1 DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

January17,2017

Alibaba’s Anti-Counterfeiting Alliance is Positive for its Outlook

AlibabaFormsAnti-CounterfeitingAllianceWithLuxuryBrandsOnJanuary16,2017,AlibabaannouncedtheformationofaBigDataAnti-CounterfeitingAlliancewithinternationalbrandstosupportitseffortstoremovefakegoodsfromitsplatforms.AccordingtoAlizila,Alibaba’sofficialmediaarm,theAlibaba-ledanti-counterfeitingalliancehasabout20members,includinginternationalbrandssuchasLouisVuitton,SamsungandMars.Thealliance—whichwillleverageAlibaba’sbigdatatechnology,combinedwiththeindustryandtechnicalknow-howofeachpartner—isconsistentwithAlibaba’slong-termstrategytoriditsplatformsoffakegoods.

Alibaba’sCapabilitiesinCombattingCounterfeitsTheAlibaba-ledBigDataAnti-CounterfeitingAlliance,definedbyaconcertedpushagainstpiratedgoodsfromallpartners,addsafurtherdimensiontoAlibaba’seffortstocombatcounterfeitproducts.Theallianceisdefinedbythefollowingcharacteristics:

• Bigdataandmachine-learningcapabilities:Alibaba’scounterfeit-detectioncampaignispoweredbyalgorithms,artificialintelligence(AI),machinelearningandbigdata.Alibaba’sAIbotsscanentireplatformsinrealtimetodetectcounterfeitgoods.Thesetechnologiescandetectanomaliesincustomerreviews,productlistingsandspecifications.

• Enforcementcapabilities:Alibaba’seffortstodetectpiratedgoodsarealsosupportedbyregulatoryefforts.InJuly2016,thecompanylaunchedajointeffortwithChineselaw-enforcementauthoritiestoseizeandarrestpeopleallegedlysellingcounterfeitKingstonandSamsungchipsonAlibaba’sTaobaoplatform.Thejointoperation,whichranbetweenAprilandJuly2016,culminatedinthearrestsof32suspectsandtheseizureofUS$207millionworthoffakegoods.Fromalegalperspective,AlibabaalsofiledalawsuitinJanuary2017againstmerchantssellingcounterfeitSwarovskiwatches.

2 DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

January17,2017

• Synergiesfromthisalliancewithbrands:Bypartneringwithinternationalbrands,Alibabacaneffectivelyleveragetheknow-howofitspartnersandreceivepromptfeedbackfromthem.Inourview,anacceleratedfeedbackloopandsupportofinternationalbrandsareparticularlycriticalforAlibabainitseffortstosustainitsstrategyasthego-toplatformforallmerchantsandconsumers.

PositiveImplicationsforAlibaba’sBusinessOutlookSource:FungGlobalRetail&TechnologyThisconcertedpushagainstcounterfeitgoodsisinlinewithAlibaba’slong-termstrategytobecomeaglobalplatform,andwebelieveispositiveforthecompanyfortworeasons:1)itsolidifiesitscredibilityamongstinternationalbrands;and2)allowsittofurtherpenetrateintoChina’sincreasinglyaffluentconsumermarket.

• Solidifiesitscredibilityamongstinternationalbrands:Alibaba’santi-counterfeitsstrategyisinlinewithitslong-termmissionofprovidingthebestbusinessenvironmentforglobalmerchantsandcustomers.Webelievethecompany’sintensifyinginitiativesagainstcounterfeitswillalleviatetheconcernsofbothbrandsandgovernmentsoverpotentialuncompetitivepracticesandopenupthepotentialtoattractmoresellerstoitsplatform.

• AllowsittofurtherpenetrateintoChina’sincreasinglyaffluentconsumermarket:WebelieveAlibaba’scampaigntocombatcounterfeitsbodeswellforitsgrowthinChina,particularlyincementingitsstatusasago-toplatformforcrossbordere-commerceimports.China’srisingmiddleclasshascausedaseismicshiftinconsumptionpatterns,whichwebelievewillleadtoasustainablepreferenceforhigh-qualityimports.Crossbordere-commerceimportsareexpectedtoincreaseto¥1.9trillion(US$285billion)in2018,from¥0.9trillion(US$136billion)in2015,accordingtoiResearch.Alibaba’slong-termgrowthtargetisforitsshareofrevenuefromoverseastoexpandover50%by2025from4%in2015,accordingtoitschairman,JackMa.

WhiletheformationofthealliancehasclearbenefitsandisonepositivestepforwardforAlibaba,werecognizethatexecutionremainscriticalandwillcontinuetomonitortheprogressoftheinitiative.

3 DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

January17,2017

Figure1.EventsRelatedtoAlibaba’sAnti-CounterfeitingInitiatives,2013topresent

Time Event ImpactonAlibaba

January,2017 Alibabaformsanalliancewithabout20internationalbrands,includingSamsung,LouisVuittonandothers,tocombatcounterfeitgoods.

+

December,2016 TheUSputsAlibabaonthecounterfeitblacklistagain. -

December,2016 AlibabacollaborateswiththeZhejianggovernmentonoperationCloudSword,anofflineanti-counterfeitinginitiativethatculminatedintheseizureofUS$207millionoffakegoods.

+

July,2016 Alibabalaunchesthe‘IPJoint-ForceSystem’. +December,2015 AlibabaestablishesthePlatformGovernancePanel

tofightfakesandIPinfringement. +May,2015 Keringfilesthesameallegationagain. -January,2015 China’sStateAdministrationforIndustryand

Commerce(SAIC)launchesallegationsagainstAlibaba.

-July,2014 KeringSAfilesallegationsagainstAlibabafor

knowinglyallowingcounterfeiterstosellonitsplatforms.Gucci,YvesSaintLaurentandotherbrandsarehousedundertheportfolioofKeringSA.

-

December,2013 TheUSremovesAlibabafromthe“NotoriousMarkets”list. +

May,2013 Alibabalaunches‘MarketSafe®’,ananti-counterfeitprogram,withtheInternationalAnti-CounterfeitingCoalition(IACC).

+

Source:FungGlobalRetail&Technology

4 DeborahWeinswig,ManagingDirector,FungGlobalRetail&Technologydeborahweinswig@fung1937.comUS:917.655.6790HK:852.6119.1779CN:86.186.1420.3016Copyright©2017TheFungGroup.Allrightsreserved.

January17,2017

DeborahWeinswig,CPAManagingDirectorFungGlobalRetail&TechnologyNewYork:917.655.6790HongKong:852.6119.1779China:86.186.1420.3016deborahweinswig@fung1937.comEsmePauAnalystZaneYangResearchAssistantHongKong:8thFloor,LiFungTower888CheungShaWanRoad,KowloonHongKongTel:85223004406London:242-246MaryleboneRoadLondon,NW16JQUnitedKingdomTel:44(0)2076168988NewYork:1359Broadway,9thFloorNewYork,NY10018Tel:6468397017FungGlobalRetailTech.com