Define E-commerce (100+ New E-commerce Hacks 2019)

 

Define E-commerce

Rapidly Growing Scale of E-commerce

In the years 2008–2009, economic conditions deteriorated dramatically around the world as the tsunami of the global financial crisis hit, and e-commerce, too, was unable to stand firm. Online business-to-business (B2B) foreign-trade business was affected first, given the turbulence in industrial supply chains.

 

Some export-oriented e-commerce services companies either experienced slower growth, reorganized and laid off workers, or closed down altogether. At the same time, however, an online B2B domestic business within China started a new round of fast growth, as well as the vertically differentiated business-to-consumer (B2C) business.

 

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 next seven in line were Tencent (3.1 percent), Amazon China (2.7 percent), #1 (2.6 percent), Weipinhui (2.3 percent), Dangdang (1.4 percent), AOL (0.4 percent), and Fanke Chengpin (0.2 percent).

 

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

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

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 the 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.

loan

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.

 

ALIBABA’S CORPORATE CULTURE INNOVATION

CORPORATE CULTURE

As an Internet company, Alibaba has made many crucial innovations in operating procedures, products, technologies, and business models.

 

In so doing, it has been able to unleash the innovative forces of tens of millions of grassroots entrepreneurs. The question naturally comes to mind: How did Alibaba do this? Was innovation something that happened by chance, or was it a habitual state of mind within the company?

 

Established in 1999, Alibaba is quite young, but youth does not necessarily guarantee the quality of being innovative. Many newly founded companies fail by trying to emulate others or by not being able to turn ideas into innovative products.

 

In contrast, many famous built-to-last companies that keep renewing themselves rely on constant innovation to stay in business, and some have stayed in business for over 100 years.

 

The business results of Alibaba in the course of just 16 years are astonishing—the company is already one of the largest and most influential Internet companies in China. While there is evidence to show that innovation and business results are related, actual success relates to other factors as well.

 

This was particularly true when the Internet was just getting started because the competition was not nearly as fierce as it is now. At that time, reading the market accurately, focusing on execution, controlling costs, and being opportunistic all may have been just as important as innovation.

 

Before 2011, in terms of strategy, Alibaba did not emphasize innovation in any particular way. Innovation was more of a by-product. It was akin to spontaneous behavior.

 

As the Internet community gradually matured, however, and as Alibaba became weightier within that community, and also as unforeseen technological problems became more frequent, Alibaba realized that innovation had to become a conscious policy choice if it wanted to enjoy ongoing sustainable growth.

 

Alibaba’s corporate culture has been encapsulated in six values, what it calls its six “Pulse Excaliburs” or “Six Sacred Swords”: customer first, teamwork, embrace change, integrity, passion, and commitment. Except for the part about embracing change, which has a certain Internet feel to it, the others represent straightforward business values.

 

They are useful in any situation and constitute a basic approach to how to conduct oneself and how to conduct affairs. 

 

They do not “aim the sword” directly at innovation. When one pursues the question of why it is that Alibaba has in fact done so many innovative things, however, one finds that these straightforward values have indeed played a fundamental role.

 

Culture is something intangible, but it has to come about by means of things that are real. Organizing a structure, creating mechanisms, and managing human resources are very matter-of-fact things. As Alibaba grew and its strategy shifted, the company began quite consciously to put effort into using what is real to stimulate creativity.

 

For example, it carried out organizational restructuring, it promoted innovative mechanisms, it consciously hired innovative people, and it rewarded the results of innovation. As a result, the innovative nature of its culture became ever more evident—an intrinsic part of the company.

 

A great deal of research has been done on creating innovative structures. Some of the main elements of an innovative organization include a common outlook, the desire to be a leader in innovation, the appropriate organizational structure, a focus on individuals, effective team cooperation, all members participating in innovation, an innovative atmosphere, and a focus on key externalities.

 

In analyzing factors that apply to innovative-type organizations under noncontinuous conditions, the following three considerations are also key: individual development that continues beyond immediate goals, a great deal of communication, and having a learning-oriented organization.

 

These elements can be grouped into four main categories. First, encourage an innovative corporate culture (e.g., a common outlook, a desire to be a leader in innovation, and all members participating in innovation). Second, create organizational structures that are conducive to innovation (e.g., effective team cooperation and the appropriate organizational structure).

 

Third, make sure that the platform supports innovation (e.g., an innovative atmosphere, a great deal of communication, and a focus on key externalities).

 

Fourth, nurture a type of human resources management that rewards innovation (e.g., a focus on individuals, individual development that is sustained and extends beyond the immediate goals, and a learning-oriented organization).

 

In what follows, each of these categories is used to evaluate which methods allowed Alibaba to become an innovative organization.

 

Promoting Innovation as the Corporate Culture

Promoting Innovation

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 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. (I don’t rule out the “hitting it lucky” accidental kind of 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.

 

Vision, Mission, and Set of Values

Vision

An innovative corporate culture must, first and foremost, explicitly set forth a vision, mission, and set of values.

  • Alibaba’s vision: “Being the number one data-sharing platform, being at the top of the well-being index as an enterprise, living 102 years.”
  • Alibaba’s mission: “To make it easy to do business anywhere (or “To make it no longer difficult to do business around the world”).
  • Alibaba’s values: “Customer first, teamwork, embrace change, integrity, passion, commitment.”

 

Vision, mission, and values are important for innovation for two main reasons. First, they have a direct impact on stimulating innovation. Alibaba’s culture itself incorporates innovative behavior—from the moment it was founded, the company had an “innovative gene.”

 

In 2001, after Guan Mingsheng joined Alibaba, together with some of the founders, he tried to summarize the “interesting things” about the organization, its general atmosphere, and came up with nine items that could be called a set of values, a kind of “Dugu Nine Swords of Solitude.”

 

These were passion, innovation, teaching that benefits the teacher as well as the learner, openness, simplicity, team effort, focus, quality of service, and respect each other.

 

Later these were combed through and simplified into three categories. The first was the driving force of innovation, which included four items: innovation itself, passion, openness, and teaching that benefits the teacher as well as the learner.

 

When the “Nine Swords” were further simplified into the “Six Swords,” the term innovation was no longer mentioned explicitly, but all the values incorporated the concept itself.

 

Some played a direct role in supporting innovation, such as customer first, embrace change and passion. Later, I discuss the influence these key qualities play in promoting innovation.

