Alibaba Group Holdings Ltd. (BABA), China’s largest e-commerce player, is ramping up its logistics network. The Hangzhou-based company’s logistics affiliate, Cainiao Smart Logistics Network Ltd., was one of the main investors in Best Logistics Technologies Ltd.’s $760 million fundraising round yesterday. Other investors in the company, which is backed by Alibaba, include China Development Bank International, Goldman Sachs Group Inc. (GS) and CITIC Private Equity. 

The logistics company, which offers “comprehensive supply-chain solutions” according to its website, was founded in 2007 by Google China’s former co-president Johnny Chou. It has 30,000 employees and operates 400 distribution centers in China, three warehouses in the United States and a single warehouse in Germany. 

This is not the first time that Alibaba has invested in China’s fledgling logistics sector. Last year, the company invested $4.6 billion in Suning Commerce, the country’s largest electronics retailer. That investment was as much an investment in the retailer’s growth as in its logistics network, which covers nine-tenths of China’s counties. The country’s logistics network is fragmented and Alibaba plans to invest as much as $16 billion over the next five to eight years in streamlining and making the delivery process more efficient. That investment should help stave off competition and produce good returns for Alibaba: it generated sales worth $14.3 billion in a single day alone with its current logistics network. (See also: Alibaba Kills On Singles Day; Shares Decline.)

The company has an internal logistics division, Alibaba Logistics, that handles deliveries for its network of sites as well as third party partners, who have listed their goods on the Alibaba network. It has inked partnerships with the United States Postal Service (USPS) to expedite delivery of goods to the United States from China and also leased container ships.  

This May, Cainiao president Judy Tong said that the company is planning to quintuple warehouse space to nearly 54 square million feet in the next year alone. According to her, the company intends to build two tiers of warehouse space. The top tier will be focused on eight to ten cities while the lower tier (ostensibly in remote and rural areas) will use partners and businesses listed on Alibaba’s network of websites. Attracted to the country’s consumer market, a number of institutional firms, such as Warburg Pincus and Carlyle Group LP, have invested as much as $12 billion in China’s logistics sector. (See also: 10 Most Influential China Companies.)

 

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