Look out, Alibaba: JD is going global, with the help of Google and Walmart

Chinese ecommerce platform JD.com is less known among international audiences, but its mid-annual 618 shopping festival generated almost US$25 billion in gross merchandise value this past June. The company has a 33 percent share of China’s B2C ecommerce market and generates more direct revenue than Alibaba.

Google’s US$550 million strategic investment is the latest of JD’s partnerships, as it seeks to challenge Alibaba and Amazon for ecommerce dominance in both China and the rest of the world.

JD’s direct retailing model is a strong competitive advantage

JD’s business model is distinct from Alibaba’s, as it’s a direct retailer. This means that it purchases inventory wholesale and sells products directly to individual customers, rather than acting as an intermediary. Approximately 92 percent of its business comes from direct sales; this figure hovers around 50 percent for Amazon.

JD stocks its own inventory in its vast proprietary network of nearly 500 warehouses across China, each of which is situated strategically near consumers to ensure fast delivery. The company also employs an in-house delivery force of over 65,000 warehousing and delivery workers. During the 618 festival this year, JD was able to deliver 90 percent of its goods within two days.

This dedication to customer service requires a significant amount of capital to sustain, but JD has been able to stand out from its competitors. The company clawed its way up to a 33 percent market share in an industry where Alibaba was previously thought to be unbeatable.

The borderless retail alliance

To compete with Alibaba, JD has enlisted the help of numerous partners. In China, this includes internet giants Tencent and Baidu, in addition to its partnerships with vertical-focused ecommerce platforms Vipshop and Meili Inc.

Tencent owns 18 percent of JD’s shares and partnered with JD to invest US$864 million in Vipshop, China’s third largest ecommerce platform. JD made its claim to fame by selling electronics to a predominantly male user base—partnerships with Vipshop and Meili, both of which sell a combination of apparel and cosmetics, help the company appeal to a broader female base.

America’s largest retailer, Walmart, owns 10 percent of JD’s shares and has been a strategic partner since 2016, when JD bought its ecommerce division Yihaodian. Google, despite having a limited presence in the China market, announced a US$550 million investment in JD this past June. Both of these strategic partnerships will be key as the company prepares to expand its business overseas.

Google’s data will help JD catch up overseas

Ecommerce platforms such as JD spend an enormous amount of money on search ads. But as ecommerce platforms grow, internet users can go directly to these platforms, which presents a threat to Baidu’s and Google’s search ads business. Partnering with JD allows Google to hedge against this problem.

Google’s extensive ecommerce data can give JD better insights into buying behavior, and JD will have a better idea of how to target users via Google’s broad ads network. This will be a significant asset as it attempts to catch up with local competitors in Southeast Asia, Europe, and the US.

Walmart and JD make the perfect couple

In China, Walmart leverages JD’s marketplace and users to sell directly to Chinese consumers online, complementing its offline business in the country. For JD, Walmart is a key supplier for the JD Daojia platform, which is an on-demand delivery service that delivers groceries to customers within a one-hour time frame.

JD also sells its goods offline in Walmart stores and uses them as distribution centers where last-mile delivery can be carried out. Since JD is an online retailer without many offline retail stores, the addition of Walmart’s physical locations across China is a considerable asset as it looks to expand its user base via omnichannel marketing strategies.

JD is planning to expand to the US market by the end of this year, and the potential expansion of this partnership model means that the company may have a chance to catch up with Amazon, especially since the two can leverage economies of scale and source goods in bulk.

JD goes global

With an impressive set of partnerships under its belt, JD has the capability to challenge Alibaba and potentially Amazon on the global stage. JD has already set up international ecommerce site Joybuy in Spain this year and is looking to expand to Germany. It has also launched local websites in Thailand and Indonesia under the JD brand.

The company has publicly announced its intention to enter the US market by the end of 2018, with a beachhead office located in Los Angeles. It plans to undercut its competitors and also help Chinese brands like Xiaomi expand to the US.

While it is still early, what is certain is that JD’s global expansion will be very interesting to watch going forward.