 

Second, vision, mission, and a set of values stimulate innovative behavior among people in indirect ways. Matt Kingdon has suggested that behind the paradigm of successful innovation lies “innovative energy.” This is the fusion of three different forces, including personal attitude, team behavior, and the organization itself.

 

Regarding attitude, he notes that the great majority of people one sees who make a difference in a company have an inner desire to do something significant. They want to make an impact, and they want the approval of the team.

 

They like pursuing the objectives of the corporate entity—it feels good to them, and they are happy to be a part of it. This is why vision and objectives are the keys to innovation. They set the pulse of innovative energy.

 

All people are creative. The difference lies in the degree to which this is sparked and the direction in which it is applied.

 

An inspirational vision and mission can serve to galvanize the creativity of people and their enthusiasm for work. At the same time, these things can guide the creativity of different people in the direction of a common goal.

 

The combined force of innovation is that much stronger as a result. This is why one of the founders of Alibaba, Peng Lei, has said that “the essence of innovation is idealism.”

 

Major innovations can face all kinds of internal obstructions if they cannot break through the core rigidities that were the original sources of the organization’s strength. At such times, clearly defining the company’s new vision can lead to consensus among all workers and allow for repositioning and smooth change.

 

Alibaba’s major transformations have all begun with a redefinition of the corporate vision. When the company was established in 1999, its vision was “to become one of the world’s top 10 websites.”

 

By 2008, as the company’s strategic plans changed, this was changed to “becoming the largest e-commerce services provider on the globe.” In 2013, this changed again to “being the number one data-sharing platform.”

 

Changes in the company’s vision reflected the changing times. They also reflected the way in which Alibaba defined its objectives and its group strategy in a more targeted and specific way. For example, Alibaba has now come to define its positioning in the market as an ecosystem. 

 

At the same time, recognizing that the core operations and management of the company will be existing in a digital age, it seems that its current organizational structure, management methods, mode of thinking, technological demands, and so on need a major adjustment.

 

The new vision, “being the number one data-sharing platform,” serves as a foundation for future changes and innovations as well as those currently underway.

 

Customer First

Customer First

Where does innovation come from? In its most classic form, innovation is pushed by knowledge and pulled by demand as the two primary forces that bring it into being. Later models that address this subject have added all kinds of new factors and improvements, but these two, push and pull, still occupy a fundamental position.

 

Alibaba’s innovation has benefited enormously from the pull of demand. It set its sights on helping tens of millions of enterprises grow, providing job opportunities to 100 million people, and providing services to a billion consumers. The very first value of the company states this ideal in succinct terms: “Put the customer first.”

 

For a long time, Alibaba was positioned as a services company and not a tech company. It was not even regarded as an Internet company. During the period in which its business-to-business (B2B) enterprise was being established, salespeople ran the show, not technical people, and as a result, this was not a productive period in terms of technical innovations.

 

Instead, salespeople crisscrossed the country making sales calls on customers. When the Internet bubble burst and tech companies went into a dormant period, senior management formulated correct strategies that enabled Alibaba to weather the hard times.

 

They increased customer services and investment in staff and employees and stopped “burning” investors’ money, which is where the idea first arose of the customer first, employees second, and investors third.

 

The reason Taobao was able to beat out eBay was almost totally due to eBay’s blind spot when it came to understanding Chinese business.

 

By using the not-very-original motto of “Customer first,” Alibaba honed its consumer-to-consumer (C2C) business into what became a fine skill. First, it was free. At the time, per-capita income in China was one-thirtieth that in the United States, and a market economy had only been going for 25 years.

 

The Internet was a new kind of thing for communicating, and people were not very sure how reliable it was. Asking people to pay a fee to sell on the Internet was psychologically unacceptable.

 

It was outside the bounds of Chinese people’s tolerance at the time. As Jack Ma later said, “We did not adopt this free policy in order to compete with the opposition. We adopted it because the market demanded it. We did it completely in order to serve the customer.”

 

Second, it dealt with the issue of payment. At the time, Chinese people rarely used credit cards, and there was no system in the country as yet to certify individual credit. In the United States, eBay fundamentally did not have to take creditworthiness into account, whereas in China, this was a monumental problem.

 

In essence, Alipay was nothing more than an intermediary guarantor of payment, a new form of a very ancient kind of service. By creating this innovative product called Alipay, Alibaba found a solution to the problem.

 

Finally, it improved communications. The no-compensation model that Alibaba adopted meant that varying qualities of products were all commingled on the platform. Excellent communications between buyer and seller were the sole route to actually achieving sales because they reduced the asymmetry of information.

 

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.

 

The story of Alibaba’s product “Zhao Cai Jin Bao,” which means “bring in wealth and treasure,” lends another perspective on how customer first influences innovation. In June 2003, a product that Taobao had spent three months of concentrated R&D effort on was summarily taken offline after just one month, voted down by the public. This astonished everyone.

 

At the time, this had been a secret innovative project given preferential treatment by Taobao. A super team had been selected to work on it, with all the resources the company could offer.

 

In its initial period, it went through a week of detailed testing, analysis, and modeling. The software-engineering phase was carried out on Ali’s “blessed venue”—the Lakeside Garden.

 

The CEO of Taobao.com, Sun Tongyu, personally took on the major responsibility for the project. During the R&D process, the entire team, top to bottom, coordinated secretly and worked flat out.

 

The trial run passed, marketing was successful, but the formal launch of the product then aroused totally unexpected controversy and opposition.

 

In the end, Sun Tongyu decided to allow public opinion to determine whether to keep or to toss the product. He decided to ask users themselves to vote on it. After 20 days, the votes of those opposing were greater than those supporting it. In the end, the product was taken offline.

 

Innovation is a business process that incorporates four main links: search, selection, implementation, and the harvesting of results. The search involves looking for innovative ideas, though in fact, the mechanisms that spark innovation are omnipresent.

 

Even the best-funded organization is not able to undertake everything, however, so the selection of projects becomes critical—formulating the right proposals and allocating the appropriate resources.

 

At this point, customer first becomes an important selection criterion. No matter how good the idea or how much money is spent on it, without customers’ approval, it will not generate value.

 

It then becomes unfeasible as an innovation. The code of putting the customer first at Alibaba is what led the team to cut loose from an idea that, from every other perspective, had seemed the perfect innovative project.

