History and Development of the Company

JD.com (JD) chairman and chief executive officer, Mr. Richard Qiangdong Liu, launched an online retail website in January 2004. He subsequently formed a company in Beijing and another company in Shanghai and conducted his online retail business through these two companies. In April 2007, the company established a wholly owned PRC subsidiary, Beijing Jingdong Century Trade Co., Ltd., or Jingdong Century, and the company acquired certain intellectual property rights from the two companies Mr. Liu had established earlier, which ceased business operations and were later liquidated and dissolved.¹

In November 2006, the company incorporated Star Wave Investments Holdings Limited under the laws of the British Virgin Islands as its offshore holding company in order to facilitate international financing. The company later changed the name of this entity to 360buy Jingdong Inc. In January 2014, 360buy Jingdong Inc. was redomiciled in the Cayman Islands as an exempted company registered under the laws of the Cayman Islands, and was renamed JD.com, Inc.

JD has established additional subsidiaries inside and outside of China and assisted in establishing PRC consolidated variable interest entities to conduct its business operations.

The company's significant subsidiaries that conduct business operations in China include the following:

• Jingdong Century, established in April 2007, and certain of its subsidiaries in China, which primarily engage in retail business;
• Shanghai Shengdayuan Information Technology Co., Ltd., or Shanghai Shengdayuan, which was established in April 2011 and primarily operates its online marketplace business;
• Tianjin Star East Corporation Limited, or Star East, which was established in April 2012 and provides primarily warehousing and related services; and
• Xi’an Jingxundi Supply Chain Technology Co., Ltd., or Xi’an Jingxundi, which was established in May 2017 and provides primarily courier services.

The significant consolidated variable interest entities and their subsidiaries that conduct its business operations in China include, among others, the following:

• Beijing Jingbangda Trade Co., Ltd., or Jingbangda, currently a subsidiary of Xi’an Jingdong Xincheng, which was established in August 2012 and provides primarily courier services;
• Beijing Jingdong 360 Degree E-Commerce Co., Ltd., or Jingdong 360, which was established in April 2007 and holds its ICP license as an internet information provider and operates its www.jd.com website;
• Jiangsu Yuanzhou E-Commerce Co., Ltd., or Jiangsu Yuanzhou, which was established in September 2010 and primarily engages in the business of selling books, audio and video products; and
• Xi’an Jingdong Xincheng Information Technology Co., Ltd., or Xi’an Jingdong Xincheng, which was established in June 2017 and provides primarily courier services.

The company also rely on other consolidated variable interest entities and their subsidiaries to conduct certain of its business operations, including Jiangsu Jingdong Bangneng Investment Management Co., Ltd., or Jiangsu Jingdong Bangneng and Suqian Jingdong Sanhong Enterprise Management Center (Limited Partnership), or Suqian Sanhong.

In March 2014, the company entered into a series of agreements with Tencent and its affiliates pursuant to which the company acquired 100% interests in Tencent’s Paipai and QQ Wanggou online marketplace businesses, a 9.9% stake in Shanghai Icson, logistics personnel and certain other assets. The company also entered into a five-year strategic cooperation agreement and an eight-year non-compete agreement with Tencent. In April 2016, the company acquired the remaining equity interest in Shanghai Icson by exercising the right previously granted to it in March 2014.

On May 22, 2014, its ADSs commenced trading on NASDAQ under the symbol “JD.” The company raised from its initial public offering approximately US$1.5 billion in net proceeds after deducting underwriting commissions and the offering expenses payable by it. Concurrently with its initial public offering, the company also raised US$1.3 billion from Huang River Investment Limited, its existing shareholder, in a private placement.

In December 2014, the company completed a secondary public offering, pursuant to which certain selling shareholders sold an aggregate of 26,003,171 ADSs, representing 52,006,342 Class A ordinary shares, for an aggregate gross proceeds of approximately US$619 million, and the company did not sell any ADSs in the offering.

In February 2015, the company invested a combination of US$400 million in cash and certain resources valued at US$497 million, including exclusive access to the new and used car channels on its e-commerce sites including mobile apps and additional support from its key platforms, as consideration for newly issued ordinary shares of Bitauto, an NYSE-listed provider of internet content and marketing services for China’s fast-growing automotive industry. In June 2016, the company made an additional investment of US$50 million in cash to purchase newly issued ordinary shares of Bitauto. In addition, the company invested US$100 million in newly issued series A preferred shares of Yixin, a subsidiary of Bitauto primarily engaged in e-commerce-related automotive financing platform business. In August 2016, JD.com, together with Tencent, Baidu, Bitauto and other investors, entered into definitive agreements, pursuant to which the company and other investors, invested an aggregate of US$550 million in cash in Yixin. The company currently hold approximately 25.3% of Bitauto’s issued and outstanding shares and approximately 10.9% of Yixin’s issued and outstanding shares.

In May 2015, the company made further investment to acquire newly issued Class A ordinary shares of Tuniu, a NASDAQ-listed and leading online leisure travel company in China, through a combination of US$250 million in cash and certain resources valued at US$108 million, including exclusive rights to operate the leisure travel channel for both its www.jd.com website and mobile apps, and Tuniu’s being its preferred partner for hotel and air tickets booking services. Previously in December 2014, the company purchased certain newly issued Class A ordinary shares of Tuniu by a cash consideration of US$50 million. The company currently hold approximately 20.6% of Tuniu’s outstanding shares. The company's leisure travel channel is currently operated by Tuniu.

In August 2015, the company entered into definitive agreements with Yonghui, pursuant to which the company subscribed for newly issued ordinary shares of Yonghui with a total consideration of RMB4.23 billion (US$610 million). The transaction with Yonghui was completed in August 2016. As a result of the transaction, the company hold approximately 10% equity interest in Yonghui. In addition, JD has formed a strategic partnership with Yonghui to strengthen supply chain management capability primarily through joint procurement, and will continue to explore development opportunities in O2O initiatives and other areas of potential strategic cooperation.

In January 2016, the company entered into definitive agreements with a group of investors for a RMB6.65 billion (US$1.0 billion) financing for JD Finance. Following the closing of the financing in March 2016, the company maintained a majority ownership in JD Finance. As of June 30, 2017, the reorganization of JD Finance had been completed, and the company disposed of all of its 68.6% equity interest in JD Finance, as a result of which JD Finance was deconsolidated from it. Pursuant to the definitive agreements relating to the reorganization, the company received approximately RMB14.3 billion (US$2.2 billion) in cash with an economic gain of RMB14.2 billion (US$2.2 billion). As JD Finance is under the common control of Mr. Richard Qiangdong Liu through his equity stake and voting arrangements, the gain of RMB14.2 billion was recorded directly to additional paid-in capital in shareholders’ equity. In exchange for certain licenses and services to be provided by it to JD Finance, the company will receive 40% of the future pre-tax profit of JD Finance when JD Finance has a positive pre-tax income on a cumulative basis. In addition, the company may be able to convert its profit-sharing right with respect to JD Finance into 40% of JD Finance’s equity interest, subject to applicable regulatory approvals. The above percentage of profit sharing and maximum equity interest issuance to it is subject to potential proportional dilution as a result of any future equity financings or ESOP increases of JD Finance.

