As online sales in the US don’t seem to be growing fast enough for Alibaba Group Holding Ltd., the e-commerce giant is reorienting towards a more familiar market. Alibaba is ready to invest in China’s blooming healthcare market, and moved its online pharmacy business worth $2.5 billion into a Honk Kong affiliate.
Alibaba founder, billionaire Jack Ma, seeks to capitalize on the reforms the Chinese government has in plan for the health department, as well as offering more professional healthcare options for China’s rich. In short, a lot more money will be spent on healthcare in China in the upcoming years, either if it’s spent by officials looking to offer decent healthcare to China’s poor, or by the rich monitoring their fitness.
China’s healthcare is considered to be below modern standards, and the government in Beijing looked eager to solve the issue lately. China has a large part of its population struggling with chronic heart disease or diabetes, as well as an aging population that needs specific healthcare. Officials in Beijing are reportedly preparing large scale reforms for the country’s healthcare system, making this a good time to invest for Alibaba.
Moving their whole pharmacy assets under one roof is believed to be an essential step for Alibaba before entering the Chinese market. Honk Kong analyst Alexander Ng explained the importance of the transaction for the company’s efficiency in delivering medical products. “This is actually one of the right pieces of the jigsaw puzzle to piece together,” the analyst said. “Having a network of logistics and also retail will complement its online dispensing services.”
Alibaba Health, the affiliate that will take over the company’s health business, bought 100 percent of the online pharmacy services previously offered by some other subsidiary owned entirely by the Alibaba Group. The $2.5 billion deal, or HK$19.4 billion, will see Alibaba Health buy Beijing Chuanyun Logistics Investment Ltd. from Ali JK Investment, as well as another investor. As soon as the announcement was made on Wednesday, shares in Alibaba Health doubled. The affiliate resumed trade for the first time after being suspended on March 20.
Alibaba Group executives are holding high hopes that the structure will streamlined the supply of the company’s healthcare products. “We expect that this integration will enable Alibaba Group to build a healthcare ecosystem that can utilize e-commerce, big data and other technologies to improve the healthcare supply chain,” chief operating officer Daniel Zhang explained in an interview.
Alibaba Health will now hold exclusive rights on Tmall, an online pharmacy sales platform. The move is not novelty for Alibaba Group, as the retail giant relied on the same platform in the past as an intermediary between business and consumers. The transaction will merely make it official.
In China, pharmacies can only sell online ‘easy’ drugs, such as cough remedies and vitamin tablets, but government officials have long been preparing to open up its $161 billion prescription drug market to private investors. Alibaba is not the only one looking to grab the opportunity. There are other tech giants, such as Tencent Holdings Ltd., or even more traditional retail companies like Wal-Mart Stores Inc. looking to get a share of China’s emerging online health market.
Beijing’s move is seen as an attempt to decrease the importance hospitals have in drug sales, both from an economic perspective and as an effort to fight the corruption that plagues the business. Hospitals currently control around 75 percent of healthcare products sales, and the Chinese government hopes a large portion of this percentage will move away from hospitals and go towards pharmacy chains and online retailers, such as Alibaba.
According to Alibaba, the company has a lot to offer to the business. Tmall, its online marketplace, operates with over 186 online pharmacies. The combined gross merchandise value (GMV) of all these pharmacies was estimated at 4.74 billion yuan for last year, and is expected to grow substantially while the company enters the Chines market.
As far as Tmall’s existing customers are concerned, the transaction will go unnoticed, as they will be able to use the online platform for their shopping the same as before.
Experts believe China currently has a very fragmented supply system for healthcare products, and Alibaba, as an online retailer, will serve beautifully in filling the gaps. “Alibaba is particularly well positioned to bring greater efficiency to the health care industry, in terms of product sourcing, tracking the supply chain and offering greater transparency on pricing,” analyst Mark Natkin believes.
Image Source: Reuters
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