 

As an aside, this story has a good sequel. The hard work that the R&D team put into the project was not in vain. All the ideas behind the product eventually flowed into a different channel and were realized in other products. Taobao’s pay-for-performance (P4P) product and its Tao-customer product are the concrete expressions of the original ideas.

 

Embrace Change

Embrace Change

Taking just the one aspect of e-commerce, after a preparatory period that lasted several years, the industry entered an explosive stage of growth in 2010.

 

Already-existing e-commerce companies went for round after round of massive amounts of financing. New vertically integrated e-commerce entities emerged in droves, and platform transformation became the new buzzword.

 

Merchants who dealt in the real world also began transforming their business models, and price wars began to heat up. Mergers and acquisitions threw off sparks in all directions.

 

By the time the situation had calmed down a little, the age of big data and mobile Internet then arose like a mighty wave, creating innumerable new variables to deal with in the future.

 

In the bigger picture, things are changing constantly, but they are at the micro level of individuals as well. Personal demand changes daily, and the essence of the Internet is that it is personalized. Even the biggest and mightiest of contenders have to consider the “long tail” and ply their wares there.

 

They also have to recognize that tastes change. “It is not enough to say [that] you understand someone since that person is different tomorrow. Today she may want a pineapple, but tomorrow she may want something else.”

 

In an industry that is growing so rapidly, in which nothing is nailed down for sure, innovative opportunities are all over the place. The prerequisite for success, however, is having an attitude that embraces change.

 

When it comes to the elements that make for an innovative organization, it is more fundamental to embrace change in innovative activities than it is to have an innovative atmosphere.

 

Embracing change is to innovation what water is to fish. When Alibaba changed the value of innovation in the Dugu Nine Swords into “Embrace change” in the Six Swords, it was, in fact, inserting an even more fundamental requirement into its code of values.

 

One interesting example of this idea of embracing change can be seen in Alibaba’s practice of making people stand on their heads. Alibaba would like for its staff and employees to look at the world from a new perspective, upside down, in order to learn to change.

 

So the company has every new employee, old or young, fat or thin, learn to stand on his or her head against a wall within three months. Men must hold that position for at least 30 seconds. Women have to hold it for 10 seconds. Otherwise, the new recruits are told to roll up their mats and go home.

 

Many people inside and outside the company have explained this in various ways, saying, for example, that it is done for health or that it makes people realize that the impossible can actually be possible. The most significant thing about it in terms of culture, however, is that it forces people to think from a different perspective.

 

Jack Ma has said, “Everyone has to learn to stand on his head because when you’re upside down, the blood rushes into your brain, and you see things differently than you normally would. You also can think over issues in ways that you would have found unimaginable before.”

 

Rotating positions is another of the ways that Alibaba’s systems express the company’s spirit of constant change. Alibaba has always had a strict program of rotating positions. Every year, management-level positions are reassigned. If managers have any desire to be promoted, they must have fulfilled two considerations.

 

First, they must have a good plan in mind for who is going to succeed them in their current position. Second, they must have experienced the process of rotating positions. Many of the more outstanding staff at Alibaba have done every single job in the company.

 

Alibaba’s highly qualified Deputy CEO Deng Kangming explains it this way: “As you change positions, you eliminate the barriers between one position and the next.

 

Only if you do that can people really understand things from a different perspective, use different ways of thinking about things. Only by analyzing things from different perspectives can you truly cultivate the capacity to think systematically, that is, in terms of the total system.”

 

Sometimes the difference between jobs is considerable. Someone in charge of human resources will be sent to run sales channels and major customers, or personnel from sales will be sent to do human resources. Someone with no background in technology, who is involved in editing content on the website, may be sent to manage technology.

 

A chief financial officer may be transferred to the management of the business in general. In early 2013, Alibaba spun off 25 different business units (BUs), which represented “the hardest reform of all in the past 13 years.” In considering all the horizontal and vertical business interactions, cooperation among business units had become extremely important.

 

The frequent rotation of positions for many years was a good preparation for this organizational change. It also helped the business continue to function properly after it had taken place.

 

Another unusual feature of Alibaba’s system of rotating positions is that it sometimes does not happen according to predetermined processes, which is extremely important in testing people’s ability to embrace change.

 

The need for employees to participate in new projects may have no forewarning at all— people may find out from one day to the next that they have been transferred to a different department.

 

If one wants to be successful in embracing change, the necessary attitude is said to be, “Forget about success; start over again.” A previous situation may have been one that felt successful and that therefore was hard to relinquish.

 

After the fact, we always think that a given innovation is a great success. Before it comes about, however, the people who have to do it must be brave enough to forget about success and actually embrace change.

 

Alibaba’s earliest website was built by one of the founders of the company, Zhou Yuehong, using a language called Perl. As inquiries to the website increased in number, the system quickly became overloaded, and it also became hard to increase the number of its functions.

 

Despite the extremely high hurdles that the program now presented, it was something Zhou was extremely proud of, a kind of asset that he owned. Nevertheless, it was making it hard for the website to continue working.

 

An American engineer was asked to come in and look at the situation, and he decided to use Java, new at the time, to completely rewrite the system. This made Zhou Yuehong, who knew everything there was to know about the old program, feel terrible. His opposition to this proposal was strong enough that this founder of the company eventually had to be let go.

 

After a great deal of persuasion, he came back into the company on a trial basis of three months as a completely new employee with a salary that had been cut in half. The change worked; he applied himself to learning the new technology, and he soon became a master of Java.

 

Not only can individuals become infatuated with their own past successes, but companies too can sometimes find it hard to move forward from a basis of existing success.

 

Taking such a step often can be an important form of innovation, however. The independence of Taobao Mall is one such example (in January 2012, Taobao Mall was renamed Tmall). Between 2008 and 2010, Taobao held 80 percent of the market share for C2C business in China.

 

Because of this, the idea of making the business-to-consumer (B2C) business part of Taobao independent was not given much serious attention, and anyway, the feeling was that this would affect the size of and the traffic on the Taobao Marketplace. Because of this, that segment of the market went through various twists and turns.

 

The first “independence” was in 2008 when senior management decided that the B2C model had no future, so the people responsible for it, who were both capable and trustworthy, were notified that they would have to leave.

 

The board of directors then used an operating procedure that gave Taobao Mall the least degree of independence because they were unwilling to upset their C-store vendors. Half a year later, Taobao Mall Department was disbanded, and the mall was again merged with Taobao.

