August 3, 2017 10:00 am JST

Alibaba is finding new challenges in entering the Hong Kong market

Flood of fake, shoddy goods and locals' preference for real stores limit online appeal

YASUO AWAI, Nikkei staff writer

Ant Financial, Alibaba's financial unit, held an event to introduce Alipay to retailers in Hong Kong. (Photo by Yasuo Awai)

HONG KONG Having established a dominant position in its home market, Chinese e-commerce giant Alibaba Group Holding is now looking to boost its presence in Hong Kong, rolling out its Tmall retail website for local consumers and releasing a version of its Alipay mobile payment service in Hong Kong dollars.

But Alibaba faces more than a few hurdles, not least because Hong Kong shoppers remain largely suspicious of the quality of goods and services provided by mainland-based companies. E-commerce is also still less prevalent in the territory than in other Asian markets. If Alibaba can succeed in establishing a stronger presence against these odds, it will be an important step toward achieving its global ambitions.

ON THE OFFENSIVE Alibaba officially launched Tmall in Hong Kong in mid-June, enabling local shoppers to take advantage of cheaper daily goods imported from the mainland. Some of these items cost less than half of what they do on HKTV Mall, the biggest online retail platform in the territory, operated by Hong Kong Television Network.

Meanwhile Ant Financial, Alibaba's financial unit, in May started offering an Alipay mobile wallet and payments app dedicated to local-currency transactions.

In mid-July, it held a meeting with major Hong Kong retailers, including shopping mall, supermarket and convenience store operators and small and midsize merchants, to promote Alipay. Venetia Lee, general manager of Alipay Hong Kong, Macau and Taiwan, said the number of registered users in Hong Kong has already surpassed 100,000 and that her company aims to sign up at least 8,000 local merchants to accept payments via Alipay by the end of this year.

QUALITY ISSUES The biggest obstacle facing Alibaba in its quest to crack the Hong Kong market is the lack of consumer confidence in the quality of Chinese-made products. Price is the main selling point for items listed on Taobao, Alibaba's consumer-to-consumer e-commerce site. But the general impression among Hong Kong consumers is that the market is filled with fake and shoddy goods. A woman in her 20s who hails from Shenzhen said: "I don't have a lot of confidence in online shopping. If I receive an item identical to the one in the product picture, I just feel lucky. No more, no less."

Because Tmall is a business-to-consumer site, which means the online stores are operated by companies rather than individuals, there is relatively little concern about a torrent of counterfeit products being sold on the platform. Even so, one Hong Kong native in his 20s did not hide his distrust of mainland products, saying, "I think it takes quite a lot of courage to buy Chinese food products online."

Consumers in Hong Kong tend to be less keen on online shopping in general, preferring brick-and-mortar stores. Given the city's high population density, most consumers live within walking distance of large, easily accessible shopping malls.

Michael Cheng of consultancy PwC pointed out that online sales account for less than 5% of total retail sales in Hong Kong. This, he said, indicates that online shopping is not yet an entrenched habit among local shoppers and that Tmall's expansion into the market will have only a limited impact on lifestyles and society in the city.

Then there is Hong Kong's Octopus electronic payment system, which uses a contactless smart card and is accepted on buses and subways and at a wide range of retailers. It is the most popular means of noncash payment in the territory, making it unlikely that Alipay's mobile wallet service will catch on quickly among locals. Instead, the service is expected to be used primarily by mainland Chinese tourists, both in Hong Kong and elsewhere.

Last year Alibaba acquired a controlling stake in Lazada, a major e-commerce presence in Southeast Asia. The Chinese company plans to work closely with Lazada to capture growth opportunities in the region. Alibaba's ability to win over Hong Kong shoppers could set the stage for expansion in Southeast Asia and beyond.

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Alibaba Group Holding Ltd.

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