Alibaba, one of the world’s largest E-Commerce marketplaces and the third-largest company in China by market capitalization, is caught between a rock and a hard place. Jack Ma’s company has been thrust into the spotlight amid sanctions that have been placed on a trio of its Russian partners in the AliExpress joint venture, the Chinese tech giant’s international e-commerce platform, by the West.
China so far has failed to support Russian sanctions, with one Chinese official even describing them as “outrageous.”
Alibaba’s Ma is the architect of the AliExpress venture, which was formalized three years ago. After observing the demand for the international e-commerce platform, he shipped some staff from the Hangzhou location to Russia. The tech billionaire also poured $100 million to create a joint venture.
In exchange for doing business in President Putin’s Russia, Ma agreed to take a minority stake in the venture. In contrast, Russian partners — mobile phone giant MegaFon, Russian sovereign wealth fund RDIF, and internet company Mail.ru Group — would take a controlling stake. Mail.ru has since changed its name to VK Group, while MegaFon divested its position to Russian oligarch Alisher Usmanov.
Since Russia invaded Ukraine, the United States has imposed sanctions on RDIF, Usmanov, and VK Group boss Vladimir Sergeevich Kiriyenko, paving the way for Washington, D.C., to punish anyone who engages with companies on its list. However, whether or not the United States acts on those threats is not a foregone conclusion.
Conversely, U.S. and EU sanctions on Russian companies are nothing new and have been on the table for nearly a decade after Crimea. Alibaba saw the writing on the wall and has already implemented safeguards for its Russian assets if its partners are slapped with penalties.
International Impact
Before Moscow attacked Ukraine, AliExpress ranked among the top-two e-commerce platforms in Russia, with a 10% piece of the market share pie. However, It’s not as though AliExpress is a cash cow for Alibaba. According to the WSJ, it represents only a tiny piece of the company’s total sales, at 5%.
Nevertheless, AliExpress Russia is still critical to Alibaba because it is at the core of Ma’s international expansion ambitions. Also, AliExpress Russia’s sales have increased, climbing close to 50% higher in 2021.
The timing for controversy couldn’t be worse for Alibaba, whose stock price has shaved off roughly 50% of its value since Beijing canceled the IPO of its affiliate company, Ant Group, in 2020. Now it runs the risk of further alienating customers with its Russian connections while many of its Western counterparts leave Moscow in droves.
Alibaba 1-Year Stock Chart | Source: TradingView
U.S. tech giants, including Apple, Google, and Microsoft, have taken a stand against Russia in one way or another, including suspending sales or pausing other services in Moscow.
Alibaba’s chief rival, Amazon, has blocked Russian users from accessing its Prime Video platform. At the same time, its cloud division, Amazon Web Services, no longer takes customers from Russia or Belarus, and it stopped shipping retail products to customers in those countries. Meanwhile, analysts say that Chinese companies are ready to pounce and take market share as U.S. companies withdraw from Russia.