 

In August 2009 came another attempt to operate it independently, but again, little progress was made. On November 1, 2010, six days after the B2C company Mecox Lane Limited was listed on the Nasdaq, Taobao Mall finally declared real independence. Only then did its managers hold a news conference and announce an independent domain name, and only then did they begin to do major brand publicity.

 

Before that, other companies had been allowed to grab the stronghold of B2C opportunities first. Only in final recognition of the need to do so did Taobao agree to cut out a chunk of its own livelihood and release Tmall. This then formally enabled Taobao itself to put its energies toward developing its B2C model.

 

One of the founders of the Taobao Marketplace, Huang Ruo, summarized this by saying, “What Taobao Mall did was to deny itself on an already successful platform, thinking in a ‘headstand’ way.

 

It was trying to cast off its existing procedures and to find new operating models according to how the market functioned. Meanwhile, it also had to make the operating rules and design the architecture of a B2C platform.”

 

Fortunately, Alibaba finally allowed Taobao Mall to become independent. A number of innovative ways of thinking in the Taobao Marketplace that could not previously be realized then found good use in the Taobao Mall.

 

Furthermore, Taobao.com finally found a winning model. Thanks to all of this, Tmall now holds over 50 percent of the B2C market share in China, and the 11.11 Shopping Festival has been a miracle of sales for three consecutive years.

 

Passion

Passion

The passion of Ali-people is expressed in many different ways. When sales champions lost bets to Jack Ma, they had to jump in Hangzhou’s West Lake in the wintertime.

 

When Taobao’s ranking exceeded eBay’s, Taobao staff beat thunderously on garbage cans out of sheer exuberance. When Alipay’s sales figures exceeded 7 million RMB, the technical staff who had worked night and day on perfecting the product ran naked in a special kind of celebration. 

 

Innovation requires this. It is an activity that involves massive amounts of energy and enthusiasm. Not only do people need to create and organize new things, but they also need to break through the constraints of old things. Just as energy is needed in physics to break through inertia, innovation implies the breaking out of routine ways of thinking and doing things.

 

This puts demands on mental forces, physical forces, and the force of a person’s ambition or desire.

 

The expression of this kind of force is passion, whether it stems from enthusiasm or from responsibility. In general, an organization that is well endowed with passion finds it easier to generate innovations.

 

Inside the company, Ali-people uses a great deal of what is called “Alibaba slang.” The term that most galvanizes people is da zhang, which means “fighting a war.” In the Alibaba sense, it refers to crossing swords head-on with an opponent, particularly one that is bigger than you are.

 

Despite this, Jack Ma often says, “Only if you feel internal that you have no enemies will you really have no enemies in the actual world.”

 

By this he means that competition is a by-product of what you should be doing anyway—the key point is to provide incomparable service to customers. It seems a nice thing to say, but it also seems to sum things up after the fact.

 

The reason is simple: in some spheres and at certain stages, Alibaba has truly been a company without any contenders on the horizon, “even if you look for them with a telescope.”

 

Alibaba has no competitors for various reasons: its model is unique (it was the earliest B2B company), and its forces are already too strong (today’s C2C business). Given such things, there naturally is no need to pick a fight with anyone.

 

However, when competitors do appear, nobody is going to ignore them either. You may put the customer first, but so does the competition, so why should the customer choose you? When strong competitors appear in important areas, therefore, even Alibaba does not disregard them and go its own way.

 

Instead, it makes its moves depending on the specific qualities of its opponent. What enables it to beat that competition is not the only customer first but also a kind of invincible passion.

 

Meanwhile, the pressure of competition makes it easier to force innovations out of the company, whereas passion ensures that these innovations get implemented. This reinforcing process continues until the battle is won.

 

The classic example of a winning campaign was when Taobao went up against eBay. In terms of marketing and promotion methods, Taobao’s innovations were absolutely forced into being by its situation. In July 2003, eBay set up exclusive advertising agreements with other Chinese sites, including Sina, Sohu, Netease, and TOM.

 

If any of these major sites cooperated in any way with Taobao, Yabao, or other online auction houses, in the promotion or otherwise, eBay was allowed to levy high fines on its site as punishment. Faced with this kind of “tyrannical” blockade, all Taobao could do was stage a kind of guerrilla war and “encircle the cities by taking the countryside.”

 

At fairly low prices, it put advertisements on thousands of smaller websites. Taobao’s sales staff swept through the ranks of China’s “website alliance” and got all these small and medium-sized sites to post Taobao advertisements from one night to the next.

 

At the same time, its salespeople covered the offline advertising territory—subway stations, train stations, lampposts along the streets, any possible venue. In the end, Taobao was also advertising on television.

 

Back at the Lakeside Garden, Sun Tongyu, one of the original founders, led the exhausting but dedicated charge of all the company’s various departments.

 

The up-to-date rankings of the two companies hung beside each employee, motivating everyone each moment of the day. Many people waited every night until 11 p.m. or even later to go home to sleep—they would not leave until Alexa changed its rating for the day.

 

Loose on the Outside, Tight on the Inside

innovation

Is a tense work atmosphere more conducive to innovation, or is it better to have a relaxed environment?

 

Peng Lei, vice president and head of the Human Resources Department, encapsulates the answer to this question within Alibaba by noting that the company is “externally loose [or relaxed] while internally tight [strict or intense].”

 

A loose approach to interacting with the external world allows the company to maintain an open attitude and be more receptive to new things. It also gives people the freedom to unleash their own imaginative forces.

 

A strict internal environment keeps the work results-oriented and focused on execution, which allows innovative ideas to come to fruition more quickly.

 

Alibaba’s “loose” culture is expressed in a number of ways, but three specific aspects are most apparent. The first is the physical environment of Alibaba. A company’s physical surroundings are very important for innovative energies. As soon as you walk into Alibaba, you sense that the company is young, vital, and encourages unconstrained thinking.

 

Any sense of hierarchy is quite muted. Work areas are open style, with more senior people stuck in among a crowd of young people. Walls are adorned with amusing caricatures and photographs of Alibaba recreational events. Meeting rooms are named for places that hark back to Alibaba’s Outlaws of the Marsh type of culture.

 

All kinds of excellent facilities are available for exercise, recreation, eating and drinking, and studying.

 

The second aspect of looseness is a management style that gives full rein to the individual expression of employees. Taobao acts as an incubator that fosters a list of Alibaba’s innovations, including Alipay, Tmall, eTao, Juhuasuan, and Taobao Wireless, among other businesses. Taobao represents the beginning of Alibaba’s innovation culture.

 

It is the most innovative platform within the Alibaba Group. This is related to the way in which senior management “looks after the bigger picture and doesn’t concern itself too much with small things,” as expressed by former Taobao CEO Lu Zhaoxi.

 

Operating innovations are more likely to be generated from the bottom and move upward as a result of this unconstrained atmosphere. People can be more experimental. The downside is that efforts may be duplicated as too many people focus on a given product or business.

 

The advantage is that people are free to do something new without worrying too much about making mistakes, which increases the probability of successful innovations.

 

Finally, Alibaba has a kind of “gene” that inclines it to enjoy having fun. This is not to say that people who enjoy having fun are necessarily more innovative, but there is something about refusing to be mediocre that links the two things together. Most people who know Alibaba well would agree to this characterization.

 

A small anecdote reveals one way in which this works. Within the Alibaba Technology Association campus, a person in the technical department ran into a problem when he could not get a certain program to complete its response in less than 600 seconds.

 

He, therefore, put out a notice offering a reward—a case of Coke—to the person who could reduce the time to less than 200 seconds. Someone was intrigued by the problem, spent a couple of days looking into it, and was able to reduce the response time to less than 50 seconds.

 

Alibaba’s more stringent environment is demonstrated first and foremost in the company’s very results-oriented performance standards. A person can have as much fun as he or she likes, but ultimately he or she must come up with results.

 

What’s more, that person must ensure that the results are reproducible through a defined process. As the saying goes, results without a process are no more useful than garbage, while a process without results is like a fart.

 

Second, Alibaba enforces strict discipline. Economist William Baumol has noted that entrepreneurship within an entity can be productive but also nonproductive and potentially also destructive. People’s energies are finite.

 

If entrepreneurial efforts are poured into nonproductive or even destructive endeavors, this necessarily reduces the amount of energy going into productive endeavors.

 

An organization’s entrepreneurial capacities will suffer as a result, which is why the right kind of disciplined approach plays such an important role.

 

Integrity is one of the cardinal rules in Alibaba when it comes to relations with the outside world. It is one of the Six Sacred Swords. In December 2009, the Alibaba Group set forth regulations on business conduct.

 

These established a “high-voltage line” with respect to the company’s code of values—they went further in explicitly defining the standards of ethical conduct.

 

If any employee “touched” this line, he or she would be asked to leave the company. Alibaba has in the past asked a number of superlative salespeople to leave the company despite their excellent performance record. In 2010, Jack Ma went so far as to “kill” Wei Zhe as a result of the way certain B2B staff had colluded with merchants to defraud customers.

 

With respect to internal relations, Alibaba espouses simple and straightforward human relations and rules out any kind of office politics.

 

The company advises employees that the Alibaba Group is still in the midst of rapid growth, which means that there will be abundant opportunities for all, with new job positions and new benefits coming along every year. People do not have to fight over limited resources and interests.

 

If each person does his or her own job well, the prospects for personal development are huge.

 

An Organizational Structure That Is Conducive to Innovation

Organizational Structure

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.

 

In 2009, when Ali Cloud Computing was being reorganized, an employee wrote: “Suddenly, this earthquake. The wind changed directions, and I, without the slightest internal preparation, realized I had lost my way.

 

Comrades at arms were being spun off to other departments and subsidiaries. Everyone felt the same, lost, each person now trying to find his [or her] own path.”

 

Every single year, the organizational framework of Alibaba is adjusted in one way or another. New employees are confused and troubled by changing bosses every six months. Older employees joke among themselves: “When we say hi to one another, we ask ‘which department are you in now?’

 

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

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

 

Jack Ma is in charge of the former.

business groups

The second step is to decentralize and restructure. In May 2013, the seven business groups that had been created just six months earlier were now spun off into 25 different business departments that were managed correspondingly by the group’s strategic management and execution committee.

 

Three months after that, four more business departments were created under the auspices of the Ali Finance Group.

 

In wanting to expand the outer boundaries of its ecosystem, it has been logical and necessary for Alibaba to reform internally as a means of “ecologizing,” or creating a greater diversity of species.

 

Not only do these internal adjustments more fully interweave the horizontal and vertical aspects of business, but also they gave more weight to the horizontal ways in which all parts of the company take advantage of the platform.

 

As vertical lines of business generate features that can be used in common, the system precipitates those out onto a platform that is shared by all.

 

For example, if a given line of business has a certain set of marketing processes, other business units can take advantage of them as well.

 

The shared platform becomes an internal system that allows for broadening the whole. It enables the advantages of one to be shared by all through the application of common standards.

 

The new organization is managed through the use of data and supported by a shared platform. In general terms, the hope and intent are to rest easy about relinquishing control by turning the organization into a networked structure.

 

Alibaba’s platform has always contained mechanisms that allow for the free flow of communications, bottom up, that enable innovation. As the phrase goes, “If you dare to be crazy, I dare to invest.”

 

Free and Unhindered Communications

Communication

Equality and openness are said to embody the spirit of the Internet. If this is so, an Internet company should quite naturally implement this free spirit in how it conducts itself. Jack Ma has said, “The hope of the Internet lies in innovation.”

 

However, such innovation must be born out of a climate that allows all voices to be heard equally and that allows different ideas to contend freely with one another.

 

Alibaba works hard to create an atmosphere in which this can happen. Not only can people debate issues, but the debates can be heard.

 

Alibaba espouses communication methods that are simple and direct. The embryonic form of Ali’s code of values is “believable, intimate, simple”—this was the corporate culture with respect to communications when the enterprise was still in its early period.

 

Jack Ma believes that “[i]f I have something to say to you, I should go knock on your door and talk to you for a couple of hours. Either we have a fight, or we get the thing resolved.

 

If you have something to say to me, you should come to find me as well. If you have to go to some third party, then you should get out of this team.” In Alibaba, if personnel have any problems, they take the notebook in hand and clump together to talk it through.

 

One can see small groups of people discussing things all the time in the company. Teams may be located in different cities, but there still is a sense of close communication.

 

The internal communication network of Ali is called “Ali Flavor.” The name of its forum is “Say What You Want.” On this network are such bulletin boards as business chats, news on customers, and other such subjects, but then there are also bulletin boards relating to hobbies, interests, and sundry other enjoyments.