In April 2016, the company completed the transaction with Dada Nexus Limited, or Dada, China’s largest crowdsourcing delivery company, pursuant to which its O2O business, JD Daojia, became a subsidiary of Dada and the company contributed certain resources and US$200 million in cash in exchange for newly issued equity interest in Dada. In December 2017, the company exercised its warrant to acquire additional preferred shares of Dada and upon the exercise, the company owned approximately 49.3% equity interest of Dada on a fully diluted basis.

In June 2016, the company entered into a series of agreements with Walmart in relation to its strategic alliance with Walmart, pursuant to which Walmart subscribed for 144,952,250 of its newly issued Class A ordinary shares, which amounted to approximately 5% of its total issued and outstanding shares on a fully diluted basis at the time. As of December 31, 2017, Walmart held Class A ordinary shares representing 10.1% of its total issued and outstanding shares, according to Walmart’s statement on an amendment to Schedule 13G with respect to its Class A ordinary shares on February 3, 2017. As part of its strategic alliance with Walmart, the company acquired ownership of the Yihaodian marketplace platform assets, including the Yihaodian brand, websites and mobile apps. JD has collaborated with Walmart on e-commerce, including launching Sam’s Club Flagship Store and Walmart China Flagship Store on JD.com, Sam’s Club Global Flagship Store, Walmart Global Flagship Store, and ASDA Flagship Store on JD Worldwide and a one-hour delivery service from Walmart Stores in select cities through the JD Daojia app, as well as leveraging one another’s supply chain to increase product selection for customers across China. As part of the strategic alliance, the company also entered into an eight-year non-compete arrangement with Walmart, subject to certain conditions and exceptions.

In April 2017, the company established a new business group, JD Logistics, to leverage its advanced technology and logistics expertise to provide integrated supply chain and logistics services to businesses across a wide range of industries. JD Logistics provides business partners with comprehensive supply chain solutions, including warehousing, transportation, delivery, customer service, after-sales service, as well as logistics technology solutions, including cloud-based service and data analytics, among others. In February 2018, the company entered into definitive agreements with third-party investors for the financing for JD Logistics. The company raised a total amount of US$2.6 billion from the third-party investors, who owned an aggregate of 19.0% stake in JD Logistics on a fully diluted basis upon the completion of the transaction and JD has remained as the controlling shareholder of JD Logistics.

In June 2017, the company invested US$397 million in cash as consideration to acquire certain number of ordinary shares and preferred shares of Farfetch, the leading global e-commerce platform for the fashion industry. As part of this partnership, the company became one of the largest shareholders of Farfetch. The strategic partnership between it and Farfetch leverages its leading logistics and technology capabilities and social media resources, including its partnership with Tencent, with Farfetch’s leadership in global luxury, to create a frictionless and seamless brand experience.

In August 2017, the company entered into a conditional share subscription agreement with China Unicom, a Chinese telecommunications operator in relation to its investment of approximately RMB5 billion (US$768 million) in cash to subscribe for certain privately issued shares of China Unicom. Concurrently, the company, through a PRC affiliate, also entered into a strategic business cooperation agreement with China Unicom.

In December 2017, the company entered into a share subscription agreement along with Tencent to subscribe for newly issued Class A ordinary shares of Vipshop, an NYSE-listed online discount retailer for brands in China. The company also purchased the ADSs of Vipshop from open market. As of December 31, 2017, the company accumulatively invested approximately US$425 million in cash as consideration for Class A ordinary shares of Vipshop (including the ADSs). In December 2017, the company also entered into a business cooperation agreement with Vipshop, under which the company granted Vipshop entries on both the main page of its mobile app and the main page of its Weixin Discovery shopping entry.

In January 2018, a PRC subsidiary of it, along with a PRC subsidiary of Tencent, entered into a strategic partnership agreement with Wanda Commercial Properties, a leading developer, owner and operator of commercial properties in China, and its major shareholder, Dalian Wanda Group Co., Ltd. Pursuant to the agreement, the company agreed to invest RMB5 billion (US$768 million) to purchase the shares of Wanda Commercial Properties from its existing shareholders.

Business Overview

JD is a leading technology-driven e-commerce company and retail infrastructure service provider in China. The company generated total net revenues of RMB181.0 billion, RMB258.3 billion and RMB362.3 billion (US$55.7 billion) in 2015, 2016 and 2017, respectively. The company's GMV increased from RMB590.6 billion in 2015 to RMB939.2 billion in 2016 and further to RMB1,294.5 billion (US$199.0 billion) in 2017.

The company believe the company provide consumers an enjoyable online retail experience. Through its content-rich and user-friendly website www.jd.com and mobile apps, the company offer a wide selection of authentic products at competitive prices which are delivered in a speedy and reliable manner. The company also offer convenient online and in-person payment options and comprehensive customer services. In order to have better control over fulfillment and to ensure customer satisfaction, JD has built its own nationwide fulfillment infrastructure and last-mile delivery network, staffed by its own employees, which supports both its online direct sales and its online marketplace businesses. JD has established strong relationships with its suppliers as the company develop its online direct sales business. Leveraging its strengths, the company launched its online marketplace business in 2010, which has allowed it to significantly expand its selection of products and services.

The company foster an interactive user community that discusses, rates and reviews its products and services. The company believe JD has the largest online product review database of any online direct sales company in China with approximately 3,259 million product reviews generated by its customers as of December 31, 2017. As a result of its superior customer experience, its business has grown rapidly. The company had 155.0 million, 226.6 million and 292.5 million annual active customer accounts in 2015, 2016 and 2017, respectively.

Timely and reliable fulfillment is critical to the success of an online retail business. Given the underdevelopment of third-party fulfillment services in China in terms of both warehousing and logistics facilities and last-mile delivery services, the company made a strategic decision in 2007 to build and operate its own nationwide fulfillment infrastructure. The company believe JD has the largest fulfillment infrastructure of any e-commerce company in China. The company operated 486 warehouses with an aggregate gross floor area of approximately 10 million square meters in 78 cities as of December 31, 2017, and had 84,790 delivery personnel, 33,153 warehouse staff and 12,760 customer service personnel as of the same date. Leveraging this nationwide fulfillment infrastructure, the company deliver a majority of the orders directly to customers itself . As of December 31, 2017, its comprehensive fulfillment facilities covered almost all counties and districts across China, and the company provided same-day and next-day delivery in 1,752 counties and districts.

JD is a technology-driven company and have invested heavily in developing its own highly scalable proprietary technology platform that supports its rapid growth and enables it to provide value-added technology services. In addition, its sophisticated business intelligence system enables it to refine its merchandise sourcing strategy to manage its inventory turnover and control costs and to leverage its large customer database to create customized product recommendations and cost-effective and targeted advertising.

