Hot Topic: Enter the sleeping dragon

While the OP industry has been focused on Amazon, the world's largest e-commerce company, Alibaba, has been working quietly behind the scenes preparing its international business. Michelle Sturman reports...

The writing of this Hot Topic coincided with Jack Ma, lead founder and Executive Chairman of China-based e-commerce giant Alibaba Group, meeting with then US President-elect Donald Trump at the beginning of January 2017. 

Even though Trump has in the not-too-distant past seemingly been quite “threatening” towards China in terms of renegotiating trade deals, Ma pledged to create one million jobs in the US over the next few years by encouraging small businesses to sell on its online marketplace platform(s), in particular to Chinese customers.  

China offers a young and growing middle class of around 300 million that is increasingly looking to buy international brands, and it is estimated there is around $4.6 trillion in cash reserves across Chinese households. Furthermore, by 2020, cross-border e-commerce sales in China are expected to reach more than $150 billion.  

From Ma’s point of view, the announcement is just one vital component in his vision of making Alibaba truly international. Figures suggest that Alibaba has already surpassed Walmart to become the world’s biggest retailer although it doesn’t actually sell anything. However, the company is bridging the gap between online-to-offline after making investments in physical retail stores. It recently bought the Intime department store chain for $2.6 billion, and a percentage of Sanjiang Shopping Club – similar to Walmart’s Sam’s Club – for around $300 million, among others.  

How does Alibaba work?

Outside of China, the company is confusing to many. Is it like Amazon, eBay, PayPal, or something else entirely? Put simply, Alibaba Group is an internet business that provides the technology to facilitate the sale of goods between merchants, brands, small businesses and consumers globally through different online marketplaces.

What Alibaba does not do is sell its own products, have its own warehouses or own a logistics infrastructure. Instead, it uses its software expertise to create an ecosystem that includes e-commerce platforms, cloud computing, digital media and entertainment, payments and financial services, and logistics.

It’s important to understand that Alibaba Group hosts many different platforms aimed at very specific audiences (see ‘Alibaba Group’s key businesses’, below, for more information). For the purpose of this article, OPI will concentrate on Alibaba.com – probably the most well-known platform – which is the company’s B2B marketplace where international small businesses trade directly with each other, and with Chinese manufacturers. The other platform worth investigating is Tmall, including Tmall Global, a platform for brands and retailers (B2C) which is a spin-off from its original C2C platform Taobao.

Asking senior members of the industry, OPI found that while everyone had heard of Alibaba, a large percentage professed to know little about it; others said their focus was most definitely on dealing with Amazon and not the Chinese e-commerce giant. 

A recent opi.net poll on Alibaba (see below) found that no respondents from the industry are currently using Alibaba to generate sales, although over 40% had intentions of doing so in the future. 

This sentiment was echoed in OPI’s Q4 OP Confidence Survey, which asked participants if Alibaba.com was a consideration for their e-commerce plans now or in the future. Almost all respondents from all sectors of the industry have adopted a wait-and-see attitude. 

The big questions

This begs the following questions: is the OP industry simply too focused on Amazon? Has Alibaba not made a big enough splash globally to be on the industry’s radar? Or does it simply not provide a good enough business proposition to warrant serious further investigation?

Let’s take each question in turn. Based on industry responses such as “we consider Amazon more of a threat than Alibaba” from a large US reseller, or the following from a European wholesaler: “We are not taking Alibaba into consideration, we are more interested in Amazon”, dealing with the successful (re)launch of Amazon’s B2B division is more than keeping everyone in the industry occupied right now.

It could also be partly to do with the answer to the next question regarding Alibaba’s international brand recognition. Even though the online giant launched in 1999, it pretty much kept itself to conducting business in China. It wasn’t until September 2014 that Alibaba really made a splash globally when it announced its international trading debut on the New York Stock Exchange. It hit the headlines for being the largest IPO ever in the US, raising around $25 billion. The stock has been volatile since the launch, to say the least, but is now trading at approximately its entry level share prices.

Over the past year or so, Alibaba has been busy expanding its international operations. In Southeast Asia, it bought one of the region’s biggest e-commerce sites Lazada for $1 billion, while elsewhere it has been busy opening offices in Australia, the Netherlands, the UK, Germany, Italy and France. 

But Ma is clearly not satisfied with its international footprint so far. In an open letter to shareholders in October 2016, he unveiled plans to greatly widen the company’s presence across the globe. He said: “We are working to create the fundamental digital and physical infrastructure for the future of commerce, which includes marketplaces, payments, logistics, cloud computing, big data and a host of other fields. We believe the commerce infrastructure we have created in China can be applied on a global scale to lift up small and medium businesses and ordinary consumers around the world.” He went on to state that in the next two decades, the aim is to “serve two billion consumers, empower ten million profitable businesses and create 100 million jobs.” 

21st century Silk Road

Now to answer the final and most important question: does Alibaba.com warrant the attention and business of the office products industry? First and foremost, it is no longer an option to ignore e-commerce and as the biggest e-commerce business in the world, Alibaba.com could open many doors for resellers, such as direct international trading with other relevant businesses. 