 

On these things, items that receive an unusual number of hits are called “Magic.” As an example, in early 2013, the company was thinking of outsourcing its security, something that had been handled internally in the past.

 

Staff uploaded the departure statement of one of the security officers of the company, which then turned into a sensation on the internal communications system.

 

His statement complained that the company had no sense of humanity whatsoever— the incident almost turned into a cultural crisis. The result was that senior management overturned the decision and maintained security internally.

 

Alibaba’s position is that anything should be allowed on the internal network —“poisonous weeds” included. They should see the light of day.

 

Anything should be open for discussion and should not be the occasion for censorship or shutting down the internal network. Senior management takes the attitude that it is willing to be criticized and does not control what people say.

 

No individual point of view is censored. Upper levels cannot force lower levels to hold back a very lively way of thinking, which creates an atmosphere that is conducive to innovation.

 

Alibaba in its earliest days was a simpler organization—as soon as new products were put online, the internal bulletin board service (BBS) would start criticizing them. This part was faulty, that part had problems—and products were gradually improved in the midst of the clamor. This tradition continues.

 

Yet another unusual format for communications within Alibaba is called WCBBS (which stands for Water Closet Bulletin Board Service). The Human Resources Department puts a pad of paper on the back of the door of every toilet in Alibaba, with A4 paper on which people can write their opinions and ideas.

 

The pad has topics that can be addressed and that are changed from time to time. Whenever employees feel the urge, so to speak, they can jot down their thoughts. Subjects vary from light topics to the more serious and provocative. Alibaba goes to encourage a grassroots spirit.

 

Innovative Mechanisms That Go from Bottom Up

Innovative Mechanisms

In its early days, Alibaba’s innovations generally took the form of top-down and were called “CEO projects.” Once senior management had proposed an idea and it had been approved for preferential handling on a top-tier basis, its implementation was guaranteed by having the company invest money, staff, and materials. Results were often not all that impressive, however.

 

Vice President of Human Resources Lu Yang says that the reason was that people were not able to internalize a project that they had been ordered to do. They did not “take it into their own bones.”

 

One of Taobao’s innovations was to change the direction of idea generation and make it go from bottom up. It adopted all kinds of methods to enable the voices of ordinary staff members to be heard by senior management.

 

This process unearthed new ideas via competitions, ways of encouraging staff to innovate, and so on. The general approach was to enable ordinary people to do extraordinary things. This concept ran through all the innovative activities of the company.

 

One classic example from Alibaba’s early period was called “My Growth.” In 2005, at the time of the “second founding” of the company, each person was asked to keep a diary every day called “So-and-So’s Growth.” Each was then uploaded onto the internal Taobao network in diary form.

 

One of the tasks of the Human Resources Department back then was to check to see if each employee had written in his or her diary or not. Many innovations came out of discoveries from these diaries.

 

A second example is an annual competition for innovation held by Alibaba. Starting in around 2007, when the Taobao platform was fairly large and had quite a few products on it, the “innovation points” came in so fast that staff started compiling them into a weekly report.

 

A competition began among the different departments that resulted in a prize at the end. At the time, people would say to one another, “Have you written your weekly report yet? What new innovations have you got?”

 

One of the more influential innovative mechanisms was the annual “horse race.” Lu Zhaoxi was CEO of Taobao at the time it started, in 2010, and it was his idea to have a contest to determine what companies would be started up from within Taobao itself. The project took two different forms.

 

One was purely among the people in that any staff member could come up with an idea, organize his or her own team, and run with the idea if it was voted in and approved. The second used ideas generated by the company. People could still form their own teams, vote, and run the idea if it won.

 

The idea was an instant hit. At the time, Taobao had around 4,500 employees, and close to 1,000 of this poured energy into their own ideas. Their teams would gather after work every day and on weekends, discussing and planning.

 

Out of this, 350 project ideas were generated and passed through several rounds of evaluations. Ten were approved in the end. The company had high hopes for these 10 projects.

 

It dedicated a specific working area to these efforts and gave the people the authority to pull together a team as they wished (naturally, this also led to some conflicts).

 

It gave them half a year within which to hand over their completed proposals. Despite the fact that this was year one of the contest, a number of excellent products coming out of it.

 

In the first season of the contest, the greatest virtue of the entire scheme was that it made every person realize that the company was serious about encouraging innovation.

 

The process in 2011 basically continued what had been begun in 2010, and 85 projects came out of it. In 2012, after considerable reflection, the orientation shifted somewhat.

 

The purpose was no longer founding companies internally but rather resolving the major issues that the company was encountering in the course of innovation. Under the influence of the key performance index (KPI), it had become easy for innovative thinking that went from bottom up to be stolen by someone else.

 

This meant that the company had to work harder to keep open a path to protect creative thinking, and the “horse race” became that path. The positioning of the contest went from being the internal founding of companies to micro innovation.

 

The third season of the race made two major changes. First, the race was extended from Taobao to the entire group and to innovations that went from the bottom up. One of the key issues was the number of “dots”—the group allowed these to increase suddenly in number to more than 20,000.

 

Second, multiple racecourses began to appear in addition to the main racecourse. Given the complex structures of various subsidiaries, many companies or departments instituted their own races, and the best ideas were then fed into the main racecourse of the overall group.

 

In 2013, the main racecourse proposed 155 projects, while each company handled its own projects and selections in more flexible and well-developed ways, as seen in the following three examples.

 

“I want to send it by express”: Several employees in the Customer Satisfaction Department suggested a project that stemmed from their understanding of the “pain points” of customers with respect to shipping.

 

In the end, this was adopted by the Logistics Department, and the winning team quickly changed positions and began to do things in which they took a stronger interest.

 

A staff member involved in technology suggested a tool designed to automate certain internal processes, which resulted in saving the cost of several hundred jobs. In the end, the KPI of this person was successfully adjusted so that he could spend his entire time working on this tool.

 

A History of Taobao Products: A product manager suggested that Taobao should have a book describing the history of its products. The company agreed and allowed him to spend 20 percent of his time working on it.

 

When the contest (horse race) entered its fourth season in 2013, it was upgraded in several ways. First, it became the vehicle for explorations into a new form of organization.

 

Alibaba’s original intent was to have people doing what they themselves wanted to do because this would motivate them more than having the company tell them what to do.

 

However this works out, in the future, the corporate structure will definitely not be as it is today, namely, a bureaucratic system that operates in hierarchical layers.