The company introduced an online marketplace to leverage its brand recognition, large and growing customer base, extensive transaction data, fulfillment infrastructure and proprietary technology platform. The company's online marketplace allows it to provide customers a much greater selection of products. The company attract and select third-party sellers to offer authentic products to its customers through its online marketplace. The company monitor third-party sellers’ performance and activities on its online marketplace closely to ensure that they meet its requirements for authentic products and high-quality customer service. In addition to basic transaction processing and billing services, the company offer third-party sellers a suite of value-added fulfillment and other services.

Furthermore, the company launched a cross-border e-commerce platform, JD Worldwide, on JD.com in April 2015. JD Worldwide is committed to providing consumers in China with high-quality, authentic imported products from worldwide and to serving as a gateway for leading international brands to reach the Chinese market. Since its launch in 2015, JD Worldwide has offered products in a wide variety of categories including maternal and childcare, nutrition and healthcare, personal care and cosmetics, electronics, household and kitchenware, food, and car accessories, among others. JD Worldwide sources products from over 70 countries and regions, including the United States, Canada, South Korea, Japan, Australia, New Zealand, France, and Germany, among many others.

Core Philosophy

The company's core philosophy to put customers always as its top priority can be illustrated by the following:

• The company's team is the foundation of its company. JD has built a strong and dedicated team and made significant efforts in hiring, training and retaining its workforce.
• To support its anticipated growth, JD has developed a series of comprehensive front-end and back-end systems, including customer interfaces, transaction processing, supply-chain management, merchant services, logistics, and financial systems, among others, to manage its flow of products, services, information and finances.
• The company's data-driven management employs an array of key performance indicators to minimize costs and maximize efficiency in its operations.
• As a result, JD is able to offer a broad selection of authentic products at competitive prices with comprehensive services. The company strive to create a compelling online shopping experience that generates customer loyalty.

Strategies

The company believe “Boundaryless Retail” represents the future retail trend for its industry because consumers will become ever-more involved in all aspects of a company’s value chain and proactively interact with businesses. Consumers will not only continue seeking out “low cost” and “convenience,” but at the same time they will demand more personalized and diversified scenarios and participation. The interaction between these evolving consumer demands and technology advancement will further transform the retail infrastructure and experience.

Based on the knowledge JD has accumulated and the capabilities JD has built up throughout its years of operation, JD has determined that its strategy for the next twelve years will be based on “Retail-as-a-Service.” On one hand, the company will continue to expand its e-commerce businesses while striving to reduce costs, improve efficiency and enhance the customer shopping experience while proactively exploring innovative new business models. On the other hand, the company will open up its established infrastructure to all its partners to empower retailers, suppliers and designers, among others, with its supply chain, logistics, technology and other capabilities. Through joint efforts with a wide range of business partners and by leveraging its well-established infrastructure, the company believe the company can create an even more advanced and comprehensive retail ecosystem to reach consumers wherever and whenever they shop.

To implement this strategy of developing next-generation retail, JD is exploring various online and offline integration opportunities and innovative business models. Leveraging its infrastructure, the company will enable its partners to achieve digitalization with improved efficiency and expanded access to sales promotions and preferred discounts, regardless of whether consumers are shopping online or in-store.

Business Model

Since founding its company, JD has focused on developing its online direct sales business as well as building its own fulfillment infrastructure, including last mile delivery capability, all based on its proprietary technology platform to support its operations. As its online direct sales business grew substantially in size, the company launched its online marketplace to complement it and expand its product offerings, leverage its established fulfillment infrastructure and technology platform and ensure a superior customer experience. The company believe that the combination of its online direct sales and online marketplace, and its own nationwide fulfillment infrastructure and technology platform makes it a uniquely strong player in China’s online retail industry in terms of providing superior customer experience.

Leveraging the significant scale of its business, cutting-edge technologies, and its well-established retail infrastructures, JD has also begun to offer comprehensive services that complement its core business and create significant value for a wide range of business partners. Ultimately this will boost business development and the overall customer experience.

Online Direct Sales

In its online direct sales business, the company acquire products from suppliers and sell them directly to customers. The company started selling computer products online in 2004 and introduced mobile handsets, consumer electronics products and auto parts and accessories by 2007. The company significantly expanded its product offerings in 2008 with home appliances and a wide array of general merchandise product categories, and have been continually adding new products and categories since then. As of December 31, 2017, the company offered a wide range of categories through its online direct sales business model. As a result, net revenues from electronics products, which include computers, mobile handsets and other mobile digital products, and home appliances, have declined as a percentage of its total net revenues.

Retail Infrastructure

Online Marketplace. In its online marketplace business, third-party sellers offer products to customers on its online marketplace and pay it commissions on their sales. The company launched its online marketplace in October 2010, and have been bringing new products and services since then. As of December 31, 2017, there were more than 170,000 third-party sellers on its online marketplace. The company provide transaction processing and billing services on all orders on its online marketplace and require third-party sellers to meet its standards for authenticity and reliability. The company aim to offer customers the same high quality customer experience regardless of the source of the products they choose.

Marketing Services. Leveraging its artificial intelligence capabilities and the comprehensive dataset accumulated from a wide range of business scenarios along the entire value chain, the company provide a variety of marketing services to suppliers, merchants and other partners in the ecosystem through its proprietary advertisement technology platform.

In 2017, the company started to offer its suppliers and merchants a new fully-automated marketing platform that could make targeted product recommendations to users on www.jd.com and across JD’s publisher partnership network, driving new customers and repeat purchases for advertisers automatically. Powered by artificial intelligence, advertisers only need to input total budget, unit bid price and optimization goals to market to their targeted audiences on this platform, which enables advertisers to lower their operating costs and increase their returns.

In order to provide its partners with better targeted marketing and broader access to advertisement resources, in addition to its successful partnership with Tencent and Toutiao, in 2017, the company also formed strategic partnerships with other leading mobile internet companies such as Baidu, Qihoo 360, NetEase, Sogou and iQIYI, with an aim to leverage these companies’ powerful big data resources, massive user bases and AI-driven technologies to strengthen collaboration in precision marketing, user access points and content-driven marketing.

Logistics Services. In April 2017, leveraging its advanced technology and logistics expertise, the company established JD Logistics, a new business group under JD.com, to provide logistics services to businesses across a wide range of industries. JD has opened up its technology-driven fulfillment infrastructure by offering comprehensive supply chain solutions to third-party sellers on its marketplace and merchants that do not sell products on its online marketplace, including warehousing, transportation, delivery, customer services, after-sale services, as well as logistics technology solutions, including cloud-based service and data analytics, or a combination of these services. The company's logistics services to the third-parties have experienced rapid growth and have been well-received by major clients such as Nestle, NetEase, Gree, and others. JD is dedicated to developing an effective, environmental-friendly, innovative and smart “green logistics system” through developing and promoting the use of innovative and environmental-friendly materials and a series of technological innovations.

