A proxy war is a strategy that refers to a conflict instigated by opposing powers who do not fight against each other directly.
By using third parties to do the fighting, it is still possible to bring strategic benefits while minimizing the risks.
Google has announced that it will invest US$550 million in JD.com for 1 percent stake, joining Tencent and Walmart to become the Chinese online retailer’s third strategic investor.
In fact, the three may all be seeing JD as a proxy to help them compete with their respective rivals.
Listed on Nasdaq in 2014, JD has a market capitalization of around US$60 billion.
It’s China’s second-largest e-commerce company, but its market value is only a fraction of Alibaba’s US$500 billion plus.
Alibaba’s Taobao and Tmall have snapped up about 70 percent of China’s online shopping market, while JD’s market share is around 22 to 25 percent.
To Google, JD could serve as a proxy in competing with Amazon.
Google and JD plan to “collaborate on a range of strategic initiatives, including joint development of retail solutions in a range of regions around the world”, they said.
In the short term, JD would select a range of high-quality products and offer them worldwide through Google Shopping.
The two companies would also explore new retail opportunities in Southeast Asia, the United States and Europe. The alliance would combine JD’s strengths in supply chain and logistics with Google’s tech capability to develop a new retail infrastructure.
We could say that Google and Amazon have a sort of love-hate relationship. Amazon is now Google’s largest advertising client, spending billions of dollars each year. But Amazon is actively exploring direct distribution channels and even starting its own advertising business.
Google, meanwhile, has launched its Google Shopping unit and JD would add more Chinese offerings to this platform.
JD will also serve as Walmart’s proxy in its war against Amazon.
In 2016, Walmart, the world’s largest brick-and-mortar retailer, sold its China e-commerce platform to JD as it pulled out of the market.
In return, Walmart obtained a 5 percent stake in JD, and became its strategic shareholder. The US retailer has since then steadily increased its stake to 12 percent.
Walmart is also looking to transform its business into an offline-to-online retail model. But it has achieved limited progress so far. JD serves as a good partner in this pursuit.
To Tencent, JD would be a proxy in competing with Alibaba.
Chinese internet giant Tencent spent US$215 million for a stake in JD in 2014. Following a number of additional purchases, Tencent now holds a 21 percent stake and is JD’s largest shareholder.
If JD is able to put some pressure on Alibaba, the latter would have less time and energy to try encroaching on Tencent’s turf – social networking and online games.
This article appeared in the Hong Kong Economic Journal on June 21
Translation by Julie Zhu
[Chinese version 中文版]
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