U.S. Markets close in 6 hrs 20 mins

Alibaba takes on Amazon in a $1.8 trillion US market

Krystal Hu

Alibaba (BABA) is known for connecting foreign brands with Chinese consumers. Now as part of its globalization strategy, the Chinese e-commerce giant wants to be the go-to online marketplace where American businesses trade with each other.

Alibaba revealed its ambitious plans for the U.S. market on Tuesday by launching new capabilities for U.S. businesses on Alibaba.com, including domestic payments, marketing tools, and a U.S.-based support team. It is also kicking off, in Brooklyn, New York, a national tour to recruit U.S. small businesses to sell on its platform. A few anchor retailers like Office Depot (ODP) and RobinsonFresh have already opened their stores on Alibaba.com, but the company is not disclosing the exact number of U.S. sellers that have signed up for the new initiative so far or its goal.

The move puts the Chinese e-commerce player in direct competition with Amazon (AMZN) in the business-to-business (B2B) online marketplace. Online business sales have grown fast and have overtaken retail e-commerce sales. By 2019, the U.S. B2B e-commerce market will be worth $1.1 trillion, compared to the business-to-consumer (B2C) market at $480 billion, according to Forrester.

Attendees walk by the Alibaba booth during CES 2019 at the Las Vegas Convention Center on January 9, 2019 in Las Vegas, Nevada. (Photo by Justin Sullivan/Getty Images)

Amazon has been a major player in the B2B space in the U.S., as analysts at Bank of America estimate. Amazon Business could hold as much as 10% of the market. Similar to its consumer offers, Amazon provides Business Prime subscription service, which includes fast shipping options, purchasing insight and control tools, and payment terms.

To compete on Amazon's home turf, Alibaba’s pitch to small businesses is that they own the data and the customers’ relationship, a main concern brands have whey they work with Amazon. Alibaba also has a different business model, in which sellers pay an upfront membership fee, without commissions in each transaction.

“Our relationship with our sellers is we're an ally to them. And it's really important to understand that if you're a seller, it’s all about how you own the relationship with your customers — We don't,” said John Caplan, the head of Alibaba’s B2B business in North America.

Full speed into the U.S. despite trade tensions

Jack Ma, Chairman of Alibaba Group, speaks at the Alibaba Gateway Conference in Toronto, Ontario, Canada September 25, 2017. REUTERS/Mark Blinch

The move highlights Alibaba’s latest focus in the U.S. as trade tensions grow between the U.S. and China.

“Despite all of the geopolitical tensions that exist in the world, between China and the U.S., we continue to build our U.S. business carefully,” said Michael Evans, president of Alibaba, who was tasked with building out Alibaba’s international footprint about four years ago. Evans said he has spent time in Washington talking about the tech giant’s business plan in the U.S. so “we don’t surprise them.”

The decision to develop a B2B business in the U.S., a market where it already has a strong footprint, seems natural. The U.S. is the largest source of buyers on its website, Alibaba says.

“The fastest way to grow a platform is to turn your buyers into sellers,” said Jeff Towson, an investment professor at Peking University. “Step one is you connect U.S. buyers with Chinese sellers. Step two is you turn U.S. buyers into sellers.”

Alibaba has demonstrated its power to facilitate cross-border business as the empire has been built on the growing middle-class of consumers in China. The new move will test their ability to serve American sellers and buyers as they try to localize their business.

“One of their strengths is that they can do this business in a very flexible way,” Towson said, referring to Alibaba. “They want the money but they don't need the money. They can do things in the short term in order to build their platform and get it moving without regard to money.”

Cross-border trade had been Alibaba’s focus in the U.S., and it has hosted a conference in the U.S. called Gateway to attract small businesses. However, it discontinued this conference amid the trade war between the U.S. and China.

“When the geopolitical tensions became much greater, we thought, probably not a great idea to continue to make that such a high-profile focus,” Evans said.

Krystal Hu covers technology and China for Yahoo Finance. Follow her on Twitter.

Read more: