Rapidly Growing Scale of E-commerce
Online B2B domestic business within China started a new round of fast growth, as well as the vertically differentiated business-to-consumer (B2C) business. In this blog, we explain the complete case study of Chinese E-commerce.
A new kind of economic pattern began to develop, characterized by modern methods of circulating goods. It came about under the multifaceted impact of technological innovation, changes in market demand, and the increasingly socialized nature of the investment. The size of e-commerce markets continued to expand as enterprises used e-commerce more intensively.
Both purchasing and then related services via the Internet grew swiftly as the process began to galvanize primary industries, upgrade secondary industries, and refashion tertiary industries.
In 2011, e-commerce entered a new stage of fast-paced and scaled-up growth that could be seen most notably in three specific respects. First, website businesses grew exponentially in the areas of B2C and consumer-to-consumer (C2C) e-commerce. Second, small and microenterprise use of e-commerce expanded rapidly.
Third, a large group of enterprises engaged in traditional forms of goods circulation now began a powerful entry into the realm of e-commerce. In 2013, China’s e-commerce transaction volume reached 10.2 trillion RMB, which was approximately 12.5 percent of gross domestic product (GDP) in that year.
Within three to five years, we anticipate that e-commerce in China will maintain stable growth and increase at a rate of 35 percent per year on average. By the end of 2015, it will have reached 26.5 trillion RMB.
According to materials provided by China’s E-commerce Research Center, the market shares of companies engaged in retail sales in the Internet-based B2C market were as follows:
by December 2013, the number one company in China’s Internet-based purchasing market was Tmall, which held 50.1 percent; Jingdongming was number two, with 22.4 percent of the market; whereas Suning Yigou was number three, with 4.9 percent of the market.
The market share of online retail markets in the C2C arena was as follows: Taobao was firmly entrenched, holding 96.5 percent of the market by December 2013; Bobo held 3.4 percent; whereas Yiqu held 0.1 percent.
The Boston Consulting Group recently released a report that indicated that the scale of China’s e-commerce is currently ranked second in the world but is positioned to experience explosive growth. By the end of 2015, the number of Internet consumers in China is expected to reach 329 million people.
This will include 44 percent of all urban residents. By that time, China will have become the largest e-commerce market in the world. IDC Consulting estimates that by the end of 2015, sales volume via China’s e-commerce platforms will be 5 to 10 times what it is now, given the current trajectory of growth in sales.
As the most representative example, Taobao’s retail sales platform will provide coverage to 500 million consumers, and transaction volume is expected to exceed 2 trillion RMB.
This increase in e-commerce will drive the creation of direct and indirect employment of 30 million people. The penetration rate of e-commerce is expected to surpass 60 percent in China.
The rating company Neilsen says that China’s Internet purchasers will go from 34 percent in 2010 to 48 percent in 2015 to 60 percent in 2020. This means that in the future there may be 700 million people buying things on the Internet.
According to a recent report by the Chinese E-commerce Research Center, online shopping transactions in China in 2014 came to 2.8 trillion RMB. This was an increase of 47.4 percent over the previous year’s total retail sales of social consumer goods, and it was the first time the annual penetration rate exceeded 10 percent.
Developing Systems That Promote the Employment Generated by E-commerce Startups
Human Resources and Social Security Department is working to find ways to resolve certain social employment issues. Specifically, both are considering targeted measures to allow the inclusion of Internet entrepreneurs into national statistics.
They hope that people employed in e-commerce startups will begin to gain national policy support under the definition of this newest form of industry.
Both particularly hope that people employed in e-commerce startups will begin to enjoy social security benefits. This will preserve and protect the basic social security rights and interests of people involved in e-commerce startups. It will also protect the overall employment situation in e-commerce startups.
We are not policy specialists but would like to provide a record of a few specific policy recommendations that the Ministry of Human Resources and Social Security has been discussing with Alibaba.
1. Setting Up a Better Statistical System That Covers E-commerce Startups and Employment
Being employed by e-commerce startups has already become the first choice for many college students and unemployed people. In order to enable e-commerce startups to play an even bigger role, we should establish an e-commerce startups employment statistical system.
In doing this, we should encourage people already engaged in startups and whose business is going fairly well to come to their local administrative office of the Ministry of Commerce and Industry to register their business.
They should follow current procedures so as to be incorporated into official employment registration and employment statistics.
The people operating e-commerce businesses who are not doing well should be handled as a separate category.
If people employed in e-commerce startups have been working for three months or more if their trustworthiness ratings are up to certain standards, and if their monthly net income is over a certain minimum level, they can be certified as a person who is employed in an e-commerce startup.
If someone has been working for more than three months and has good trustworthiness ratings but not sufficient net income per month to meet requirements, then that person should be defined as unemployed. For the time being, that person should not be described as employed and should not be listed in employment registration figures and data.
What’s more, the government should unify all parts of the country in issuing a national registration of employment and unemployment certificate. This should register the actual names of people employed by e-commerce startups.
The government should set up a service platform for people employed by e-commerce startups and should provide policies that allow for making startups convenient on their behalf, as well as information and consultation services.
It should provide applications for startups with a list of startup projects that can receive financial assistance, that connect funding to projects, together with startup guidance. The aim is to encourage e-commerce startups that grow in a sound and orderly way.
2. The Government Should Provide Supportive Policies for People Employed by E-commerce Startups
We should incorporate e-commerce startup personnel into the scope of the supportive policies that the country is providing for job creation in general. Those self-reliant startups with Internet-generated employment also should have access to financial services and opportunities for e-commerce training.
The local government and relevant institutions should work out ways to assist self-employed vendors and their employees for social and medical insurance payments.
For unemployed people who want to start an e-commerce business, they should enjoy such supportive job-creation policies as a one-time startup award and a one-time drawing from the unemployment insurance fund.
Disabled people who start an online store should be exempted from certain administrative fees, including management, registration, and identity-card fees.
The line fees for the Internet and the costs of incubating startups should be subsidized, together with assistance in logistics, warehousing, and rent, in order to stimulate the better growth of startups being undertaken by disabled people.
3. We Should Ensure That People Employed by E-commerce Startups Participate in Social Insurance Programs and Are Entitled to Enjoy Their Benefits
Depending on the situation of different kinds of people employed by e-commerce startups, those involved should be encouraged to participate in social security and health insurance systems.
Depending on their contribution to social security and the various insurance premiums, they will be financially covered when they are older and will allow them to draw on pooled funds for basic living major illnesses.
Meanwhile, for people whose businesses have poor operating results and have low and uncertain income prospects and therefore are unable to pay premiums, we should ensure that they join into the town-and-village (or township) residents’ basic pension insurance program and basic medical insurance program.
With lower premiums and with local community government special policies, they will still be sure of their basic rights to some security. As their situation improves, they can then be incorporated into regular employee insurance.
It is not as though people employed in e-commerce startups would not like to be insured. The main reason many are not is that they have been in business for such a short time that operations are still unsteady and income is low, and they cannot afford the premiums.
By improving government policies on basic level premiums and rates, the government can lower the threshold for gaining access to the insurance system for e-commerce startup personnel.
Not only will this reduce the burden on these people as they are getting their businesses going, but it will also enable them to continue lower-level payments and to have continuous insurance coverage. This will promote a better employment situation in e-commerce startups.
Another situation with respect to e-commerce startups relates to the tax bureaus at national and local levels and specifically to their often dubious attitude about e-commerce startups. In fact, too skeptical an attitude will hurt the development of e-commerce and therefore lead to problems in job creation in grassroots startups.
The concept of a sole proprietorship in the United States serves as a good comparison because it is similar to the e-commerce startups on Alibaba. One telephone number or one e-mail address can be enough to cover the registration requirements for such sole proprietorships in a given area.
After registering, if the sole proprietor has a certain level of operating income, he or she can pay the annual tax on that without having to pay the additional enterprise tax.
There is no need for the tax bureaus to investigate the tax-paying compliance of the sole proprietor directly.
If tax evasion has occurred, all a bureau needs to do is ascertain accurate information from third-party channels, for example, from banks and investment companies. With this in hand, it can calculate the actual amount of tax that should be paid and instruct the entity to pay.
If the entity has sufficient evidence to refute this, it can present this to the tax bureau. If not, then the entity will be allowed to supplement its already paid taxes to the degree required within a certain period of time.
Why should sole proprietorships with sufficient income to warrant paying taxes actually want to go ahead and pay those taxes?
The reason is that the costs of not doing so are very high. First, anyone who evades taxes is put on a special list of names by the tax system and will receive particular scrutiny every year thereafter.
Second, anyone put on the list immediately damages his or her own reputation. When applying for such things as a mortgage, an automobile loan, a student loan, or a business loan, he or she may well be refused or may be subjected to a very high-interest rate. Third, many business loans that are of a policy nature look at the last two years of income.
If income is not respectable, the possibility of getting a loan at a low rate is minimal.
In its attempts to promote e-commerce startups and employment, government departments should make full use of information technologies and big-data resources.
They should attempt to minimize the costs of enforcement by government departments. They should try to maximize the effect of various incentive mechanisms to encourage the greatest employment effect of grassroots startups.
In this respect, putting incentive mechanisms in place not only will help startups to stay in business longer but even more important, it will also reinforce the establishment of ethical business practices.
It will help to nurture market systems for small businesses that are orderly, based on trustworthiness and reputation, and comply with rules and regulations.
It will help a constant stream of grassroots entrepreneurs to emerge in the market that operate on their own in free competition and that are therefore highly creative and responsive to the challenges they are willing to take on.
Promoting Innovation as the Corporate Culture
During an interview with Fortune magazine in 1981, Steve Jobs made the comment that innovation is not related to how much money you have for research and development (R&D). It isn’t a question of money. It’s a question of people—what kinds of employees and how you lead them. Innovation involves tremendous uncertainties.
It requires having actual people—the workers who do the innovating or call them entrepreneurs—looking for opportunities, making choices, implementing decisions, and taking on risk.
In addition, its complexities require a high degree of team solidarity; that is, a number of individuals must form an organic group.
Even with these things, plus meticulously created plans, well-executed systems, established processes, efficient machinery, and even one or two geniuses—you cannot necessarily ensure ongoing innovation.
The difference between an innovative-type organization and one that is not innovative lies in the difference between people who have an innovative mindset and those who do not. When I talk about an innovative-type organization, therefore, I absolutely am not describing some kind of structure that is simply a static environment.
Instead, I am implying that the people themselves have a certain set of values and feel the atmosphere, support, individual growth potential, and mutual stimulation of others who feel the same way. It is with respect to these things that corporate culture plays a key role.
In addition, of course, what Chinese buyer does not like to haggle over the price at a market? AliWangwang arose to meet the need. In contrast, eBay heartlessly blocked any communication between buyers and sellers. This action on the part of eBay allowed Taobao to satisfy customer needs all the more easily.
An Organizational Structure That Is Conducive to Innovation
Take a look at what Alibaba has done in recent years to restructure itself:
In 2008, Koubei.com merged with China Yahoo! to set up Koubei Yahoo, Alimama merged with Taobao, and the Alibaba Group’s Research Institute was established.
In 2009, AliSoft merged with the R&D Institute of the Alibaba Group, the Business Management Software Department of Alisoft was injected into Alibaba’s B2B company, and Koubei.com was inserted into Taobao.
In 2011, the Alibaba Group spun off Taobao into three separate independent companies: taobao.com, tmall.com, and etao.com.
In 2012, the Alibaba Group announced that it was upgrading its existing subsidiaries to become seven business groups, including Ali International, Ali Small Business, Taobao, Tmall, Juhuasuan, eTao, and Alibaba Cloud Computing.
In 2013, Ali Cloud Computing and http://net.cn merged to form a new Ali Cloud Computing Company, and the Alibaba Group reorganized into 25 business units.
The reorganizations within business groups and subsidiaries were even more frequent. In 2013, starting at the beginning of the year, all available conference rooms within Alibaba were crammed to capacity.
Because there was still not enough space, it is said that all neighboring coffee shops and restaurants were pressed into service. Business was booming, and the reason was easy to see.
Both internal and external changes were happening too fast and too often— nobody seemed to have a clue about where the next step might take them, and nobody knew what the more distant future would bring.
The answer is different every time since departments change over every few months.” In 2012 alone, Alibaba had a total of 30,000 employee job adjustments, including changing departments and switching bosses, yet Alibaba only had a total of 24,000 employees that year. This means that each and every person had an average of more than one adjustment to make.
As organizational change occurs, it absolutely is not the case that employees take it in stride, all smooth and easy. Generally speaking, however, Ali employees have become familiar with and accustomed to the group’s changes.
In 2013, one story that illustrates this made the rounds in the Beijing subsidiary of the company. The group was setting up a wireless department. At the outset, transferring people to the new department met up with resistance and even outright refusal.
Organizational Change and Innovation
an organic organization is characterized by employees who are structured around a common task. Functions and responsibilities are constantly being revised as roles shift.
Levels of authority are fluid, and there are fewer rules and regulations regarding procedures. Knowledge about the work at hand and control over tasks are dispersed throughout the organization.
Communications that are horizontal, as well as diagonal, are encouraged. Coordination and control frequently depend on mutual readjustments and organizational systems that are fairly flexible. (This describes a matrix-type organization.)
Within Alibaba is a special type of structure called a virtual organization. This refers to a department and a whole business that grows out of the organization itself.
Like many companies, Alibaba may pluck individuals from various functional departments to carry out specific projects. They then become the team for that project.
In Alibaba, these people still belong to their original departments, although they have been selected to be part of a small team—in overall terms, they still have to do their original work, hence the name virtual for the ad hoc team. As it goes along, however, and the project becomes routine, and the virtual becomes more real.
Members may well gradually become members of a whole new organization. Alipay is an example of such an entity that grew out of Taobao. In this way, a small group of people who were originally in the Taobao Finance Department gradually transitioned into the largest third-party payment company in China.
As a fast-growing company within the fast-growing Internet industry, Alibaba has never stopped its exploratory approach to organizational structure. In recent years, Alibaba has become a larger entity with over 20,000 employees, and the tendency to seek stability as per larger companies is already in evidence.
Reorganizations in any company face greater coordination problems the larger the entity gets. The reason is that any change involves the interests of a greater number of people.
However, the age of big data and the great wave of mobile Internet that is upon us require that companies have fast responses. They must follow quickly on the heels of any change.
The very business that the Ali system is in means that previous structures inevitably become restraints. Given this situation, Alibaba opts for change. Moreover, it wields a real knife and a real gun as it achieves that change. The ultimate purpose is not simply to move from a mechanistic organization to an organic organization.
The intent is rather to move in the direction of being a higher level of an ecosystem or one could say an “ecologized” organization. Behind organizational change lie changes in strategy.
Another way to put it would be to have Alibaba become more market-oriented, more platform oriented, more diverse in terms of constituent parts, and more data-driven.
Innovation has been raised to an unprecedented level of strategy. Any completed structure will always serve as an obstacle to innovation—given this recognition, Alibaba’s method of dealing with it is to relinquish control.
The first step in such relinquishing of control is to go from centralized to decentralization control. Before 2012, Alibaba was “a one-man Ali,” that is, a one-man show.
All strategies, policy decisions, personnel matters, organizational structure, and even issues of implementation came from one man, Jack Ma. Starting in 2012, this centralized management style began to change.
For example, the new management system is now composed of two core units: a strategic policy committee and a strategic management and execution committee
Human Resources Management That Nurtures Innovative People
Alibaba is a company with extremely high regard for its employees. As Jack Ma says, “Customers first, employees second, shareholders third.”
Innovation is fundamentally about people, while human resources management can guide employee behavior to a very large extent. It can help fashion the corporate culture, and it plays a key role in determining whether or not innovation increases within that culture.
Forging Innovative Ali-People
Human resources at Alibaba are divided into functional human resources and operational human resources. The first is responsible for formulating human resources policies and researching and developing related tools. The second is the so-called political commissar or human resources generalist (HRG).
It is composed of specialists in the field of human resources who are partners in the businesses carried on by managers of the business departments.
These people coordinate with departments in devising a strategy and handle the corresponding human resources tasks. Most of the time, they sit together with employees in units responsible for the business.
They constantly change positions so as to make it easier to “smell” what is in the wind, to sense any changes in the atmosphere of teams in a timely fashion, and understand any abnormal perturbations in employee emotions.
They scope out any hidden management problems. HRG is something that Jack Ma was inspired to set up as actual positions in the company after seeing a film entitled, The Sky of History. It is a unique characteristic of human resources management in the Alibaba Group.
The human resources people of many companies cannot push forward innovation because they are not positioned as a top-line department. In Alibaba,
HRGs assume precisely this function. They constitute a 500-person human resources specialist system situated throughout the company. Depending on the number of people in each department, one such person covers one or several departments and handles between 50 and 100 employees. However, these people serve as a communications channel.
Any needs or new ideas that employees have can go through HRGs and be transmitted to senior levels of management or directly to the Human Resources Department to be addressed. As a result, innovative ideas have a chance of being realized more quickly. In addition, these people serve as the vehicle for transmitting corporate culture.
Three primary aspects comprise the actual processes by which human resources management takes place: hiring people; training, research, and development; and evaluating qualifications and deciding on compensation.
Conclusion: Releasing the Grassroots Entrepreneurship of the Company
In managing for innovation, what is known as the 4P laws are being used to create business opportunities: product innovation, process innovation, position innovation, and paradigm innovation. In its 14 years of existence, Alibaba has had considerable success in applying all four of these laws.
YuEbao, Alipay’s online money, and finance product is an example of product innovation. Alipay itself is an example of process innovation. The way Alibaba transitioned from an emphasis on e-commerce to one on being an ecosystem and a data-sharing platform is an example of position innovation.
B2B is an example of a paradigm innovation of the transactions of small and medium-sized enterprises, as well as of the overall business model of the Internet.
All these innovations, large and small, have added to the company’s vitality and competitiveness while at the same time creating massive value for China’s microenterprises and for consumers.
Behind these results lies an enterprise that supports innovation and a group of people who believe they themselves can develop their own creative abilities in a relatively unconstrained way.
When we turn to look back at the main elements of an innovative-type organization mentioned earlier in this chapter, we see that Alibaba has done quite well in some respects. It has employed a common vision, leadership, intent to innovate, ongoing and sustained personal development, and effective group cooperation.
Meanwhile, it is putting more and more effort into other aspects, such as an appropriate organizational structure, all members participating in innovation, and having a learning-type organization. The company is intentionally raising its own innovative capacities as appropriate to its growth and strategic repositioning.
It is trying to make itself into an innovative-type organization that directly supports innovation through systems and corporate culture. The most noteworthy change is that it has moved to a greater emphasis on bottom-up innovation and is consciously attempting to stimulate grassroots entrepreneurship.
In the company’s earlier period, what we saw in Alibaba was a tendency to focus on the key senior individual as playing the decisive role in the innovative process. By now, participation in innovation by all employees is becoming the trend.
For example, the creation of Juhuasuan in 2009 is something that burst forth from the lower levels of the company.
Meanwhile, the competition has expanded to the point that the “ecologizing” reform of the entire group and its organizations are providing more fertile soil for innovations that go from bottom up.
In addition, Alibaba is focusing on using more external networks to generate innovation. That is, it is opening up innovation to vendors and consumers as well.
In 2013, the new operating concept of Taobao was to “give vendors their own stage and let them dance their own dance.” Zhang Yu, vice president of the group and the person formerly responsible for Taobao, cites one example of this.
Taobao.com always puts on a swimsuit activity in the summertime. In the past, the company developed the categories of products itself. Later, it handed this kind of classification over to vendors on the theory that they themselves are most familiar with consumers.
The results have been extremely interesting—vendors have come up with successful categories that people inside the company would never have thought of.
Taobao.com is now in the process of experimenting with delegating more authority to vendors. In the future, it will just provide basic marketing and data tools. How they are used will be up to the vendors themselves.
Edmund Phelps believes that unleashing grassroots entrepreneurship is the greatest source of prosperity for a country. Alibaba is in the process of using its own actions to prove that unleashing grassroots entrepreneurship can be a source of major prosperity for a company as well.
GRASSROOTS STARTUPS ARE THE WAY TO EXPAND EMPLOYMENT
Since the time Alibaba was founded, it has consistently maintained a low barrier to entry for people who create startups on its platform. It does not charge fees for listing a storefront.
It conducts routine training of store owners, public self-policing, convenient supply-chain services, and grassroots financing that is based on integrity capital.
These things have enormously lowered the risks of starting up a business. They have made it possible for a large group of people who have little experience and no capital and who otherwise would not have been able to start their own businesses.
Star companies have been founded by an extraordinary range of people, from students to handicapped people, to formerly unemployed people, to rural migrant workers.
The stories of these successful startups have encouraged even more people to start their own businesses, which is pulling up employment figures of society at large.
Alibaba, therefore, has created jobs of a whole new kind in the new economy. These are different from old forms of employment in quite distinct ways— Internet employment has provided jobs in particular to more vulnerable segments of the population.
It has served as a force in generating more equal employment opportunities and improving social equality in general. The Taobao net e-commerce platform could indeed be called a utopia of the real world’s employment markets.
Business Creation Is Job Creation
In trying to encourage job creation, those who formulate policy should be aware that enterprises who are in the business of doing business are also creating employment. They are creating employment for others, but particularly for themselves.
Alibaba’s e-commerce platform directly creates job positions, but it also indirectly creates employment. Direct employment includes all the founders of companies on Taobao’s and Tmall’s retail platforms, that is, the business owners of storefronts (including partnerships) as well as the people hired to manage the platforms and the people hired by the entrepreneurs.
Indirect employment includes people who are closely connected to online stores as well as the increased employment of people in other industries that is generated by the whole chain of e-commerce operations.
Employment generated in areas that serve online sales is a good example of indirect employment, including such things as transportation, warehousing, and delivery.
The reason Alibaba’s e-commerce platforms have been able to create such huge numbers of jobs is twofold. On the one hand, the financial crisis stimulated a new round of high-speed growth in e-commerce.
On the other, small businesses became the primary entities involved in e-commerce platforms, injecting new vitality into labor markets.
In 2009, faced with the impact that the financial crisis was having on small and micro enterprises, the State Council of China issued a statement entitled, “Various Opinions on Taking Further Steps to Stimulate the Growth of Small and Microenterprises.”
This was in recognition of how the growth of such enterprises affects people’s livelihood and well-being and therefore how it affects social stability.
According to the way in which the State Statistical Bureau categorizes enterprises, called, “Methods of Accounting for and Differentiating among Large, Medium, and Small-Sized Enterprises,” virtually all the stores on Taobao belong to the small and micro enterprises category.
Ying Lowrey has estimated (2011) that over 70 percent of newly created jobs in the United States every year come from the vast number of small and micro enterprises as well as self-employed people in that country.
This percentage went to 80 percent after the financial crisis, with the number of people being hired by others constantly declining.
In China, the primary entities active on e-commerce platforms are the huge numbers of small and micro enterprises and entities operated by individuals.
The ability of the Internet economy to generate jobs is substantial. According to a report issued by People’s Daily on November 3, 2013, by June 2013, China’s e-commerce service companies were directly employing more than 2.2 million people, while indirect employment generated by such business came to more than 16 million people
Patterns of Employment Generated by Alibaba’s Innovative Economy
The jobs created by Alibaba could be described as new-economy employment.
For a very long time, people have generally thought that the only proper form of employment was that done by official enterprises and institutions, including all types of work performed within such entities. Such employment was highly traditional, based as it was on an industrialized modern factory system.
Most aspects were predetermined by labor contracts that included provisions to do with working hours, work site, compensation, insurance and benefits, labor relations, and so on.
The Alibaba Research Institute sums up four main features of e-commerce retail employment as follows: it is self-employed, dispersed, simultaneous (i.e., carried out concurrently), and cooperative.
