Are Chinese marketplaces showing us the future of logistics? Last week both Alibaba and JD.com announced significant projects that will impact the future of ecommerce in China. Chinese ecommerce is one of the most interesting markets are their are large public companies that generate Billions of Dollars in revenue based on their place in the market. Alibaba, JD.com and VIPShop are all market leaders but in terms of market ownership Alibaba is by far dominant in the ecommerce ecosystem.
Summary look at the 2 big players
Alibaba is the holding entity that features Alibaba.com (business to business transactions), TMall (Branded marketplace that is business to customer) and Taobao (which is the business to customer marketplace). There is no real comparison in terms of Western marketplaces as Alibaba is unique. Alibaba is the largest marketplace in the world which makes money based on commissions and advertising sales for businesses to boost their product listings on the various parts of the ecosystem). Alibaba is currently investing into logistics via their Cainao platform as currently Alibaba is reliant on third parties to deliver packages to customers. AliExpress is a marketplace that generally does not get much coverage but is wildly popular for global customers as they provide non-branded products at low pricing.
The Alibaba group has over the last 18 months had significant struggles with counterfeit goods that are sold on their platforms. The group has invested in technology and partnerships to help them combat the counterfeit issue. The last 6 months have seen Alibaba partner with local law enforcement to ensure that Alibaba can clamp down on counterfeits. Why is the counterfeit problem a big issue? Alibaba is currently struggling to provide the fashion industry with cause that they are able to use their various marketplaces to sell to Chinese customers. Taobao is currently listed on a blacklist of the US Trade Representative (USTR) notorious markets list due to their inability to manage the counterfeit problem.
Alibaba’s main rival in China is JD.com or Jingdong which has steadily been making progress on Alibaba over the last 12 months.
JD.com is the anti-Alibaba. It uses its own logistics and warehouses to ship products to customers all over the China. JD.com is very similar in operation to Amazon as it uses their logistics as an advantage over Alibaba. JD.com is also seen as a stricter marketplace to sell on as they have managed counterfeits much better. If you think about it, if products are fulfilled by a marketplace they are able to ensure one additional check is done on whether legitimate products are sold on their platform.
What makes JD.com very different to Alibaba is their partnerships via shareholding from Tencent and Walmart. JD.com sold 15% of their company to the social media and messaging giant Tencent to provide them with a very powerful ally in battling Alibaba. Tencent owns WeChat which is a ubiquitous platform that is used as for ride hailing to commerce. Having access to a very important customer segment provides JD.com with a partner that can link them to customers that don't necessarily buy on Alibaba.
The other significant partnership that JD.com has is with Walmart. Walmart has struggled to capture the online shopping ecosystem in a meaningful way in China. Yihaodian has been rife with internal squabbles and allegations of corruptions. By selling the business to JD.com after buying a 5% share in JD.com, Walmart has provided JD.com with access to groceries and other fast selling items that will drive long term growth.
The future of logistics in China
Last week the 2 giants of Chinese ecommerce provided customers with a look at the future. Alibaba partnered with car manufacturers that will be used to power logistics for Alibaba’s logistics subsidiary, Cainiao.
In a bid to boost the efficiency and environmental friendliness of China’s booming logistics industry, carmakers have committed to produce electric delivery vans equipped with computer hardware and software based on Cainiao’s advanced big data and algorithms, providing drivers with optimal delivery routes based on real-time traffic and order information, company president Wan Lin said at the Global Smart Logistics Summit sponsored by Cainiao in Hangzhou yesterday.
The scale of this operation is huge as Alibaba wants the vehicle manufacturers to create 1 million green-energy delivery vehicles that will use artificial intelligence and voice recognition to provide faster deliveries via better routes in China.
JD.com has announced their intention to create drones that will be able to carry 1 ton of goods. JD.com have reached an agreement with the local government of Shaanxi to build China’s largest low-altitude drone logistics network.
JD.com is the largest retailer in China and their drones will be similarly sized, these are not your Amazon drones with a 5 lb cargo capacity, JD.com’s drones will be able to autonomously carry over a ton in payload – they’re going to be enormous. The aim is to carry ecommerce goods to remote outlying areas. Additionally,”The routes may be very difficult to drive on, sometimes it might take a couple of hours, when drones can do it within minutes.”
The announcements look to aid in the companies' abilities to handle increased e-commerce activity in China. According to AliResearch, the research arm of Alibaba, about 80 million packages are delivered per day in China currently, though that number could jump to 1 billion per day
Both companies have used their resources to solve a genuine problem in Chinese ecommerce, logistics. Electric vehicles and drones will provide solutions to the problems faced by both marketplaces. These 2 companies are trying to win their slice of Chinese ecommerce estimated size of $750 billion.
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