Omni-channel Initiatives. To achieve its “Boundaryless Retail” vision, JD is exploring a variety of omni-channel integration opportunities and innovative business models. Leveraging its well-established retail infrastructures, the company believe JD is well-positioned to create enhanced shopping experience for consumers as well as improved efficiency for its business partners in the ecosystem.

The company believe JD is well-positioned to provide online-to-offline (O2O) solutions to customers and offline retailers in select locations in China by capitalizing on its strong online presence and leveraging Dada’s crowdsourced delivery system. Dada is one of its equity investees and its O2O supermarket platform JD Daojia, which was JD’s assets before its transaction with Dada in April 2016, leverages the expanded delivery network, focuses on the location-based mobile commerce sector and collaborates with offline supermarkets, convenience stores and other local businesses to provide consumers with speedy premium shopping experience. As of January 31, 2018, Dada had partnered with 163 Walmart stores and 388 Yonghui stores to provide consumers with speedy premium online grocery shopping experience.

In June 2016, the company entered into a series of agreements in relation to its strategic alliance with Walmart. As part of the strategic alliance, the company acquired ownership of the Yihaodian marketplace platform assets, including the Yihaodian brand, websites and mobile apps. JD has collaborated with Walmart on e-commerce, including launching Sam’s Club Flagship Store and Walmart China Flagship Store on JD.com, Sam’s Club Global Flagship Store, Walmart Global Flagship Store, and ASDA Flagship Store on JD Worldwide, and a one-hour delivery service from Walmart Stores in select cities through the JD Daojia app, as well as leveraging each other’s supply chain to enhance product selection for customers across China. The company also launched the first Walmart-JD Omni-channel Shopping Festival on August 8, 2017, a new initiative aimed at offering shoppers across China faster and more convenient access to high-quality products through multiple channels.

To provide customers with a more dynamic and interactive integrated omni-channel shopping experience, JD has opened up hundreds of JD Home offline franchise stores in popular commercial districts in both higher tier and lower tier cities. Beginning with consumer electronics products and expanding into personal hygiene, books, cosmetics, luxury goods and other general merchandise categories, these stores are offering tens of thousands of stock keep units, or SKUs at competitive prices. Using a new digital price tag system, JD is able to support its offline franchise stores with its strong supply chain capability, and the company ensure customers will always have transparent prices both online and in-store. Using a variety of latest technologies such as facial recognition, product recognition, tracking system for customers’ in-store activities to name just a few, JD has established a closed loop to accumulate large volume of offline shopping data, and through further analysis of the integrated online and offline dataset, the company can offer differentiated products in each offline franchise store that best suit potential customer demands.

In December 2017, the company opened its first offline fresh food market under the 7FRESH brand and have recently launched a second one. Leveraging JD’s supply chain technology and scale, this hyper-premium market is stocked with thousands of fresh products, including fruit, flowers, imported meat and quality fresh seafood. Offering food preparation, catering service and free 30-minute delivery to customers within three kilometers, 7FRESH integrates advanced supply chain management know-how and cutting-edge store technologies to deliver a unique shopping experience.

The company will continue leveraging superior supply chain management know-how, strong logistics capabilities, and cutting-edge technology from its well-established retail infrastructure, to explore a variety of omni-channel opportunities and innovative business models and pursue enhanced shopping experience and improved operating efficiency.

Strategic Cooperation with Tencent

On March 10, 2014, the company acquired certain e-commerce businesses and assets from, and entered into a strategic cooperation agreement and formed a strategic partnership with Tencent, a leading internet company serving the largest online community in China. Tencent offers a wide variety of internet services in China including instant messaging, social networking, online games and online media. Tencent has a large mobile internet user base, as evidenced by 989 million monthly active user accounts on Tencent’s mobile apps Weixin and Wechat as of December 31, 2017 based on publicly available data.

As part of the strategic partnership, Tencent agrees to offer it prominent level 1 access points in its mobile apps Weixin and Mobile QQ and provide traffic and other support from other key platforms to it. Level 1 access points refer to entries and links that Tencent users can directly access on the interfaces that will launch after one click on the home interface on Tencent’s mobile apps. The company launched level 1 access on Tencent’s Weixin platform for selected Weixin users in Beijing and Shanghai first in May 2014 and subsequently rolled it out to all Weixin users in June 2014, and the company also launched direct access on Tencent’s Mobile QQ in August 2014. The company's partnership with Tencent’s dominant Weixin and Mobile QQ platforms has helped it generate mobile user traffic from Tencent’s large mobile user base and enhance its customers’ mobile shopping experience.

The two parties agree to cooperate in a number of areas including mobile-related products, social networking services, membership systems and payment solutions. The strategic cooperation agreement has a term of five years and applies within the territory of the Greater China, including Hong Kong, Macau and Taiwan. Under the strategic cooperation agreement, JD is Tencent’s preferred partner for all physical goods e-commerce businesses, and Tencent agrees not to engage in any direct sales or managed marketplace business model in physical goods e-commerce businesses in Greater China and a few selected international markets for a period of eight years, other than through its controlled affiliate Shanghai Icson E-Commerce Development Company Limited, or Shanghai Icson. The company expect to further leverage the strategic partnership with Tencent to enhance its customers’ online shopping experience, reach Tencent’s large mobile and internet user base and further expand its presence on mobile commerce.

On March 10, 2014, the company entered into a series of agreements with Tencent and its affiliates pursuant to which the company acquired 100% interests in Tencent’s Paipai and QQ Wanggou online marketplace businesses, a 9.9% stake in Shanghai Icson, logistics personnel and certain other assets. Paipai and QQ Wanggou, which the company acquired from Tencent, are online marketplaces in China that bring buyers and sellers together online. Paipai was a consumer-to-consumer or C2C marketplace, whereas QQ Wanggou was a business-to-consumer or B2C marketplace. The company re-launched the Paipai C2C marketplace in July 2014, but have closed it down as of the date of this annual report. In addition, the company obtained the right to acquire the remaining equity of Shanghai Icson by March 10, 2017 at the higher of the then fair value of Shanghai Icson or RMB800 million (US$123 million). In April 2016, the company exercised the right paying RMB800 million (US$123 million) and acquired the remaining equity interest in Shanghai Icson. Shanghai Icson operates a B2C e-commerce platform in China.

Concurrent with the above transactions, the execution of the strategic cooperation agreement and for US$215 million in cash to it, the company issued a total of 351,678,637 ordinary shares to Huang River Investment Limited, a wholly owned subsidiary of Tencent. The company paid Tencent RMB181 million (US$26 million) in cash as part of the consideration for the transaction during 2014. As part of the agreements, in a private placement concurrent with its initial public offering in May 2014, the company issued an aggregate of 139,493,960 Class A ordinary shares to Huang River Investment Limited at the per share equivalent of the price to the public. Huang River Investment Limited is currently one of its principal shareholders and held 18.0% of its total issued and outstanding shares as of February 28, 2018.

