Jack Ma is taking his e-commerce ambitions somewhere new: China's vast rural hinterland.
Alibaba, already the dominant e-commerce player across urban China, is now looking to tap into the unexploited area of rural e-commerce. It has paid Rmb4.5 billion ($715 million) for a stake in Huitongda, a privately-owned online shopping platform that targets customers located in rural parts of the country.
Huitongda’s owner, Jiangsu Five Star Appliances, did not disclose the size of Alibaba stake when it announced the transaction on Tuesday. However, most industry analysts believe Alibaba has taken a majority stake since Huitongda was worth less than $1 billion prior to the equity investment.
By making the huge investment in a virtually-unknown shopping site, Alibaba is making a bold endorsement of rural e-commerce, which many industry experts believe will never be a profitable business.
Such scepticism is not groundless. For one, the consumption power of rural population is a fraction of of that of residents in first- and second-tier cities. Similarly, the lower penetration level of internet and mobile means people in rural areas are less likely to order goods online.
One type of product the rural community does have a stronger demand for is raw agricultural produce, which expires relatively quicker than other daily necessities and is thus harder to distribute through e-commerce platforms.
Alibaba has tried to build its own rural e-commerce platform despite these obstacles. In 2014, the tech giant said it would spend Rmb10 billion to promote e-commerce in rural China and aimed to enter partnerships with 100,000 small and medium-sized enterprises across the country.
These attempts are yet to yield any meaningful return. Cuntao, Alibaba’s independent app that targets the rural community, was taken off China’s App Store in June last year.
Alibaba’s latest investment in Huitongda shows it is taking a new approach to rural e-commerce – by leveraging the network of existing rural-focused e-commerce sites.
Huitongda said it covered 18 Chinese provinces, over 15,000 towns and villages and more than 80,000 shops in rural areas. Its network of shops is perhaps the most valuable asset since they form the bulk of purchases through Huidatong’s e-commerce platform.
Wang Jianguo, chairman of Jiangsu Five Star Appliances, said Alibaba’s investment in Huitongda was not purely a financial investment, but a strategic partnership that aims to disrupt how retail goods are distributed across China’s rural community.
Prior to Alibaba’s investment, Nanjing-headquartered Huitongda raised a total of Rmb1.8 billion from four rounds of fundraising since it was founded in 2010. Its existing shareholders include China Merchants Bank, New Horizon Capital and US-China Green Fund.
Alibaba's investment in Huitongda marked another big bet in China's e-commerce industry after paying big cheques for Intime Retail and Sun Art Retail, among others.
