Posted by Martin Veitch, editorial director at IDG Connect, on
July 12 2013
There are eCommerce companies that are convenient and very
useful, but there are only a few that have changed the world. In this last,
rarefied category, we might think of Amazon.com and, increasingly, Alibaba
Group. The fact that Alibaba’s success has been more remarkable in its China
homeland than elsewhere, and that its reputation outside China is primarily as
a business-to-business phenomenon.
But even among laggards it surely won’t be
long until its name becomes synonymous with the new face of eCommerce, rapid
geographical expansion and supply-chain globalisation.
The Group is actually a remarkable empire where the numbers
alone make heads spin. There is Alipay, a PayPal-like consumer payments system
that is enormous in China and has 800 million registered members. Taobao is
like eBay but highly customized for the Chinese market and responsible for over
94% of all consumer-to-consumer transactions there. 60% of all parcels
delivered in China stem from Taobao orders and the marketplace hosts 800
million products and 500 million registered users. Tmall.com is the Amazon.com
of China, providing both Chinese and foreign brands and selling to 500 million
registered users.
Explaining the Alibaba Group world requires understanding of
cultural nuance. For example, Chinese buyers tend to prefer to shop from malls
rather than own-brand stores or sites and even big brands pursuing sales in
China tend to follow, in part because of this tendency, in part because of the
difficulties of selling to the enormous Chinese market which expects a distinct
experience very different to the needs of many other large markets, and in part
because of the data the platform generates for participants. Cash-on-delivery,
overnight deliveries in cities and seven-day return policies also make China
distinctive and it’s quite common for buyers to reject goods on delivery.
It was founded as recently as 1999 but Alibaba Group’s sheer
scale and reach is placing it front and centre of the fundamental changes
taking place in the way we work and trade.
Western companies find it hard to replicate the user
experience designed for the Chinese consumer. Alibaba also offer very
high-quality data analytics through research on product pricing and
responsiveness and they're linked in to a fairly sophisticated delivery and
logistics network. You can’t just take learning from other markets into this
market so you have to hire or bolt on.
The broader commercial movement is towards partnering,
outsourcing and franchising. Channel
dominance is becoming more important than product dominance in many markets.
They are becoming offline platforms where they rent the space internally; they
have access to brands and the margins they get are better. The world is moving
back to platforms and away from brands unless those brands are very strong.
Alibaba Group is on a remarkable trajectory and its gross
merchandise revenue of about $160bn per annum is already greater than Amazon
and eBay combined.
While all eyes are on Alibaba to float at some point, the
focus for the Group, is expansion in international markets: Turkey, Brazil,
Russia, Australia, the US and Europe all offer growth spurts. That’s crucial
because, while many have contended that China will have the last word on price
for a long time to come, the rapid rise in her middle class could give
Indonesia, the Philippines or another ‘Next Eleven’ country a chance to
undercut.
And, while doubts remain on the Chinese line over
intellectual property and geopolitical issues remain sensitive, the company is
part of a tectonic and historic change in attitudes. People everywhere are
going to stop viewing them as a threat and more as an opportunity. Anytime
there is an opportunity, people tend to take a more favorable view and China is
where the opportunity is.
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