providing an overnight upsurge of users for Paytm. While the online payments service was bolstering its capabilities to manage the rise in transactions and onboard new users, Alibaba which had bought a 40% stake in the Noida-headquartered company a year before, piggybacked on this growth to fulfill its e-commerce dream in the country. Subsequently, a couple of months later, Paytm rolled out Paytm Mall, a separate e-commerce arm, in which Alibaba led a USD 200 million round.
Around that time, Alibaba brought two more of its offerings to the country–cross-border e-commerce platform AliExpress and cloud computing service Alibaba Cloud. In fact, 2016 and 2017 were the years when things were finally coming together for Alibaba in India.
In 2018, its plans started to show cracks, when Alibaba’s investments in Indian startups didn’t turn out to be as useful for its e-commerce plans as it had imagined. And everything else that was hunky-dory for Alibaba remained so only till diplomatic relations between India and China were good. Last year in April, India amended FDI rules to prevent opportunistic takeovers amidst the pandemic that made it difficult for Chinese firms to invest in the country.
Soon after, the tension on the Himalayan border that both countries share got worse, involving multiple skirmishes. This resulted in the Indian government banning hundreds of Chinese apps from operating in the country including UCWeb and AliExpress. And with that, Alibaba’s prospects of building a business empire in India came to a dead-end.
In August 2020, Alibaba Group decided to put its investment plans on hold in India for at least six months. But given the deadlock the two countries have been in since last summer, the Chinese behemoth is reportedly looking to exit its Indian portfolios.
Moreover, with Ma coming under fire from the Chinese government, India has become less of a concern for Alibaba. In November, Chinese regulators canceled the USD 34-billion IPO of its affiliate company Ant Financial. A month later, China began an antitrust probe against the company for its monopolistic practices and is expected to tighten its grip on the company’s credit platforms, one of the biggest sources of revenue.
The silent upward journey
Alibaba first entered India around 2007 with its B2B e-commerce marketplace Alibaba.com. By 2008, India was already among the top three markets in terms of trade listings with 400,000 registered users, representing 8% of its business. The same year, Alibaba partnered with Infomedia, a local publisher of business listings, to woo small and medium Indian businesses.
After growing steadily for the next few years, it was time for the Chinese behemoth to bring another offering for India’s burgeoning internet users. Alibaba had its eye set on UCWeb, a Chinese mobile internet company that entered the country in 2011 and saw its mobile browser UC Browser grow silently but rapidly as smartphones became common in the following years.
UCWeb earmarked a huge chunk of USD 170 million—its global expansion fund—for India market in 2013. The company’s investments proved to be worthwhile as UC Browser became the most used mobile browser later that year, overtaking Opera.
In 2014, Alibaba acquired UCWeb to gain access to India’s fast-growing smartphone user base.
By then, Chinese smartphone had entered the country and UC Browser grew by leaps and bounds on the back of its compatriot firms as it came pre-installed in a majority of their handsets. Although Google Chrome was fast becoming a threat, UC Browser grew to become a dominant player by late 2015 as it held over 50% of the market share.
With Alibaba getting more active in the country, UCWeb began to expand its India offerings. In 2016, it launched UC News, a content distribution platform with a focus on user-generated content. Later that year, UC Browser crossed 100 million monthly active users.
By then, Alibaba.com had 4.5 million registered sellers in India and the country had become its second-largest market that accounted for the second-highest paid subscriber on the platform after China. And AliExpress, which had entered India as a part of its global expansion plan after its 2014 IPO, was gaining popularity among millennials.
While AliExpress wasn’t specifically focused on India, the cross-border e-tailer’s low-cost products (as low as USD 1) that were bought from and shipped by Chinese sellers charmed Indian millennials. More importantly, the startup investments that Alibaba had made in India finally revealed its B2C e-commerce ambitions.
In fact, Alibaba came to the limelight when Ant Financial pumped in USD 575 million in Paytm in February 2015. A month later, Ma’s meeting with Indian prime minister Narendra Modi made it clear that after about eight years of operations in the country, the group had decided to shed its low-profile image and was ready to pounce on e-commerce opportunity.
According to Amit Bhandari, researcher fellow, Gateway House, a Mumbai-based foreign policy think tank, Chinese giants like Alibaba weren’t just financial investors in Indian startups.
“A private equity fund is not bothered about other PE funds that are on the board of a company. But if an investor is looking for long term management control or operation synergies, then probably they will not go for companies where their rivals have made an investment,” he said, adding such has been the case with Chinese companies.
For instance, Alibaba and its competitor Tencent have entirely different sets of startup portfolios in India despite having similar areas of interest.
“It implies that they are not just financial investors, they are looking for an operational footprint in the longer run,” Bhandari added.
