Kudos to JD.com (NASDAQ:JD) for trying, directly and indirectly. But Alibaba (NYSE:BABA) isn’t even close to being dethroned as China’s king of e-commerce. Alibaba is as secure there as Amazon (NASDAQ:AMZN) is in North America.
A couple of thousand miles south of China, though, it’s a considerably different story. While its market is arguably less ready there than in other parts of the world, owners of JD.com stock can celebrate the fact that it’s JD rather than Alibaba shaping the future of e-commerce in Indonesia and its geographical neighbors.
It’s certainly not the proverbial big Kahuna that China is. It’s an opportunity for JD, however, that’s bigger and better than most investors may realize.
The comparisons to Alibaba are understandable. Both were built on the back of burgeoning Chinese consumerism and bolstered by the advent of accessible internet service.
JD and Alibaba aren’t quite cut from the same cloth, however. Alibaba is a middleman, mostly, connecting buyers and sellers through its online Tmall platform, while JD.com stock is increasingly an investment in a retail logistics solutions provider. The two entities overlap to be sure, but they operate distinct business models.
The differences hardly end there, however. Unlikely to make a dent in Alibaba’s dominance in China, JD.com has turned its focus southward, largely starting with Indonesia.
The strategy started quietly taking shape in 2017 with a $100 million investment in then-startup ride-hailing service Go-Jek. Later that year, the company shelled out $500 million to develop Thailan-based fintech and e-commerce solutions. Last year it opened a cashierless store in Jakarta — a la Amazon — and just a few days later launched JD.ID, which is a virtual store-shopping experience. Indonesia consumers “shop” remotely using digital banners placed in a public space, and the ordered goods are delivered to that person’s home.
Alibaba has competed for access to the Indonesian market as well, pouring a total of $4 billion into Lazada as of early last year. Lazada is an e-commerce site established to serve the Indonesia market. Amazon even continues trying to carve out a piece of the southeast Asian market, using Indonesia as something of a toehold, committing $1.3 billion worth of investments there late last year.
It’s JD, however, that appears to fully have its finger on the pulse of the region’s consumers even if Lazada is the biggest traffic draw.
On the Verge
It’s a smart move.
As the growth of China’s consumer class starts to cool, Indonesia’s is still heating up. Last year’s e-commerce spending in Indonesia reached $13 billion, according to Morgan Stanley, after growing at an annualized pace of 50% for the past two years. By 2023, the figure could exceed more than $50 billion. That would make it a bigger opportunity than frequently lauded India.
It’s not a terribly difficult outlook to fathom. Of the country’s 264 million residents, only 195 million of them currently use smartphones, and only 30 million of them are online shoppers. The figures leave room for rapid growth, not unlike the evolution China’s consumers made just a few years prior.
Indonesia is also setting the standard, and pace, for neighboring countries’ e-commerce industries to follow.
The few JD.com stock holders that have been following the solidification of southeast Asia’s e-commerce market will also likely know Indonesian authorities recently imposed new rules on companies doing business in the country. Operators will now pay income tax on profits earned there, and shoppers will pay a value-added tax on goods purchased. It’s a development that could crimp the country’s e-commerce growth right as it’s hitting full stride.
It’s also a development, however, that may not weigh much on JD.com.
As was noted, JD increasingly aims to become a logistics service provider rather than just a middleman, offloading some of that new burden to product and service providers. Indeed, almost as if scripted, Accenture managing director Mohammed Sirajuddeen said just last month that the one stumbling block preventing Indonesia’s e-commerce market from soaring to a $300 billion industry by 2025 was its poor logistics network.
The problem plays right into the logistics-minded hand JD.com is holding.
Looking Ahead for JD.Com Stock
JD.com is anything but a pure play on Indonesia, to be clear. Indeed, it’s not even a pure play on the underserved and budding southeast Asian market. The future value of JD.com stock still greatly depends on how well it serves China’s retailers.
Nevertheless, JD’s work and strategy in Indonesia has to be respected. The nickels and dimes Alibaba and Amazon are largely overlooking outside of China will soon be quarters, so to speak, and in some cases, a full dollar bill. Just as Alibaba and Amazon are tough to compete with where they’re well established, JD.com will be tough to topple where it’s making a point of establishing its new roots.
It’s a detail that will only become a bigger part of the JD stock story going forward.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.
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