The company expect to continue to leverage its strategic partnership with Tencent to enhance its ability to increase its internet and mobile user traffic, to strengthen its direct sales and marketplace businesses on internet and mobile. The company believe its continued cooperation with Tencent will raise and maintain its profile among China’s fast growing and large mobile internet users, many of whom frequently use Weixin and Mobile QQ in their daily lives. JD has further strengthened its team with the addition of former employees from Tencent. In October 2015, the company expanded partnership with Tencent to provide merchants with innovative mobile marketing solutions. The collaboration offers businesses advanced online tools to more precisely reach their target customer groups, build brand recognition and increase return on investment on marketing by providing brands access to Tencent users. In October 2017, the company and Tencent expanded its partnership with the launch of the JD-Tencent Retail Marketing Solution. The initiative integrates insights on consumer behavior from Tencent’s social media platforms with online and offline shopping data from it and its brand partners to enable more precise target marketing and better understanding of consumer behavior for the brands on its platform.

Strategic Cooperation with Vipshop

In December 2017, the company, along with Tencent, entered into a share subscription agreement to subscribe for newly issued Class A ordinary shares of Vipshop, an NYSE-listed online discount retailer for brands in China. The company also purchased the ADSs of Vipshop from open market. As of December 31, 2017, the company accumulatively invested approximately US$425 million in cash as consideration for Class A ordinary shares of Vipshop (including the ADSs). In December 2017, the company also entered into a business cooperation agreement and established a cooperative relationship with Vipshop, pursuant to which the company granted Vipshop entries on both the main page of its mobile app and the main page of its Weixin Discovery shopping entry. Leveraging Vipshop’s strength in flash sale and apparel businesses, the company believe this partnership will further extend the strong inroads that JD has made with female shoppers, and will expand the breadth and reach of its fashion business.

Customer Experience

The company's slogan is “多快好省” (selection, speed, quality, value), and JD is committed to optimizing customer experience and achieving customer satisfaction. This commitment drives every aspect of its operations, which are focused on six core components: extensive product offerings, compelling online experience, superior customer service, competitive pricing, timely and accurate fulfillment, and convenient payment options.

Products

The company continually seek to add more products that appeal to its target customers. The number of products the company offer has grown rapidly. The company offer a wide range of product categories including but not limited to:

• home appliances;
• mobile handsets and other digital products;
• computers, including desktop, laptop and other varieties, as well as printers and other office equipment;
• furniture and household goods;
• apparel;
• cosmetics and other personal care items and pet products;
• women’s shoes, bags, jewelry and luxury goods;
• men’s shoes, sports gears and fitness equipment;
• automobiles and accessories;
• mother and childcare products, toys and instruments;
• food, beverage and fresh produce;
• gifts, flowers and plants;
• nutritional supplements;
• books, e-books, music, movies and other media products; and
• virtual goods, including online travel agency, attraction tickets, and prepaid phone cards and game cards.

Each of these categories is further divided into numerous subcategories to facilitate browsing.

In building up its product offerings, the company focus on quality as well as quantity. Due to its nationwide reach and its efficient fulfillment system, suppliers often choose it to launch new products that they expect will be in high demand, and the company often act as the preferred distributor for a period of days or weeks when a hot new product first becomes available for sale to the public.

Online Experience

The company believe that providing a compelling online experience is critical to attracting and retaining customers. The company make sales primarily through its content-rich and user-friendly website www.jd.com and mobile apps. The company's website not only offers a broad selection of authentic products at competitive prices but also provides easy site navigation, basic and advanced search functions, comprehensive product information and a large volume of customer reviews and ratings. These features address customers’ desire to view, understand and compare products before purchasing. With the increasing popularity of mobile internet-enabled devices, JD has also developed apps and features adapted to mobile internet users, and the company currently offer mobile access through its mobile website m.jd.com and its various iOS, Android and Windows-based mobile apps. As part of its strategic partnership with Tencent, JD has launched level 1 access on Tencent’s Weixin and Mobile QQ, whereby Tencent users can easily access its product offerings and have enjoyable mobile shopping experience. Approximately 86% of orders fulfilled were placed through its mobile apps in the fourth quarter of 2017, as compared to approximately 80% in the fourth quarter of 2016.

The company's www.jd.com website and mobile apps contain the following information and features:

Comprehensive product information. Each product page contains pictures, descriptions, and sometimes short videos of the product, the price, a pull-down menu to show whether the product is in stock at the customer’s location, customer reviews and ratings, and whether the product will be delivered by it or by one of its third-party sellers. Depending on the type of product, there will be additional information to help the customer make a purchase decision or recommendations to steer the customer towards additional products.

Interactive user community. The company's websites and mobile apps contain a large volume of helpful user-generated content. For each product, customers can provide reviews and ratings that are featured prominently on the product page. The company encourage participation by granting loyalty points for posting reviews and ratings. The company believe that JD has the largest online product review database of any online direct sales company in China, with approximately 3,259 million product reviews generated by its customers as of December 31, 2017, which benefits its customers, suppliers and third-party sellers.

Product recommendations. JD has been making progress in leveraging artificial intelligence technologies to generate personalized recommendations to customers of products they may be potentially interested in. Each product page typically has recommendations of other products that are often purchased together with that product. In addition, its website makes recommendations to customers according to a comprehensive dataset compiled based on customer’s behavior. The scale of its business enables it to collect large volume of data about customer behavior and preferences that the company believe enable it to make recommendations that are more accurate and appealing to its customers.

Real-time order tracking. Customers can log into their accounts to check the status of their orders. All packages in its system are given a unique identifier and their location is updated each time they are handled by one of its warehouse or delivery personnel or one of its contracted third-party couriers. Furthermore, each of its delivery personnel carries a mobile personal digital assistant, which allows customers to track their location in real time on an online map.

Customer Service

Providing satisfactory customer services is a high priority. The company's commitment to customers is reflected in the high service levels provided by its customer service staff as well as in its product return and exchange policies.

24-7 customer service centers. The company operate three 24-7 customer service centers in Suqian and Yangzhou of Jiangsu Province and Chengdu of Sichuan Province, handling all kinds of customer queries and complaints regarding its products and services. The company obtained COPC (Customer Operation Performance Center) Certification in November 2014. Customers can make queries and file complaints via various channels such as phone calls, online written instant messengers, JD official accounts in Weixin and Weibo, and emails. As of December 31, 2017, the company had a total of 9,085 full-time customer service representatives at the Suqian, Yangzhou and Chengdu centers.