These four characteristics depict a work pattern that is flexibly driven by innovative approaches and that gives prominence to the individualized nature of employment demand.
The self-employed nature of new employment patterns means that the employed person is neither hiring others nor being hired by others but instead is working for himself or herself.
Supported by the Internet and the mobile Internet, the sole condition of his or her work is that it be online. The time and place of work are now dispersed as opposed to being concentrated, which breaks out of the conventional mold of person-hour labor.
The appearance of simultaneous work allows one person to engage in multiple tasks and for diversification of income sources.
The Internet “employee” works cooperatively with e-commerce services providers to carry out long-distance cooperative efforts; pay depends on the tasks that are performed, and new forms of the organization come forth to meet whatever needs to present themselves.
The time of day that people who conduct Internet store business work tend to revolve around the peak time for purchasing. The Internet is open for business around the clock, which has created a unique feature of e-commerce, namely, the peak hours at which people buy things.
The peak purchasing time on the Internet is between 8 and 10 in the evening. During this period, most stores that conduct regular business are hard at work. “Melting time” generally comes after 10 p.m. Where do these people work?
The preference of the great majority of people who operate stores on a platform is to work at home and to have their home serve the combined functions of the office, warehouse, and living quarters. In October 2013, the number of people who used a mobile seller’s app called Qianniu Workbench exceeded 1 million users per day.
Online store owners have already gone from living in an age of e-commerce as operated by personal computers to an age of e-commerce as operated by hand-held devices.
As the joke goes among those who operate stores, “I can do business even when I’m lying down, which means that I have much more time for romance.”
The new employment patterns require long-distance cooperative work among e-commerce services providers. Within the e-commerce ecosystem, more and more e-commerce is being handed over to services companies to handle. The densely interwoven nature of stores and services providers requires closely cooperative networked connections.
Vendors pay for specific needs. This lowers their cost of transactions and improves efficiency. In addition, task-oriented organizations have emerged to meet demand. They gather depending on the particular job at hand, and they disperse once the job is finished.
A prosperous e-commerce ecosystem also has fostered a highly developed e-commerce services industry. In 2012, Taobao had 490,000 third-party service providers assembled on its open platform. These provide services to more than 9 million non-paying users and 1 million paying users.
Taobao’s vendors use all kinds of e-commerce services, including software tools, trusteeship of e-commerce stores, information systems, data research, quality control, marketing, photography and modeling, consulting and training, supply-chain accounting, legal services, human resources services, and so on.
Alibaba’s e-commerce retail employment surveys indicate that the usage rate of third-party software tools is highest, followed by customer service, video making, guided purchasing, designing, warehousing, modeling, quality inspections, subcontracting, and training.
Alibaba’s Platforms Encourage Equal Employment Opportunities
Not only has Alibaba created a tremendous number of new job positions in the new-economy type of employment, but it has done a great deal to stimulate equal opportunity and social equality by unleashing grassroots entrepreneurship.
Distribution of Online Stores Reflects Employment Equality
By looking at sample surveys of Internet merchants on Taobao, we can evaluate their distribution in terms of physical location within the country, industries, and types of professions. Such distribution turns out to be very helpful in equalizing job opportunities.
Weakening Discriminatory Behavior in Employment Markets
The fair employment practices followed by Alibaba are reflected in the demographics of store owners. They demonstrate store ownership by women, people with rural household registrations, and people with physical disabilities.
Most of these categories have been subjected not only to social discrimination but also to government discrimination. None of these owners’ characteristics should have any effect on the productivity or the operations of online stores at all!
By analysis of sampling data on the Taobao platform, we discover that the transaction volume of Taobao online stores does not depend on the gender or household registration status of the owner.
This is in distinct contrast to the way labor has to be put through a kind of grading process in order to qualify for different kinds of occupations in the real world.
The empirical research comes up with a similar conclusion. Since 2009, a large group of startup stars emerged from rural areas and among people with disabilities. Their experience in successfully starting businesses has encouraged many others to do the same.
According to the Alibaba retail employment survey statistics, nearly one-half (49 percent) of job positions in stores on the Taobao and Tmall platforms are held by people with rural household registrations, and
Accompanying this fast growth in the Internet economy and e-commerce is an ongoing extension of the industrial chain, that is, the range of goods linked to the process. This has resulted in a surge of new occupations and created a tremendous number of new job positions.
In cumulative terms, it has pulled employment figures up by 10 million people. It has given work to many grassroots level people who are disabled in one way or another in particular, allowing them to start their own companies and creating room for them to grow.
Because people are running their own businesses, such self-created employment on the Alibaba platforms has broken out of traditional constraints in terms of the age, gender, level of education, and physical condition of the people.
Self-generated employment is providing a much fairer job platform for grassroots personnel who otherwise face problems and will provide a greater equal opportunity for people in the future.
Traditional channels for employment make it hard for disabled people, single mothers, students graduating from university after the 1980s, and rural migrant workers with minimal education to get work.
Through e-commerce business creation, not only are people able to create their own jobs but they often also create a large number of hired positions as well, generating considerable wealth for society at large.
In what follows, we have selected a few case studies from a large number of representative examples that the Alibaba Group’s Research Institute has collected.
Each has its own story to tell. Collectively, the stories are the message of the new age: getting a job in the traditional sense is no longer a restriction for people who want to work. E-commerce platforms provide access to jobs for those who really want to work and know what to work on.
These success stories will no doubt inspire people to realize that fair and equal employment opportunities are in fact possible.
Given the situation on Taobao, one wonders what it is about Taobao that operates against gender and status discrimination as practiced in the real world. Put another way, why do these forms of discrimination continue to play a role in categorizing people in the real world of job markets?
According to scholars who analyze this subject, discrimination in China mainly works by affecting a person’s ability to get a job, whether that discrimination is with respect to gender or household registration status.
That is, women and people holding rural household registrations are kept out of high-paying industries, and this leads directly to their relatively low incomes and lack of social security as a group.
The phenomenon of “same work, different pay” is seen less in China in relative terms for the simple reason that rural residents and women fundamentally cannot even get “same work.” Naturally, they do not have a chance at “same work, different pay.” For women, the initial job interview can be highly intrusive.
Interviewers first judge whether or not women have the same capabilities as men, but then they also ask about age, marital status, children, the location of the husband, plans to have children if there are currently none, and so on.
This is similar to the way in which Western countries also evaluate a woman’s social background, the social status of her parents and husband, schools attended, and so on, all of which may be important in determining a job offer.
Opening a store on the Taobao platform is quite different. First, the threshold requirements for entry are extremely low, especially for shop owners of online stores, for which there are essentially no rigid requirements at all. Whatever your status, Taobao still provides you with free space on its network as well as an online storefront and technical support.
This provides an equal-opportunity platform for entrepreneurs, particularly those with less education and rural household registrations—all enjoy “same work.” If you want to enter, you are welcome to do so.
Second, once the online store is set up, the retailer can view supply and demand and sales figures in real time, which lowers inventory costs. Many Taobao vendors are able to detour around branch retailers and issue their orders directly to factories, which lowers channel costs.
Naturally, e-commerce is also able to avoid all the different levels of rather complex items in accounts that must be dealt with by conventional retailers, which lowers the financial burden.
It can be said that the Taobao platform provides everything necessary for Taobao online stores. All store owners have to do is focus on the selling links in the process, gaining the approval of consumers’ “eyeballs” and trying their best to establish a loyal group of fans.
Up to a certain amount of Internet volume, all online stores on Taobao can display their goods for free, so competition among stores is mainly based on the quality of goods and services.
The personal characteristics of the individual person operating the store have very little to do with it. It can be seen from this that Taobao has eliminated the kind of concrete channel that discriminates on the basis of gender, human capital, and household registration status.
It has limited considerations that prevent people from entering certain professions (e.g., a countrywoman might find it impossible to enter a given industry and yet might make a good income from online sales). Discriminatory considerations do not work on the Taobao platform.
Another point should be reinforced here, which is that the Taobao platform possesses an extremely powerful search engine and the capacity to sort through data, which shakes the very foundations of the causes of discrimination.
