Using a combination of word-of-mouth and advertising, Alibaba Group Holding Ltd. is tapping the millions of Chinese outside its homeland from Singapore to San Francisco to accelerate global expansion.

The e-commerce company, which meets this week with potential investors for its initial public offering, is attracting people of Chinese heritage drawn by hard-to-find items on its Taobao Marketplace like pineapple cakes and motorbike brake pads, as well as bargain-basement prices.

“I buy everything on the platform because it’s so cheap,” said Sam Ng, a 33-year-old Web designer in San Francisco, who shops for car gadgets and Korean fashion clothes on the website and learned about Taobao from friends.

Alibaba’s success — and the prospect of pulling off the largest IPO in U.S. history — is built on its business in China, the country of 1.35 billion people where the company dominates the fast-growing e-commerce industry. Still, Chairman Jack Ma is looking beyond his base, betting that Chinese abroad will help him reach a wider array of customers in Asia, Europe and the home turf of Amazon.com Inc. and EBay Inc.

“If Alibaba’s strategy is to follow the Chinese diaspora, it’s a smart strategy because you don’t have to build a brand from scratch,” said Niraj Dawar, a professor of marketing at the Ivey Business School in Canada. “To be a global player they eventually have to serve markets that are non-Chinese.”

U.S. Acquisitions

To reach those new markets, Alibaba, which gets more than 85 percent of its sales from China, is making acquisitions and developing its own platforms. AliExpress, the company’s market for customers outside of China, was founded in April 2010 and is available in English, Russian and Portuguese.

In the U.S., Alibaba has acquired stakes in Fanatics Inc., a Web retailer of officially licensed sports merchandise, as well as ShopRunner Inc., a membership-based shopping platform for brands like Calvin Klein, Tommy Hilfiger and Neiman Marcus.

To complement its word-of-mouth reach and tap into overseas Chinese, Alibaba uses advertising on taxis and big screen displays in Hong Kong to magazines in Taiwan and buses in Singapore.

Cui Lichuan, a 30-year-old who works for a financial firm in Tokyo, first discovered Taobao through Chinese friends. Cheaper prices and a broader selection of products, including hard-to-find items such as mung bean powder for cooking, have won over Cui, who has lived in Japan for a decade.

‘Strong Connections’

“Clothes are cheaper, especially for real silk and wool clothes,” said Cui, who also cites Alibaba’s ability to deliver within days as an attraction.

There are nearly 50 million people of Chinese descent living outside the country, larger than the population of Argentina, and more than 1 billion people who speak Mandarin.

“Alibaba seems to have strong connections with the immigrant population,” said David Lee, executive director of the Chinese American Voters Education Committee in San Francisco. “It makes sense to go after this market.”

Targeting this group is a strategy others are already using. Xiaomi Corp., which toppled Samsung Electronics Co. last quarter to lead smartphone sales in China, is targeting overseas Chinese to lead its global expansion as it starts sales in Singapore, Indonesia, Thailand and India.

Ma’s Apartment

Hangzhou-based Alibaba said that part of its international strategy is focused on helping Chinese manufacturers and merchants to reach businesses and consumers across the world, according to its filing.

Florence Shih, a spokeswoman for Alibaba, declined to comment on the company’s international plans citing restrictions ahead of its IPO.

Alibaba is seeking a valuation of as much as $162.7 billion, larger than 95 percent of the Standard & Poor’s 500 Index, based on its IPO filing. The company could raise as much as $21.1 billion, which would exceed Visa Inc.’s $19.7 billion IPO in 2008 as the biggest U.S. offering.

Founded in Ma’s Hangzhou apartment, Alibaba has ridden China’s economic liberalization to be the nation’s biggest e-commerce operator. It doesn’t sell merchandise itself, instead operating platforms including Taobao and Tmall to connect retail brands with consumers and getting most of its revenue from commissions and advertising.

Through its reach in China, where the company accounts for more than half the nation’s package deliveries, Alibaba can meet demand for products that can’t be bought elsewhere and provide direct access to manufacturers for lower costs.

That’s what attracts Mu Peng, a Chinese expatriate in Tokyo who turns to Taobao because savings on products such as iPad cases compared with local retail outlets far outweigh the cost of shipping from China.

Online Chatting

“Other things I buy are Chinese cultural items that I can’t buy in Japan. I bought Xiaomi’s set top box for TV. I wanted to see Chinese language shows from overseas,” said Mu.

Moving beyond the diaspora may be helped by Alibaba’s efforts to improve service with a customer review system and technology that lets buyers and sellers chat online with each other.

“A consumer in Iowa is wary of buying products from some smaller mom and pop store in Wuhan, so how do you connect those two directly,” said Dawar. “The question is can Alibaba fill that gap, sort of the way EBay has done, through a reputation score system and monitoring of suppliers.”

There are more than 4 million overseas Chinese in the U.S., about 8 million in Indonesia, 7.5 million in Thailand and almost half a million each in France and the U.K at the end of 2012, according to data from Taiwan’s Overseas Community Affairs Council. There are 1.2 billion Chinese speakers across 33 countries, according to research project Ethnologue.

Surging Transactions

As consumers become more comfortable buying from overseas websites, transactions are forecast to surge. Last year, EBay’s PayPal unit published a study that predicted cross-border shopping will nearly triple to $307 billion by 2018.

Alibaba’s success so far in Russia shows how tailoring its platform to new users is winning customers through lower prices for items made in China as it uses advertising on platforms like Yandex NV to support word-of-mouth recommendations.

AliExpress more than tripled its monthly users in Russia to 15.9 million over the past year, beating local rival Ozon.ru’s 8.5 million users and EBay’s 8.2 million visitors, according to researcher TNS. AliExpress also broke into Russia’s top-10 of most visited websites in July, TNS said.

The Chinese marketplace’s transactions in Russia may reach up to $1 billion this year from estimated $400 million to $500 million last year, Data Insight said.

Sales from outside China are an unexploited opportunity for Alibaba, said Zia Daniell Wigder, a research director at Forrester Research that studies the e-commerce market.

Untapped Markets

“The cross-border e-commerce market is growing but many retailers have not tapped in to it yet,” she said. Alibaba “is not alone in looking to bringing in customers from around the world.”

Taking on Amazon is no easy task. Amazon has also set a road map to expand internationally to help U.S. retailers and Europe and Middle East suppliers sell outside of their home countries through its third-party marketplace.

For customers such as Si Shen, co-founder of application developer and marketing platform PapayaMobile Inc. which has offices in Beijing, San Francisco and London, Alibaba still has some way to go to win over customers in the U.S. If it can, Alibaba can look forward to getting more sales.

“When I am in China I definitely use Alibaba’s Taobao to buy all kinds of things,” said Si. “When I am in the U.S., I tend to use Amazon or the commerce site of the product itself. I might start to use Alibaba’s service in the US in the future if its service and product coverage improve.”

By LULU YILUN CHEN September 9, 2014 in Bloomberg

http://www.bloomberg.com/news/2014-09-09/alibaba-taps-chinese-diaspora-as-global-battle-with-amazon-looms.html