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Michael Evans, co-president of Alibaba Group Holding Ltd, gestures as he speaks at a news conference during the company’s annual November 11 Singles Day online shopping event in Shenzhen last year. [Photo/Agencies] |
E-commerce giant has solutions for bridging US-based sellers with its vast China market
Alibaba Group Holding Ltd added $7.5 billion to its market value after reporting quarterly results that beat estimates and raising its full-year sales forecast. China’s biggest e-commerce company increased its projection for fiscal 2017 revenue growth to 53 percent, from 48 percent previously.
Jack Ma talked the talk when he met Donald Trump earlier this month, promising to create 1 million jobs in the United States by linking small businesses with Chinese online buyers. Now Michael Evans has to walk the walk.
The president of Alibaba is responsible for realizing Ma’s vision, which some analysts criticize as being unrealistic in scope and problematic in implementation. Yet Evans said the online emporium’s dealings with 10 million small businesses in China can be the template for its US efforts.
“We understand the power of connecting small businesses to consumers－in this case, new consumers for their products－and the leverage that gives the small business to hire more people,” Evans said. “For the next five years, it’s going to be a business priority and focus in the US.”
Alibaba is trying to broaden its revenue sources as China’s economy grows at the slowest pace since 1990. Ma’s attention-grabbing pronouncement was portrayed as a new initiative, though the company has been talking up a US expansion since Ma said he wanted more than half of sales to come from outside China by 2025.
Last quarter, that portion was roughly 26 percent, according to data compiled by Bloomberg.
That would mark a second-straight decline in growth for the e-commerce company, where explosive expansion was the norm before its initial public offering. Still, the company’s shares are outperforming the New York Stock Exchange this year.
Now Alibaba faces a cooling economy at home. China’s gross domestic product expanded by 6.7 percent last year, and that’s expected to drop to 6.4 percent this year, Bloomberg economist surveys show.
To diversify, Alibaba convinced mega-retailers such as Macy’s Inc and Costco Wholesale Corp to open online shops. This led a $2.6 billion deal to privatize department store chain Intime Retail Group Co and ramped up its outreach to small and medium-sized enterprises.
Alibaba already has 650,000 US-based companies registered on its business-to-business platform, primarily used for sourcing, and more than 7,000 brands across its platforms including Tmall Global, where businesses sell directly to consumers.
Recruiters will fan out across the US to lure more businesses, Evans said. Their pitch: China’s appetite for cross-border retail e-commerce is expected to reach 3.6 trillion yuan by 2020, according to Ali Research Institute, a unit of Alibaba.
Evans said: “Today, these people are selling products in their local communities. The key is to connect them to new sources of demand－consumer demand in China and Asia.”
Ma said after his Jan 9 meeting with Trump that Alibaba’s US expansion will especially target the Midwest region in items such as wine and fruit. China is heading toward a consumption-driven economy, and a burgeoning middle class wants higher-quality baby formula, organic beauty products and Alaskan salmon.
Skeptics said it will be difficult to sway mom-and-pop shops to transform into global traders, and the anticipated flood of new businesses on Alibaba’s websites will make it harder for them to stand out.
Julia Pan, a Shanghai-based analyst at UOB Kay Hian, said: “This goal is too idealistic. In reality, it will be very hard to get 1 million SMEs to all thrive on its platform.”
However, Alibaba is undaunted. The company makes money from listing fees that can total 150,000 yuan with sales commissions of up to 5 percent and tech fees of as much as 60,000 yuan－and marketing costs.
That full-service clout appeals to Eduardo De Arkos, a San Francisco-based entrepreneur sourcing agricultural tools and plastics from Alibaba. De Arkos wants to start a clothing business, and he said he has found a partner in Shenzhen to manufacture the garments and ship them domestically.
“China is always the logical next step just because of the sheer size of the market,” De Arkos said. “Sticking with Alibaba to sell to the Chinese makes sense because of their dominance.”
But there are significant obstacles to e-commerce transactions between Wisconsin and Wuhan. Relations between the US and China may worsen under President Trump, who has called for high tariffs on Chinese goods and accused the country of stealing American jobs.
The US government has also just put Alibaba back on its blacklist for selling counterfeit goods. There are limited numbers of Chinese speakers in the US, fears of intellectual property theft and unfamiliarity with the mechanics of shipping goods to China.
The costs of marketing to a Chinese audience also may be prohibitive for small businesses, said Mark Tanner, founder of China Skinny, a Shanghai-based consultancy that advises US brands on selling to the country.
“A million full-time paying jobs in the US would be quite difficult,” he said. “To be really successful in China, you need to be on the ground, be responsive in the middle of the night US time and also speak Chinese to really understand the customers.”
Alibaba has solutions for those issues, Evans said, and they’re called Taobao Partners. Hundreds of translation and customer-service agencies help US companies with details including corporate registrations, foreign exchange, product designs and returns. They’re mostly China-based, third-party companies with offices in different time zones, Evans said.
“This is China. There’s no problem you can’t throw a thousand bodies at,” said Michael Zakkour, the Asia Pacific practice vice-president of Tompkins International China who helps connect Western businesses with Taobao Partners.
He estimates there’re as many as 6,000 of those.
He said: “As wave after wave of new brands come and start selling, those partners will easily add more capacity or a whole slew of new ones will pop up.”
Alibaba also uses affiliate Cainiao Smart Logistics Network Ltd to help sellers such as New York-based Jed Stiller, whose Stadium Goods ships limited-edition Nike and Adidas sneakers from Delaware to Shanghai.
Stiller said as much as 10 percent of his projected $100 million in annual transactions comes from Alibaba’s Tmall Global platform. If that reaches 15 percent, he may hire as many as 70 people to focus on that business.
“In order to scale this, we have to be able to help small businesses in the US with buyer and seller services,” Evans said. “If they hired their own Taobao Partners, it would be way too expensive.”
