Tencent, Alibaba take Chinese rivalry abroad; find new ways to defend turf

If the billions of dollars being pumped into India wasn’t indicative enough of the intense competition in e-commerce, a clause in Walmart’s filings to the US Securities and Exchange Commission earlier this month revealed more ways in which global players are trying to defend their turf.

The Walmart filing revealed that Chinese internet giant Tencent will have the first right to purchase shares from any other stakeholder in Flipkart in case they plan to sell it to rival Alibaba. Shareholders would be able to sell to Alibaba only if they alert Tencent five working days prior to the sale and give the company a chance to match Alibaba’s offer. 

Though no such talks are known to be ongoing, the clause is clearly preemptive, experts and industry watchers say. 

“It’s an extraordinary clause and it’s not often you see something like this,” said a high ranking official of one of India’s biggest venture capital firms. “Even though the rationale may seem quite straightforward, given Tencent and Alibaba are the biggest competitors in China, it’s odd.” 

Both the firms have made investments in competing services. In India, the last large open global market, both have used the investment route to build their own camps.

Alibaba has pumped billions of dollars into Paytm, BigBasket, Zomato and even Snapdeal, choosing to make larger investments and play more aggressively. Tencent has been making several smaller investments, but did not shy away from investing big amounts in market leader Flipkart, Ola or even Byju’s, when situation warranted.

Tencent is a partner of Walmart in China, who together own JD.com, which is seen as Alibaba’s competitor. 

Japanese investment giant SoftBank, which runs a $100-billion venture capital fund, is also an aggressive player in the space, despite it pulling out of Flipkart after it managed to gain 60 per cent on its investment in the company within a year.

“There are only so many big names globally that can bankroll the kind of losses e-commerce firms in India are suffering. So, when the pool of investors to pick from is small, everyone needs to protect themselves. 

Look at what SoftBank has been doing,” said an investor, who did not want to be named.

It isn’t clear if the clause was part of the agreement Walmart had with Flipkart’s shareholders when it invested $17 billion to pick up 77 per cent stake in the firm, or if it has been carried over from a previous agreement that might have been signed prior to the Walmart acquisition. 

A Walmart spokesperson did not respond to calls made by this newspaper.

“India is a potentially large strategic market, so you would want to keep your competitors out. Such a clause might not be common, but it’s not unthinkable. Various companies have differential rights for founders, or liquidation preferences for investors. So, some clauses are more common and some aren’t,” said Devangshu Dutta, chief executive at Third Eyesight.