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Itochu gets serious about selling Japanese goods online in China

Trading house taking on Alibaba and JD.com by buying into startup Inagora

Funds from Itochu will help cross-border e-commerce startup Inagora expand its distribution network.

TOKYO -- Itochu and two partners are investing roughly 7.6 billion yen ($67.6 million) in an e-commerce venture selling Japanese goods to the Chinese market -- a move the trading house hopes will enhance its own forays into China's internet sector.

The Japanese trading house is investing around 4 billion yen into the Tokyo-based startup Inagora, with telecom KDDI and financial services company SBI Holdings providing the rest. Itochu previously invested around 100 million yen in the company and will now hold a roughly 20% stake, making it the second-largest shareholder behind founder and CEO Weng Yongbiao.

Founded in 2014, Inagora operates Wandou, a Chinese-language e-tailer with some 3 million users. The site boasts around 40,000 offerings, with a focus on cosmetics, clothing and foods from brands including Japanese fashion label Samantha Thavasa, Swiss lingerie maker Triumph International and Japanese food producer Ajinomoto.

On the up

China's cross-border e-commerce market is growing rapidly. The market for goods from Japan is seen nearing 2 trillion yen in 2020. The country's overall e-commerce leaders currently have a strong grip on the cross-border segment: Top player Alibaba Group Holding commands a roughly 40% share, while second-place JD.com and major internet player NetEase control shares in the 10-20% range.

Itochu has already taken its first step into the cross-border market, launching a high-end site in spring 2017 with Chinese state-owned conglomerate Citic, a major partner. But the trading house has realized breaking Chinese heavyweights' grip will require savvy marketing that can respond nimbly to consumer tastes -- hence its turn to Inagora, which excels at creating videos highlighting the appeal of Japanese products for local consumers.

The trading house will supply products for Inagora's site through units including food wholesaling arm Nippon Access and Edwin, Japan's largest maker of jeans. In addition, Itochu will have the site carry local specialty items from across Japan stocked by convenience store chain FamilyMart, another member of the Itochu group.

Itochu Logistics, with over 100 locations in China, will also cooperate with Inagora, which plans to add warehouses to its own distribution network using money from the latest round of investment. The startup will also hire more sales staff to encourage companies to list their products. Forays elsewhere in Asia are on the agenda as well: The company plans to bring its business to Taiwan, Malaysia and elsewhere in 2018.

Inagora anticipates around 15 billion yen in transactions this year, six times the 2016 level. With help from Itochu and others, the startup targets 100 billion yen in transactions in 2019 and 176 billion yen a year later.

Getting on track

Itochu's partnership with Inagora aims in part to power up the company's partnership with Citic, which was to form the core of China operations but so far failed to produce the strong results expected. The trading house in 2015 invested 600 billion yen in a capital partnership with the conglomerate, which supplements a robust financial business with diverse operations including real estate, construction, manufacturing and resource development.

The partners' first move was to invest in Chinese apparel maker Bosideng International Holdings -- a step that took over a year to complete. Neither that project nor others, including cooperation on resource operations, have yielded much in the way of earnings.

But signs are positive for efforts the pair are pursuing now, Itochu President Masahiro Okafuji said. E-commerce operations are particularly promising, given the vast scope and robust growth potential of the Chinese market. "E-commerce operations will become the core" of Itochu's strategy in the medium-term management plan beginning fiscal 2018, Okafuji said.

Competing with China's current e-commerce leaders will require Itochu to make the most of FamilyMart parent FamilyMart UNY Holdings' distribution expertise and efforts with Citic. Inagora could lend its own impressive expertise and gain access to Citic's customer base in return, helping both sides thrive in a market of 1.3 billion consumers.

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