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Tencent And JD Back A Chinese E-commerce Firm To Battle Alibaba

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Tencent has invested $604 million in the Chinese online retailer Vipshop. The investment, done in collaboration with long-time partner JD.com, is aimed at battling Alibaba in retail. JD.com would invest $259 million into Vipshop.

How Tencent and JD.com will help Vipshop

The total amount invested in Vipshop would come to $863 million after both of the companies contribute their share. Both Tencent and JD.com will pay 55% premium for the stock (listed on the NYSE), giving Tencent a 7% share whereas JD.com a 5.5% share in Vipshop. Further, both the companies would be able to appoint a board member based on the shareholding terms following a two-year lock-up period, according to TechCrunch.

In a press release, Tencent President Martin Lau said, “We look forward to providing Vipshop with our audiences, marketing solutions, and payment support to help the company provide branded apparel and other product categories to China’s rising middle class.”

Apart from the investment, Tencent will integrate Vipshop into the wallet section on Weixin, the Chinese version of the WeChat app. Also, JD.com will give the online retailer a prominent position on its main page, and will assist it in hitting certain GMV targets.

Tencent and Alibaba – arch rivals in China

Tencent and Alibaba are arch rivals as both are expanding into unusual fields such as bike sharing, gaming, and food delivering apps to gain the turf in China. According to Reuters, Weiwen Han, managing partner for Greater China at Bain & Company, said the Chinese market has two internet powers – Tencent and Alibaba.

“Investments will either fall into the Alibaba or Tencent camp,” notes Han.

Tencent is the most valuable company in Asia with a market capitalization of $473 billion. Further, the company is looking to invest 4.2 billion yuan ($636 million) for a 5% stake in the supermarket operator Yonghui Superstores. The company is already a major stakeholder in JD.com, and the recent investment in Vipshop will give Tencent better access to the young female shoppers, other consumers and transaction data to stand stronger against Alibaba’s Alipay.

Further, the deal marks the latest push by Tencent to dent Alibaba’s retail empire. Tencent lately has been using its messaging app WeChat and its online payment system to enhance the shopping demand.  As of now, Tencent-owned WeChat claims approximately one billion users.

Alibaba is growing its influence in online shopping on the back of its cloud computing division (one of the largest in the world) along with the capabilities to invest in data and rural markets. The Chinese juggernaut is spending billions on physical retailers to fuel the online traffic and collect valuable data for advertising. JD is following a similar path, but the scale is not as big as Alibaba, notes Bloomberg.

Blue Lotus Capital Advisors Ltd. founder, Eric Wen, noted that both Tencent and JD.com needed this deal as Alibaba had a stellar performance in 2017, notes Bloomberg.

“Tencent needs to go from the backstage to the frontstage and that’s what they’ve done. Tencent has acquired a stake in Yonghui and now Vipshop, this is something JD cannot pull off by itself,” Wen said.

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