Techcruch.com reported on March 10, 2014 that Tencent Holdings, one of China’s largest e-commerce companies, and the maker of the popular mobile chat programme, ‘WeChat’ has agreed to acquire a 15.0 percent stake of JD.com, formerly known as 360Buy.com, for USD 215.0 million, and at the same time, be granted preferential access to subscribe at its Initial Public Offering (IPO) price for an additional 5.0 percent when JD.com goes public. In the latest S-1 security prospectus filing with the Securities and Exchange Commission or SEC in the United States, JD.com disclosed that it plans to raise up to USD 1.5 billion with its upcoming IPO.
The strategic partnership forged between Tencent Holdings, and JD.com is just one of the most significant combination of two Chinese internet giants, as they seek out to compete aggressively with one of China’s top e-commerce site, Alibaba Holdings, founded by former Peoples’ Liberation Army (PLA) soldier, Mr. Jack Ma. The new partnership is intended to counter some of Alibaba Holdings’ weakness in mobile e-commerce, harnessing the capabilities of WeChat in reaching out to the Chinese consumers market.
According to a commentary made by one of Thomson Reuters journalists, Mr. Paul Carsten, the Tencent-JD.com combination is expected to target China’s business-to consumer (B2C) e-commerce market worth over USD 180.0 billion in sales as estimated by New York-based emarkter.com, the rising affluence among many Chinese consumers, the streamlined logistics supply chain in China, and the growth in the overall Chinese internet industry. According to Beijing-based iResearch, JD.com has an 18.3 percent share of the e-commerce market in China, whereas Alibaba Holdings is currently holding about half of China’s e-commerce market share through its Tmall marketplace, while its Taobao service controls around 80.0 percent of consumer-to-consumer (C2C) online sales.
The latest acquisition of a minority stake in JD.com by Tencent Holdings comes at a time when China is about to undergo a huge expansion into the global e-commerce market. With China’s population of over 1.0 billion people, it makes perfect sense in seeking out potential growth opportunities within the broader e-commerce industry. There has also been an increasing shift in the mobile usage by many Chinese people in the country, and with a rising middle-income class, many Chinese consumers have increasingly been turning to e-commerce sites in order to take advantage of the competitive pricing offered by online merchants, convenience, and timely deliveries.
McKinsey Global Institute has published a March 2013 report entitled, “China’s e-tail revolution: Online shopping as a catalyst for growth.” where it commented in its executive summary section of the report, that as of 2011, China’s e-tailing sales totalled USD 120.0 billion (RMB 774.0 billion) in 2011, surpassing online sales in Japan (USD 107.0 billion), the United Kingdom (USD 56.0 billion), and Germany (USD 32.0 billion). In 2012 alone, McKinsey estimated that the Chinese e-tailing market had soared to an estimated USD 190.0 billion to USD 210.0 billion (RMB 1.2 trillion to 1.3 trillion) in revenue. The enormous pent-up growth in the e-commerce space in China is an indication that the Chinese economy has shifted from solely a manufacturing hub to an increasing affluent and knowledgeable e-commerce market.
The rise of the e-commerce industry in China, along with the latest announcement of the strategic tie-up between Tencent Holdings, and JD.com offers quite an interesting aspect of e-commerce, particularly B2C sales which have seen tremendous growth. In a competitive landscape once dominated by Alibaba Holdings, the recent announcement of the tie-up provides some interesting perspectives of gradual shifts among Chinese consumers through their engagements in the e-commerce activities to mobile platforms, instead of purely executing sales transactions through the PC, and other modes of access. The various festivities held in China, including Lunar New Year celebrations, ‘Golden Week’ celebrations usually in August, and Singles Day during the Fall season provide quite a number of opportunities for marketers to take advantage of such events, as they attempt to capture substantial share of the e-commerce market segments