February 13, 2020 / 3:55 AM / 5 days ago

Breakingviews - Alibaba’s virus response is as much VC as ESG

The logo of Alibaba Group is seen during Alibaba Group's 11.11 Singles' Day global shopping festival at the company's headquarters in Hangzhou, Zhejiang province, China, November 10, 2019. REUTERS/Aly Song

HONG KONG (Reuters Breakingviews) - Alibaba’s approach to corporate philanthropy may produce startup-like results. China’s e-commerce goliath has rolled out a series of measures, including waiving merchant fees and slashing logistics costs, designed to provide some relief for small businesses amid the debilitating coronavirus. And the cash-burning subsidies might just help Alibaba keep existing customers and find new ones.

The outbreak has mobilised China’s largest company by market capitalisation to act quickly. Just days after Wuhan, the epicentre of so-called SARS-CoV-2, was effectively quarantined, Alibaba announced a 1 billion yuan ($143 million) fund dedicated to buying and delivering medical supplies to virus-hit areas. This week, Alibaba followed up with additional steps to assist local firms.

Sellers on Alibaba’s flagship TMall shopping site are now exempted from paying commissions as well as services and technology fees for the first half of the year. Additional perks include a monthly subscription to Alibaba’s storefront management software, and incentives such as two months of warehouse rent for new customers who sign up for logistics services before April.

The financial impact of these goodies looks manageable for Alibaba boss Daniel Zhang. The $600 billion company, which is due to report quarterly earnings later on Thursday, is forecast to generate some 520 billon yuan ($75 billion) in revenue in the fiscal year ending March, according to estimates on Refinitiv. Advertising, rather than fees and commissions, matter more for Alibaba’s top line. The giveaways being offered would reduce the top line by just 1%, China Renaissance analysts estimate.

The approach also evokes the subsidy battles scattered across the tech landscape. Venture capitalists enable cut-rate food delivery and bike-sharing services in the hopes that accumulating enough customers eventually will pay off. The phenomenon has even reached Alibaba, which is grappling with slowing growth and intensifying competition, in part because of fast-growing upstarts such as Pinduoduo. Alibaba’s revenue growth is expected to slow to 36% in the three months to December. It’s an impressive rate, but also down from 56% two years ago.

In 2018, Alibaba published its first environmental, social and governance report. Zhang’s virus-related assistance suggests a degree of commitment to the responsibility, but not without missing a business opportunity.

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