China’s Alibaba Expands Ecommerce Presence in Russia with Minority Stake in Mail.Ru

Alibaba, China’s internet giant, will purchase a 10% stake of Mail.Ru, one of Russia’s largest internet companies, to expand its ecommerce reach in Russia. As part of the deal, Alibaba, Mail.Ru, telecom company MegaFon, and Russia’s sovereign wealth fund, will form a joint venture called AliExpress Russia. Alibaba will have a 48% stake in the new company which will connect Alibaba’s 600 million merchants with Mail.Ru’s 100 million users.

A Small, But Strategic Deal

Although Alibaba is acquiring only a 10% stake in Mail.Ru and the deal value is small by comparison to the tech giant’s previous transactions, this is a very strategic move. Minority investments and joint ventures are two key paths that are often overlooked by companies looking to grow through acquisitions. Often leaders think acquiring is binary: you own all or nothing; however, there are many more options available to you.

Many object to using a minority investment because they are concerned about control. There is a misconception that in order to control the outcome of a deal you must control 100% of the company, but experienced acquirers know to structure their agreement to address control of key areas. For example, if controlling licensing agreements is essential, simply make sure this is noted in the operating agreement and regardless of your stake in the company be it 10%, 50% or 90%, you will have control over this area.

Sometimes wanting to control or own 100% of a company is in fact counter to your long-term growth goals. With a joint venture both Alibaba and its Russian counterparts are invested in the growing the ecommerce platform and furthering growth in a largely untapped market. If Alibaba acquired all of Mail.Ru, it would likely face difficulties entering into the Russian market because as a Chinese firm, it needs Mail.Ru’s expertise in Russia. By using a joint venture, Alibaba is able to gain access to Russia’s 10 million users and grow in a market with lots of room for growth. The ecommerce penetration is just 3% in Russia, compared to 15% in China, which means there is a huge opportunity for both firms. The joint venture ensures both parties are mutually motivated over the long-term.

Photo credit: leighklotz via Flickr CC BY 2.0

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