Connect with us


Alibaba is walking a tightrope between Russia and Ukraine



source aliexpress russia alibaba march

Three of Alibaba’s business partners in Russia have been sanctioned. The ecommerce giant is in an awkward position facing internal and external pressures.

The day before bombs started raining down on Kyiv, Dmytro Romashko streamed for three hours on AliExpress, Alibaba’s global ecommerce platform. Sitting in his house, the 31-year-old Kyiv resident showcased an array of products, including electronic gadgets and decorative mugs, to thousands of Russian-speaking viewers. Romashko was in the same house when, at five o’clock the next morning, he watched with horror as Russian shells descended and fled to a bunker in only his underwear.

Romashko has worked with the Chinese ecommerce platform since 2014. He started out writing product reviews before eventually becoming one of its most prominent Russian-speaking livestream influencers. He has more than 268,000 followers on AliExpress, and each of his streams was regularly watched by thousands of viewers across Eastern Europe and Central Asia. While Romashko has never been an Alibaba employee, he serves the company’s ambition to bring its Chinese-style ecommerce craze to the world.

But now, when he’s in danger, Alibaba can’t come to his rescue. The company, like most other Chinese tech companies, has kept quiet about the war between Russia and Ukraine. And on Friday, Romashko’s post on AliExpress about the war was even deleted, citing “violence” in his content, and his account was suspended for 30 days.

Tech firms based in the U.S. and Europe have been quick to support their Ukrainian employees or suspend operations in Russia, but Chinese tech companies — still trying to become global powerhouses — have been much more cautious about taking a stance, thanks in part to the Chinese government’s insistence on staying neutral, at least officially.

Alibaba, one of the world’s best-known Chinese tech companies, has landed on the frontline of this conflict, as it has operations in both Russia and Ukraine. It even has a joint venture with three Russian investors, all of which have been sanctioned in the past week to some extent. Now, Alibaba stands to lose years of investment on both sides of the war while trying to negotiate the sanctions the U.S. and other countries put on Russia.

From a promising joint venture to a sanctions bomb

Eastern Europe was Alibaba’s first step toward becoming a truly global ecommerce company. After growing its domestic business for a decade, the company launched AliExpress in 2010, connecting Chinese sellers to wholesale and retail buyers overseas. Even though shipping can take weeks or even months, the low prices attracted customers around the world, especially in Eastern Europe. Russia has been AliExpress’ biggest market since 2013, due to both geological proximity and strong trade partnerships between China and Russia.

In 2018, when Jack Ma met Putin for the fourth time, the company said it was turning AliExpress’ Russia operations into a joint venture with some of Russia’s largest companies in social media and telecom: VK Group (then called, USM International (then the telecom giant MegaFon) and sovereign wealth fund RDIF. The Russian investors, with a combined 58.5% of the voting rights, would take control of the JV.

Today, AliExpress Russia is still a prominent ecommerce platform in the country, and the biggest among all of AliExpress’ foreign operations. According to financial numbers released on March 2, AliExpress was the most-visited online marketplace and the most-downloaded shopping app in Russia in 2021. It holds about 10% of Russia’s ecommerce market and is eyeing to grow that to 20% by 2025.

But all of Alibaba’s partners in Russia are in trouble now. RDIF, the sovereign wealth fund, has been sanctioned by both the United States and Canada. VK Group’s CEO Vladimir Kiriyenko has been sanctioned as an individual by the U.S. And USM International’s founder, Russian tycoon Alisher Usmanov, is under sanctions from the U.S., European Union and the U.K.

None of these sanctions seems to have affected AliExpress Russia yet. The company told Russia’s state news agency Sputnik News on Feb. 28 that all transactions and deliveries are working normally and will continue to do so. The global AliExpress, separate from the JV, is also expected to keep fulfilling orders from Russia, the same news agency reported. But the platform was previously planning to go public as soon as this year, a prospect that now seems much less likely.

Alibaba has not released any statement about the sanctions so far. Neither Alibaba Group nor AliExpress responded to Protocol’s repeated requests for comment. VK Group, which regularly posts about AliExpress Russia’s operations, didn’t respond to a request for comment about the sanctions’ impact on the JV.

It’s unclear how the sanctions are going to affect Alibaba, which is now only a minority investor in the JV. Even though Alibaba is publicly listed on the New York Stock Exchange, the variable interest entity (VIE) structure it uses also allows the China-based operating entity to escape U.S. compliance requirements.

