Alibaba – An Economy that is Based on China

A few weeks ago when Jack Ma was in Detroit trying to convince small and medium sized businesses to sell to Chinese customers he said something that was largely under reported. Alibaba is hoping to become an economy instead of being a seen as a marketplace exclusively.

The idea is very simple in that Alibaba will be serving 2 billion people and have Gross Merchandise Value of 1 Trillion going through its marketplaces and have 10 million businesses selling on its various platforms by 2020.

The IPO which made records

Looking back the initial public offering of Alibaba which shattered records – it was oversubscribed and raised $22 billion should have been an indication that Alibaba was going to be different. The challenges after going public have been real in that Alibaba has invested in a wide variety of businesses and have not really invested deeply in ecommerce.  Their first real ecommerce investment was putting a Billion dollars into Lazada. Lazada has since received a billion dollars an become an Alibaba subsidiary which is controlled by Alibaba and counts Lazada employees and long time Alibaba partner Temasek as the remaining investors in Lazada. For those wondering Temasek is the investment fund that is state controlled by the Singapore government.

 

Amazon – not a competitor

I will be the first to admit that I was completely clueless regarding Alibaba investment theory. Alibaba does not view Amazon as a competitor and always speak in a respectful tone when their leadership is in the US. Alibaba does not have a business that can be used as a comparison as the scale is not seen outside of China by any Western business.

Jack Ma tells CNBC the difference between Amazon and Alibaba in Davos. “The difference between Amazon and us, is Amazon is more like an empire — everything they control themselves, buy and sell,” Ma said. “Our philosophy is that we want to be an ecosystem. Our philosophy is to empower others to sell, empower others to service, making sure the other people are more powerful than us.”

So what is Alibaba’s plan?

Alibaba is ensuring that they are able to service Chinese customers which will ensure that they succeed in such a way that they are able to invest in Asia. In the next 5 years China will have 500 million middle class Chinese who are used to shopping on the Internet or on a mobile device.

Try-Shopify

Ma later addressed a group of those small businesses, saying the future looks bright for U.S. small enterprises who focus on China, because for “the next 30 years, China domestic consumption will drive the global economy.” China’s demographics — the country has a middle class of about 300 million, which is set to rise to over 500 million in just a few short years — create tremendous opportunities for companies offering high-quality and a good variety of products.

Jack Ma is seen as a celebrity in China more than being the founder of the largest ecommerce business in the world. By investing in markets such as South East Asia and India, Alibaba and Ma ensure that they can be the de-facto starting point of shopping in China.

I wrote in 2013 that Alibaba would buy Lazada and invest in businesses that provide them access to large markets for their customers. Alibaba CEO Jonathan Lu was replaced by Daniel Zhang which should have informed the world about Alibaba’s future.  Zhang was instrumental in ensuring that Cainao Network got started. Cainao Network is Alibaba’s attempt with other logistics partners to build a logistics network for Chinese shoppers.

China is showing us the future

New Retail is a term created by Alibaba as they started moving their interests from purely online to a mix of online and offline retail. This shift is happening in developed ecommerce markets as pureplay ecommerce business either buy retailers (Amazon and Whole Foods Market) or open physical stores to their footprint.

Starting in 2016, Alibaba’s Jack Ma advocated the concept of “New Retail”—in his words, “the integration of online, offline, logistics and data across a single value chain.” Considering that Alibaba already accounts for more than one-tenth of China’s total retail sales (including 75% of online sales), with revenues surging at an astounding 50% annual clip, the implications of this overture are hard to overstate.

Retail in developed markets like the UK or US is facing its greatest challenge but with New Retail, Alibaba is essentially creating a new industry that supports both online and offline retail. This is not Tech vs Retail but rather Old vs New Retail. Customers are able to access retailers on their phone or via their notebook or walk into a retailer but this is currently called omnichannel commerce which I detest. New Retail is ensuring that physical retail lives on in a different way. The large marketplaces in China, JD.com and Alibaba both have invested significantly in physical retail yet I keep reading in the West that retail is dead?

So how does this affect me?

Chinese ecommerce is going to impact the entire ecommerce ecosystem. If you are an online shopping business owner or service, China is in your future. Whether it is selling your products to Chinese customers via TMall and Taobao, Chinese ecommerce will impact your local ecommerce ecosystem. It might not be in the immediate future but Alibaba is going to look to on board merchants from markets all over the world. New Retail is going to be seen all around the world.

Hendrik Laubscher

Hendrik Laubscher has a decade's worth experience in ecommerce. He contributes to a variety of publications and is fascinated by all things ecommerce (marketplaces, emerging markets and cross border global ecommerce). He lives in South Africa but travels globally to experience ecommerce in locations worldwide.

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