Those causes include asymmetrical information, the costs involved in looking for a job, and the social bias that has built up over a long time as a result of these things.
The core of Alibaba’s service is integrity, sharing, and responsibility, and among these, integrity is particularly important. The Taobao platform must have reliable information on online stores in order to make decisions about whether to support or penalize them for the purpose of ensuring the soundness and security of the entire trading environment.
To provide a secure trading environment, Taobao launched Alipay, which provides not only third-party payment solutions but also third-party escrow services.
By means of this service, Alipay serves as the guarantor of transactions. By means of the Alipay trading mechanisms, after a buyer and a seller come to an agreement on a transaction, the buyer advances payment to Alipay, which temporarily holds it in escrow.
Once Alipay receives confirmation of receipt of goods by the buyer, it releases payment to the seller to complete the transaction.
Not only does this resolve the issue of trust in two different links of the process, the buyer being willing to pay money and the seller being willing to release goods, but it expands the market size of online purchasing and in the process amasses an absolute ocean of data on Internet store transactions.
This allows Taobao to have a very good handle on the degree of integrity of each store.
In addition, a host of Taobao personnel works behind the scenes, monitoring any plagiarizing being done by online stores of other people’s product information and photographs. Punishment for such behavior is stringent enough that the great majority of online stores voluntarily follow the principle of integrity.
Third, the Taobao platform has massive backup support. Relying on big data, it has collected sufficient information on online stores to enable it to resolve many management issues caused by asymmetrical information.
Finally, Internet transactions rely primarily on the nature and efficiency of service, so many of the social prejudices that come, consciously or unconsciously, from face-to-face contact do not have an opportunity to arise.
As long as the customer is satisfied and gives good feedback in return, more of them will recommend the given vendor.
China.taobao.com and Innovative Integrations of Supply Chains for Agricultural Products
Agriculture is the basis of China’s economy. Issues relating to the trade in agricultural goods, together with how to increase farmers’ incomes, have always been of primary concern to the Chinese Communist Party and the state.
One of the hot topics among both theoretical researchers and those who formulate policy has been the potential for e-commerce in agriculture. The questions are how to make use of e-commerce platforms to restructure the supply of agricultural goods in the country and how to improve market activity so as to increase farmers’ income.
Farmers are more familiar than anyone with the unique attributes of agricultural goods. E-commerce is now giving these farmers a stage on which to play out their dreams as grassroots entrepreneurs.
Not only have farmers improved the operating results of agricultural production, but they also have changed the supply-chain model for agricultural products. These things are playing an important role in invigorating the market and improving incomes.
Although quite a few people engaged in e-commerce are selling agricultural products, the management model governing the overall supply chain for agriculture remains backward. In 2013, Min Yu and Anna Nagurney compared the supply-chain management of agricultural products and that of industrial products in a research project.
Agricultural products are subject to weather, decompose quickly once picked, and are highly regional in production, so not only are their market prices more volatile but their supply chains are also relatively less stable.
At the same time, agricultural products are generally used for food, which means that freshness and food safety are of concern. These things do not generally apply to supply chains in the industrial arena.
The Alibaba Research Institute looked into the question of using e-commerce in traditional industries (including agriculture) at the county level.
They found that businesses that were handling agricultural products on the Internet encountered various bottlenecks, production quantity issues, and natural conditions that prevented them from growing further once they had reached a particular stage.
Meanwhile, buying food on the Internet is not yet comfortable for most people because of food safety concerns. Keeping agricultural products fresh presents special demands on warehousing and shipping, and the cold-storage facilities are limited in China.
All these problems have hindered the development of the supply chain for agricultural goods. How to make use of rapidly developing trends in e-commerce to stimulate faster growth of traditional industries, and particularly agriculture, has become a vital topic of discussion in e-commerce circles.
The establishment of China.taobao.com is providing a new path to this end. It is helping to restructure the supply chain for agricultural products and promoting a way for farmers to earn more income.
The company, Department, and Lines of Business
CBU: Website Operations Department, Industry Operations Department, agriculture channel, wholesaler of domestic agricultural products ICBU: Information platform, in-depth services, agricultural categories, wholesaler of international agricultural products
Despite this growth in the trade of agricultural products via e-commerce, problems are still quite pronounced, including the phenomenon of buying high and then not being able to sell. Since the second half of 2012, most parts of China have run into a soft market for both vegetables and fruits.
Not only did this severely hurt farmers, but consumers were still paying high prices when they went to buy fruits, vegetables, and other agricultural products. The main reason for this seemingly contradictory problem is the existence of too many links in the distribution chain and large losses owing to waste.
Studies show that vegetables go through four to six different links in the chain to get from the field to the table of a consumer. Each additional link adds to costs. On top of these are various kinds of taxes and management fees.
The excessive costs of the distribution chain are the direct cause of finding things hard to sell. At the same time, because cold-storage facilities have been slow to develop, vegetables sent anywhere but locally face such uncontrollable factors as weather changes, being held up along the way, and so on, which lead to enormous waste.
A major issue for the government, enterprises, and the public itself, therefore, has become how to restructure the supply chain for agricultural goods to reduce these problems. As e-commerce has developed, the government and the public are increasingly participating in the restructuring of the agricultural supply chain.
Everyone is looking for opportunities to link up the resources they have in hand with the “New Agriculture.” Prior to this, high distribution costs, food safety issues (including unsound certification procedures), and low cooperation in supply chains were all problems for agriculture.
Now, however, as participants are increasing, these problems are being dealt with to a substantial degree.
For example, the Lenovo Holding Company set up an Agricultural Investment Affairs Department specifically aimed at expediting investment in and preferential treatment for fresh produce.
Innovative Role Played by China.taobao.com in China’s Agricultural Supply Chain
It should be noted that this China.taobao.com project was needed as a way to make progress in applying e-commerce to agricultural goods, but it also was an experiment in restructuring the entire supply chain of agricultural goods.
The way the halls were managed by three integrated entities meant that the advantages of each one could be put to good use.
The government could apply its advantages in supervisory regulation by being the one to endorse product certification regarding food safety.
That is, it could ensure compliance with the quality standards of food products. Service operators could promote and publicize the specialties of their own local areas and improve the systems that serviced the supply chain for agricultural goods.
The Taobao platform could set up an agricultural products database and a domain for managing vendors. On the basis of its overall traffic, it could draw flow into the distribution of agricultural products via greater use of e-commerce.
From a certain perspective, you could say that these three, in addition to the online stores dealing in agricultural goods, formed the main entities for also growing e-commerce via China.taobao.com.
More important, their efforts to restructure and develop the supply chain were an indication of future trends in applying e-commerce to agricultural goods.
1. Helped to Consolidate the Industry
The local China.taobao.com spurred the growth of a more concentrated supply chain. Industry consolidation is happening in essentially all fields of global industry, but it is particularly important when it comes to developing agriculture.
The supply-chain management and innovations of group-style e-commerce can be seen on China.taobao.com. In the Sui Chang platform, the Sui Chang County Internet Association has organized more than 30 training events of various sizes at which more than 3,000 attendees have received training.
The purpose has been to prevent any problems from affecting the entire supply chain of the process, from sourcing resources to organizing Internet products to selling.
At the same time, the association also has helped suppliers (such as cooperatives, agricultural households, and so on) to do research and development (R&D) on new products and has improved the success rate of these new products in the market.
This kind of training and cooperation have directly propelled the development of e-commerce group supply chains.
2. China.taobao.com Helped to Restructure the Supply Chain and Overcame Situations in Which Smaller Farming Households Were Excluded from the Business
This area relates to the issue of supermarkets versus small farmers. Research has shown that restructuring and consolidating the supply chain are conducive to improving the efficient trade of agricultural products.
In 2002, Dutch scholar Gigler and colleagues defined restructuring the agricultural products supply chain as improving and consolidating each link in that chain to minimize costs and achieve greater harmonization of the whole process.
