Alibaba Group Holding Ltd (BABA) and JD.com Inc (ADR) (JD) To Tap China’s Rural Market
Alibaba Group Holding Ltd (NYSE:BABA)’s subsidiary, Cainiao Network, and Jingdong Mall or JD.com Inc (ADR) (NASDAQ:JD) are tapping China’s rural markets in a big way. Both companies have launched their logistics services with an intention to cover maximum regions and take the opportunities for growth prospects.
Alibaba Group Holding Ltd (NYSE:BABA) launched its logistics unit in May 2013 and established a network covering 7,600 country-wide internet areas, and 26,000 town-level internet areas. This apart, it covers 190,000 village-type areas, Cainiao Network’s Vice CEO, Wan Lin, disclosed. The company indicated that 13% of the orders could be delivered the same day of the order or the next day.
Similarly, JD.com Inc (ADR) (NASDAQ:JD) has also been expanding its business in the rural region. The company created service hubs with a focus on delivering and installing besides after sales services for home appliances covering close to 60,000 villages. Its first rural-based service store was set up in November last year.
On the other hand, Alibaba Group Holding Ltd (NYSE:BABA)’s unit unveiled a program in October last year. It would invest $1.6 billion to establish about 1,000 county-level operation centers besides 100,000 village-type service hubs in the next 3 – 5 years. Rural regions have been witnessing online shopping experience prompting e-commerce firms to speed up the logistics services deployment as online-to-offline services.
However, e-Commerce companies face the biggest challenge in the form of increased logistics expenses in rural areas since their business models provide low-price and low-profit. Alibaba Group Holding Ltd (NYSE:BABA)’s unit would also be spending to expand its logistics network in the next 5 – 8 years. It expressed the hope of supporting retail sales of $4.8 billion a day. It also plans to make the delivery to any place within China in 24-hours time.
Based on the research of AliResearch, online shopping sales are estimated to reach $74 billion in 2016 from villages in China. The market size would drive Alibaba Group Holding Ltd (NYSE:BABA)’s subsidiary, Cainiao Network, and JD.com Inc (ADR) (NASDAQ:JD) to make a strong pitch in the rural areas.
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