SHANGHAI — China’s e-commerce market, already one of the most concentrated on Earth, has consolidated further with the deal between JD.com and Wal-Mart’s online operations in China.

The $1.5 billion deal, described as a “strategic alliance” by the parties involved, sees JD.com acquire ownership of Wal-Mart’s China-based Yihaodian marketplace, which the latter will continue to operate. In exchange, Wal-Mart will receive nearly 145 million newly issued JD.com Class A ordinary shares, representing about 5 percent of the Chinese e-tailer’s total shares.

The consensus among China watchers is that the deal is a good move for both JD.com and Wal-Mart.

“The key advantage for JD is that they gain access to Wal-Mart’s supply chain, which should help with offering a wider range of imported product to Chinese consumers,” said Benjamin Cavender, senior analyst at China Market Research Group.

“The advantage for Wal-Mart is that the e-commerce space in China is incredibly competitive and requires significant financing as companies fight for market share. Taking a stake in JD while unloading Yihaodian simplifies their business model and gives them access to JD’s superior logistics network in China,” he added.

This further consolidation of China’s e-commerce market looks set to intensify competition between the country’s top two e-commerce players — Alibaba and JD.com.

According to data from iResearch, e-commerce gross merchandise volume in China last year totaled 3.8 trillion yuan, or the equivalent of $578 billion, an increase of 36.2 percent over 2014. Last year also marked the first time business-to-consumer transactions overtook consumer-to-consumer ones — the latter of which are the bread and butter of Alibaba’s Taobao site.

The growing importance of B2C has intensified competition between Alibaba’s Tmall and JD.com. The former has long-held a commanding lead in market share, but that lead has recently been eaten away at by its Beijing-based rival.

Data from iResearch has Tmall’s market share by GMV in 2015 at 58 percent, compared with JD.com’s 23 percent, with the latter closing the gap somewhat between 2014 and 2015.

“JD has slowly been chipping away at Alibaba’s lead in the e-commerce space and the acquisition grows their market share and also gives them better access to competitive products. In other words, it should help them continue to compete head to head with Alibaba,” Cavender said.

Though he agrees that JD.com’s alliance with Wal-Mart is a good move for China’s second-largest e-commerce player,  Thibault Andre of Daxue Consulting doesn’t think it will be enough to see JD.com seriously challenge Alibaba’s lead in market share.

That being said, as the two rivals increasingly focus on the farthest-flung corners of China, there is room for JD.com to narrow Alibaba’s lead with the help of Wal-Mart’s global sourcing power.

“Alibaba and JD.com have been investing in [smaller cities] for months, where the growth of online shoppers is nearly two times faster than China’s tier-one cities,” Andre said, adding that research Daxue Consulting has conducted indicates 84 percent of these consumers are looking to buy imported grocery products – something Wal-Mart should be able to help JD.com with.

“For Wal-Mart, the deal is obviously essential to get access to these markets. For JD, integrating more imported and high-reputation brands to their offer could be a crucial asset to assist their development,” he said.

load comments
blog comments powered by Disqus