Returns and exchanges. The company accept unconditional returns or exchanges within seven days of purchase. Merchandise with defects can be returned for exchange within 15 days of purchase. For customers with good credit, the company provide “quick refund” service, that is, the customers are refunded as soon as they submit the return requests. If customers report defects more than 15 days after receipt but still within the warranty period, the company will have defective goods repaired or take other appropriate action to compensate the customer, depending on the nature of the problem. The company will generally pick up defective items for return or exchange at the customer’s address, provided that the return or exchange is requested within 15 days of receipt of the item and the address within the area that is serviced by its employees or by one of the third-party couriers that have agreed to provide this service for it. Alternatively, customer can also mail the merchandise to one of its regional fulfillment centers or bring the product to the nearby pickup station. The same policies apply to products sold through its online marketplace.

Membership program. JD has established a membership program to cultivate customer loyalty and encourage its customers to make repeat purchases. In 2017, the company upgraded the membership system and changed from the five-tier membership structure to “Jing Xiang Zhi (京享值)” value system, which takes into account various kinds of indicators, such as consumer behavior, interaction, credit ratings, risk level, among others, to determine the comprehensive score for each consumer. The company believe the upgraded membership system will be able to effectively enhance shopping experience and consumer engagement. In addition to its “Jing Xiang Zhi (京享值)” membership program, the company continued to promote JD Plus, a premium paid membership program. By the end of 2017, JD has attracted millions of JD Plus members and continued to introduce new benefits to JD Plus members, including free shipping, extra rebates, VIP customer services, access to free e-books, free return services and exclusive prices on selected product offerings. Meanwhile, JD Plus has been integrated with other primary forms of promotions such as “Super Brand Days” and “Lightening Deal” channel, as an effort of joint marketing.

Pricing

The company offer competitive pricing to attract and retain customers. The company make continual efforts to maintain and improve an efficient cost structure and create incentives for its suppliers to provide it with competitive prices.

Pricing policy. JD is making continual efforts to set its prices to be competitive with those on other major online retail websites and in physical stores in China. The company typically negotiate with its suppliers for prices that are comparable to or lower than those offered to retailers in other sales channels. If the company reduce the price on its website before the product is delivered to the customer, then the customer generally has an opportunity to lock in the lower price. Currently, third-party sellers are free to set their own prices on its online marketplace.

Special promotions. The company offer a selection of discounted products on special occasions, such as the anniversary sales promotional event on June 18 and China’s new online shopping festival on November 11, and on important holidays such as Christmas and Chinese New Year. The company also hold daily promotions for selected products for a limited period of time. Special promotions attract bargain hunters and give its customers an additional incentive to visit its website regularly.

Delivery

The company believe that timely and reliable fulfillment is critical to the continuing success of its business. To this end, JD has incurred and will continue to incur significant expenditures in building and operating its own nationwide fulfillment infrastructure. The following are some of the advantages that derive from its nationwide fulfillment infrastructure:

Delivery network and personnel. The company delivered products directly to customers in almost all counties and districts across China as of December 31, 2017. The company deliver a majority of the orders directly to customers itself , and therefore its customers interact with delivery personnel more often than with any other representatives of its company. For this reason, the company place great emphasis on training its delivery personnel and setting up delivery stations in more and more counties and districts. The company believe that its professionally trained delivery personnel are important in helping it to shape customer experience and distinguish itself  from its competitors.

Flexible delivery arrangements. The company believe that timely and convenient delivery is an essential part of customer satisfaction, and the company arrange its delivery schedule to suit its customers’ needs. Customers can choose their preferred delivery period during a day, including evening delivery in selected areas, when they place orders. The company's delivery personnel contact customers by telephone to arrange a convenient time for delivery. Customers who need to reschedule a delivery can log into their account on its websites to look up the contact information for the delivery person and contact the delivery person directly themselves, provided that the delivery will be made by its employees.

Comprehensive speedy delivery service. The company introduced its 211 program in 2010. For goods that JD has in stock at the corresponding regional fulfillment center or front distribution center, any orders received by the morning deadline (11:00 a.m. in most of the locations) will be delivered on the same day, and any orders received by the evening deadline (11:00 p.m.) will be delivered by 3:00 p.m. on the following day. Customers also can request that an order placed by 3:00 p.m. be delivered in the evening on the same day in selected cities. There is no extra charge for delivery under its 211 program for orders that satisfy the minimum size requirement, and customers can check the product page on its websites to see whether the product is in stock and thus eligible. The program does not cover delivery to addresses through third-party couriers or products shipped directly from its third-party sellers. Bulky items such as refrigerators or washing machines are also eligible for same-day or next-day delivery in selected areas. Customers can request expedited delivery within two hours by paying an extra charge in the major cities where JD has regional fulfillment centers. JD Logistics also provides scheduled delivery service in selected cities, allowing customers to choose a convenient 2-hour delivery window within which to receive their goods. Besides, for luxury products, consumers in major cities can enjoy JD Luxury Express, a premium delivery services. As of December 31, 2017, its same-day and next-day delivery service covered 1,752 counties and districts across China.

Customer pickup. Customers who prefer to pick up their order themselves can select a pickup station when placing the order and use the tracking function to find out when the order has arrived there. JD has pickup stations at convenient locations across the country and payment can be made on spot.

Continuous expansion of delivery service. JD has established and are making continuous efforts to further expand cold-chain logistics and cross-border logistics capabilities and in other new business areas, to expand product selection while ensuring superior customer experience.

Payment

Payment-on-delivery. The company accept payment-on-delivery in almost all of the counties and districts across China where the company make deliveries through its own delivery personnel. The company's delivery personnel carry mobile POS machines for processing debit cards and credit cards and they also accept cash. Customers chose payment-on-delivery approximately 10% of the time in 2017.

Online payment. Various kinds of online payment methods are offered to customers at the time they place their orders, such as Weixin Pay, JD Pay, UnionPay, among others. Customers chose online payment approximately 90% of the time in 2017.

Other payment options. Customers may also choose to pay by postal money order. Enterprise customers can also make payment by wire transfer.

Merchandise Sourcing

In its online direct sales business, the company sourced products from over 15,000 suppliers as of December 31, 2017. Procuring products on such a massive scale requires considerable expertise, which JD has built up over a number of years. The company negotiate with the manufacturer or a higher-level distributor where possible in order to obtain the most favorable terms, even if the company sign a contract with a lower-level distributor for operational reasons. None of its suppliers accounted for over 10% (by value) of the products the company purchased in 2017. In addition, the company had over 170,000 third-party sellers on its online marketplace as of December 31, 2017.

As the company increase in scale in particular product categories, the company expect to increase its direct purchases from manufacturers and, where appropriate, to become an authorized reseller. The company believe that its ability to establish direct relationships with manufacturers will provide improved product pricing and access to hard-to-get products. The company believe that manufacturers and distributors consider it an important channel in certain product categories such as computers and mobile devices, where JD is one of the largest channels in China, and JD is gaining significant traction in related categories like home electronics. In addition, JD has created a supplier interface where its suppliers and third-party sellers access reports regarding inventory status, purchase history and customer reviews of their products. Suppliers and third-party sellers can use this information in their marketing and product development efforts and also in managing their own inventory, which helps them manage costs and makes its services more valuable to them.