Quite a few countries have been trying to improve their agricultural products supply chains through policy design and corporate planning. Through strategic alliances, contractual forms of cooperation, and joint ventures, they are trying to take the industry in a vertically integrated direction.
3. China.taobao.com Platforms Are Helping to Ensure Consumer Safety Guarantees for Agricultural Commodities
Agricultural commodities must go through many links in traveling from the field to the table, including production, processing, shipping, and so on. At each stage in this process, they are subject to the risk of food safety considerations. The more complex the supply chain of foodstuffs, the more frequently food safety issues arise.
This has led to a problem that the entire globe is facing, namely, the public loss of confidence in food safety. To ensure that the trade in agricultural goods remains alive and well, one of the main considerations has been to create conditions that guarantee food safety.
China.taobao.com platforms are putting all their effort into ensuring the food safety of products that consumers purchase on the Internet. Relatively speaking, however, Alibaba has much less authority in this regard than local governments, who are responsible for the strictness of regulatory requirements on local specialty products.
Because of this, Taobao and local governments are cooperating with one another to enable local governments to regulate the safety guarantees for local specialty products and then put their endorsements on products to guarantee food safety.
Outsourcing the Logistics and Cooperative Innovations in Supply Chains
Given the development of information technologies, it is becoming harder and harder for companies to deal with market competition by means of either vertical or horizontal integration. Instead, a division of labor and cooperation in the supply chain have gradually become the keys to how companies work together.
Cooperation in the supply chain occurs when companies share the same goals and are pursuing mutual interests. To arrive at win-win solutions, a portion of the supply-chain process is granted to other enterprises.
Cooperative supply-chain arrangements can achieve a number of objectives, including the introduction of new technologies, the development of new markets, an expanded scope of goods and services, and economies of scale.
Such arrangements can help to lower the inefficiencies that may be caused by the integrated administrative control when a company operates solely on its own and becomes overstaffed or when a market stops working properly. They can thereby reduce unnecessary risk.
On the Alibaba platform, supply-chain cooperation among e-commerce enterprises is extremely dynamic. Essentially all Internet stores outsource the circulation of products to third parties to handle all logistics.
This kind of division of labor and cooperation as applied to the supply chain not only improves the efficiency of e-commerce operations but also creates a positively reinforcing cycle within the Ali economic ecosystem.
Furthering Specialization and Outsourcing Logistics:
To improve its ability to harmonize logistics and the functions performed by logistics, at the very outset, Alibaba struck up strategic cooperative relationships with a range of services within China, including the postal service and various delivery companies.
By means of unified ordering systems and improved service standards for the delivery of packages, Alibaba upgraded the experience of consumers who buy things on the Internet.
The strategic cooperation agreements between Alibaba and a whole list of delivery companies were a way to achieve a division of labor and also mitigate the consequences of self-interested policies in the initial period of such a division of labor. As time went on, however, the efficiencies of both the platform and logistics companies improved with experience.
Standards for shipping platform-generated goods improved, as well as the skills and actual execution of delivery companies. The supply chain relating to the delivery of e-commerce goods developed and fostered innovation in a beneficially reinforcing cycle.
The manner in which Alibaba pushed forward the development of its logistics supply-chain management system was not in response to any one company’s mistakes or problems. Instead, it was to resolve issues that led to some products not being saleable on the Internet because of problems with supply-chain logistics.
To deal with these issues, Alibaba forged agreements with logistics companies (goods circulation companies) on such things as the design of order forms, handling procedures, customer responses, and so on.
Together these partners came up with simple standards to be used by all. This spurred the corresponding development of the logistics industry and improved overall management of enterprise supply chains.
Refining the Division of Labor and Innovation in Cloud-Warehousing and Cloud-Logistics
Division of labor theory also can explain the phenomenon of outsourcing on the Alibaba platform and the outsourcing of the supply chain of e-commerce enterprises. They are the consequence of a division of labor and improved efficiencies in business transactions.
In terms of the supply chain of e-commerce, the three great processes, or flow streams, are the flow of information, the flow of money, and the flow of goods. These are the foundation on which the whole circulatory process of e-commerce functions.
With specific regard to Alibaba, the company’s B2B platforms and the Taobao platform focus on information flows, whereas Alipay focuses on money flows.
Because it has no business focusing specifically on the flow of goods, however, this link in the process is completed by offline logistics companies. Buyers and sellers process information on supply and demand as provided by the Alibaba platform, but the actual transactions and links in the process of circulating goods are handled by others.
Having different entities handle the division of labor among the three different flows of the supply chain is itself a way of meeting the demands of an agreement-based division of labor theory.
The ways in which Alibaba uses the advantages of its own database platform are also helpful in refining the division of labor in e-commerce and in developing the e-commerce supply chain.
Cloud warehousing and cloud logistics use the comparative advantages of division-of-labor specialization and the ongoing innovations in logistics systems.
Classical English economist David Ricardo believed that a division of labor does not necessarily have to be built on the basis of absolute advantage. By being based on comparative advantage, it can still stimulate the growth of trade and the growth of economies.
The natural endowment in factors theory points to the sources of comparative advantage even more directly in that both trading partners focus on the relative abundance of factors in either goods or services.
By mutual exchange of more abundant factors, they can mobilize the advantages of specialized division of labor and obtain comparative interests in the process.
In contrast to third-party logistics companies, Alibaba enjoys a comparative advantage when it comes to e-commerce data. Using its own data advantage to cooperate with logistics parties and to exchange related services is a process fully in accord with the requirements of the natural endowment in factors theory.
Based on this, the use of cloud warehousing and cloud logistics is a new approach to resolving problems related to the e-commerce supply chain and the handling and shipping of goods.
Cloud warehousing is a new warehouse-management strategy. Under the existing model, e-commerce companies possess their own (virtual) warehouses. Once they receive orders, they send goods in their warehouses to the warehouse of a third-party logistics enterprise, which, in turn, ships the goods to customers.
This greatly increases the superfluous links in the process and extends the time required for delivery. When alliance-type models are used for third-party arrangements, in particular, goods are transshipped several times, adding to the problem.
In contrast, the cloud warehousing model consolidates all resources of society. Alibaba’s warehousing system provides an open socialized (mass) service platform for buyers and logistics enterprises, as well as for other independent e-commerce websites.
Looking over the long term, as it matures, cloud warehousing will provide an extremely convenient and efficient way to improve the shipping and handling of commercial goods for both consumers and businesses.
In concert with cloud warehousing, Alibaba’s cloud logistics plan is currently an experimental model that lies between direct operations and the alliance model of how to handle logistics. It carries out management in the direct-operations mode but at the same time provides a platform of consolidated information for public use.
It works by combining oceans of information, categorizing it, and sharing it between the enterprise and the customer. It ensures that different companies’ products are divided up according to order information within the warehousing system and shipped out efficiently.
A combination of cloud warehousing and cloud logistics can effectively coordinate information flows relating to the various links in logistics and the actual shipping of goods.
By controlling the core links in the entire process— that is, warehousing links—noncore links related to shipping can be outsourced to break through logistic bottlenecks.
Given China’s current state of logistics systems, which are imperfect, this Alibaba strategy has far-reaching significance.
By being in charge of the core forces of goods circulation and thereby being able to improve the entire supply chain, once China’s goods circulation system does improve, then outsourcing nonessential links to others will allow Alibaba to find effective ways to break through logistics bottlenecks.
In terms of the entire business of e-commerce, this will enable Alibaba to play the role of navigator for key “dragon-headed” enterprises as their businesses grow.
Because of this, cloud computing and cloud logistics will be able to meet the demands of e-commerce enterprises, logistics enterprises, and normal users in terms of the information required as goods are being shipped. It will detour around the unnecessary time and space requirements that stand between production factors and the ultimate consumer.
It will handle the information requirements of all the different links generated by the processes of manufacturing, shipping, packaging, packing, warehousing, processing, reassembling, and final delivery.
By going through a logistics information platform, information can be transmitted quickly and accurately to everyone on the goods circulation chain.
This includes production enterprises, logistics companies, agents, and customers. The process will allow for improvements and ongoing innovations in the management systems that apply to the logistics end of e-commerce enterprises.
