Alibaba inching closer towards picking 20% stake in Micromax?

The news doing the rounds the past several days about Chinese eCom major Alibaba planning to pick up 20% ($1.2bn) stake in India’s leading mobile player Micromax has generated huge interest.

For one, Micromax, which is India’s # 2 Smartphone maker, is growing in leaps and bounds and Alibaba badly wants to foray in a big way in India, given the huge opportunities in online retail. So clearly Micromax can help Alibaba gain that critical foothold in the Indian market.

Micromax’s growing clout becomes evident as we look at Q4 2014 mobile handset shipment numbers. According to a Canalys report, during this quarter Micomax up seated Samsung with and garnered a 22% share of the market with Samsung trailing behind with 20% share.   However Samsung has vehemently denied this data and claimed it is still the number one market player with leading share.

According to Canalys Analyst Rushabh Doshi, We believe that catering to local market preferences will become increasingly important. Micromax has been quicker than its competitors to improve the appeal of devices, for example, by including a wide variety of local languages on its Unite phones. Lava, another domestic vendor, has launched devices that cater to the preference for greater battery life – in this case a couple of days. But vital to success is selling these handsets at low price points to appeal to the bulging mid-level income market in India.’

Why Alibaba Needs Micromax?

With the muscle Micromax has on the handset business, it makes it easier for Alibaba to dent in to the Indian market in a big way and right now it does not have any major levy apart from the Paytm stake buy, that is also pretty recent. But if one looks at the potential for Alibaba here in India via Micromax it can compete with all the players- starting from Flipkart, Amazon types to eBay and also with device makers like Samsung.

Point to be made is that India does not allow FDI in B2C etailing, like its Global competitors like Amazon, Alibaba need to adopt a marketplace model in B2C. But since we live in an application economy, what Alaibaba could do is to woo potential customers by pre-installing a retail app on each of the Micromax phones sold.

Moreover, Alibaba’s payment platform Aliplay owned by its group company Ant Financial Services have already picked up stake in India’s Paytm. So clearly, the benefits Alibaba will get is multi-pronged it will be able to cross sell the synergies percolating out of its Micromax deal and other inorganics like Paytm and blend it with its traditional expertise in online retailing. Its creating an eCom ecosystem wherein it will tap into the India’s eCom opportunities in many ways- selling devices to marketing digital advertising to apps and more.

If we look at the opportunities, Alibaba’s global marketplace AliExpress is already synergized with Paytm- what it means is that Indian customers can now shop at AliExpress. And similarly Alibaba can create a device portfolio by selling cheap Micromax mobile in China.

How far Alibaba will be able to get a foothold into a highly regulatory driven and crowded Indian B2C market online market place is to be seen. Furthermore none of the marketplace players are not making any big profits right now and it’s a game driven by very poor margins.

Much hinges on the retail reforms in this part of the world. While in online direct B2C retail, the Indian Government has not yet allowed FDI, but many believe that this will happen ultimately in India and will be in sync with FDI in multi-brand brick and mortar retail.

That eventuality will put players like Alibaba to leverage on the huge opportunity that lies in mobile and eCommerce in India.