Cainiao is doing great, HSBC predicts that BABA-SWR's overseas e-commerce GMV will exceed 110 billion in 2027, doubling in five years. This is part of the "Four Little Dragons Going Global" series.

The e-commerce game has entered the second half, and as one of the "Four Little Dragons" in going global, BABA-SWR's AliExpress under the BABA-SWR umbrella cannot afford to be negligent for a moment.

The BABA-SWR 2024 fiscal year Q3 earnings report shows that the YoY growth rate of international e-commerce revenue is 44%, exceeding expectations for 6 consecutive quarters. The biggest highlight is that AliExpress orders grew by 60% YoY. The report points out that driven by the full-service Choice business, AliExpress orders surged, with Choice becoming a strong engine driving AliExpress, as well as BABA-SWR's international orders and revenue growth.

HSBC pointed out in the report that in 1999, Alibaba embarked on its journey to go global. Currently, the BABA-SWR International Digital Commerce Group (AIDC) mainly includes AliExpress, Lazada, Trendyol in Turkey, Daraz in India, and international sites:

1. AliExpress: Established in 2010, positioned as the "international version of Taobao," it has established operations in over 200 countries and regions. It has strong competitiveness in key markets such as Europe (with a 1.5% market share in Western Europe in 2022), South Korea (with a 1.4% market share in 2022), the Middle East (with a 4% market share in 2022), and Brazil (with a 3% market share in 2022), with over 150 million global buyers.

2. Lazada in Southeast Asia: Acquired by BABA-SWR in 2018, Lazada was the largest online shopping company in Southeast Asia at the time. It is currently the second-largest e-commerce platform in Southeast Asia, with a GMV market share of 20% (Shopee is at 48%).

3. International sites: Launched in 1999, as Alibaba's earliest project focusing on cross-border B2B wholesale business matchmaking, with a high proportion of non-consumer goods (such as new energy, machinery, building materials) in cross-border business.

4. Trendyol and Daraz are local e-commerce platforms in Turkey and India respectively held by BABA-SWR: Trendyol was acquired in 2018 and is Turkey's largest e-commerce platform. Its market share increased from 12% in 2018 to 49% in 2022, with plans to expand to Eastern Europe in 2024 for more sustainable growth.

HSBC predicts that BABA-SWR's overseas e-commerce business has gradually matured, with a large user base in the European Union (including the key market of Turkey), ASEAN, South Korea, and Latin America. By 2027, BABA-SWR's overseas e-commerce GMV is expected to reach $118 billion, doubling from $53 billion in 2022.

HSBC points out that AIDC's business model is clearly divided into two lines: ToB and ToC, with competitive advantages in 3 aspects: 1. Large user base; 2. Supply chain foundation, merchant network, and rich product portfolio; 3. Logistics capabilities, Cainiao's global intelligent logistics network.

BABA-SWR's Fully Managed & Semi-Managed Services

Alibaba's AliExpress launched the Choice service overseas in March last year, giving products higher priority in display and access to operational support and marketing resources from AliExpress after joining the service. The core lies in the widely used fully managed and semi-managed models in major cross-border e-commerce platforms.

In March 2023, AliExpress officially introduced a dedicated traffic entrance for fully managed products - the Choice channel (equivalent to the selected page on the app's homepage). Within less than a year of development, this service quickly gained seller support. By January 2024, orders from Choice accounted for about half of AliExpress's total order volume.

The so-called fully managed model means that merchants are only responsible for accepting orders and shipping to the platform's domestic warehouse, without direct interaction with consumers. The platform takes care of subsequent processes such as shipping, operations, sales, and after-sales.

Analysis shows that in a fully managed ecosystem, the platform takes on most of the work, and sellers, as "hands-off shopkeepers," usually have lower profit margins. Only manufacturers with strong supply chain advantages can seize the dividends. At the same time, full management makes "product selection" the sole factor determining sales volume, but since merchants cannot access consumer data, they lose autonomy.

Therefore, just as the concept of the "fully managed model" is gaining popularity, BABA-SWR has already begun brewing new changes. In August 2023, AliExpress took the lead in testing "semi-management," targeting POP (merchant self-operation). The so-called "semi-management," as the name suggests, is less "managed" than fully managed, allowing merchants to set prices and sell independently, while the platform helps with logistics, exclusive marketing activities, reverse logistics, and returns.

Products included in the semi-managed service will be labeled with "Alibaba Guaranteed." These products will clearly indicate delivery dates, inclusive shipping costs, and other information.

Under the semi-managed service, merchants are not only responsible for production and stocking but also lead operations, while the platform handles logistics fulfillment and return services. Additionally, in terms of traffic, semi-managed products enjoy the same benefits as fully managed ones, with semi-managed products joining the traffic entrance originally exclusive to fully managed products - the Choice channel, creating a more diverse product supply overall.

On January 4th, BABA-SWR's AliExpress announced the full launch of semi-management, with heavy subsidies for two consecutive weeks. The substantial investment sparked discussions among sellers, and the popularity of AliExpress's "semi-management" quickly rose. Soon after, BABA-SWR's international site also introduced the semi-management model in the B2B foreign trade field.

Some analysts believe that "semi-fulfillment" is another move by AliExpress to improve the logistics process, with the main goal being to speed up logistics. With the same cost, by upgrading ordinary mail to standard and priority express products, the average cross-border logistics speed for merchants will be increased by about 9 days, while still retaining the advantages of their products and operations.

