Alibaba Group to build its western base in China

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Alibaba Group to build its western base in China

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Alibaba Group, China’s largest e-commerce service provider and one of the world’s largest online B2B platforms, declared on June 29 to set up its western base in Chengdu, the provincial capital of Sichuan, with an investment of US$100 million.

The new base will have the functions of R&D, call center, back office operation and maintenance, disaster-prevention backup, and training. It will be set up in the Chengdu’s Hi-tech Industrial Development Zone, and over 10,000 people will be employed.

Being the largest domestic B2B service provider, Alibaba benefited from the boom of China’s B2B market. In 2008, although the country’s foreign trade was hit by the global recession, China’s B2B trade grew by 39.4% to RMB 2.96 trillion, of which Alibaba took 52.6%.

Headquartered in Hangzhou, Alibaba has opened its branches in Beijing, Shanghai and Guangzhou. Now it shifts its attention to the west. Before making the decision to invest in Chengdu, it had investigated several cities in West China. “It is the local authority’s sincerity and efficiency which touched us,” said Jack Ma, board chairman and chief executive officer of the group. “It is of rare occurrence in Alibaba’s history to reach such an important strategic cooperation agreement with a city in only three months.”

However, only the sincerity is not enough. Chengdu’s huge market potential, talent advantages, and effective government services emerged as the other reasons why Alibaba chose Chengdu, said Ma.

Chengdu is one of the major retailer markets in China. In 2008, Chengdu’s retail sales of consumer goods reached RMB 162.2 billion, up 19.1% year on year, ranking ahead of Xi’an, Lanzhou, Kunming, and other provincial capitals in West China. The Sichuan Province, where Chengdu is located, is also the most populous province in the west.

Besides the domestic trade, Chengdu is also the largest city for foreign trade in central and western China. In the first quarter of 2008, despite of the global recession, Chengdu’s total export and import reached US$3.6 billion, up 37.7% year on year. The growth rate is 62 percentage points higher than the national average level.

While Chengdu has huge market potential, its talent advantage cannot be neglected. Chengdu is an important education and R&D center, with abundant human resources. Currently, Chengdu has around 100,000 employees and technicians working in the software industry. As of the end of 2008, there were over 500,000 university and college students in Chengdu, including some 100,000 majoring in software-related disciplines.

In addition, the investment cost in Chengdu is also low. The average wage in Chengdu’s IT and IT-related industries was less than half of that in Beijing and Shanghai. Furthermore, Chengdu also has low land, energy and water costs. For example, the average rent for Grade A office space in Chengdu is about 27%, 33% and 63% of that in Shanghai, Beijing and Shenzhen, respectively.

Moreover, to be different from the traditional IT service industry, the development of e-commerce, especially B2B, relies largely on the development of modern logistics services. Being the regional logistic hub and geographic centre of west China, Chengdu offers good logistic condition. Four major railways and a comprehensive expressway network connect Chengdu with the rest part of the country. Besides, Chengdu also has the nation’s 6th largest airport by cargo throughput, which will become the 4th largest one in near future after the completion of its second runway. It is also the largest airport in central and western China.

Chengdu’s position on China’s telecommunication network is also a bonus for the B2B service provider. This city has been approved to build China’s fourth international telecommunication gateway after Beijing, Shanghai and Guangzhou, becoming the only one in central and western China. After completion, the network speed in this area will be improved, which eases the e-commerce information communication.

To choose Chengdu seems to be a right decision for Alibaba. But it is not the first case. In fact, attracted by these advantages, many IT companies, such as Microsoft, Symantec, IBM and Wipro, all have established their presences in Chengdu. This southwestern city will surely be highlighted on the map of China’s e-commerce and IT industry.