A quick search in the Packaging, Advertising & Office category on Alibaba.com shows over five million available products in the Office & School Supplies sub-category from a wide range of suppliers in China, Thailand, Germany, Zimbabwe, Iran, Brazil, the Philippines and Uzbekistan, among others.

Alibaba also offers a route into the vast Chinese consumer market with Tmall Global which many global brands and retailers are already using – it helps to remove some of the red tape usually required when selling in China. Speaking to OPI, Alibaba’s business development team offered the following advice for any business supplies reseller looking to use its platforms to break into the Chinese market: “If office products suppliers are looking to break into the Chinese consumer market, they must think very hard about product selection. What is it about their product(s) that is unique and is it something that the Chinese consumer would normally be unable to find in their home market? Chinese consumers are looking for products that are high quality and represent the heritage/culture of the country they are buying them from.”

The last sentence is certainly worth noting. Research shows that the huge burgeoning Chinese middle class is increasingly turning to international brands as they are believed to represent hallmarks of quality and assurance. 

However, there are concerns over the higher perceived risks that dealing with Alibaba – and by extension, China – present, in terms of logistics and supply and, importantly, counterfeit goods (see ‘Notorious Alibaba’, below). 

One European dealer group told OPI that Alibaba is simply not competitive enough right now, and it would need to do some serious work on Google Search, for example, to deal with poor product descriptions and links before it would warrant any further investigation. 

The verdict

Clearly, Alibaba has work to do to convince an international OP audience of its pedigree, but with its e-commerce ecosystem coupled with a focus on the international market and a massive customer base, it is certainly advisable to keep a very close eye on it. It’s also worth remembering that the company has other initiatives designed to entice small businesses into the fold. Its cloud services, for example, already host 35% of websites in China and has cracked m-commerce – mobile already contributes over 75% of Alibaba’s total sales. 

In addition, more than six million businesses use the company’s Qianniu merchant mobile app on a daily basis which is designed to help them improve sales and marketing. 

With figures like that, innovations such as a virtual reality payment system, and an ultimate aim of connecting small businesses with customers globally, Alibaba is becoming harder to ignore. It will certainly stay on OPI’s radar.

Alibaba Group’s key businesses

Alibaba.com: B2B platform for small businesses 

Tmall/Tmall Global: Third-party platform for brands and retailers 

Taobao Marketplace: C2C shopping platform 

AliExpress: Global marketplace for consumers to buy from China 

Juhuasuan: Online group buying marketplace 

Alibaba Cloud: Cloud computing services 

 

Alibaba milestones

1999: Alibaba Group is established by its 18 founders, led by Jack Ma, working out of an apartment in Hangzhou, China. Its first website is English language Alibaba.com, a global wholesale marketplace

2001: Alibaba.com surpasses one million registered users

2003: Launches online shopping website Taobao Marketplace

2004: Alipay is launched as a third-party online payment platform

2005: Alibaba Group takes over the operations of China Yahoo!

2007: Alibaba.com completes its IPO on the Hong Kong Stock Exchange; Alipay goes global, enabling transactions between renminbi and 12 major currencies; opens its first European office in Geneva

2008: Taobao Mall (currently known as Tmall.com), a platform for third-party brands and retailers, is launched

2009: Alibaba Cloud is established

2010: Taobao Marketplace introduces online group buying marketplace Juhuasuan; Alibaba.com officially launches AliExpress to enable exporters in China to reach and directly transact with consumers around the world

2011: Tmall and Juhuasuan are spun off from Taobao Marketplace as independent platforms; logistics and shipping service, Fulfillment by AliExpress, is launched

2014: Tmall Global is launched to enable international brands to offer products directly to consumers in China; Alibaba Group goes public on the New York Stock Exchange

2015: Alibaba Group announces the expansion of its London office to serve as the company’s European hub; reveals the acquisition of the South China Morning Post

2016: Launches office in the Netherlands and buys controlling share in Singapore-based online e-tailer Lazada

 

Notorious Alibaba 

The US Office of Trade Representatives (USTR) recently released its 2016 Notorious Markets List which details “physical and online markets around the world that are reported to be engaging in and facilitating substantial copyright piracy and trademark counterfeiting”.

USTR has included Alibaba’s Taobao on the list. The company has reacted quite strongly to this, saying in a statement: “We are very disappointed by the USTR’s decision to include Taobao on its ‘notorious markets’ list, which ignores the real work Alibaba has done against counterfeiters.”

Alibaba said that it considered the actions of the USTR to be unreasonable as it had “proactively removed more than double the number of infringing products listings than in 2015.”

It went on to say that despite the USTR’s decision, it is fully committed to protecting the IP of rights holders and believes it has dedicated more resources toward protecting intellectual property than any other e-commerce company.

In other related news, Alibaba recently became the first e-commerce platform in China to take counterfeiters to court. The case revolves around two vendors using Alibaba’s Taobao shopping platform to sell fake Swarovski watches.