Alibaba to set up online retail service in Russia

Financial Times, 11.09.2018

Chinese ecommerce group signs joint venture with MegaFon, Mail.ru and Russian wealth fund

Alibaba, the Chinese ecommerce giant, will partner with Moscow’s sovereign wealth fund and Kremlin-friendly oligarch Alisher Usmanov to set up a Russian branch of its retail site AliExpress, the company said on Tuesday.

Mobile operator MegaFon, internet company Mail.ru, and the state-run Russian Direct Investment Fund are to take minority stakes in AliExpress Russia, which will allow Russian users to buy Chinese-made goods.

The deal, expected to close in the first quarter of 2019, is the first major joint venture between Russian and Chinese companies and intensifies Alibaba’s global rivalry with Amazon.

 “Russia has never had a major local ecommerce player. We’ll be the number one player from day one after the deal closes,” Boris Dobrodeev, chief executive of Mail.ru, told reporters.

 Alibaba’s stake in the joint venture will be 48 per cent, with MegaFon taking 24 per cent, Mail.ru 15 per cent and RDIF 13 per cent. MegaFon swapped its 10 per cent stake in Mail.ru for its share in the joint venture, which would value the deal at roughly $2bn total, though the companies did not provide a specific valuation.

Alibaba will attempt to leverage Mail.ru’s dominance of Russian social media through its Facebook clone VK, which has 97m monthly active users, as well as MegaFon’s nearly 80m mobile subscribers.

 “We’re going to do a number of experiments to find the best point of contact with the goods for users,” Mr Dobrodeev said. “It might be video bloggers, might be groups, might be native advertising, might be recommendations in the news feed, might be native apps on VK, and we’re going to personalise it for every user.”

Russia, where more than half the 145m population uses the internet daily, is one of the largest markets Alibaba has yet to conquer. Political and logistics challenges have seen Amazon stay away.

The ambitious plans were disclosed shortly after Monday’s announcement that Alibaba founder and chairman Jack Ma plans to retire next year.

Mr Ma attended a group discussion with Russian president Vladimir Putin at an economic conference in Vladivostok on Tuesday, but did not appear at the deal’s signing.

 Alibaba has been eyeing Russia for some time. It attempted to set up a similar venture with state-run Sberbank, the country’s largest lender, before talks collapsed over squabbles who would run it. Sberbank then set up a rival venture with search company Yandex, Mail.ru’s biggest rival.

 Under the deal, Alibaba will combine its existing AliExpress business in Russia — which is already one of the most popular foreign destinations for its cross-border goods — and business-to-consumer website Tmall to build a platform intended to surpass both. 

One challenge is how the joint venture will tackle the logistics of Russia’s vast distances and poor infrastructure.

“How do you take social and combine it with commerce? [That’s] never been done before anywhere in the world,” said Michael Evans, president of Alibaba Group. “How do you get a Chinese company and get them to integrate really well with a Russian company? That’s never been done either.”

The deal comes with implicit Russian government backing and targets solving a major bugbear for the Kremlin, which has spent years demanding western internet companies store user data in Russia to little avail. 

Kirill Dmitriev, head of the RDIF, said the joint venture would store user data in Russia and use Russian technology, including local payment processing systems.

Internet freedom advocates — including VK founder Pavel Durov, developer of messenger Telegram — have criticised Mr Usmanov for censoring posts on VK and providing data that have been used to jail more than 600 users since buying it in 2014. Mail.ru says the moves are legally required, but recently introduced new privacy settings after a campaign to delete VK accounts saw a dip in users.