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New Singapore HQ to underpin Alibaba's cloud push

An exhibitor looks at Alibaba's Aliyun.com device in Beijing, China.
ChinaFotoPress | ChinaFotoPress via Getty Images
An exhibitor looks at Alibaba's Aliyun.com device in Beijing, China.

Alibaba's cloud computing arm has picked Singapore as the site for its new data center, as well as the headquarters of its overseas business, in a move to bolster the Chinese e-commerce giant's international expansion.

Speaking to CNBC ahead of the official launch on Wednesday, Ethan Yu, vice president of Aliyun, Alibaba's cloud computing business, described the new facility in Singapore as a "strategic" center that could give the cloud division an edge in face of stiff competition from U.S. cloud giants such as Amazon Web Services (AWS) and Microsoft.

"I think we are still on a learning curve in terms of [understanding] customer needs in different markets. Singapore's [data center] is the most strategic and hopefully, will become the biggest we have outside China. This will definitely play a role [in helping] Aliyun to catch up with the top players," he told CNBC by phone.

Earlier in July, Aliyun's president Simon Hu told Reuters that the cloud division now had the technological maturity to challenge more established players, after focusing on the Chinese market in its first six years. Hu added that Aliyun's goal was to "overtake Amazon in four years, whether that was in terms of customers, technology, or worldwide scale," reported the newswire.

When asked how pivotal a role the Singapore headquarters would play in Aliyun achieving that goal, Yu said: "I would not comment about how long we will take to catch up, but we will definitely take sooner than three or four years to learn the needs of our customers and create value for them."

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While the cloud currently accounts for a very small part of Alibaba's overall business, the unit has expanded from its humble beginnings as the internet behemoth's in-house technical infrastructure into a fast-growing business that leases processing and storage space to small-and-medium internet businesses in China.

In the second quarter of 2015, Aliyun registered 106 percent year-on-year growth in revenue, generating $78 million in revenue for the New York-listed Chinese e-commerce behemoth.

While holding a 23 percent market share in its home market, Alibaba has set its sights on the cloud computing space beyond China, eager to tap into a market that according to researcher IDC could grow into a $100 billion industry by 2017.

In March, Alibaba opened a data center in Silicon Valley — its first on a hotly-contested U.S. turf. Three months later, it struck a series of global partnerships with the likes of U.S. company Equinix and Singapore telecoms giant Singtel, allowing it to use existing data centers built by its partners to push its own services.

The Hangzhou-based company also announced a $1 billion investment into Aliyun last month, which will help fund the Singapore data center - the company's seventh. Aliyun has existing data centers in the Chinese cities of Hangzhou, Qingdao, Beijing, Shenzhen and Hong Kong.

The new Singapore facility, scheduled to open in September, aims to cater to the cloud computing needs of businesses, in particular mainland firms, investing in Southeast Asia, Aliyun said in a press statement.

Apart from factors such as a bilingual environment, stable geo-political climate, abundance of highly-skilled talent, as well as a strong legal system and economy, Aliyun's expansion into Singapore is also anchored on a "healthy demand for cloud services", the vice president told CNBC.

"Many Chinese enterprises we serve have stepped out of China and come to Singapore. We are merely following them in choosing Singapore as a headquarter for our international business, while serving their cloud-related needs," said Yu, who declined to say how much Alibaba invested in the Singapore facility or disclose how many people it would hire.

Asia's massive potential in cloud is another factor that underpinned the move, Yu said.

"Asia is definitely a growing market - the potential is massive. For one, we see a clear route of outbound investments from Chinese firms into Asia mostly due to geography, common language and culture," he added. "Hence, there is no reason why we shouldn't follow our customers."

Yu revealed that Aliyun was building a new portal designed to serve the different language and payment needs of businesses based in an economically and culturally-diverse region such as Southeast Asia.

"If you compare our strategy to some of our competitors, I think we are more flexible in terms of strategy [when we] go into different markets," he said.

Read MoreAlibaba confident in growth despite China concerns: CEO

However, the establishment of a cloud base in this part of the world doesn't mean that Alibaba is shifting away from other global markets, such as the U.S., Yu cautioned.

"When we say headquarters, we mean the company's primary markets and the pure focus [of] our global business but it doesn't mean that we are not focusing on other markets," he told CNBC by phone.

"We already have one data center in Silicon Valley and we are building a second one very soon - that shows we remain aggressive in the U.S. market too. With these in [the pipeline], we are not stopping at Asia ... we will do [the same] in Europe and U.S. in the future too."

Last Wednesday, Alibaba announced revenue of $3.27 billion for the three months through June, up 28 percent from $2.54 billion a year ago, but below a Reuters' forecast of $3.39. Shares fell as much as 8 percent to a record low of $71.03 after the earnings report.

The e-commerce giant has also been in the news headlines for mega deals, notably a $4.6 billion investment in Chinese electronics retailerSuning Commerce Group on August 11, as it attempts to integrate online and store-based shopping.

— Arjun Kharpal contributed to this report