Terry Song, strategic investment director at Chinese online shopping giant JD.com, came to Israel on his first visit last week, looking for investment and strategic cooperation opportunities for his company.
JD.com is China's second largest online shopping company after Alibaba, with a 25% share of the Chinese market and over 300 million active users. The company operates from Beijing. Its shareholders include Google parent company Alphabet, Walmart, and Tencent Holdings. JD.com makes dozens of acquisitions and strategic partnerships each year involving companies in spheres such as travel sharing, secondhand bulletin boards, and cloud computing.
Other JD.com executives have visited Israel already. Although a senior delegation from the company visited Israel more than a year ago, JD.com has not yet made any direct investments in Israeli technologies. At the same time, Song told "Globes" that the purpose of his visit was to find concrete business opportunities.
Looking for a finished product to sell in the Chinese market
During his visit, Song took part in meetings with local augmented/virtual reality (AR/VR), content, and artificial intelligence (AI) companies, as well as companies developing warehouse automation and cashier-less stores. He also participated in the Retail Disrupt conference - the first retail technology conference held in Israel, which was organized by Re:Tech, a retail innovation hub. In addition to JD.com, senior executives from major retail companies such as Asos, eBay, Uniqlo, and Express attended the conference. The conference, which was designed to introduce executives from global retail companies to Israeli innovation in the field, included over 100 one-on-one meetings between the executives and Israeli startups for the purpose of creating business cooperation.
"Globes": Why did you decide to visit Israel now?
Song: "I've wanted to come here for a long time. The reason is that Israel has been revealed, especially in recent years, as one of the international hubs for innovation and startups. If I look at this from a global perspective, Israel is very prominent, together with London, Silicon Valley, Beijing, and maybe also Stockholm."
What is your goal in strategic investments?
"JD invests in companies in China and also outside the country. The reasons for the company's strategic investments and cooperative efforts are acquiring new technologies, penetrating a particular market, or acquiring customers. In Israel, JD hopes to find mainly new technologies."
What are you looking for in a company that will make you invest in it?
"I'm looking for a polished product ready for marketing. Ideally, it will be a company that already has revenue, showing that the product is ready for the market and people are willing to pay for it. At the same time, we aren't looking for companies that have already done scale-up, because we want to do this process in China."
What does the process of a Chinese corporation like yours investing in an Israeli startup look like?
"In general, the corporate structure in China is different from the private market; it includes a huge structure of bureaucracy and permits. I wouldn't say, though, that it's very different from Fortune 500 companies I worked in before. In the past two years, the Chinese government has instituted a lot of regulation aimed at controlling the country's capital and the export of capital from the country. For us, this isn't an issue, because we're registered as a US company, but for other Chinese companies, it constitutes a challenge."
JD competes with Alibaba, the online market leader in China with a market share in excess of 50%. JD's investment, acquisitions, and cooperation strategy is designed in large part to help it in this competition. The Chinese ecommerce market experienced accelerated growth a decade ago, and has since grown by over 100% per year. This growth brought ecommerce from 1% of all commerce in China to a 20% share. Alibaba specializes in mass ecommerce, while JD focuses on high-quality products and end-to-end service, including the entire supply chain, from warehouses to home delivery. Building this infrastructure incurs high costs, which is the reason that JD has had a profit in only one quarter since it became a listed company in 2014. Nevertheless, it is the largest physical and online retailer in China in terms of revenue.
JD is active in China and Southeast Asia, and now plans to expand to Europe and the US, but not to Israel, because of the market's size. The company's expansion to the US and Europe is supported by Google, which invested $550 million in JD in June. JD's global expansion is another part of its attempt to expand to new markets in order to continue its growth and overtake Alibaba. For Google, it is another measure in the company's entry into ecommerce; last week, Google announced its cooperation with Carrefour SA for the purpose of selling products online in France through Google's platforms, including Google Home and Google Assistant.
"Online is still growing 30% a year, but growth is showing signs of slowing, because the market share that it was easy to penetrate has moved to online shopping, and the part that has remained is becoming more and more difficult to penetrate," Song says. Major online companies in China are now having a hard time continuing their growth by penetrating new markets, and are being forced to find new growth channels.
In order to complete with Alibaba successfully, JD is therefore interested in entering new areas, such as content services and cloud services. One of the main shareholders in JD is Tencent, China's largest social networks, which gives it a fairly good starting place in these fields. In addition, JD, like other ecommerce companies in China, wants to also establish itself in offline commerce.
Published by Globes, Israel business news - en.globes.co.il - on November 5, 2018
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