Production, Segmentations, and Innovations in Servicing
In addition to the way in which the entire logistics chain is independent of Alibaba, as e-commerce has developed and data have become more open, quite a few e-commerce merchants are also outsourcing many things to third-party service companies such as Independent Software Vendors (ISV).
These companies handle such things as the design and refurbishing of stores, the completion of certain operations, photography, data analysis, and so on. Such e-commerce service companies are emerging as the result of a finer division of labor in the industry but also as a result of the need to outsource fragmented or disaggregated production and services.
Going from Being “Big C” to Being an E-commerce Service Company: The Innovations of the E-commerce Vendor xltt.taobao.com
The Internet brands–management company established by Feng Jieqi is an e-commerce company that is engaged solely in providing services to other e-commerce companies. Many people may not immediately understand what this means.
One way to explain it is this: after May 20, 2011, when Lamborgini registered on Taobao Commerce City, it made a single sale priced at 6.488 million RMB.
This was the single largest transaction in the history of Taobao. The behind-the-scenes planner of this entire episode and the manager of the entire process was the Internet branding company founded by a woman named Feng Jieqi.
The complexities and volatility of market environments bring uncertainty to all transactions and influence the stability of the cooperation of both sides, increasing the risk of breach of contract.
Because of this, a trust relationship must be established as either a promise or a contract to reduce the influence of interference by market conditions, as well as changes in consumer preferences, differences in the information both sides have, the degree of trust not being comparable, and so on.
The frequency of transactions is related to the cost of transactions. More frequent transactions imply a greater number of contracts, which necessarily add to the cost of those contracts and the cost of exchanging those contracts. At the same time, however, it reduces the cost per contract.
Because of incompatible information, different transaction entities may possess different information, which lessens the opportunities for both sides to reach an agreement and leads to higher transaction costs.
When transaction costs begin to influence transaction activity, the enterprise may choose to adopt a different form of cooperation, one that is more in line with the needs of the supply chain.
To lower transaction costs, after a reduction in forces and a reduction in its levels of structure, an enterprise may find that the market itself is a better substitute for the enterprise in performing certain functions of administrative management.
Outsourcing the supply chain is one cooperative method by which the market substitutes for layers of operations in an enterprise. This cooperative method then becomes an agreement relationship based on a joint assumption of risk and mutual sharing of information within the context of a supply chain.
Both enterprises share direct goals and common interests. Their aim is to lower inventory levels and the overall costs of the supply chain, to strengthen communications and exchange among members, to preserve the routine nature of handling cooperative relations among enterprises in the supply chain;
and thereby to enjoy a better position in the market—that is, greater competitive advantage, better financial conditions, higher-quality goods, higher turnover, better customer satisfaction, and better business results.
Within an e-commerce environment, the reason an e-commerce merchant chooses to outsource certain services to third-party providers and not undertake to do everything itself is also that it wants to save on transaction costs and improve efficiencies in the division of labor.
Division of labor has always been the main factor in determining the growth of the forces of production and social progress. Meanwhile, transaction costs have a decisive influence on the level of the division of labor.
A significant issue is how to lower internally generated costs. Externally generated costs are generally inflexible—it is hard to change them—whereas internally generated costs are more artificial.
With advances in science and technology, some internally generated transaction costs can be reduced by adopting more advanced technology, renovating systems, and so on.
The third-party service providers on the Ali platform are the result of both technological advances in the Internet and the need to reduce internally generated costs.
A survey undertaken by Tmall Commerce City indicates that there are already over 100 e-commerce entities on the Tmall platform that provide outsourcing services to e-commerce companies.
Among the 50,000 merchants on Tmall and the 70,000 brands that are registered on the platform, more than 40,000 are considering outsourcing services.
One online clothing store, headed by a woman from Henan named Zhang Yanyan, indicates that the use of outsourcing has proven extremely convenient. Internet merchants can outsource almost any part of the entire process.
Yanyan personally frequently uses Internet agenting, information systems, and “paying by clicking” software for optimizing the search process. It saves her time and effort and is not expensive.
The degree to which assets can be used for just one function is another important reason that online stores choose to use third-party services. This so-called sole use indicates the degree to which an asset can be shifted to another use and the degree to which this lowers its production value. Highly specialized assets imply a large number of hidden costs.
Once these hidden costs are separated from their original function, their predetermined connection to transactions, they fail to have much value at all. Instead, they can be extremely damaging to the factory or the business, resulting in major losses. In other words, the assets in which a company has invested are not in themselves liquid or marketable.
The moment a contract is ended, the investment in that asset is hard to recoup. The original purposes of the investment are hard to shift to something else.
Roles of Opening the Data in Spurring Innovations Among E-commerce Service Providers
As China’s largest online sales platform, Alibaba officially announced in 2010 that it would be opening its data to the entire world. Merchants, enterprises, and consumers would be able to enjoy their oceanic amounts of raw data.
Given the complexities of the data and security issues surrounding the use of the data, Alibaba would carry out this release of data based on certain principles and according to defined levels of data. It called this kind of service the “magical realm of data.”
The opening up of data and use of the “magical realm of data” transmitted quite clear innovative signals to the outside world.
This is so because the development and competition in e-commerce are highly similar to those of large-scale markets. In the initial stages of market operation, all the market has to do is put an order in the ranks of shops, then divide them into categories, and ensure that each shop pays rent, management fees, and so on.
As the market matures and competition becomes more intense, and as the market itself begins to manage things more intensively when each more detailed management system is instituted, it is accompanied by the stricter implementation, and a brand effect begins to take hold.
After this, the market transitions to all-out competition among brands. By this time, competition is no longer based on how much one has to pay in rent but rather on comparing the value added of each kind of service.
At present, competition in the e-commerce arena has not yet reached the bitter levels of competition in large-scale markets. It has, however, passed beyond the initial stage and entered the ranks of branded competition. The presentation of a policy to open up data to others was a signal that the market had begun to enter the deeper levels of service competition.
From materials made public to date, this open-data policy mainly provides the following service functions: it provides data on enterprises from a number of different perspectives, including market research analysis, store analysis, consumer analysis, sales results analysis, and website improvements. This helps enterprises to peruse trends in industry developments at any time and focus on the market shares of brands.
It helps them to understand in a timely manner the concerns that consumers have about products so that the market can respond quickly.
In an all-around way, from different perspectives, it allows enterprises to understand consumers and carry out highly effective and precisely targeted sales efforts. With no trouble at all, enterprises can see the ranking of brands and the ranking of popular products.
Beyond doubt, the target customer of this open-data service is commercial enterprises. Its design and operation are clearly aimed at this market segment. Commercial enterprises can carry out market strategy analysis based on how they manipulate the open data.
They can use actual statistics to support their marketing and product-restructuring efforts—decision makers in enterprises now have actual data on which to base decisions.
At the same time, given the various kinds of data in the “magical realm of data,” decision makers can basically determine what is most popular and fashionable in the market and thereby propose targeted business operations. The provision of open data, moreover, can stimulate service providers and logistics providers in the supply chain to provide better service.
Naturally, as compared with similar data provided by other third-party organizations, the advantage of Alibaba’s “magical realm of data” lies in the accuracy and timeliness of the data. The reason is that Alibaba’s official data can accurately and in a timely fashion reflect the characteristics of its own enterprise, which gives the data much higher value as a point of reference.
With the opening up of data and the emergence of e-commerce servicing companies, the industry of e-commerce services saw explosive growth.
According to statistics provided by the Alibaba Research Institute, in 2012, China’s business volume in e-commerce services, the actual completed transaction value, came to around 200 billion RMB. This was an 83 percent increase over the previous year.
This supported around 1.2 trillion RMB in Internet-based retail sales and 8.4 trillion RMB in e-commerce transactions altogether. The explosive emergence of all kinds of third-party service companies could be attributed to Alibaba’s strategy of mobilizing an open-data policy.
Deputy CEO of the Alibaba Group and Director of the Alibaba Research Institute Liang Chunxiao has noted that the market for Internet-based retail services is the fastest-growing component of the China e-commerce services ecosystem.
