GO
Loading...

Why Alibaba will have trouble growing its business in the US

Alibaba headquarters in Hangzhou, China.
ChinaFotoPress | Getty Images
Alibaba headquarters in Hangzhou, China.

Alibaba Group may be China's e-commerce darling, but the company will face an uphill battle if it tries to expand beyond China into the U.S., experts say.

Read More Alibaba IPO is good news for Yahoo's stock

Branding, fierce competition and the cultural barriers associated with Chinese companies are just a few of the obstacles Alibaba would have to overcome if it targeted the U.S. market.

"Alibaba will do fabulously, fabulously well in China and only mainland China," said Trip Chowdhry, managing director of Global Equities Research. "It's very clear that the U.S. customer, or any customer outside China, would not trust a Chinese Internet company."

Read More With Alibaba IPO official, pressure mounts on Yahoo

"The problem is they are going up against some well-equipped competitors," said Larry Levine, managing director of McGladrey's financial advisory practice. "But whether their success can be transferred, that's to be determined."

The company is expected to file an S-1 this week or early next week to list on a U.S. exchange this year. It's eventual IPO is expected to be one of the biggest in history.

Alibaba is often described as a hybrid of Amazon, PayPal and eBay and is composed of several core businesses.

Some of these include Taobao.com, which is an e-commerce platform for small businesses and entrepreneurs; Tmall.com, which sells name-brand goods from businesses to consumers; Alibaba.com, which is a site for wholesale buyers and sellers; and Alipay.com, which is its online and mobile payment service.

Read More Five things you should know about Alibaba

Taobao and Tmall account for about half of all package deliveries in China and in 2012 the two sites' transaction volumes totaled more than Amazon and eBay's combined.

Read MoreYahoo earnings, revenue beat; stock rallies

But Alibaba's tremendous success in China may be where its growth begins and ends, experts said.

"It's not a walk in the park to capture the U.S. market. There are the challenges of competition, consumers and the shopping experiences in the U.S. are just different," said Moshe Cohen, assistant professor at Columbia Business School. "There's also a big cultural difference and then there is branding."

The company is booming in China because it's tailored for the Chinese consumer, said Edith Yeung, who's both head of marketing for mobile browser company Dolphin Browser, and an angel investor.

Because there are still so many second-tier and third-tier cities, it's still difficult for people to buy things, so they are pushed to do most of their shopping online, Yeung said.

But U.S. consumers are use to a different shopping experience as well as different buying incentives—like the Amazon Prime service, Cohen said.

If Alibaba is going to edge its way into the U.S. market, it would probably be better off if it did so through acquisitions and investments instead of establishing its brand, Yeung said. The Chinese retail giant would likely target its investments in spaces that it's familiar with, like other e-commerce companies. It might also buy a shipping company, she added.

"Building something from scratch takes a long time, especially for consumer brands," Yeung said. "But if you tap into the market by buying or investing, you could get more insight into the consumer faster than you would if you started from scratch."

But whether or not Alibaba can be successful in the U.S. shouldn't worry investors, not yet at least, Cohen said.

"It doesn't have to be successful in the U.S. anytime soon because there is so much room for growth in China," Cohen said. "The market potential in China is still humongous and growing."

By CNBC's Cadie Thompson.

Symbol
Price
 
Change
%Change
AMZN
---
EBAY
---

Featured

Contact Technology

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More

Squawk Alley