 

It may be supplemented by the kind of task-oriented system, as practiced in the United States. A group working on a given task can assemble in a bottom-up mode and then disband once the task is completed.

 

Second, the horse race became a channel for communicating a culture of innovation. As with other forms of organizational culture, it turned intangible things into real things. For example, starting in 2013, the evaluation group communicated much more thoroughly with projects that had been selected.

 

Innovation is necessarily something with a high failure rate, and in the early period of any project, the company cannot invest too much. Alibaba, like Google, talks about 20 percent, but Google’s 20 percent is 20 percent of 100 percent, whereas Alibaba’s is 20 percent of 120 percent.

 

An Alibaba employee must first complete his or her own work, and well before he or she does any extra innovating. Because of this, employees must choose things that they themselves are truly interested in doing—the kinds of things where it doesn’t matter how things end up as long as they can have a try at them because the learning and growing are what make them happy.

 

In the fourth season, the horse race also had some very practical breakthroughs. First, it combined the two ends—individual micro-innovations that go from the bottom up and the organizational need for innovation that goes from the top down.

 

For individual micro innovations to work, they must pass through a kind of innovation funnel that includes guidance from periodic infusions of resources.

 

The main stages of the funnel are the idea, registering its name, online screening, gestation period, offline evaluation, and realization. Resources that can be applied at the various stages include such things as service tools, testing environments, horse race vacations, training drills, legal and financial consulting, horse race trainer, bonus money, testing of formats, and so on.

 

Meanwhile, the organizational need for innovation is now divided into three stages as well. One is the official call for projects, similar to the way the first season called for subjects. The second is an activity that draws ideas together. In this process, a small team can have access to more minds than just those within his or her own department.

 

The third is individual horse races in different companies and subsidiaries. These are managed by the department or team itself, with the group supporting the efforts. These individual horse races (or contests) take all forms.

 

As long as they revolve around the subject of innovation, they are fine. For example, they could be an engineer’s night that is aimed at technical personnel or the Ali Cloud Computing horse race put on by Ali Cloud Computing.

 

Finally, the horse race changed directions somewhat in the fourth season. It was made more of a habit and less of a one-off event.

 

It became a path that allowed for the year-round gestation of new ideas within the group. To ensure that this happened, the company set up what it called an “Innovation Farm” on its online platform.

 

This was open all year. The interesting thing is that this site was one of the ideas proposed by a group of employees in the course of participating in the horse race.

 

In addition to being made an ongoing event, the horse race became market-oriented. Instead of having a few high-level committee members decide on which projects would live and which would die, the company now thought that the market should decide the issue.

 

In 2014, it, therefore, added an online filtering link to the process that enabled all 20,000+ employees of the company to judge each concept.

 

This too was something a former winner had proposed. In the future, the company hopes to broaden the market-oriented nature of the process even further by asking Ali’s customers at large to evaluate projects. They will determine who is up and who is shot down.

 

The third shift in orientation was that the contests gave more rein to, particularly outstanding projects. Everybody felt the same about these contests, namely, that their creators should be allowed to run with an idea more fully. The people winning the races should be true winners.

 

Although for many contestants, ideas being recognized by existing business was an acceptable path, learning and growing from the course itself was fulfilling, and for the race, its goal had already gone beyond just founding a business within the company.

 

Alibaba dreamed bigger, envisioning a future in which altogether new subsidiaries and companies would result from these competitions.

 

What this required was the latter part of the innovation funnel. It involved many follow-on decisions that were summarized by the term special zone of results. For example, an employee might gradually stop receiving a salary and, in incremental stages, start receiving actual investment from the company.

 

Human Resources Management That Nurtures Innovative People

Human Resources

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.

 

Hiring People

Hiring People

Alibaba has continued to hire more people every year as it has grown. In recent years, this hiring has been characterized by the need for more technical personnel, which has led people outside the company to feel that Alibaba is shifting from being business led to being technology led.

 

As Alibaba’s Chief Technical Officer Wang Jian says, however, the way the business has developed has brought with it a host of unanticipated technical problems, which have led to the need for technical talent.

 

It is certainly true that Alibaba has confronted problems nobody else ever handled, so the company has had to devise its own ways to handle them. Innovative solutions have been applied with tremendous frequency as a result, and coming up with solutions is a capability that the group as a whole has emphasized.

 

To give one example, many companies use Hadoop (a distributed form of basic framework system), but this cannot cope with the superfast speed at which Alibaba’s data are growing.

 

Alibaba, therefore, uses its own multifunctional Flying Apsaras for its cloud-computing platform, which has already surpassed Hadoop.

 

The previously used Oracle is already useless within Alibaba, and the company has instead substituted OceanBase for it, a system that the company developed itself, as supplemented by a reconfigured MySQL.

 

IBM’s small-scale computers were always the mark of high functionality, but they too have already been replaced by hardware that Alibaba has made for itself. Alibaba has an internal team that focuses exclusively on optimizing and revising the Linux system for internal use. It has had a custom-made Linux system built for its own purposes.

 

Alipay processes tens of millions of transactions every day, with total transaction amounts in the tens of billions. The company’s business requires a dedicated security solution. Given this level of activity, Alibaba requires not just technical personnel but highly creative thinking.

 

The launch of a plan called “A-Star” (for “Alibaba Star”) was the ultimate expression of Alibaba’s desire to attract innovative technical personnel. In 2013, Ali selected 10 trainees from among college graduates entering the company to participate in a training exercise.

 

It sent them to the most challenging of its various projects, where the head of the technology team was directly responsible for them and focused on training.

 

The compensation package for these people: 600,000 RMB in annual salary with no cap on increases, a certain number of stock options, and obtaining a Beijing Hukou for the person. This generous compensation package went beyond what other companies offered, but the things required to get it also were quite stringent.

 

Candidates had to undergo a face-to-face interview with Alibaba’s chief technical officer to test a number of considerations. In terms of competitive nature, did the person aim for the ultimate in technical excellence, and was he or she qualified to be an expert in his or her field as well as competent to write about it?

 

In terms of technology, was the person passionate and immersed in his or her subject and wanting to find technical solutions wherever possible?

 

In terms of empirical experience, was the person the kind who talked about soldiers on paper as opposed to getting things done, and was he or she a core member of any project because of being adept at solving problems?

 

In terms of logical thinking, was the person able to define the key issue in a complex situation, did he or she think through to the underlying issues, and was he or she then able to arrive at his or her goals in a structured and logical way?

