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China’s Alibaba storms America’s retail gates

The world has officially shifted on its axis, as China's leading e-commerce firm takes aim at the U.S. retail market.

Alibaba Group Holding Ltd.'s launch on Wednesday of a direct-to-consumer website called 11 Main reverses the long tradition of Western giants trying to carve out a slice of the Chinese consumer market. Now, one of China's top companies is laying plans to win a place in the heart of American shoppers.

Alibaba is venturing into the famously finicky U.S. consumer market with an online mall that will sit squarely in territory now dominated by the likes of Amazon and eBay. A look at the new website, still in the final stages of development, reveals a selection of small retailers and artisans, offering goods ranging from purses to skincare products to bikes. Shopping is by invitation only.

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Mike Effle, president of 11 Main, played down the Chinese element of the site, stressing that it had been developed by a team of U.S. developers and is geared to providing a virtual showplace for U.S. businesses (although Canadian companies that ship from the U.S. would be eligible to apply for inclusion).

He said in an interview that the goal is to offer "a curated experience" that will allow a group of hand-selected retailers to "tell their stories" and "elevate their brands" by displaying their wares alongside other intriguing products. The site will make money by charging businesses a commission rate of 3.5 per cent of sales. That is half or less what other major U.S. sites charge.

But while Alibaba's new venture isn't trumpeting its Asian connections, it's clear that it marks a new level of brand-building ambition for Chinese business in North America.

The country's few successes in global consumer markets have been with companies like computer maker Lenovo or appliance manufacturer Haier, which tend to rely more upon pricing than style to sell their products.

Other Chinese companies that venture outside their country's borders have usually confined themselves to relatively utilitarian, business-to-business areas, such as banking, oil production or manufacturing. As huge as ICBC, Sinopec or Huawei may be, they have only limited contact with Main Street consumers in North America.

Alibaba's move into operating what amounts to an online retail boutique underlines the rising desire among Chinese companies to do more in the consumer area. Metersbonwe, a casual wear brand enormously popular in China, says it's planning to open stores in New York, Tokyo and London. Xiaomi, a Chinese smartphone maker, is vocal about its plans to break into international markets.

Such expansions don't always go smoothly. Li-Ning, a Chinese sportswear company, signed basketball star Dwyane Wade to an endorsement deal but still fizzled in North America.

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Despite such setbacks, Chinese companies have little choice but to get into the brand-building business if they hope to move up the value chain. If Alibaba can crack the U.S. consumer market with 11 Main, it will raise hopes that it can eventually be as successful in the United States as it is in China.

To be sure, Amazon, which dominates e-commerce in much of the world, has little immediate reason to be scared of losing its primacy in the U.S. But Alibaba's potential shouldn't be dismissed either. It is on track to list its shares in the U.S. later this year, in an offering that is projected to be one of the largest in history and is expected to raise more than $15-billion (U.S.). At the very least, that gives it a huge war chest to devote to expanding its business in North America.

Those tempted to scoff at 11 Main's potential may want to look back at the doubts that surrounded Japanese auto makers and South Korean electronics manufacturers when they first tried to break into the North American market. As it turned out, Toyota and Samsung did just fine. Alibaba could as well.

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About the Author

Ian McGugan is a reporter with The Globe and Mail's Report on Business and has been writing about investing, economics and business for more than 20 years. He joined the Globe and Mail in 2010. He has been executive editor of Canadian Business magazine and founding editor of MoneySense magazine. More

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