Alibaba Group Holding Ltd (BABA) and Inc (ADR) (JD) To Tap China’s Rural Market

Alibaba Group Holding Ltd (NYSE:BABA)’s subsidiary, Cainiao Network, and Jingdong Mall or 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.

Expanded Business

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, 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.

Big Challenge

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 Inc (ADR) (NASDAQ:JD) to make a strong pitch in the rural areas.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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