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Alibaba comes to Pakistan


9/27/2017

Pakistan’s IT industry has massive growth potential and even greater investment prospects. In light of this, e-commerce giant Alibaba, one of the world’s largest online retailers, with a total market value of $380 billion, has recently signed an MoU with our Ministry of Commerce. This development is aimed at promoting exports from SMEs and may potentially lead to an investment of approximately $400 million in Pakistan’s e-commerce sector – investment at the moment stands at well north of $120 million. Furthermore, this agreement entails the provision of training for SMEs with respect to using e-commerce platforms, along with promoting mobile financial services and online payment services.

On the face of it, Alibaba’s entry seems full of benefits. However, it would be wise to consider both the potential benefits, as well as the drawbacks which may arise as a result of the company’s entry into Pakistan.
 
We know that investors often label Pakistan as unsafe for investment purposes and for a long time no major e-commerce company has dared to set foot in Pakistan. However, there has been a drastic change in this perception. Large e-commerce portals, such as PakWheels.com, Zameen.com and Rozee.pk have changed the landscape of the e-commerce industry. This change may be rightly attributed to the emergence of 3G and 4G, which constitute 90% of Pakistan’s broadband base. With the entry of Alibaba, other tech giants will follow, with the result that SME exports will be encouraged, an issue which was previously not addressed.
 
Alibaba’s partnerships with local vendors could also boost the economy. Good examples here are Careem and Uber; owing to their success, many local start-ups have done well – many have worked on the same model and brought motorbikes and rickshaws to similar businesses. Thanks to these developments, Pakistan’s GDP grew by 5.3% – a 10-year high, and according to Ishaq Dar, the former Federal Finance Minister, for the first time the size of the economy surpassed $300 billion.
 
The promotion of the SME sector will have a trickledown effect that will spearhead the development of local manufacturing. In addition to this, an investment of $400 million will prove to be beneficial to the e-commerce sector. Foreign competition will lead to better standards in this sector and force local e-commerce companies such as Daraz.pk and Homeshopping.pk to become more efficient or risk being wiped out. Consequently, not only more jobs will be generated, but HR and relevant skill-sets will also be developed. Alibaba’s partnerships with local vendors could also boost the economy. Good examples here are Careem and Uber; owing to their success, many local start-ups have done well – many have worked on the same model and brought motorbikes and rickshaws to similar businesses. Thanks to these developments, Pakistan’s GDP grew by 5.3% – a 10-year high, and according to Ishaq Dar, the former Federal Finance Minister, for the first time the size of the economy surpassed $300 billion.
 
However, there is a negative side to this. As a foreign firm with resources equivalent to that of the world’s 22nd largest economy, the entry of Alibaba poses major threats to the e-commerce industry. Firstly, there is the possibility of the monopolisation of the e-commerce industry, as local players will not have the means to compete with Alibaba’s resources and as a result, some of these ventures may die out. This fear is even more realistic when seen in the light of Alibaba’s track record of acquiring local businesses. Furthermore, the presence of the Alibaba platform could potentially increase the dumping of Chinese goods in the market. As a result, local manufacturers will be unable to match the low prices Chinese manufacturers offer. More importantly, the Alibaba Group has been influencing China’s economic and foreign policies, something which may also happen in Pakistan.
 
To summarise, although there are many benefits attached to Alibaba’s entry, a cost-benefit analysis is required to better understand its implications. There are always pros and cons to any new entrant in a market and it will only be after Alibaba starts operations in Pakistan, that we will be able to assess their performance and impact on Pakistan’s economy. As of now, the entrance of Alibaba seems positive, promising a major boost to the economy. Given that the future is all about the internet and technology, the e-commerce industry can only grow in the future. According to an insider source, the e-commerce industry will surpass the one billion dollar mark by 2020 in Pakistan. So let’s keep our fingers crossed and our hopes high.
 
Source: Dawn