SHANGHAI -- Alibaba Group Holding, locked in an intensifying battle with Amazon.com of the U.S., is strengthening its runaway lead in China and pushing harder for growth in Southeast Asia, India and other emerging markets.
On Tuesday, the Chinese online shopping giant briefly topped Amazon in market value before closing at $469 billion, only about $5 billion behind its Seattle-based rival, highlighting their close competition.
Alibaba Executive Chairman Jack Ma Yun unveiled Wednesday a three-year, 100 billion yuan ($15.1 billion) plan to build a new research institute called DAMO Academy to study cutting-edge fields such as artificial intelligence and quantum communications. Ma said China has historically followed behind the likes of the U.S. and Russia, but suggested it was time the country blazed its own trail.
Struggle for market value
Alibaba's American depositary receipts are surging, closing Tuesday at a record-high $183 after starting the year at just $88. The company's market cap at the end of that day was more than double that of Japanese automaker Toyota Motor, for instance.
The e-tailer listed on the New York Stock Exchange in September 2014 to great fanfare with a record-breaking $25 billion IPO. But a year later, it was trading at just half its all-time high. At that point, Ma lamented in an interview with The Nikkei that it was difficult for U.S. investors, who had never used Alibaba's services, to understand the company's true potential.
But two years on, Alibaba's ADRs have roughly tripled from those lows, largely thanks to its realization of two strategies: market dominance in China and growth in emerging economies.
Control at home, growth abroad
At home, Alibaba wields its deep pockets freely on startups in an effort to build an oligopoly. In July, it joined with other investors to pour $700 million into the bicycle-sharing service Ofo, for instance. It has brought a range of other services into its fold, including video and crowdsourced information sites and ride-hailing apps.
When a steep drop rocked the Shanghai stock market in summer 2015, Alibaba shares were sold heavily amid a wave of pessimism over the health of China's economy. But as those fears retreated, investors warmed to Alibaba, which dominates a Chinese market with a burgeoning middle class bigger than the entire U.S. population. That in turn ushered in a rise in the company's ADRs.
China has contributed more than 90% of the e-tailer's sales, underpinning investor unease that it depends too heavily on the country. But last year, Alibaba took control of Southeast Asian competitor Lazada Group. It is also working to advance its Alipay mobile payment system in countries such as India and Russia, part of a string of efforts to bolster operations abroad.
Amazon made $136 billion in sales in 2016, while Alibaba's revenue was about $23 billion for the year through March 31. But Alibaba's figure comes from fees such as those levied on sellers using its digital marketplace, so the numbers are not directly comparable. Alibaba raked in $7 billion in operating profit over the year through March, beating Amazon's 2016 figure of $4.2 billion.
Serving different markets, for now
Emerging economies like India and the countries of Southeast Asia are set to play a decisive role. While Alibaba and Amazon butt heads over market value, their actual markets are compartmentalized: Amazon largely focuses on developed regions like the U.S., Europe and Japan, while Alibaba is centered on China. But it is a matter of time before they collide head-on in other as-yet untouched emerging markets.
Their first outright fight for customers is emerging in Singapore. This summer, Amazon opened its first Southeast Asian distribution center there, while Alibaba has been advancing in the city-state through Lazada, which is based there.
In India, Alibaba offers sellers online wholesale services and has invested in local e-commerce enterprises. Amazon broke into the Indian market in 2013 and has been developing consumer-oriented online shopping there, claiming the No. 2 spot. It has also invested in local retail players with brick-and-mortar stores.
Amazon, on top of its strengths in product quality and brand power, continues to generate added value in areas such as cloud services. Alibaba, for its part, faces hurdles to improving quality, such as an abundance of counterfeits cropping up on its online marketplace, while its strength lies in easy-to-use systems like Alipay. This Sino-American showdown holds great implications for consumers the world over.