Market rumors that Alibaba Group Holding Ltd. would like to take a stake in the oil and gas distribution business of China Petroleum & Chemical Corp. (Sinopec) (00386.HK, 600028.CN) indicate that the e-commerce giant is ramping up its online-to-offline (O2O) strategy via partnership with state-owned enterprises, which control some of the best offline resources like gas stations and retail stores.
Such physical distribution outlets, once connected to the e-commerce platform, could expand the market reach of both parties while increasing the momentum of efforts to build the O2O ecosystem. But whether such an alliance would bear fruit depends greatly on management execution, considering that officials of state-owned firms are known for their conservative mindset and may be reluctant to embrace the innovative business model.
According to a newspaper report on Monday, Alibaba is interested in seeking partnership with Sinopec, and the internet giant has started recruiting staff for its oil card business. The news jibes well with the fact that the country’s biggest oil refiner and distributor plans to sell a minority stake in its marketing unit as part of Beijing’s reform of state-owned enterprises, which involves the introduction of private capital to allow market forces to have a bigger influence over management decisions.
In its official response, Sinopec said it welcomes partners, including e-commerce firms, in its retail business, but denies any tie-up with Alibaba. Alibaba, on the other hand, said the public is speculating too much about partnership with oil firms, hinting that it did seek some kind of cooperation with the oil giant but without necessarily involving an equity investment.
For e-commerce enterprises like Alibaba and Tencent Holdings (00700.HK), future growth will come from building their O2O ecosystem in order to extend their online strength to physical outlets. Both companies are collaborating with offline retailers while exploring the possibility of establishing an online payment gateway to settle transactions.
Efforts to grow their business have been hampered by the lack of physical outlets where customers can pick up orders and avail themselves of other related services. Thus, tapping into state-owned enterprises’ vast distribution networks would give e-commerce firms an enormous advantage to enhance their operations.
Take Sinopec as an example. It now runs more than 30,000 self-owned gas stations across the nation, which, in the first half of 2013 alone, generated 732.7 billion yuan (118.33 billion) in sales and distribution revenue and contributed 41.1 billion yuan to the group’s gross profit.
Such a distribution channel will be a big push to e-commerce firms’ O2O strategies, providing a place for online shoppers to pick up their orders and also serving as retail outlets for products of online vendors. At the same time, partnership with e-commerce firms is in line with the government’s policy of reforming state-owned enterprises through the introduction of private capital to boost their operational efficiency and transparency while bolstering their growth.
In fact, Sinopec has moved in this direction. Its Guangdong subsidiary has established an e-commerce arm to focus on online gas and oil sales as well as the traditional business to consumer (B2C) model with the aim of generating 10 billion yuan of transactions this year.
A partnership with an e-commerce platform should fuel the growth of Sinopec’s online business, which would in turn diversify the oil giant’s business portfolio and revenue streams.
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