Alphabet’s Google announced Monday that it was investing $550 million cash in Beijing-based Chinese e-commerce company JD.com as part of a strategic partnership.
The investment will fetch Google in excess of 27 million newly issued Class A shares of the Chinese online retailer at $20.29 per share.
It has an equivalent value of $40.58 per ADS (American Depository Share), which is a “negotiable certificate of title to a number of shares in a non-US company which is deposited in an overseas bank.”
The ADS calculation is based on the volume-weighted average trading price over the last 10 trading days.
In a joint statement, the two companies said that the purpose of the tie-up was to “collaborate on a range of strategic initiatives, including joint development of retail solutions” in regions, including Southeast Asia, the U.S., and Europe.
The decision comes on the heels of Google’s alliance with French online retail company Carrefour SA to sell groceries online in France through the US tech giant’s Google Home and Google Assistant platforms.
“We are excited to partner with JD.com and explore new solutions for retail ecosystems around the world to enable helpful, personalized and frictionless shopping experiences that give consumers the power to shop wherever and however they want,” Google’s Chief Business Officer Philipp Schindler said in a statement.
So, the obvious question to ask is what’s in it for the two companies?
As far as JD.com is concerned, the partnership will give its products the visibility it seeks beyond its stronghold in China and Southeast Asia, particularly, in US and European markets, making it easy for consumers to buy them online with the help of the aforementioned Google platforms.
Furthermore, with trade tensions riding high between Beijing and Washington, the timing of the deal couldn’t have been more opportune for the Chinese retailer.
In a recent interview with CNBC, JD.com Founder and CEO Richard Liu said that an extended trade-war between the two superpowers would have “horrible” consequences for numerous American brands, as a growing number of Chinese consumers are getting drawn to overseas products.
“For the next five years, or 10 years, I’m sure in the larger cities, almost half the shopping will come from imported goods,” Liu told the Englewood Cliffs, New Jersey-based business news network.
Basically, that translates to a big consumer base in China for American manufacturers, “but if it’s a long-term (trade) war, it will be horrible,” Liu told CNBC, going on to say that it would “hurt a lot of American brands.”
For Google, it’s a matter of staying ahead of the competition, specifically Amazon, as well as expanding its horizons, even more, to gain a foothold in the ever-growing Asian markets and have a meaningful presence in voice-enabled e-commerce.
Analysts are of the opinion that not only will the partnership boost Google’s retail designs on Chinese consumers but will also help the company to further consolidate its affiliation with Walmart, allowing the two companies to jointly address the challenges posed by rivals Amazon and Alibaba, in key markets around the globe.
Over the past year, we have seen Google partner with Walmart in a number of areas after the two companies pooled in their resources in August, last year, to sell 100s of 1000s of Walmart goods on Google’s voice-powered platform – Google Assistant.
Again, the move was meant to check the growing dominance of Amazon in the world of voice-enabled shopping.
JD.com’s biggest competition in China’s huge e-commerce market is Jack Ma’s Alibaba, with both the online retail forces investing heavily in technology and logistics – including high-tech retail outlets and drone delivery tests to reach rural China – in a bid to get a bigger piece of the Chinese pie.
Investment banking firm D.A. Davidson & Co’s director of research Gil Luria told CNBC’s “The Rundown” – hosted by Dan Murphy from news channel’s Singapore Exchange – that it was crucial to monitor the two companies in the coming months.
“They’re singularly focused on being a fantastic retailer,” he said at “The Rundown” show.
“They have the advantage on logistics, they have the advantage on quality and they have the alignment with Tencent, which is incredibly important because of the relationship with WeChat,” he added.
Tencent is one of China’s big-time technology giants whose mobile chat service, WeChat – considered to be one of the world’s most powerful apps – has boosted its sustained expansion into mobile services.
With both the company benefiting from their association with the WeChat app, which in China is known as Weixin, they have to explore other avenues for that deciding edge that they seek over each other; Monday’s announcement appears to be a step in that direction, at least as far as JD.com is concerned.
Bloomberg reports that its intelligence analyst Jitendra Waral has said that one of the partnership benefits for Google comes from the fact that JD.com boasts its own fulfillment and logistics network, not much different from Amazon.
Obviously, it translates to a “more scalable infrastructure than that of other China-based e-commerce monoliths such as Alibaba Group Holding Ltd, which focus more on listings,” reported Bloomberg.
“Retail is the biggest advertising area for Google, and the search giant’s spending on e-commerce is likely to increase, Waral said. The partnership with JD.com represents Google’s push to develop a long-term defense strategy against Amazon’s ad-market with two main goals: to retain their strength in retail advertising, and to expand into a bigger addressable market,” reported the New York City-based media company.
“It’s an offensive and defensive play,” Waral said, according to Bloomberg.
The half-a-billion-dollar-plus investment, by the way, is going to be sourced from Google’s operating unit and not from any of the parent company Alphabet’s investment units.
“This partnership with Google opens up a broad range of possibilities to offer a superior retail experience to consumers throughout the world,” JD.com’s chief strategy officer, Jianwen Liao, said in a statement.
Company officials believe that the deal would be a perfect blend of the US tech company’s market reach and strength in analytics with the Chinese e-retailer’s expertise in logistics and inventory management.