China’s acquisition battleground could expand beyond domestic interests

We have discussed in detail almost on a weekly basis throughout 2014 new acquisitions by one of China’s two digital giants, Alibaba and Tencent. In the past month, investments such as the $249 million into Singaporean postage logistics firm SingPost by Alibaba are talked of as little ventures amidst regular billion-dollar deals. The reasoning behind the acquisition sprees is straightforward: Tencent and Alibabab both want to extend their spheres of influence and consolidate their positions at the top of China’s internet industry. This has been largely the case over the past five years. However, increasingly the two firms are looking for influence outside the increasingly saturated and regulation-ridden domestic market. The potential is that these digital giants could unleash huge sums onto the global M&A market, adding dynamism to the largely Western-backed international corporate financing sector.

Regional expansion already underway

While Alibaba and Tencent will not be outbidding the likes of Google and Apple for companies in the US too regularly anytime soon, the expansion to the lucrative regional turf is already well en route. Asia Pacific is the world’s most populous continent and has the most lucrative emerging consumers, with middle classes doubling in size in the dynamic economies of Indonesia, India and Vietnam, among others. Japanese, Singaporean and Taiwanese firms have traditionally dominated the digital e-commerce and social media space in the region, and the Chinese giants are looking to change this status quo. The region’s potential is evidenced by the likes of Rocket Internet’s Lazada and Japan’s Rakuten setting up headquarters there. Regional markets are also more cost-conscious, playing to the strengths of Chinese products.

Alibaba, for example, needs to push international sales. For the nine months ending December 2013, the company took in $572 million from international sales, not even 10% of its total revenue.

As things stand, Alibaba is better placed to make an international e-commerce splash, with the company already having a strong position through its cross-border business (AliExpress, for example). However, Tencent has been more mobile-savvy, with the company investing in US-based Snapchat in 2013 for a foothold in the US mobile messaging space. The company has also purchased a 13.8% stake in mobile messenger Kakao Talk as a means of entering South Korea. Mobile is a major concern for Alibaba as consumers increasingly shop via mobile devices and the company is looking to leverage its Taobao e-commerce mobile app and Alipay mobile payments service.

Mobile gaming, online gambling, e-payments and IPTV will be other segments where the two Chinese majors are likely to square off, potentially driving a bidding war for acquisitions on the international stage. Developing a relationship with the Chinese behemoths will increasingly become of major importance for sell businesses, who have traditionally been much more reliant on Silicon Valley.

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