Alibaba will be closer to Russian users

Alibaba Group, Megafon, Group and RFPI created AliExpress Russia. The joint venture will become the largest online retailer in Russia, outperforming the competitor from Sberbank, Yandex, VTB and the Russian Post.
Chinese Internet giant Alibaba Group, communication operator Megafon, Group and the Russian Direct Investment Fund (RFPI) have agreed to create a joint venture (JV) in Russia. Partners announced this yesterday, September 11.

The joint venture will be created, including on the basis of the Russian business of AliExpress and Tmall. The company will be called AliExpress Russia and will engage in cross-border and local online trading, as well as direct sales of its own products.

The JV participants will contribute capital and assets to it. RFPI will receive 13% of AliExpress Russia, Megafon - 24%, selling to Alibaba group 10% in Group. The latter will add to the JV a shopping platform from Chinese Pandao sellers and money, receiving 15% of AliExpress Russia. The deal is planned to close in the I quarter of 2019.

It turns out, Russian partners will have 52% of the joint venture, and Alibaba Group - 48%. How much exactly will each party put in money terms, the deal participants refused to disclose. According to the source of Vedomosti, close to the deal, RFPI will invest up to $ 300 million in joint venture. If this is the case, then all JV can be estimated at $ 2.3 billion.

According to analysts of the Renaissance Capital, with the gross turnover of AliExpress about $ 2.5 billion in the last fiscal year and $ 3.5 billion in the current entire business of the Chinese site can be estimated at $ 2.5-3.5 billion, while the share of Group - at $ 375-525 million. On the other hand, analysts say, the fact that Megafon gets 24% in the joint venture in exchange for 10% in the Group, involves an estimate of the entire joint venture at $ 2 billion.

What will the transaction participants receive?

AliExpress Russia will get access to the 100 millionth audience of Group in social networks, instant messengers, mail and online games, the partners note. Among the assets of the Group are "In Contact" and "Classmates", multiplayer games Warface, Skyforge, etc. As a result, a "single platform for social communication, games and purchases" will be created.

In addition, the joint venture will help the entry of Russian players into global markets, added Trudi Dai, president of b2b-direction of Alibaba Group. "In the coming months, the globalization of more than a hundred Russian brands can become the first stage, and AliExpress will act as the platform for this."

For Megafon, the deal fits into its strategy for the development of the digital world, within which the company wants to create new opportunities for more than 76 million of its customers, the words of the general director of the telecommunications operator Sergei Soldatenkov are quoted in the joint message of the partners. In addition, Megafon can provide its retail stores for the delivery of goods by AliExpress Russia, Interfax reported referring to the executive director of Megafon Gevorg Vermishyan.

Creating a Leader

AliExpress Russia will become the "undisputed leader in the Russian e-commerce market", the words of the general director of the RFPI, Kirill Dmitriev, are quoted in a joint message from the partners. Now AliExpress is really the most popular platform for foreign online purchases of Russians. But if in cross-border trade, AliExpress Russia is an unconditional leader, in Russian online trading this is still a minor player if compared with companies with their own sales, says Data Insight partner Fyodor Virin. As a result of the deal, AliExpress Russia does not become the largest player in Russian online commerce, but it has chances to become it as the site for the sale of goods of Russian sellers Tmall, he notes.

Tmall, according to Virin, is the most interesting and most promising part of the deal. Alibaba has made the main emphasis recently on the development of this site, he reminds: it is an infrastructure for Russian electronic commerce that can work both in direct sales format from the owner of the brand to the buyer, and through intermediary stores with showcases at Tmall. "For this site, the main competitors - Beru, Wildberries, Lamoda, Ozon with their services for third-party vendors," Virin lists. "The development of this business requires resources, including logistics, warehouses."

Competitive environment

Globally, the most interesting story in Russian online commerce is the struggle for it between Yandex, Group, Wildberries, as well as VTB with Magnit and Post of Russia, Virin believes. In the spring of 2018, Sberbank and Yandex established a joint venture based on Yandex.Market, announcing a plan to build on its basis "the Russian Amazon." This year, the main competitor of Sberbank, VTB, was also interested in joint business with Alibaba. The source of Vedomosti reported that VTB also wants to create a digital platform to keep up with Sberbank. VTB officially denied negotiations on the joint venture, although its president Andrei Kostin said that the bank could be a financial partner of a company such as Alibaba.

At the beginning of the year, VTB, Magnit and Post of Russia signed a memorandum on strategic partnership, including the development and implementation of an online mechanism for the sale of goods and services.