The retail territory is drawn, A is hands on, T is hands off, pick your side!

The “Ma”s in China (Jack Ma, chairman of Alibaba, or Pony Ma, chairman of Tencent), with a combined company valuation of over USD 1 trillion, seem to have more money than God and only the sky is their limit.

 

In the beginning of 2018, after waves of headline news, we are well aware that the territory of offline retail has been clearly redefined and divided into two trenches. Whether through acquisition, investment or partnership, Alibaba and Tencent converted or convinced almost every tier 1 player into their own cult. You only need one simple picture below to visualize this. The only one left, for now, pending for a final predilection, is Vanguard, a state-owned enterprise supermarket chain. Somehow a rumor started to circulate that JD already broached the subject with Vanguard, slavering on the potentials of its network of over 3000 offline stores nationwide. Considering the alliance between Tencent and JD, many speculate that Vanguard should be the next in line to join Tencent club.

 

 

 

So that pretty much settles the landscape of offline retail space. Even though there might be tier 2, tier 3 players in the sector, soon they need to face the decision of picking a side, too. Or if few players do not have to make a choice, then it simply means their business status is too insignificant in the eyes of Ma’s, which is not really a good sign.

 

Aside from offline retail, even a fool in China knows other sectors such as healthcare,  finance, education, transportation etc, are slowing evolving themselves under the Ma’s thumb. If existing and powerful incumbents are going to pick the side, the fate of young startups will ride the same tide as well.

 

In the past, Tencent was notoriously known for copying and crushing startups. Between 2010 and 2011, its infamy reached the peak due to a vicious legal battle and mud sling with an internet security company Qihoo 360. General public perceived Tencent was the ultimate culprit of suffocating Chinese innovation. From that time onward, Tencent has gradually changed its corporate image, from the role of “ferocious copier” to “amicable investor”. According to the certain source, in 2017, Tencent made a total of 120 investment deals, basically 10 deals every month, which was 60% more than Alibaba did in the same year. Nowadays hardly would you ever pick up any bad publicity regarding the relationship between Tencent and its portfolio companies. Nevertheless, occasionally, scandals of two giants smothering or plagiarizing emerging startups still surface in the media.

 

Once under the wing of the Ma’s, it is said the two camps usually have two distinctly different management styles. Tencent tends to take a partial ownership of the company and allows its minions to stay relatively independent. Tencent is the king of “social and gaming”, so it probably has the strong expertise to direct huge traffic to your business, but other than that, it offers no further guidance on the day to day operation or strategic planning. On the other hand, Alibaba might act more like a controlling parent over time, especially in supervising and integrating those invested companies into Alibaba ecosystem. As the king of “e-commerce”, Alibaba considers itself possess superior knowledge, resource and practice in online dominating offline and already envisioned the rules of “NEW Retail” in the future.

 

As long as the white-hot rivalry of Alibaba and Tencent persists, it is actually not an easy choice to pick a side in this battleground as you are essentially betting on who is going to gain an upper hand in the China internet business in the long run. 

 

By: Cecilia Wu