 

In terms of approach to learning, was the person strongly curious about new things, and could he or she absorb them quickly into his or her own way of structuring a conceptual approach?

 

Innovative qualifications are emphasized more and more in job postings and review procedures for other kinds of positions as well.

 

In the personal interview, the “Official Smeller” (an experienced Ali employee who investigates whether or not the applicant has the “Ali Smell”) focuses particularly on whether or not a person is curious, and has a natural passion for understanding things and a strong desire to know what is not yet known in the world.

 

This is in addition to finding out the normal things about a person—ambitions, interests, sense of mission, ability to cooperate with a team, and so on.

 

Training, Research, and Development

Training

Alibaba puts considerable effort into training its human resources. During the Internet freeze of 2003 and during the global economic crisis of 2008, when Internet companies and indeed most companies were in dire straits, Alibaba chose those worst of times to invest in humans themselves. The company began to practice what is called Nei Gong and to improve training of personnel.

 

By now, Alibaba has created a powerful and systematic process of training. It is becoming a learning-type organization, which is a key requirement if today’s innovations are to be successful. Following are two cases that illustrate Alibaba’s unique form of training.

 

Technology Carnival: The importance of technical advances to Alibaba was described earlier. The Technology Carnival is a platform that enables people to get together, interact, and learn from one another.

 

It was started by some engineers in the Alibaba Group who are passionate about technology. Held in Hangzhou in July of every year, this forum had been going for three consecutive years.

 

By 2013, participants had increased from an initial 1,600 people to 3,400 people—the event has become wildly successful. Software engineers from many companies gather to discuss what is happening in the industry and what the future will hold. They discuss framework design, HTML5, and other such subjects.

 

Since participants are all top-tier R&D people, the sense of “actual combat” is fairly intense, and the event has become known for sharing truly useful content and getting real work done.

 

Alibaba also has maintained the ability to do self-study within the organization by designing a variety of systems or institutions. First, it has set up training halls within the Park campus.

 

Each can accommodate between 80 and 100 people, and each holds a full set of learning facilities. Second, each business department holds learning sessions at regular intervals, with specialists who are invited in to discuss specific subjects.

 

Third, Alibaba’s internal network has a learning platform that contains materials on courses taught by experts from within as well as outside the company. The employees are informed of specific sessions via mass e-mail or internal notice, and attendance is limited to a certain number of people. Sessions are almost always fully booked.

 

Course subjects range from big data to wireless Internet and from insurance to individual tourism. Fourth, people on the internal network can both upload and download learning materials, so this has become a resource that the 20,000+ Ali-people are building together.

 

By June 2014, this resource already had 15,000 items on it. Fifth, once major projects are completed, the team will review the process to learn lessons from it.


 

Performance Evaluations and Compensation

Performance Evaluations

Alibaba may be the only company in China to put the evaluation of an employee’s code of values on a par with an evaluation of his or her business performance. Most companies are guided solely by business results.

 

Alibaba instead uses two coordinates. The vertical coordinate measures business results, whereas the horizontal coordinate measures the person’s values. The “Six Swords” are further subdivided into 30 smaller items, each with a potential grading.

 

If one’s business performance is excellent but one’s values are not up to what is required, this is called being a “wild dog.” And wild dogs must be “killed.”

 

If one’s values are excellent but business results are not, this is called being a “little white rabbit.” Little white rabbits also must be “killed.” In the company’s grading system, 50 points go to business results and 50 points go to values.

 

If values are poor, the person will definitely be asked to leave. If business results are poor, however, the person may be given another chance. Twenty percent of people in Alibaba are allowed to get higher increases in salary, bonuses, or promotions.

 

Seventy percent of people get average salary increases and bonuses. Ten percent are given no bonuses, whereas some may well be asked to change positions, may be demoted, or may be asked to leave the company.

 

In 2013, Alibaba launched a reform in its performance evaluation system. This had many specific details to it, but it also included two main points that had to do with innovation. First, Rule 271 became Rule 361.

 

Behind this change was the desire to elicit a greater number of outstanding employees and a greater diversity of voices to provide support for innovative strategies.

 

Another more important part of the reform was to moderate the effect of KPI on how people were graded. This was in line with the strategic adjustments and organizational changes in 2013.

 

At the group level, the gross merchandise volume (GMV) within a period and the KPI of each business department were uncoupled to the degree that each department could decide for itself whether or not the teams under it should be judged at a similar level.

 

In traditional enterprises that are operating on a stable basis, the pursuit of the KPI ensures that operations continue to be highly effective. In a highly volatile environment, however, the KPI can become an obstacle to generating completely new things. In volatile situations, nobody knows what KPI is reasonable.

 

Alibaba deeply understood the reasoning behind this and therefore took the risk of experimenting with employee evaluations. For example, innovation itself had already become an important item by which people are evaluated, but the method of doing evaluations proceeds by a kind of case-example system.

 

If a business department can justify high marks by saying that a certain innovation has opened new markets and is being adopted by customers, that consideration is enough to merit points.

 

Conclusion: Releasing the Grassroots Entrepreneurship of the Company

Entrepreneurship

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

GRASSROOTS STARTUPS

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

Business 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

Employment

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 a 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

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

 Supply Chains

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.

 

Establishing China.taobao.com

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

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 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 a 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. China.taobao.com Helped to Consolidate the Industry

 growth

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 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

 Logistics

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:

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

Innovations

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

E-commerce

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 its 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

Demand Analysis

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 Innovations

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.” 

 

As noted previously Alibaba also joined with China’s leading domestic supplier in map navigation, Gao-de. Goode's superior assets enabled it to move more easily into the age of mobile internet. It was also highly significant in terms of extending Alibaba’s primary business.

 

The triumvirate of Ali + Sina + Autonati has not only created a powerful alliance in e-commerce but in the future, it will provide a much stronger competitive advantage as competition in the industry heats up.

 

In terms of portals, there is UC and Sina’s Weibo; in terms of mobile digital analytical tools, there is Youmeng; in terms of online and offline connecting platforms, there are Juhuasuan and Meituan. For payment methods, there is Zhifubao (Alipay).

 

After purchasing Gao-de, the Gao-de navigation tools and massive quantities of map data have allowed Alibaba’s “local life platform” to receive core support. With the “local life platform,” the last link in Alibaba’s O2O industrial chain will be nearing completion.

 

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.

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