A number of conventions were challenged this past week regarding global trade. One is that manufactures and retailers are the main players in making deals. The second is that China is only interested in promoting exports.
Deals struck during Chinese Premier Xi Jinping’s visit to the UK suggest new patterns are emerging in how enterprises are seeking to grow globally. One notable agreement was the one inked by UK Trade and Investment and China’s largest e-commerce platform Alibaba. The MOU spells out an agreement in which Alibaba, China’s largest platform company, will help UK companies sell goods in China on 1688.com, one of Alibaba’s e-commerce platforms.
This deal was notable in that it was struck with a platform company and not a manufacturing firm or big box retailer. This illustrates the rising power and influence of platform companies on the global stage.
E-commerce platforms were once a domestic phenomenon, creating exchanges for buying and selling within a particular country. No longer. E-commerce platform companies are now a growing global force. There are now 36 e-commerce platform companies with a market value of $1billion or more. Together, the top 36 e-commerce platform companies have a market value of over $600 billion. There are, of course, many more e-commerce platforms with extensive operations that fall below the $1 billion threshold.
Nearly all of these companies have an international presence and are looking to expand. Amazon is now the most popular e-commerce site in France, receiving over 16 million unique visitors to its website each month. Meanwhile, the French e-commerce platform Cnova racked up US $5.5 billion in sales in 2014 through its growing international operations which includes Brazil, Colombia, Ecuador, Thailand, Vietnam, Ivory Coast, Senegal and Cameroon.
There is also a growing amount of cross-board investment and innovation. For example, Naspers, the South African platform holding company, announced last week that it was making a $1.2 billion investment in Russia-based Avito, the third largest classifieds platform in the world.
Platform companies also have been at the forefront of launching retail markets in some of the most challenging places on earth. Rocket Internet, a platform incubator based in Berlin, has been actively seeding platform businesses in areas that most western companies fear to tread. For example, Rocket has been a key force in launching the largest e-commerce platforms in Nigeria and Pakistan.
As these e-commerce platforms grow in size in scale it is not surprising to find them a part of trade deals.
Second, on the China side, it was about facilitating imports and not exports. Alibaba is setting itself up to become a gateway to China’s growing middle class. For a foreign merchant, especially smaller ones, selling into China can be a daunting challenge. Alibaba aims to make the process easier by overcoming many of the challenges associated with cross-border trade. Through the platform, foreign sellers have access to customers in a way that traditional import companies cannot match.
Alibaba is not alone. Its rival, JD.com, has also been active in positioning itself as the platform of choice to access the Chinese market. Indeed, these companies are well aligned with China’s broader shift from an export driven economy to one with more balanced growth, which includes much greater domestic consumption.
New patterns are emerging with the rise of the platform economy. Companies are finding new ways to grow globally. At the same time, governments are finding that these platform companies can achieve national goals as well, be it e-exports in the case of the UK or facilitating greater domestic consumer demand in the case of China.