“The main issue for Chinese internet tech firms is how they manage the finances of their operations in Russia,” John Lee, director of political risks consultancy East-West Futures, told Protocol. “If they are not transacting in goods/services or with individuals that have been targeted by U.S. and EU sanctions, and they are not transacting in USD, they should be able to continue business in Russia.”

However, doing so would risk being seen in the West as aiding Russia, and targeted secondary sanctions could come. That’s why most Chinese companies are hesitant to act against the sanctions, at least publicly. “I doubt that the return on their activities in the Russian market would outweigh the risk of being cut off by customers in e.g. Southeast Asia who themselves don’t want to run afoul of U.S. and EU Sanctions,” Lee said.

Alibaba’s bet on Ukraine

While Alibaba was losing control of its JV in Russia, it was also betting on Ukraine.

Ukraine is also one of AliExpress’ largest international markets. It was among the top 10 in 2019, and reported fast growth in 2020 too. According to Similarweb, AliExpress was the fifth most-visited ecommerce website in Ukraine as of January this year.

From a geopolitical standpoint, Ukraine was also rising as a potential key part of China’s global strategy. “Ukraine as China’s gateway to Europe has become more important in the context of rising European antagonism against China’s growing influence in the region,” Zongyuan Zoe Liu, an international political economy fellow at the Council on Foreign Relations, told Protocol. Some Chinese tech giants, such as Huawei and Xiaomi, also have big business interests in Ukraine, Liu added.

Last July, now-globally-famous Ukrainian president Volodymyr Zelenskyy even publicly told Xi Jinping that Ukraine could be a “bridge to Europe” for Chinese companies. And China is already helping Ukraine build several large transportation infrastructure projects.

Before the war began, Alibaba was benefitting from the warming relations between China and Ukraine. The company has been recruiting influencers in Europe for a long time to insert itself into the European ecommerce market. Ukrainian influencers are particularly in demand because many of them are fluent in Russian and can help the company reach other countries with large Russian-speaking populations.

Dmytro Romashko was one of those influencers. A trained lawyer who wanted to explore his creative side, he was drawn to the career of an ecommerce influencer because he could test gadgets and clothes and shoot review videos. His hard work streaming for hours every day was also rewarded, as he became one of AliExpress’ most-followed foreign influencers. He was once invited to go to China, and his name started to appear in Chinese media as one of the foreign faces that took China’s ecommerce innovations to the world.

Alibaba walking a tightrope

Alibaba has neither made a public statement since the war began, nor provided any support to people like Romashko who worked with the platform but aren’t company employees. Romashko understands the silence and the political reasons behind it, he said, and he doesn’t blame the Chinese companies.

The silence from Chinese companies like Alibaba isn’t surprising. On one hand, it has a significant stake in the Russian joint venture that it won’t be able to withdraw anytime soon; on the other hand, Ukraine is also a rising market that Alibaba can use to tap into the broader Russian-speaking region. Losing any side could be a setback to the company’s globalization plans.

But it faces tremendous external pressure too, from the Chinese government and society. “Internally, there’s a lot of pressure on Chinese companies to not go with Russian sanctions. You see that with DiDi and possibly with Lenovo,” Maximilian Mayer, professor of international relations and global politics of technology at University of Bonn, told Protocol.

“So they have a two-side pressure,” Mayer added. “They have the Chinese government in the neck, they have part of the Chinese public in the neck, and then on the other hand, they have Western public and Western governments. So, they definitely have more difficulty finding a way” to thread that needle than Western companies would, Mayer said.

For now, Alibaba is likely gambling on staying low-profile and avoiding a decision that would annoy any side — but that can’t be a viable long-term strategy. “Even if Chinese companies do not want to take a political stance, they would still need to do the math and think about how costly it is to continue their service in either Russia or Ukraine, and the potential backlash against their business operations,” said Liu.

And Alibaba won’t be the only one. Other Chinese companies like ByteDance, which is currently listing 10 Moscow-based open positions, or Tencent, which has invested in a dozen European gaming studios, will surely face similar problems as the conflict draws out. The companies can afford the overseas loss in revenues now, while the bulk of their operations remain in China. But if they want to truly become global, they need to learn how to deal with the volatility of international politics.

While Romashko is still hiding in his bunker in Kyiv, he sometimes thinks about life after the war. A Chinese company he worked with closely in the past said it’s waiting for him to visit China when it’s possible and continue their collaboration. “After we will win, we need to build [a] new country. So I will ask my [Chinese] sellers to help with [delivering] some products to people who need it,” he said.

Correction: This story was updated on March 7, 2022.

Continue Reading