In 2012, transaction volume in this area came to 15.2 billion RMB, an increase of more than 200 percent over the preceding year. This volume was due to having ever more abundant targets for services and ever more diversified ways of providing services, including IT services, guided-purchasing services, operations handling, outsourcing of customer services, training, and so on.
As the deputy CEO of Tmall has explained, “Eighty-five percent of the vendors on the entire Taobao platform is working in coordination with the help of e-commerce service tools.” In addition to sales and promotion tools, a number of other services are being provided.
Many other third-party servicing companies provide businesses just coming on to the Internet with website design, management services, photography services, customer servicing and order taking, data analysis, logistics, and customer-service training.
These e-commerce services companies play two main roles in helping e-commerce enterprises as well as managing their supply chains. First, they use an open e-commerce cloud work platform to provide businesses with deeper levels of third-party applications so that such businesses can have a handle on market demand more quickly.
Second, they provide a mobile end-vendor work platform called Qianniu for different levels of people in a small or medium-sized vendor organization, including management. This relates to the entire process of the work chain, from products to transactions to selling, membership, human resources, and accounting.
It covers all end users, including iPhone, Android, cloud cell phones, iPad, and so on. The backup is supported by an e-commerce cloud service called Justice. All these things support the development of a customer supply chain.
Finally, targeted at the Tmall and Taobao vendor services platform, depending on their own role, they provide more precise and accurate purchasing guidance and recommendations.
The platform carries out multidimensional guided purchasing depending on categories. Considerations include vendor rating level, credit rating, the store’s operational links, lines of business, and so on. Based on all considerations, the platform offers custom-made professional services that can precisely meet the needs of vendors.
I am confident that China will have the world’s largest e-commerce services industry in the future given this open-data policy and the speed with which services companies are growing. This will help to improve the operating results of e-commerce and the supply-chain-management systems of enterprises.
Demand Analysis: Consumer-to-Business (C2B) and Online-to-Offline O2O Innovations
Prior to the appearance of demand-chain management, traditional supply-chain-management models mainly went as follows: branded company (production R&D company) → all levels of agents → all retail stores → consumers. This kind of supply-chain system, which was dominated by the branded company (or production company), was the prime culprit of high inventories.
The reason was that in the process of transmitting information along the chain, the information was often delayed or faced a whiplash effect and became distorted.
That is, information about the actual demand of the ultimate customer in the supply chain was constantly exaggerated as it traveled up the chain, leading to overstocked inventories of the enterprise and superfluous production.
It happened as follows: first, the retailer estimated consumer demand and ordered goods from the wholesaler.
The wholesaler ordered goods from the distributor. On the one hand, this generated delays. On the other hand, it also exaggerated quantities. To ensure that customers’ full needs were met, and to deal with uncertainties, the wholesaler was forced to have more on hand in inventory than the retailer.
The result was that information about demand was constantly exaggerated as information was transmitted, and the information became severely distorted. The lack of fidelity to original figures led to high costs for the entire supply-chain system and low operating efficiencies.
The second reason for high inventories is that communications between the vendors and suppliers took place at periodic trade shows. In this process, agents often would use local sales estimates in determining order quantities. However, because the supply-chain links were not effectively supported by IT, market information often would be inaccurate.
Fairly large disparities occurred between forecasts of what the market might be and the actual needs of consumers. Production and final sales then began to move along different tracks, causing severe problems.
In China, many industries still rely on retailers downstream to provide them with information on market demand and not on the end-user consumers themselves. This kind of supply-chain model, which relies on feelings and individual experience to select products and order goods, is one of the causes of China’s overstocked inventories.
To reduce inventories and realize the goal of being lean and less asset encumbered, many e-commerce businesses are fixing their sights on the growth of individualized, custom-made production and flexible production.
O2O (online-to-offline or offline-to-online) is a different innovation in demand management that is based on the diversified demand of consumers. It is a multisided platform business model that links up online users and offline businesses. Exchange of information between online and offline blends online-resources with the offline real economy.
This enables the real economy to become an extension of the digital world, by using it as a channel. This practice helps offline commerce to unearth and attract customers who are online.
Consumers, meanwhile, can sift through online products and services, complete payment, and then go to a “real” store to complete other purchasing. This model was first applied to the B2C strategy at Walmart. After that, it became familiar to all as a web-based form of group buying.
Right now O2O e-commerce and social-communications networks are closely connected with mobile end-users. In addition to net-based buying groups, other commercial forms have appeared, such as mobile preferred treatment, individual recommendations, and so on, based on the value-added service of the position.
Enterprises engaged in O2O e-commerce are too numerous to list. In addition to such outstanding companies as Foursquare, dianping.com, and lashou.com, there are also Facebook, Twitter, Alibaba, Tencent, and Baidu—the “crocodiles” in the field that are ferociously getting into the action. Transaction volume is increasing at an extremely fast pace.
On the Alibaba platform, companies that use the O2O model to manage their supply chain include Linshimuye and Taobao’s ifeng.com. After seeing a pattern online, the user can go offline to carry out his order.
What’s more, as e-commerce is seeping into every possible entry point, and into the daily lives of people, traditional lines of business are facing an enormous challenge.
The furniture industry can serve as an example. As B2B and B2C e-commerce models were successfully penetrating such traditional business categories like garments and food products, the furniture industry could be regarded as one of a minority of traditional industries that had not yet “put on the cloak” of internet business.
This can be attributed to two different tiers of causes. The first furniture requires higher-cost inputs compared to such traditional industries as food products and clothing. It is heavier, and its logistical costs are therefore greater.
In addition, furniture being sold through e-commerce lacks the ability to provide direct perceptual understanding.
For consumers buying furniture on the internet is necessary “a game of chance.” Second furniture products emphasize the experience and quality of the furniture. Actual stores can provide that experience in a direct way; to a much greater extent, they can stimulate a buyer’s desire to own the piece.
In order to expedite the process of a consumer’s getting product information online, send an order, pursue a transaction, and share the experience with others, and at the same time to allow consumers to go offline to a real store and physically experience the product or service, Alibaba has put major effort into supporting and encouraging the O2O e-commerce business model.
This not only breaks through the sense of distrust that a consumer can get in the course of buying things digitally, but it also reduces the physical and psychological costs to the consumer that can occur by simply going into a store and buying something.
Offline “real” stores face the problem of having to be local for local consumers. In order to provide consumers with a better way to find the locations of real stores, and to push forward the development of the O2O business model, Alibaba has put massive investment into purchasing Gao-de (Autonavi.com ) software.
After Alibaba invested in Gao-de, the strategic cooperation of the two has focused on building basic infrastructure as a kind of entry point for the business, which means using the mobile internet positioning and services for improving daily living.
They have launched broad-based, in-depth cooperation on a number of levels, including digital design, map engines, product R&D, cloud computing, advertising and promotion, and commercialization. All of this is to provide users with greater services and more options.
Map services are an important entryway for the entire O2O supply chain. Inside China, among the three giants in the internet—Alibaba, Tencent, and Baidu—only Alibaba lacks a high-quality map resource.
If Alibaba intends to find a breakthrough point with the O2O model, the most critical thing for the company right now is to put more time and effort into this mapping service.
Alibaba had in fact begun to deploy its resources in the mobile internet sphere some seven years ago. It not only was the earliest company to get involved in O2O but its “deployment chain” is also the longest of any enterprise.
Specifically, Alibaba allied with the hottest social media platform right now, namely Sina’s Weibo. It earned an enormous user base through dreaming about “domesticating e-commerce.”
In future competition in this industry, if the online and offline businesses unite, that will create an absolutely massive explosive type of force.
It is precisely this kind of development model, using an improved form of O2O, that has drawn more “real” companies onto the Alibaba platform, and that is spurring the rapid growth of traditional industries as well.
In the furniture industry, for example, more than 100 new firms registered on Alibaba’s TMall site in just one month, August 2012. Close to one-fifth of all items now relate to the home.
Nevertheless, it will take time for online influences to seep into offline business. It may still take a certain length of time before the development model of O2O garners appreciable results.