FILE PHOTO: The logo of Alibaba Group is seen at the company's headquarters in Hangzhou, Zhejiang province, China July 20, 2018. REUTERS/Aly Song/File Photo
Alibaba usually operates as a platform on which merchants sell their goods, but Kaola buys in inventory from international brands © Reuters

Alibaba is to acquire rival NetEase’s cross-border online shopping platform, according to two people familiar with the matter, as China’s highly competitive $2tn ecommerce market takes early steps towards consolidation.

The Chinese tech giant, which earlier this week reported a robust 42 per cent year-on-year jump in quarterly revenues to Rmb114.92bn ($16.3bn), might pay about $2bn for Kaola, according to one person familiar with the deal.

Chinese shoppers have turned in large numbers to online retailers, led by Alibaba’s Taobao and Tmall platforms and JD.com: spending roughly four times as much as their US peers.

But as more players pile into the market, including Pinduoduo, the battle to woo shoppers has accelerated and left smaller players on the sidelines.

NetEase, which is best known for its gaming and music operations, has been seeking to sell its ecommerce unit for the best part of a year, according to bankers. Alibaba and NetEase declined to comment.

Unlike Alibaba, which usually operates as a platform on which merchants sell their goods, Kaola buys in inventory from international brands. As of last year, it worked with more than 4,300 brands from 50 countries, a sharp winnowing from the more than 5,000 brands six months earlier.

NetEase also conforms to a different ethos than fellow tech peers such as Alibaba and Tencent, which depend on sprawling ecosystems offering everything from shopping to payments to movies designed to keep users on their platforms as long as possible.

“[Founder and chief executive] William [Ding] thinks ‘ecosystem’ is an overused word,” said one person familiar with the group. “He believes in creating products.”

Amazon was among the potential bidders looking at Kaola earlier this year, according to bankers. However, that was scotched when the US ecommerce giant opted to close its Chinese online store that allowed domestic consumers to buy from Chinese merchants in the face of stiff competition from its local rivals, shifting its focus to selling imported goods in China.

According to one analyst, there were a few options on the table at the time.

“Either Amazon would double down [on China] or sell the business to NetEase and NetEase would double down,” the analyst said. “But neither happened, because both of them wanted to sell. It doesn’t make sense for NetEase to keep [Kaola]. Because it’s small scale.”

Online sales in China are expected to reach almost $2tn this year, according to eMarketer, which expects the figure to rise to $2.4tn next year. That compares with $587bn in the US this year, rising to $668.5bn in 2020.

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