Entrepreneur Johnny Chou didn’t expect his Alibaba-backed company to retreat in China's express-delivery competition and sold the whole business to an Indonesian upstart. 18 years ago, the 59-year-old Chinese businessman, former Greater China president for Google, founded Best Inc. Last week, the company’s domestic express business is sold to J&T Express on October 29. The deal is estimated to be worth around $1.1 billion.
In September, Bloomberg first reported that Best was considering selling its express business in China to cut its debt. Indeed, the market value of Best has plummeted from $4.33 billion at its IPO in 2017, to $820 million on October 28, according to tech news outlet Late Post.
Upon the acquisition, which is about to close in the first quarter of 2022, J&T is expanding fast in China in less than two years after its official entry in March 2020.
Growing fast in China
Founded in 2015 by Jet Li and Tony Chen (J&T), the company brands itself as a "jet" with a timely method and makes deliveries with AI "technologies". In China, J&T becomes Ji Tu, meaning utmost rabbits. Ji Tu is a quite good brand translation as it takes the wave of Chinese internet naming method - animals. It is so good that almost no one out of the indutry are aware of their origin. Also because Ji Tu's terrority in China often related to tier-3 and 4 cities and towns, where Pinduoduo dominates.
The recent acquisition is likely to reshuffle the existing market of Chinese courier industry, as J&T’s market share remaining at 7 or 8%. Its top competitors, include ZTO Express, Yunda Express, YTO Express, SF Express, and STO Express, are all listed, according to data compiled by 21st Century Business Herald.
The recent record of J&T’s performance in China was splendid. In April, it raised more than $2 billion from three well-known Chinese investors, and in August, it raised another $250 million from undisclosed investors.
Currently, on Taobao’s rival Pinduoduo, an e-commerce platform best known for agricultural products and bargain prices, Best and J&T were exclusively the two logistics service partners.
Despite that Pinduoduo has frequently denies any intresets of investment in J&T, the connection of Pinduoduo and J&T has rooted long as people expected. Pinduoduo founder Colin Huang, Jet Li, and Tony Chen have a mutual mentor - Duan Yongping, the founder of BBK Electronics Group. It is undeniable that the deep ties helped J&T win a portion of market share.
Before the acquisition of Best’s business, a company called Huisen Global recently acquired UC Express's parent company Yimidida in July. UC Express was an express delivery failed to compete with other big ones, so Yimidida pivots on bulk parcel delivery targeting corporate customers. This acquisition seems not a very big deal, since UC Express has left public radar, but J&T was considered to have a tie with Huisen Global. And by the acquisition, J&T seems to have secretly exerted more influence in the courier industry of China.
The consequence is that J&T is likely to challenge the Cainiao network, which Alibaba founded in 2003 with major Chinese courier players. It is also interesting that although Cainiao claims it doesn’t own any courier or warehouse, Best is a rare logistics company that has Cainiao’s direct investmen. Under this circumstance, whether J&T will join the network of Cainiao remains unknown, but it did have the options now.
In April, J&T caused a local price war, and although it was penalized by local market regulation authorities, it successfully pushed pressures on its Chinese competitors.
By providing services for as little as 1 RMB ($0.15) per regular package, the relatively young company was able to enter China.
In the short term, price wars are good for buyers, who take advantage of lower prices, but price wars threaten less-advantaged companies’ survival.
In the medium to long term, such price wars can be good for the dominant firms in the industry. And J&T’s ability to manage a price war partly came from its success in Southeast Asian countries.
Successes and challenges in Southeast Asia
J&T’s path isn’t a smooth sailing one. It was one week before the Chinese New Year holiday this year, a gloomy video of Malaysian workers tossing parcels was trending on TikTok. J&T apologized on social media soon, explaining that the protest was due to a misunderstanding on a year-end bonus scheme.
J&T entered Malaysia in 2017. But by now, it hasn’t become a top ten player yet.
Besides Malaysia and China, J&T also has operations in Cambodia, Indonesia, the Philippines, Thailand, Singapore, and Vietnam. According to its website, the courier company has more than 350,000 employees globally.
The picture was a little bit different in its home country. In 2017, it was the second-largest courier company, after JNE, which is a logistics company founded in 1990 and had 6,000 locations spread throughout Indonesia.
By advanced tracking technologies, J&T solved the problem of last-mile delivery, especially for a country with challenging geography.
As of April, J&T’s market value sat at $8 billion. The company is likely to apply for IPO in Hong Kong.