Alibaba highlights hurdles in Russia’s pivot east

July 12, 2016

Alibaba’s experience shows Russia’s pivot east is far from straightforward. Under President Vladimir Putin, Moscow wants deeper economic ties with China, so it can deal less with an unfriendly West. But Russia’s poor business climate makes life hard for Chinese companies, although they are used to draconian rules at home. Even e-commerce giant Alibaba has only made modest inroads.

In theory, Russia should be a big opportunity for China’s online retailers. It’s a big, neighbouring market, whose consumers are always on the lookout for bargains, and one where the prices of global titans like Amazon are less competitive. There should also be plenty of growth. Online retail comprises only 2 percent of Russia’s retail market, according to Data Insight, versus 11 percent in China. And while many customers for now prefer to pay in cash, payment systems like Alipay – operated by Alibaba affiliate Ant Financial – could also catch on in future.

Hence, Alibaba already takes Russia seriously. Boss Jack Ma attended the St. Petersburg International Economic Forum in June, and his company has investment from local billionaire Alisher Usmanov.

Ma’s AliExpress unit, a marketplace connecting foreign consumers to Chinese companies, has slashed Russian delivery times from three months to 15 days – no small feat in the world’s biggest country. And Russia is now AliExpress’s second-largest foreign market after the United States – though overall international retail revenue of over 2 billion yuan ($342 million) last year was still less than 3 percent of Alibaba’s total retail revenue.

AliExpress is a platform for small businesses, not a retailer itself, and its next goal is to connect domestic companies and consumers. But Russia’s red tape and corruption mean small businesses struggle, and so far few have joined the platform. A “Fashion. Made in Russia” experiment on AliExpress, hosted by the Russian trade ministry, was abandoned due to poor sales. A big problem was that Russian products seemed expensive compared to Chinese ones, Alibaba says. New rules requiring companies to store data on servers within Russia will add extra complexity for foreign players.

If even sector heavyweight Alibaba is having a rough time, smaller players from China are unlikely to be flourishing.

No comments so far

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/