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China tech

Alibaba enlists German brands to boost online sales at home

Company looks for ways to fend off e-commerce rivals JD.com and NetEase

Alibaba headquarters in Hangzhou, China: The company has seen its lead in the domestic e-commerce market slip in recent years.    © Reuters

BIRKENFELD, Germany -- The mayor of Birkenfeld, located in one of southwestern Germany's most remote areas, is a content man. Bernard Alscher has helped bring in scores of Chinese investors and seen the sleepy township transform itself into a major hub for Germany-China e-commerce.

The "World Factory Headquarters," a Chinese-investor backed project set up in abandoned U.S. military barracks, now houses some 260 Chinese companies. It aims to be the biggest Chinese trading center in Europe. Most occupants are online retailers using Alibaba Group Holding's Tmall Global for China-bound online sales of German goods and Amazon for the sale of Chinese goods to Germany. 

"There's one trader who recently shipped 1 million cans of German beer to China and several others who ship cookware from the nearby Fissler factory to China," Alscher said. "Fissler produces the same cookware also in China, but the Chinese consumer insists on Made in Germany," he added. Germany, Europe's biggest economy, 

Chinese consumers' continued passion for European brands has convinced Alibaba to pursue growth on the Continent, billing itself as the "gateway to China."

About 260 Chinese companies do business at the "World Factory Headquarters" in Birkenfeld, Germany. (Photo by Jens Kastner)

This strategy comes as its growth at home starts looking shakier. While data company eMarteker predicts China's retail e-commerce sales will rise 30% this year to $2 trillion, it forecasts Alibaba's market share will drop to 53.3%, from 58% in mid-2018.

Chairman Jack Ma Yun, in his annual letter to shareholders in October, argued that the company needs to offset the increased risk of instability caused by U.S.-China trade tensions. In December, Alibaba's logistics arm Cainiao Network signed a memorandum of understanding with Belgium to construct a 220,000-sq.-meter logistics infrastructure hub at Liege Airport with an initial investment worth 75 million euros ($85 million).

The move is part of Alibaba's Electronic World Trade Platform, or eWTP, aimed at enabling vendors anywhere in the world to ship goods to any other market within three days. Among the stated aims is to facilitate $200 billion worth of imports into China over the next five years.

Meanwhile, Alibaba's Fliggy -- an online travel platform that utilizes the retail data of Alibaba's Chinese customers -- is targeting tourism businesses in Europe with the offer of bringing large numbers of visitors to untapped markets such as Norway and central Switzerland. And in January, Alibaba paid 90 million euros to acquire Berlin-based startup Data Artisans, a provider of large-scale data streaming services.

Rival JD.com, which had a 16.1% share of China's e-commerce sales in 2018 according to eMarketer, also had big plans for Europe. It had aimed to open an office in Germany by the end of 2018, but that did not materialize, apparently due to a scandal late last year in which CEO Richard Liu faced allegations of rape in the U.S.

"Europe is an important market when it comes to brands that are in high demand among Chinese consumers," a spokeswoman for Alibaba in Germany told the Nikkei Asian Review.

"When it comes to consumer markets, our focus is on Southeast Asia -- which is why we bought [e-commerce marketplace] Lazada [in 2016], for example -- and India," she added.

Market researchers largely agree that selling more Chinese goods in Europe is not a major aim of Alibaba's stepped-up efforts in the region, noting that cross-border sales into China represent the fastest growing segment in the country's e-commerce market.

"It is the market where Alibaba faces the strongest competitors, including JD.com and NetEase's Kaola, and the increased outreach to Europe represents an effort to increase the gap between Alibaba and them," said Olaf Rotax, managing director of Hamburg-based dgroup, a consultancy for digital transformation.

"The run for the German consumer market is obviously much less urgent, given that it is 50 million consumers versus China's 600 million plus an additional 300 million in the next three years owing to wealth development," he added.

"The ratio of online to total sales in luxury is growing 1 to 2 percentage points per year, so from 11-12% now to over 15% in three years"

Mike Vinkenborg, analyst

Similarly, Mike Vinkenborg, an analyst with Shanghai-based Daxue Consulting, says Alibaba will be able to tap new consumer groups in the Chinese market if it can position itself as the country's main platform for European luxury goods, cosmetics, food supplements, and gourmet food and beverages.

"The ratio of online to total sales in luxury is growing 1 to 2 percentage points per year, so from 11-12% now to over 15% in three years," Vinkenborg said.

"A major driver for this that while consumers in China's smaller cities rapidly become wealthier, luxury brands' flagship stores are available to consumers in China's biggest cities only."

Sales representatives at Alibaba's office in Munich have been busy reaching out to German brands that have already built a strong reputation in China through individual Chinese traders, or daigous. One of the prime targets is vitamin and food supplement brand Doppelherz, which has been selling on Alibaba's Tmall since 2014.

Doppelherz's full-year sales in China grew 100% in 2018, making it the company's second-largest export market after Russia and putting it on par with Poland. In China's ranking of imported vitamins and mineral food supplements, Doppelherz came fourth in 2018, according to the company itself.

Chinese consumers are big fans of Fissler cookware, but only if it is made in Germany, according to Bernard Alscher. (Photo by Jens Kastner)

"The Alibaba connection pays off for us, especially in the run-up to Singles' Day, when one truck after another leaves our factory with goods for China," said Axel Juergensen, export manager of Doppelherz.

"Tmall is our biggest China account, and this is not going to change, given that JD.com or Kaola are not as dynamic as Alibaba," he said.

Biomenta is another German vitamin, food supplement and cosmetics brand using Tmall. Its full-year revenue growth in China reached 80% in 2018, according to CEO Harald Gruber.

Biomenta adapts its products for the Chinese market, such as by using significantly costlier packaging than it does for other markets and reducing the number of capsules, in some cases to match what the Chinese consider "lucky numbers," Gruber said.

The Chinese government, which is under pressure to reduce trade surpluses with the West, is helping by keeping regulatory hurdles low. New rules in place since Jan. 1 allow for the indefinite expansion of a waiver policy for e-commerce imports. The waiver effectively circumvents the market barriers that restrict imports through conventional channels and is particularly helpful for imports of medical food products and cosmetics, which are otherwise heavily regulated.

"The waiver allows German brands to circumvent China's obligatory animal testing for cosmetics," said Marcel Muench, founder of Dongxii.com, a Berlin-based consultancy for cross-border e-commerce into China.

"This is crucial for them," Muench said, "given that animal testing in China would make them lose their cruelty-free certifications that are important for them in their other markets."

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