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Before Alibaba came along, small Chinese manufacturers had execution capabilities, but no way to connect with potential buyers. Photo: Bloomberg
Before Alibaba came along, small Chinese manufacturers had execution capabilities, but no way to connect with potential buyers. Photo: Bloomberg

What makes Alibaba tick

Alibaba revolutionized how Chinese shopeven mundane things can be procured easily online than by making a trip to the neighbourhood 7/11 store

Nothing shocks me after three years in China. I am used to seeing people buy everything from lipsticks and make-up to vegetables and fresh crabs online. The other day I saw a delivery boy from an e-commerce company that specializes in selling chopped fresh fruit to busy office-goers. China’s bustling e-commerce market has created ample opportunities for entrepreneurs. They all have one man to thank. Jack Ma, founder and chairman of Alibaba Group Holding Ltd, China’s largest e-commerce company.

Alibaba revolutionized how Chinese shop—even seemingly mundane things like a toothbrush can be procured easily (and more cost-effectively) online than by making a trip to the neighbourhood 7/11 store.

Solving a big hairy problem: Before Alibaba came along, small Chinese manufacturers had execution capabilities, but no way to connect with potential buyers. It was a nation full of small, inefficient businesses with no means to connect to the world or each other. Add the language barrier that separates the Middle Kingdom from the rest of the world. Alibaba stepped in to fix these gaps by setting up a business-to-business platform that acted as a bridge between importers across the world and small Chinese exporters. It literally opened the global market for small Chinese entrepreneurs.

Understanding the market: EBay and Amazon had a hard time understanding: the Chinese are different. Ma set up Taobao, a C2C site, to fend off eBay. While sellers had to pay a listing fee on eBay, Taobao kept it free. This appealed to small businesses.

EBay, with its deep pockets, splurged on ads on buses and subways, and signed exclusive advertising deals with Internet portals, effectively cutting Alibaba out. But Ma knew small business owners were less likely to surf the Internet. He blasted ads out on TV instead.

A former Amazon China vice-president told me, “At Amazon, everything in the decision-making process has to go through the system. You can’t make your decision locally. You have to report to Seattle to get the decision made." It’s not hard to see why Alibaba, with its local expertise and nimble moves, beat these companies hands down.

Playing on the Chinese psyche: Whip everybody into a frenzy. In 2009, Alibaba started leveraging what is called Singles’ Day, or 11 November, to do a 24-hour sale. Ever since, Singles’ Day has lost much of its original meaning (a day to celebrate one’s single status) and has become a shopping extravaganza. In 2013, Alibaba’s Tmall and Taobao ratcheted up sales of $5.75 billion (around 35,825 crore today) in just 24 hours, higher than the gross domestic product of some countries. In 2014, the figure stood at a whopping $9.3 billion. Alibaba has made online shopping an act to be savoured and celebrated, and Chinese consumers are happy to play along.

Build an ecosystem of services: If you don’t have it, build it. Today Alibaba owns, among other things, a PayPal-like service called Alipay, a shopping search engine called eTao.com, cloud computing services under Aliyun, a lending platform for small businesses and individuals called Zhao Cai Bao, and an Internet finance arm called Yu’e Bao. Ma will dip his fingers in anything that helps grow the ecosystem.

Help others succeed, because scale builds scale: Before Alibaba came along, opportunities in rural China were limited. Villagers did what they had always done—farm, raise livestock, sell petty products in the local economy. Alibaba transformed villagers across China into micro-entrepreneurs. It is estimated that there are 1.05 million active online retailers in rural China.

Very often, entire villages start specializing in just one category and create a mini industrial cluster. It is very common to see villages specializing in just furniture or clothes. One little village in Guangdong is going a step further—working with the local government, it will set up Taobao University to train people on how to sell online.

Some of these villages have reached an inflection point and are now officially called Taobao villages. Former farmers and livestock breeders now own multi-million dollar businesses, drive fancy cars and vacation abroad. It is for this reason that Ma—in the eyes of many across China and me—is a hero.

A longer version of this story can be read on www.foundingfuel.com

Neelima Mahajan is a senior journalist based out of Beijing. She was an international visiting scholar at University of California, Berkeley. She has put in stints at various newsrooms in India as well.

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