Tie-up between Royal Mail and Alibaba shows how to realize potential of Sino-European online business

The UK's very recently privatized mail operator, the Royal Mail, has recently responded to heavy criticism since its privatization with a trail-blazing move to capture the delivery market across the Chinese mainland.

Royal Mail has announced a tie-up with Tmall, a website owned and operated by Chinese e-commerce giant Alibaba. Tmall has quickly risen to become the biggest international buying site for UK products online.

Royal Mail is setting up an online shop via Tmall and is far from alone in its ambitious quest to tap into the Chinese mainland's prize delivery market opportunity. European competitors such as France's La Poste as well as Australia Post, Singapore Post and the Brazilian Post have all also have recently signed up with Tmall.

So, the message to the European postal service sector, indeed the European service sector generally, is loud and clear: China has moved on from low-cost manufacturing and is more and more open for business across its rapidly modernizing service sector, too.

Europe's mature service industry players are also well placed to expand into the Chinese mainland and work with the Chinese service sector. European service providers are experiencing increasingly competitive pressures in their domestic markets, too, another reason to look seriously toward emerging markets and China in particular for much-needed overseas expansion

Such competitive pressures have not been felt by anyone more than the Royal Mail, especially in its parcels market. Royal Mail is also facing an irreversible decline in letter volume.

No doubt Royal Mail's privatization and its newfound entrepreneurial freedom have played a part in its ambitious expansion plans for China. Royal Mail's lead is definitely one that many European competitors could and should follow very soon.

Few European players in the delivery market can ignore the attractive market opportunity that China presents. Postal operators are scrambling to adapt to the rise of e-commerce. China, with a 25 percent share of overseas purchases bought over the Internet from the UK, looks a prize market.

Royal Mail's online shop on Tmall will be used to promote, sell and deliver more than 40 well-known, prestigious British brands including Clarks shoes, Austin Reed clothing, and Cow and Gate baby formula. But perhaps most important of all the brands to be promoted through Royal Mail's online shop on Tmall are the customized bicycles produced by British fold-up bike manufacturer Brompton.

Not only are European service firms moving into China, but so are an increasing diversity of manufacturers, and they are doing so with detailed understanding of and adaptation to the Chinese market.

Brompton's bicycles made for the China market have been designed to carry a British brand heritage theme, with one sporting the colors of the Union Jack and another proudly displaying traditional English racing green.

Tmall also appears a shrewd choice by Royal Mail for its domestic dominance and reach. Tmall represents the perfect vehicle for the multitude of European firms now looking more and more seriously at selling across the Chinese mainland.

Even Tmall's major global competitor Amazon, yet to establish a firm presence in China, has opened a store on Tmall.

Unlike Amazon, however, Royal Mail also has a detailed business model for China, a model that could reap lucrative rewards. The UK postal group is set to take 15 to 20 percent of the retail price of each bike from Brompton, a price the bike maker believes is worth paying for low-risk exposure to China. Royal Mail will also receive shipping costs, paid by the customer.

However, Royal Mail's China expansion plans go way beyond traditional shipping and delivery. Other European service providers seeking to follow on Royal Mail's trail need to be aware that the UK postal provider has a trained network of staff in China to help with customer inquiries, such as how to unfold the Brompton bikes and handle repairs. The group has also struck a deal with national carrier China Post, which will use its network of distributors to deliver goods to customers' homes once they arrive in China.

Not that this is all about Royal Mail and other European service sector players expanding with precision across China. Royal Mail's online Tmall shop should also enable Alibaba and its entire portfolio of brands to expand internationally, and rapidly. This recent tie-up will raise brand awareness of Tmall and parent brand Alibaba across world markets and, in so doing, will also help the tens of millions of Chinese small and medium-sized enterprises expand into ever diverse and lucrative international markets.

So it is no surprise to read recent reports of many more well-known, global retail brands investing in very similar tie-ups. The capital investment and time required to invest in brick-and-mortar stores, even for the likes of such successful global retail brands as Zara, Mike, Estee Lauder, Calvin Klein and Burberry, is far more risky than the sort of Alibaba-like partnership that can promote foreign brands to all corners of the Chinese mainland relatively inexpensively.

It also appears that the enormous Alibaba machine is particularly keen to do business across Europe and promote all manner of brands from this region, hence the mainly UK and other European brands cited above. A similar attitude toward the United States and US brands has not been made apparent.

Of course this is also part of a shrewd strategy for Alibaba, which is characteristic of a number of Chinese Internet brands where innovation and ambition lie at the heart of corporate strategy and culture.

Despite Alibaba's dominance across its domestic market, its leadership remains fiercely competitive and hungry for a similarly dominant market position internationally.

In addition to Tmall, Alibaba's Amazon-like platform, Alibaba owns Taobao, an eBay-like platform. Taobao handled 70 percent of Alibaba's $300 billion (275 billion euros) sales volume for 2014.

Both platforms are set to benefit immensely from Royal Mail-like tie-ups, and both could emerge as global, and not just Chinese, giants in the near future.

Both, therefore, represent a fantastic opportunity for more and more European businesses to expand into and across China.

But, and it is a big but, even though an extremely speedy and low cost route to China market expansion and penetration via Tmall may now present itself to more and more European businesses - both service and manufacturing sector players - it is and must be a long-term strategy. Continuous learning, understanding and adapting to the diverse and changing Chinese consumer is essential.

Tmall will provide an almost immediate China presence for European companies and their brands, but any immediate profit should be reinvested again and again into long-term brand building.

The author is a visiting professor at the University of International Business and Economics in Beijing and a senior lecturer at Southampton University. The views do not necessarily reflect those of China Daily.

(China Daily European Weekly 05/29/2015 page10)