JD enlists Tencent as it preps to take on Amazon in US

Bloomberg

JD.com Inc. is preparing to make its US debut with a beachhead in Los Angeles, seeking to best arch-rival Alibaba and challenge Amazon.com Inc. on its home turf.
The $68 billion company, which said in December 2017 it’ll start online sales in the US by the second half of 2018, is now seeking funds to bankroll a logistics build-up to support an international expansion. JD is in final-stage discussions to sell 15 percent of its logistics arm to Tencent Holdings Ltd. and other investors in an early fundraising round. Tencent will get about a third of the shares on offer and the deal will be completed by the middle of next month, billionaire founder Richard Liu said.
That’s a precursor to a logistics initial public offering in China or Hong Kong in about three years, Liu said, giving his most detailed outline of JD’s global push to date. The company founder wants to leapfrog Alibaba Group Holding Ltd., which like JD rode an unprecedented consumer spending boom but remains largely home-bound.
“JD’s rule is that once we decide to do something we never limit the money,” Liu said in Davos, Switzerland, where he was attending the World Economic Forum. The company wants half of its revenue from overseas within a decade and “we will continue to invest until we achieve our goal,” he said.
JD, which is listed in New York, is eyeing the largest city on the US west coast because of its enormous Chinese diaspora, and may lean on shareholder Walmart for initial logistics support. Liu, who said this week he worried about the increasing difficulty of penetrating a protectionist American market, said he was considering multiple options for a US entry, including partnerships with local companies.
“This year, Vietnam, India, Philippines, Malaysia—every Southeast Asian country—we will come by the end of this year,” Liu said. “Our future is we will invest in US and build a warehouse fulfillment center in US so you can get same-day delivery.”
JD has said previously it wants to start online sales in Europe and the US by the second half of 2018. Liu’s strategy is simple: sell quality Chinese goods at lower prices than his competitors. He wants half of JD’s revenue to come from abroad in
10 years, hopefully evenly distributed between Southeast Asia, the US and Europe.
New Street Research analyst Kirk Boodry said JD getting half of its revenue from overseas would be a surprising achievement, and questioned its ability to win market share in countries where rivals were firmly entrenched.
But the company is lining up powerful backers to realise its vision. JD is Walmart’s main partner in China, and it’s teamed up with Tencent in a number of deals, including the $863 million investment into VIPShop Holdings Ltd. Tencent declined to comment on the logistics stake.
A “secret team” spent two years brainstorming with Chinese brands such as Xiaomi Corp. on how to take the platform global, Liu said. Its push into the developed world however will be one of JD’s riskiest ventures to date. The online retailer’s expansion into Southeast Asia, starting with operations in Indonesia and Thailand, faced relatively little competition. That won’t be the case for Europe or the US, where Amazon is active.