BABA-SWR hopes to promise consumers delivery times through Cainiao, allowing merchants to focus on researching styles and quality, driving more repeat purchases. An increase in order volume will also reduce logistics costs, creating a price advantage and forming a positive cycle.

The era of "barbaric growth" in the global cross-border e-commerce industry has come to an end, and the future will enter a new era of refinement, customization, and increasing internal competition.

BABA-SWR's Strong Logistics Capability

In the battle of e-commerce going global, the level of cross-border logistics has become a key factor in determining how far one can go. One of the major contributors to BABA-SWR's global expansion is Cainiao Logistics.

According to a report released by Market Information Research Network in 2022, the proportion of cross-border e-commerce logistics costs in the overall cost is 20%-30%, while in the domestic e-commerce market, the figure is only 5%-10%.

According to data provided by AliExpress, the fulfillment time for POP (merchant self-operated) merchants is about 16-24 days. After being taken over by the platform, Cainiao Logistics behind AliExpress provides infrastructure support, resulting in faster delivery times, with an average improvement of about 9 days.

From the above data, it is clear that logistics has become the most critical part of the entire shopping process apart from the products themselves. Some products in AliExpress's Choice are labeled with "5-day delivery" and "compensation for late delivery," as BABA-SWR attempts to enhance user experience with standardized services to attract more traffic and repeat purchases.

HSBC pointed out in a report that Cainiao's global logistics network, especially the current "5-day delivery" service (currently available in the UK, Spain, the Netherlands, Belgium, and South Korea, with plans to expand to more countries), is one of the most important differentiating advantages of Alibaba International Digital Commerce (AIDC).

Analysts suggest that the importance of "on-time" delivery in the cross-border B2B sector is self-evident, as the buyer's experience determines whether orders can be placed faster and whether repeat purchases can be sustained. With the certainty commitments such as displaying logistics costs, final prices, and delivery times under the semi-fulfillment model, more overseas buyers can indeed be attracted:

Cross-border e-commerce logistics is much more challenging than domestic e-commerce logistics, with long chains, multiple nodes, and high costs. The logistics system in the cross-border B2B sector is even more complex, involving consolidation, customs clearance for large items, overseas warehouse construction, and delivery of large items to the final destination.

Taking AliExpress as an example, merchants have three shipping methods: cross-border logistics, domestic warehouse shipping, and overseas warehouse shipping. In May 2023, in response to a significant increase in orders, AliExpress opened 5 official warehouses in Dongguan and Hangzhou, including 2 Choice preferred warehouses for fully managed businesses; for the key Korean market, preferred warehouses were established in Weihai and Yantai to achieve 3-day delivery in the Korean market. Yuejian International analysts pointed out that although BABA-SWR's international business still accounts for a small share of the overseas market size, as one of the companies with the strongest commercial and logistics resource reserves, BABA-SWR will continue to gain market share in the future.

Seizing More Market Share

Yuejian International stated in the report that in 2022, BABA-SWR's overseas e-commerce GMV is about $60 billion, accounting for 5% of the domestic e-commerce GMV. Among them, AliExpress, Lazada, and Trendyol reached $25 billion, $25 billion, and $9 billion respectively. As of March 2022, BABA-SWR had 310 million overseas buyers, with Lazada and AliExpress each having around 140 million users.

Yuejian International believes that the overseas e-commerce market is still vast, and there is still room for BABA-SWR's overseas business to penetrate. According to eMarketer data and estimates, the penetration rate of the overseas e-commerce industry is still below 20%, mainly due to the differences in offline business system layout and logistics delivery speed compared to China. It is estimated that by 2025, the total addressable market for Chinese e-commerce in overseas markets will reach $3.7 trillion (approximately $2.5 trillion in 2022):

In overseas markets, emerging regions such as Latin America, the Middle East, and Southeast Asia have relatively backward offline business layouts and logistics systems, making them key areas for Chinese e-commerce companies going global, with an estimated total addressable market of approximately $690 billion. Developed regions, although having well-established infrastructure, offer a large market space, with a total addressable market of $3 trillion, also being the target regions for Chinese e-commerce going global.

In the Southeast Asian market, BABA-SWR mainly expands through Lazada. Since its acquisition in 2016, Lazada had maintained the top position in Southeast Asian e-commerce for several years, but in 2019, its market share was surpassed by Shopee. According to data, in the 2023 ranking of market share among Southeast Asian e-commerce platforms, Shopee ranked first with a 45.9% share, while Lazada ranked second with a 17.5% share.

During the quarterly earnings conference call in December 2023, Jiang Fan, CEO of BABA-SWR's International Digital Business Group, stated that Southeast Asia remains a very important market, with still significant room for penetration throughout the region. The future will continue to strike a balance between efficiency and scale growth, while the group is rapidly converging losses and maintaining growth. Therefore, in Southeast Asia, the group will continue to invest in a controllable scale.

Amid the rapid development of cross-border e-commerce in China, BABA-SWR's overseas expansion is facing both opportunities and challenges. On one hand, there is an increasing number of domestic and foreign competitors, and on the other hand, different entry tracks are continuously upgrading services. Therefore, the ability to seize market share has become a topic that BABA-SWR must consider.