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This is the first of a four-piece series breaking down Alibaba’s plan to shake up China’s logistics: Cainiao Network. Part 2, Part 3, Part 4

The Beginning

In May 2013, Alibaba, along with Yintai Group, FOSUN Group, FORCHN Logistics, SF Express and a group of leading Chinese last-mile logistics companies conveniently labeled “Three TOs and One DA” (YTO Express, STO Express, ZTO Express and Yun Da Express) established Cainiao Network Technology Co. Ltd.

This consortium led by Alibaba is committed to building a “China Smart Logistics Network (CSN)” to realize 24-hour delivery of any product to anywhere in China and a total of 300 billion RMB ($43 billion USD) was invested to kickstart the project.

Alibaba’s announcement of Cainiao and Jack Ma entering the logistics industry was like an atomic bomb dropping, with rippling effects across the entire value chain including the Internet, ecommerce and real estate industries. People soon started speculating that similar to how Taobao transformed an entire generation’s shopping behavior, Cainiao would disrupt and change the traditional logistics ecosystem.

But during the noise, Cainiao retreated into silence. There has been very little public information about the company except for leaked news that it had been gradually acquiring more land as part of a much bigger and soon to be revealed strategy.

All this changed two years later on May 28, 2015, when Alibaba held the “Cainiao Jianghu Assembly” to officially launch Cainiao, along with answers to a series of personnel changes and the strategic positioning of Cainiao Network’s future.

This four-part series intends to shed more light on the series of actions and arrangements made during the period of time between the establishment of Cainiao Network in 2013 and the May 2015 assembly.

We will learn more about Cainiao Network’s underlying business model, why Alibaba initiated it and what the implications are for industries inside China and beyond. With Alibaba’s march into Southeast Asia through the Lazada acquisition, there may be signs that Jack Ma’s Cainiao Network strategy may not only be limited to China.

Analysis of Cainiao’s Ownership Structure

To fully understand Alibaba’s Cainiao strategy, we need to dive deeper into the consortium’s ownership structure. Who are the key players and their intentions? Their backgrounds and roles within the consortium and their percentage share holdings reveal Jack Ma’s master plan.

As mentioned at the beginning of this article, Cainiao’s investors include Alibaba, Yintai Group, FOSUN Group, FORCHN Logistics, SF Express and “Three TOs and One Da”. The proportion of each investor’s investment is shown in the table below:
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Brief introduction and analysis of each investor’s background:

First, FOSUN Group founded in 1992, is mainly engaged in real estate investment, pharmaceutical and steel industries, and its far-reaching professional experience ranges from land acquisition, construction, and warehouse real estate property management.

Second, Yintai Group has long been involved in department store chains, particularly in supply chain management. When Cainiao Network was first established, Shen Guojun from Yintai Group was appointed as its CEO. It was because of Yintai Group’s strengths in this area that Shen Guojun was appointed to take charge of Cainiao’s warehouse and logistics operations.

Third, Alibaba’s stake in Cainiao Network accounts for the largest chunk — a 43% of total investment. This is mainly based on the following:

  • Alibaba has a lot of capital
  • Alibaba is acting to unite different parties in order to address its own weaknesses with regards to warehousing and logistics
  • Alibaba has always favored an asset-light, platform approach (i.e. Taobao and Tmall) and doesn’t plan to become an asset-heavy organization. Let other players do the heavy lifting while Alibaba invests into and builds a platform for intelligent logistics it is able to unify and control the flow of information and finance.

Given that Cainiao could be considered a logistics play, then why have the “Three TOs and One Da” companies and SF Express each invested only 50 million RMB ($7.2 million USD) to account for 1% of total investment?

SF Express and the “Three TOs and One Da” are courier companies. Their participation reflects the resolution of Cainiao Network to become China’s logistics backbone, while also ensuring that risk can be properly dispersed. But why do they account for such a tiny stake?

This may be due to Alibaba’s business arrangement considerations. Through analysis of the relevant investors, we can see that in the future business operations of Cainiao Network, FORCHN Logistics will be mainly responsible for line-haul logistics, and the “Three TOs and One Da” companies and SF Express are left to compete for last-mile delivery.