Alibaba’s investments in the country dovetailed neatly with its strategy to control what Ma considered the iron triangle of success – e-commerce, payments, and logistics, Dev Lewis, marketing and research manager at Infosys China, wrote in Gateway House research paper in 2018.
Essentially, Alibaba was gearing up to set up an e-commerce business in India, using the playbook of its sprawling online commerce arms TMall and Taobao back home.
However, Alibaba’s assumption that what worked in China would work in India may have led to it losing to its rivals Amazon and Flipkart.
The roaring downfall
Satish Meena, senior forecaster at Forrester, believes that there were two fundamental reasons why Alibaba’s e-commerce plans didn’t play out the way it wanted.
First, there is a difference between how Amazon and Alibaba approached the Indian market, Meena told KrASIA.
“Amazon was very clear from the beginning they needed a massive amount of money and a lot of time to be successful in India,” he said. “We don’t see that kind of approach from Chinese companies. They are like, let’s put a few million dollars and see how it goes.”
True enough, in the first three years of its operations in India, Amazon had committed to invest USD 5 billion. Reportedly, it upped its investment by USD 2 billion in 2018, and in 2020, its founder Jeff Bezos announced an additional investment of USD 1 billion.
Alibaba Group, on the other hand, had made indirect investments through startups rather than choosing to enter directly. Since 2015, Alibaba has put in USD 2 billion in Indian startups.
“Alibaba was not ready to think for the next 10 years, calculate the cost, and put in the investment based on that,” Meena said. “There was no one in Alibaba’s team who was driving investments in India and who can have a bigger say in the investment committee or management committee on how to invest in India.”
That may be why Alibaba was looking for a partner in India. According to a report by The Information, in 2016, Alibaba’s co-founder and executive vice-chairman, Joe Tsai, and Tata Group’s then chairman Cyrus Mistry had met for a potential partnership. However, the talks fell through as Mistry was ousted by the company’s board of directors shortly after.
Alibaba reportedly reached out to Reliance then. That also didn’t work out as the oil-to-retail conglomerate was busy rolling out its telecom service Jio in the country. Not being able to find a compatible partner did delay Alibaba’s plans to expand its e-commerce footprints, but the second and the bigger issue was how Alibaba operated in India.
“Alibaba runs a pure-play marketplace in its home country, making most of their money from commissions and advertising. And they have a separate arm to take care of logistics,” Meena said. “That is what they wanted to build in India with Paytm Mall.”
In China, the majority of customers are already online, the payment system is up and running, and the logistics network is all set up, Meena explained. So a company can just plug into the e-commerce ecosystem and start operations there.
“In India, you have to build everything from scratch,” he said. “The cost of setting up warehouses and logistics networks is too high and Alibaba was not ready to write a check of billions of dollars. This is something both Amazon and Walmart have done.”
According to Meena, Amazon and Flipkart own the inventory indirectly and also develop in house brands, which helps them reduce product price and offer superior customer experience and thus gives them an edge over others.
This is also partly why Snapdeal, which was also a pure-play marketplace, lost market share to Amazon and Flipkart and was almost on the verge of bankruptcy by late 2016.
“This is what happened to Paytm Mall as well. Once they removed discounts in the form of cash backs, many customers never went back to it,” Meena said. “In India’s case, 2016-17 was the time when most of the customers were coming online for the first time and needed a little bit of hand-holding, but Alibaba wasn’t ready to do that.”
Instead, Alibaba tried to bring in and leverage Chinese sellers to India as that would have helped them reduce the price of the product itself.
“But Chinese sellers did not show that kind of commitment towards India because the market was small at that time compared to the Chinese market, which was not saturated then,” Meena said.
“For context, Chinese e-commerce giants did over USD 50 billion in sales during last year’s 11/11 sales, and we are not doing that kind of sales throughout the whole year itself,” he said. So it was a small opportunity, but the cost was really high.”
By 2018, Paytm Mall was bleeding money in discounting war and was nowhere near its bigger rivals in terms of volumes. At about the same time, Alibaba’s UC Browser lost its dominant position and a significant market share to Google’s Chrome and was on its way down. On top of it, AliExpress had lost some of its sheen with other cross-border e-commerce platforms like Club Factory and Shein vying for Indian millennials’ attention.
As Alibaba’s plans began to foil one after another, it began to shift its focus to Southeast Asia in the search for new markets that could drive its overseas growth.
In the second part of this series, read how Alibaba shifted its focus to Southeast Asia market after its bets in India didn’t grow at the pace it expected.
UPDATE: The earlier version of the story said Alibaba brought UCWeb to India in 2011. However, Alibaba acquired UCWeb in 2014. We have corrected the error.