The company select suppliers and third-party sellers on the basis of brand, reliability, volume and price. They must be able to meet its demands for timely supply of authentic products and also provide high quality post-sale customer service. The company perform background checks on each supplier and third-party seller and the products it provides before the company enter into any agreement. The company examine their business licenses and the qualification certificates for their products, and check their brand recognition and make investigation about the market acceptance of their products among players in the same industry. The company also conduct on-site visits to assess and verify their location, scale of business, production capacity, property and equipment, human resources, research and development capability, quality control system and fulfillment capability. The company's standard form contract requires suppliers and third-party sellers to represent that their goods are authentic and from lawful sources and do not infringe upon lawful rights of third parties and to pay it liquidated damages for any breach. The company normally enter into one-year framework agreements with its suppliers and third-party sellers and renew them annually. JD has also put stringent rules in place governing the operations of third-party sellers on its online marketplace. Third-party sellers will be subject to penalties or be asked to end their operations on its online marketplace if they violate the marketplace rules, for example by selling counterfeit products.

Fulfillment

The company deliver a compelling customer experience by fulfilling orders quickly and accurately. To this end, JD has built its nationwide fulfillment infrastructure for the prompt receipt, storage and shipment of its products. The company's fulfillment infrastructure is primarily comprised of a nationwide warehouse and delivery network that the company operate itself , supplemented by contracted third-party couriers to service areas that are not covered by its network. To further enhance inventory accountability and security, the company track its inventory at all stages of the receiving and order fulfillment process.

Nationwide Fulfillment Infrastructure

JD has built a nationwide fulfillment infrastructure that the company believe is the largest among all e-commerce companies in China.

The company had established regional fulfillment centers in seven major cities in China as of December 31, 2017: Shenyang in the northeast, Beijing in the north, Shanghai in the east, Wuhan in the center, Guangzhou in the south, Chengdu in the southwest and Xi’an in the northwest. The company had also established front distribution centers in another 27 major cities stocking products that are in high demand and other additional warehouses in another 44 cities in China as of December 31, 2017. The company operated a total of 486 warehouses with an aggregate gross floor area of approximately 10 million square meters in 78 cities as of December 31, 2017, and its comprehensive fulfillment facilities covered almost all counties and districts across China as of the same date.

The company deliver a majority of the orders directly to customers itself . The company maintain cooperation arrangements with a number of third-party couriers to deliver its products to its customers in those areas not covered by its own fulfillment infrastructure, particularly in smaller and less developed cities. Third-party sellers also use third-party couriers if they do not use its delivery services.

Fulfillment Process

The following flow chart outlines its fulfillment process:

When a customer places an order, its delivery management system automatically processes the order and matches it to the warehouse or warehouses with the appropriate inventory. Picking is done on the basis of instructions that are generated automatically by its warehouse management system. The warehouse management system also automatically generates the bar codes and shipping labels that allow its staff to match the items to the correct order in the packing process. After picking, packing, and sorting process, the order is shipped to a delivery or pickup station in the customer’s city for further handling and delivery. If a customer order contains products from different warehouses, the products will be combined at the last-mile delivery station and then sent to the customer in one delivery. If the customer’s address is not one to which the company make deliveries itself , the company will have a third-party courier pick up the order at its sorting center to make the delivery. In some cases the company also use third-party couriers to carry orders between a sorting center and a delivery station. Once the order has been shipped, its system automatically updates the inventory level for each product in the order, ensuring that additional inventory will be ordered as needed. The company's customers can track the shipping status of their orders through its websites or mobile apps at each step in the process.

JD is in the process of constructing new, larger, custom-designed warehouses on land where JD has obtained land use rights. As of December 31, 2017, the company had already launched its custom-designed warehousing facilities in nine cities with an aggregate floor space of over one million square meters. In addition, JD is in the process of constructing the warehousing facilities in twelve cities, and plan to construct additional such warehouses. The company believe that building its own custom-designed warehouses will not only increase its storage capacity but also allow it to restructure and reorganize its fulfillment workflow and processes.

The company also have a dedicated internal division, to explore research, development and application of smart logistics and unmanned technology, which the company believe represent the future trend of the logistics industry. Through the development of a series of cutting-edge technologies such as intelligent hardware, internet of things, big data, robotics, image and vision recognition, machine learning, deep learning, and smart logistics devices, the company intend to revolutionize logistics industry and transform it from automation to intelligence. JD is also in the process of experimenting these technologies in a wide range of logistics business areas such as unmanned warehouses, drone delivery, self-driving vehicles, unmanned delivery stations and convenience stores, among others. The company will continue to invest in smart logistics to improve the intelligence level of its logistics system and to provide consumers with an unparalleled shopping experience.

Technology Platform

Technology is the key to the success of its future business development and the evolution of its ecosystem. The company's proprietary technology platform supports its rapidly growing processing capacity requirements, and provides it with detailed and accurate visibility and information based on its cloud computing infrastructure, comprehensive operating data from value chain, and advanced business intelligence analytics powered by artificial intelligence technologies.

As of December 31, 2017, the company employed 11,938 research and development professionals to design, develop and operate its technology platform. At the same time, JD has built up a global team of artificial intelligence and supply-chain technology professionals, including many top-notch AI and supply-chain researchers and scientists.

The company's security infrastructure provides encryption service using the industry standard AES algorithm to protect its proprietary data and customer information across all JD custom-designed data centers. With multiple layers of encryption, all sensitive data can only be accessed by authenticated and authorized systems, apps and services without compromising confidentiality and privacy.

Key components of its technology platform include:

Boundaryless Retail Technology to Expand Retail Scenarios

JD is striving to leverage AI technologies to generate personalized recommendations on its retail technology platform based on the comprehensive data the company accumulate daily. The vast scale of its business gives it extensive data about customers that can provide deep insights into customer interests and behavior.

The company's technologies are widely used in a multitude of retail scenarios, from front-end technology that supports its main customer interface on its websites and mobile apps, to the innovative omni-channel technology to support the retail ecosystem with new customer interfaces, such as the 7FRESH offline store, Ding-Dong Smart Speaker, JD Home offline franchise stores and unmanned convenience stores, among others. The company's strong retail technology platform is vital in its pursuit of an ever-improving customer experience.

Big-Data Analytics and Smart Supply Chain to Enhance Operating Efficiency

After years of development, JD has accumulated a huge amount of data covering the longest value chain in China’s e-commerce industry, including customer browsing and buying behavior, product manufacturing and sales information, warehousing and distribution information, customer service information and much more. Leveraging its technical capabilities such as batch computation, real-time computation, machine learning and deep learning, its big data platform can fulfill the computational tasks of various complex application scenarios.

With supply chain management capability quickly becoming an essential component of JD’s key smart retail infrastructure, JD has established a dedicated internal division to integrate cutting-edge technologies such as big data, blockchain, internet of things, or IoT, natural language processing and understanding, machine learning and deep learning, in building its demand-driven and consumer-centric smart supply-chain management capability to enhance operating efficiency and to empower the business partners in its ecosystem.