Through this shareholder structure: FOSUN builds warehouses, Yintai manages warehouse operations, FORCHN is responsible for line-haul logistics, the “Three TOs and One Da” companies take care of last-mile delivery, and Alibaba provides the platform and controls flow of information and financial reconciliation.

The stage is set for Cainiao Network to become the single biggest backbone for logistics in China.

Analysis of Cainiao’s Executive Team

Within the short two years after the founding of Cainiao Network, the company has been through several executive changes. All of which were strategic and diving deeper provides additional insight into Cainiao’s strategy.

When Cainiao Network was first established in 2013, Jack Ma himself served as chairman of the board and Shen Guojun served as CEO. One year later, Shen Guojun became executive Chairman of the Board of Cainiao Network while Zhang Yong, COO of Alibaba Group at the time, took over as CEO instead.

Finally, in 2015, it was disclosed at the “Cainiao Jianghu Assembly” that Tong Wenhong would serve as president of Cainiao Network, specifically responsible for Cainiao Network’s business operations. Who are these big shots?

Shen Guojun (Cainiao Network Founding CEO; former Chairman)

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Shen Guojun founded China Yintai Investment Co., Ltd. in 1997 and served as Chairman of the Board. As the founder of Yintai Group, Shen Guojun led the company’s expansion into commercial retailing, real estate development and natural resources, eventually becoming the 97th richest person in China with an estimated net worth of $2.3 billion.

Shen has also established many well-known landmark projects such as Beijing Yintai Center, Hangzhou Lake Coast Yintai, Hangzhou Wulin Yintai Department Store, Hangzhou West Yintai City, Chengdu Yintai Center and Ningbo Yintai Universal City just to mention a few. As of 2015, Shen Guojun retired as chairman of Yintai Group Board of Directors and Zhang Yong from Alibaba took over.

Zhang Yong (former Cainiao Network CEO, current CEO Alibaba Group)

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Zhang Yong is the current CEO of Alibaba Group, a member of the Alibaba Group Board of Directors as well as a founding partner of Alibaba. A Shanghai native, Zhang Yong started out his career in auditing and advisory at Arthur Anderson and PricewaterhouseCoopers in Shanghai.

In 2005, he joined Shanda Interactive Entertainment Limited, a leading online game developer in China, as CFO. During his two-year stint at Shanda, he led the company through a rapid growth period culminating in a public listing on NASDAQ.

In August 2007, Zhang Yong left Shanda to join Alibaba Group to serve as Taobao’s CFO and later COO of Taobao and General Manager of Taobao Mall. In 2011, as Taobao Mall spun off from Taobao to become Tmall, Zhang Yong served as its president. During his time heading up Tmall, Zhang Yong grew the platform into one of the world’s largest ecommerce marketplaces and is also credited for inventing the Singles’ Day 11.11 mega shopping event.

Since September 2013, Zhang Yong has served as the COO of Alibaba Group, responsible for both Alibaba Group’s domestic and international operations. He has led Alibaba Group in its continuing transition towards mobile, established an integrated global logistics network – Cainiao Network, and launched the Alibaba international platform where China’s consumers can buy global brands – Tmall International. Zhang Yong has also led a number of important strategic investments for Alibaba Group, including Ali Health, Haier Electric, Yintai Business Group, and Singapore Post.

On May 7, 2015, Alibaba Group announced that Zhang Yong would become the CEO of Alibaba Group and, at the same time, serve as Chairman of Yintai Group’s Board of Directors.

Tong Wenhong (current President and COO of Cainiao Network)

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In a classic rags-to-riches story, Tong Wenhong joined Alibaba in 2000 and slowly worked her way up from front desk receptionist to Alibaba Group Senior Vice President. Today, she’s a partner at Alibaba and serves as COO of Cainiao Network as well as Alibaba Group SVP.

With a strong team spearheading this ambitious project by Alibaba, how will they structure a business model to be a strong contender against competitors like JD? The next article in this series will focus on the formation of Cainiao Network’s strategy and further glimpse into Jack Ma’s plans.

The original first appeared in Chinese on Yunbao88. Editing by ecommerceIQ team. Sign up for eIQ newsletter for updates. 

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