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Alibaba and SingPost show their ambitions in Asia and beyond

Singapore Post's logistics center at its headquarters

SHANGHAI/SINGAPORE   On Nov. 11, 2015, millions of Chinese consumers were glued to their smartphones, busily tapping away adding items to virtual shopping carts. Commonly known in China as "Singles' Day," what began in the early 90s as a party at Nanjing University was later seized upon by major retailers such as Alibaba Group Holding and turned into an online sale.

     It has now grown into a national shopping event, when online retailers slash prices on pretty much everything from food and daily necessities to consumer electronics. Last year, Alibaba alone received 467 million delivery orders in the 24-hour period, recording revenue of approximately 90 billion yuan ($13.8 billion) in gross merchandise value.

     Running a major online sale for just one day per year might be good for publicity but lacks efficiency and puts pressure on distribution networks, incurring additional costs. For Alibaba, however, Singles' Day is much more than just a marketing gimmick. The e-commerce giant views it as a kind of rehearsal for its logistics team, in preparation for a future when e-commerce becomes the primary shopping method for the 1.3 billion consumers in China and the one-day frenzy becomes an everyday reality. "We expect Alibaba to grow bigger and handle hundreds of millions of parcels on a daily basis," said a close aide to founder Jack Ma Yun.

     Alibaba also expects the phenomenon to spread beyond its domestic market. The company projects the global online shopping market to expand to $1 trillion in 2020 from $230 billion in 2014.

     Success in e-commerce requires retailers to physically reach out to consumers through "last-one-mile" parcel delivery services. Speed and efficiency are critical, but are difficult to achieve when crossing national borders is involved.

     To overcome this obstacle, Alibaba has been building up its international logistics network, making numerous overseas investments in logistics companies. In 2014, the company made its initial investment in Singapore Post, the island country's postal provider, and is now the second-largest stakeholder, with a share of over 10%.

     With a population of around 5 million, Singapore's home market is a drop in the ocean compared with China's. But Alibaba is betting on SingPost's overseas assets and its ability to expand its cross-border logistics capabilities.

     The postal company has its sights set on what it calls "e-commerce logistics," providing a one-stop service for retailers and brands looking to sell online in Asia. The company handles everything e-commerce needs: from setting up websites to managing inventories and transportation of products from warehouses across the world. It now operates more than 50 distribution centers across at least 18 countries -- including major e-commerce markets in the U.S., Europe, China and the rest of the Asia Pacific region. A logistics hub in the city-state costing 182 million Singapore dollars ($132 million) is scheduled for completion this year. Once in operation, it will consolidate e-commerce deliveries from across the world to be dispatched to consumers in various parts of Asia.

     These investments can help speed up the movement of goods, including those from the manufacturing centers of China and Hong Kong to Southeast Asia, where the e-commerce market is growing at an exponential pace.

     The tie-up between Alibaba and SingPost is already showing some synergies. SingPost served as the major shipper for last year's Singles' Day, and its cross-border e-commerce package volume for last November increased 60% on the previous year to 4.6 million packages. "We made substantial investments in our Shenzhen and Singapore facilities to automate and support this event," says Goh Hui Ling, Deputy CEO of International Mail at SingPost.

     Now, the two companies are pivoting to conquer a new market: the United States.

     In September 2015, Alibaba formed a strategic partnership with the U.S. Postal Service, aiming to leverage its postal network to expand its market share in the U.S. e-commerce market. Alibaba also plans to work with its U.S. partner to build logistics networks in South America and beyond.

     SingPost followed similar steps in October 2015, announcing its first foray into the U.S. e-commerce market through its acquisition of two U.S. companies, TradeGlobal and Jagged Peak, for a total of $184.4 million. The purchases provided SingPost with exposure to hundreds of well-known global brands. Now, the group runs branded e-commerce websites and provides logistics solutions to more than 100 big names, including Adidas, Calvin Klein, Cole Haan and Muji.

     Another bonus from the acquisitions was the added capabilities in omnichannel technology, which allows brands to sell online through multiple channels including mobile devices and computers while managing stocks for both online and bricks-and-mortar shops in an integrated system. The goal is to expand this system so that brands and retailers can manage their global inventories for both online and offline channels on one platform.

     "We aim to help brands and retailers sell more items online in the U.S. and Asia," says Marcelo Wesseler, chief executive officer of SingPost Commerce, a newly-launched entity that puts all of SingPost's e-commerce capabilities including the acquired American companies, under one roof. "There is already an active exchange in human resources between the U.S. and Asia, which is deepening our expertise in both regions," Wesseler adds.

     However, moving across the Pacific Ocean may not be all plain sailing for the Alibaba-SingPost team. The postal company is suffering from a battered stock price that began tumbling after former chief executive Wolfgang Baier abruptly announced his resignation in December 2015. Baier was commonly seen as the driving force behind SingPost's transformation into an e-commerce player.

      The sudden departure of its chief executive opened a can of worms, and questions surrounding governance practice, such as the lengthy tenure of some independent directors and administrative oversight with past acquisition deals, began to emerge. The company announced a special audit to be conducted by a third party in January, but that only attracted more scrutiny from local media and experts over the fairness of their consultancy selection process. "The worsening reputation of SingPost's corporate governance could potentially hinder its search for a new CEO," says Toru Yoshikawa, a professor at Singapore Management University and expert in corporate governance.

     In China, on the other hand, SingPost's corporate governance issues have gone largely unnoticed. Some analysts say recent developments will have little impact on SingPost's tie-up with Alibaba. "My sense is that it was a bit overblown. The market has probably over-punished [SingPost]," says Andrew Chow, head of research at UOB Kay Hian, adding that change in SingPost's general direction towards e-commerce logistics is unlikely. "The real loss is the resignation of Baier, because he is a very charismatic leader and engaged the investment community very well. There will be some impact if there is no strong successor to him," he added.

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