Smart Logistics to Achieve Superior Customer Experience

JD has also established another dedicated internal division to explore the application of smart logistics and unmanned technology, which the company believe represents the future of the logistics industry. Through exploration and development of a series of cutting-edge technologies such as intelligent hardware, IoT, big data, robotics, image and vision recognition, smart logistics devices and other key technologies, the company intend to revolutionize the logistics industry and transform it from automation to intelligence. JD is also in the process of applying these technologies in a wide range of logistics business areas such as unmanned warehouses, drone delivery, self-driving vehicles, unmanned delivery stations and convenience stores, among others. The company will continue to invest in smart logistics to improve the intelligence level of its logistics system and to provide consumers with an unparalleled shopping experience.

Artificial Intelligence Technology to Drive Business Upgrades

JD is making continuous efforts to develop its technology strength in artificial intelligence, leveraging its massive volume of data, to explore innovative business models. In September 2017, the company established the AI Platform and Research Division as a core component of its company’s technological ecosystem. JD has incorporated cutting-edge technologies, such as machine learning, natural language processing and related computational approaches, to continue to improve its operations. As of the date of this annual report, its applications of artificial intelligence technology include intelligent customer service assistant JIMI, intelligent SKUs selection system, and AI-driven advertisement platform, among others. The company also strive to assume greater corporate social responsibility by building an advanced public technology platform in order to better serve the community.

Marketing

The company believe that the most effective form of marketing is to continually enhance its customer experience, as customer satisfaction engenders word-of-mouth referrals and repeat purchases. JD has been able to build an extensive base of loyal customers primarily through providing superior customer experience and conducting marketing and brand promotion activities.

In addition to continuing marketing activities through traditional online and offline channels, JD has also designed innovative programs and promotion activities to further enhance the brand awareness of both it and its partners, and to better reach its customers. In 2017, the company successfully launched a series of “Super Brand Days”, “Super Category Days” and “Super New Product Days” joint marketing campaigns in cooperation with many domestic and international top brands. As part of its overall efforts to help business partners develop brand recognition in China, the customized campaigns bring brands closer to consumers through highly effective, targeted promotions based on data-driven customer insights. Additionally, the company strengthened its JD Co-branding Program to jointly promote brand awareness with many of its brand partners.

With the increasing popularity of mobile internet-enabled devices, approximately 82% of its orders fulfilled were placed through its mobile apps in 2017. In order to further improve customer experience and increase user engagement on mobile internet, JD is exploring cooperation opportunities with many business partners on the mobile side. In addition to its successful partnership with Tencent and Toutiao in 2017 the company also formed strategic partnerships with Baidu, Qihoo 360, NetEase, Sogou and iQIYI, aimed at leveraging these companies’ massive user bases to strengthen collaboration in targeted marketing, user access points and content-driven marketing. The company incurred RMB7,233 million, RMB10,159 million and RMB14,918 million (US$2,293 million) of marketing expenses in 2015, 2016 and 2017, respectively.

Competition

The online retail industry in China is intensely competitive. The company's current or potential competitors include  major e-commerce companies in China that offer a wide range of general merchandise product categories, such as Alibaba Group, which operates taobao.com and tmall.com, and Amazon China, which operates amazon.cn, and (ii) major traditional retailers in China that are moving into online retailing, such as Suning Appliance Company Limited, which operates suning.com, and Gome Electrical Appliances Holding Limited, which operates gome.com.cn. The company also face competition from online retail companies in China focused on specific product categories and from physical retail stores, including big-box stores that also aim to offer a one-stop shopping experience.

The company anticipate that the online retail market will continually evolve and will continue to experience rapid technological change, evolving industry standards, shifting customer requirements, and frequent innovation. The company must continually innovate to remain competitive. The company believe that the principal competitive factors in its industry are:

• brand recognition and reputation;
• product quality and selection;
• pricing;
• fulfillment capabilities; and
• customer service.

In addition, new and enhanced technologies may increase the competition in the online retail industry. New competitive business models may appear, for example based on new forms of social media or social commerce.

The company believe that JD is well-positioned to effectively compete on the basis of the factors listed above. However, some of its current or future competitors may have longer operating histories, greater brand recognition, better supplier relationships, larger customer bases or greater financial, technical or marketing resources than the company do.

Seasonality

The company experience seasonality in its business, reflecting a combination of seasonal fluctuations in customer purchases, promotional events, and traditional retail seasonality patterns. For example, the company generally experience less user traffic and purchase orders during national holidays in China, particularly during the Chinese New Year holiday season in the first quarter of each year. Furthermore, sales in the traditional retail industry are significantly higher in the fourth quarter of each calendar year than in the preceding three quarters. E-commerce companies in China hold special promotional campaigns on November 11 each year that tend to boost sales in the fourth quarter relative to other quarters, and the company hold a special promotional campaign in the second quarter of each year, on June 18, to celebrate the anniversary of the founding of its e-commerce business. Overall, the historical seasonality of its business has been relatively mild due to its rapid growth but has been increasing and may further increase in the future. Due to its limited operating history, the seasonal trends that JD has experienced in the past may not apply to, or be indicative of, its future operating results.

Intellectual Property

The company regard its trademarks, copyrights, patents, domain names, know-how, proprietary technologies, and similar intellectual property as critical to its success, and the company rely on copyright, trademark and patent law and confidentiality, invention assignment and non-compete agreements with its employees and others to protect its proprietary rights. As of December 31, 2017, the company owned 336 computer software copyrights in China relating to various aspects of its operations and maintained 5,719 trademark registrations inside China and 896 trademark registrations outside China. The company had approximately 4,402 trademark applications inside China and 475 outside China. As of December 31, 2017, the company had 838 patents granted in China, 3,622 patent applications pending in China and 236 patent applications pending outside China. As of December 31, 2017, the company had registered approximately 3,662 domain names. The company's registered domain names include jd.com, 360buy.com, 360buy.com.cn and 360buy.cn, among others.

Insurance

The company maintain various insurance policies to safeguard against risks and unexpected events. JD has purchased all risk property insurance covering its inventory and fixed assets such as equipment, furniture and office facilities. The company maintain public liability insurance for its business activities at ten locations. The company also provide social security insurance including pension insurance, unemployment insurance, work-related injury insurance, maternity insurance and medical insurance for its employees. Additionally, the company provide group accident insurance for all employees and supplementary medical insurance for all management and technology and other professional personnel. The company do not maintain business interruption insurance, nor do the company maintain product liability insurance or key-man life insurance. The company consider its insurance coverage to be sufficient for its business operations in China.

Organizational Structure

The following diagram illustrates its corporate structure, including its principal subsidiaries and consolidated variable interest entities as of the date

References

1. ^ https://fintel.io/doc/sec/1549802/000110465918027777/a18-5116_120f.htm