BEIJING (Aug 29): Richard Liu built an e-commerce giant in China by tapping into the nation’s appetite for technology. As his JD.com Inc sets its sights on global expansion, he’s turning to others for help: Google and Walmart Inc.
Just a few months after Google bought a US$550 million stake in JD, Liu said he’s in the early stages of strategic planning with the search giant to win customers outside its home market. Walmart will work with JD to expand operations in China, the US and South East Asia, Liu said.
JD ranks behind only Alibaba Group Holding Ltd when it comes to e-commerce in China and has started pushing into physical stores in the country, although its incursions overseas have mostly been limited to Thailand, Indonesia and Vietnam. But Liu has his eyes on the affluent consumers of Europe and the US as he makes substantial investments in the infrastructure needed to supply millions of customers around the world.
“Our ambition is to expand our supply chain ability to the whole world — to connect any brand, any goods and any consumer globally,” Liu said in an interview at a business event in Aspen, Colorado last month.
Walmart and JD have already teamed up in China as Liu agreed to buy the US company’s online operations in the country. In return, the Bentonville, Arkansas retailer bought a stake in the business. Walmart also co-led a US$500 million fundraising in August for JD affiliate Dada-JD Daojia, which connects fleets of motorbike delivery staff with merchants in hundreds of Chinese towns and cities.
Liu said that while its partnership with Walmart would be global, any work with Google would be “mostly focused outside of China.” Most of Google’s services are either blocked or unavailable in China.
His initial edge over Amazon.com Inc and other foreign rivals would be the ability to bring cheaper, high-quality Chinese goods abroad followed by the expansion of its supply chain, he said. The international push comes at a challenging time, with JD shares slumping amid rising costs, competition and an expensive expansion that now sees the company operate 11.6 million square meters of space across 521 warehouses in China.
Wayne Peters, chairman of Peters Macgregor Capital Management and a shareholder in JD.com, said that investment is an incredibly valuable asset for the company’s future.
“Richard under-promises and over-delivers,” said Peters. “What we like are CEOs who look to the long term. We’re more interested in that than those who are just interested in beating the street. ”
Liu’s high-spending strategy also has plenty of detractors, especially those who see unfinished business in China. JD’s share price hit a record high in January only to tumble more than 35% since then after failing to deliver the full-year profit that many analysts had expected. In the June quarter alone, the company had a net loss of 2.2 billion yuan.
Kok Hoi Wong, the chief investment officer for APS Asset Management Pte in Singapore, points to the massive profits generated by Alibaba and its willingness to throw cash at winning over Chinese consumers as proof that competition is getting harder for JD.
“JD must get its act right in China, turn it around and make it profitable before it expands internationally,” said Wong, a frequent critic of the company. Brutal competition among hundreds of e-commerce players means business is tough for all online retailers and “we will see more blood before we see more profit.” he said.
JD’s business model is more akin to Amazon than Alibaba. It holds and sells its own inventory and also allows other vendors on its platform while its larger Chinese rival provides a marketplace for merchants and makes most of its money from advertising and marketing services.
Liu expects some changes to his business as it goes overseas, accepting the need for different models. Simply replicating its China strategy and launching a service in a foreign country won’t work.
“If we want to convince American consumers to download JD’s app and buy, I think it will be hard. But the good thing is US has Twitter, Instagram and Facebook — a lot of social media," said Liu, adding he wants to partner with those social networks in particular.
Liu knows the value of an online platform: WeChat operator Tencent Holdings Ltd is its biggest shareholder.
Liu is in the process of opening more offices and adding warehouses across Western Europe and will form a strategy for selling products in the region this year, Liu recently told German publication Handelsblatt. Within two years JD will cover all of Southeast Asia, he added.
At home, JD has a goal of 1 million convenience stores within five years largely via a franchise model. But the founder said he also wanted 30 7Fresh supermarkets completed by the end of 2018 and that it will also expand into JD-branded furniture, electronics and home appliances chain stores with names like “JD Home.”
But it’s a vision Liu knows will take some time to build.
“We will spend another 10 or maybe 20 years to expand to the whole world. So you cannot achieve a goal within three years or five years,” he said, adding that he thought JD was a better bet than Alibaba. “From an investor perspective it is — more space for tomorrow.”