Anthony J. Pennings, PhD

WRITINGS ON DIGITAL STRATEGIES, ICT ECONOMICS, AND GLOBAL COMMUNICATIONS

E-Commerce with Chinese Characteristics

Posted on | April 22, 2014 | No Comments

dengWhen Deng Xiaoping, the Communist leader who transformed China into state-centric capitalism had his famous economic realization, “I can distribute poverty or I can distribute wealth,” he probably could not have imagined the power of the Internet and its e-commerce capabilities.

Deng and other post-Mao Communist leaders pursued “Socialism with Chinese Characteristics” with the argument that China had mistakenly entered into Communism during its feudal stage instead of waiting until advanced capitalism, as Marx had theorized. Private ownership and a market economy were suddenly embraced as solutions, not problems. This allowed the Chinese Communist Party to legitimize both its turn to market capitalism and the continuance of its political control over the country through Marxist ideology.

So now, China has propelled itself into a major economic power. While this transformation has been accomplished primarily through a low-cost labor strategy in special export-oriented economic zones, they have also embraced the Internet and it’s e-commerce capabilities. President Xi Jinping recently said “Efforts should be made to build our country into a cyber power,” He is even heading an Internet security and informatization leading group, and stressed that the Internet is central to China’s security and development as well as people’s life and work. A case in point, the number of its Internet users has risen to nearly 600 million, twice as many as in the U.S.

alibabaOne of the earliest Chinese startups was the Alibaba Group, now considered its most dominant e-commerce player and a major force facilitating its international trade. Along with rivals Tencent and Baidu, Alibaba has taken China into the frontiers of net-centric commerce and communication. Forget the smog and traffic and overcharging hawkers, e-commerce is transforming Chinese consumer culture.

China will take another step in its “socialist” journey as itAlibaba tenders its IPO (Initial Public Offering) in the United States. It started recently with US$1 billion to gauge the registration process. China’s largest e-commerce group may worth in excess of $160 billion. Granted a lot of this may be public relations hype dreamed up by Yahoo, which currently owns 24% of Alibaba and stands to make some $10 billion in a successful IPO. But let’s take a closer look at this company.

Jack Ma founded Alibaba.com in 1999 with 17 partners and quickly raised money from Softbank, Goldman Sachs, and other institutions to build the Alibaba.com site and brand. In a classic Internet rags-to-riches drama, Ma learned English by listening to the radio and created the company after he discovered the Internet while on a business trip to the US during the 1990s.

The former English teacher and interpreter named the company after the main character in one of his favorite stories, the Arabic classic Ali Baba and the Forty Thieves. For Jack Ma, Ali Baba was the kind son of a merchant who helped his village. It didn’t hurt that the name was easy to spell and a provocative name.

Since then, they have built an array of companies under the Alibaba banner, starting with Alibaba.com that was set up as a B2B (Business to Business) trading platform for small manufacturers to sell their products to each other. It has since expanded to offer a wide range of online services operating globally.

Taobao.com is its “online mall” with some 300 million customers that operates like a combination of Amazon and eBay, allowing approved sellers to auction or sell their goods outright. On November 11, Singles Day, Taobao and Tmall, Alibaba’s two main platforms, set an amazing record. They sold some 35 billion yuan (US$5.75 billion) in the 24-hour period, surpassing last year’s sales of 19.1 billion yuan.

taobaoFounded and owned by the Alibaba Group, Taoboa’s revenues reached 29 billion yuan in 2009 and have been growing significantly the last few years. It deals in China’s currency, the yuan, and uses Alipay as the preferred payment platform. Alipay is an escrow-based online payment system which is owned by the Alibaba Group. Although China’s Central Bank is placing renewed attention on payment systems, the payment solution site has nearly 500,000 C2C, B2C and B2B merchants using its services, not including those on Taobao and Alibaba.

Based in Hangzhou, just inland from eastern China’s Shang Hai metropolis, the company focuses on three online opportunities:

  • The China marketplace
  • – Using the www.1688.com site, the domestic business-to-business trade in China has been Alibaba’s financial base. Alibaba connected 1688 with Taobao to form a supply chain of manufacturing businesses, distribution businesses and consumers. Taobao is China’s largest online shopping site and has a very popular mobile app. The video below provides insight into the Chinese online consumer. Alternative link to CNBC video on Alibaba.

  • The English language international marketplace
  • – The purchase of Vendio Services Inc. with funding from George Soros, brought together importers and exporters from more than 240 countries and regions with substantial English-literate populations. It was combined with AliExpress, an Amazon-like factory-direct platform for retail purchasing, complete with incredible bargains and the occasional ripoff.

  • The Japanese marketplace
  • – Alibaba.com Japan is a subsidiary of SOFTBANK Corp. (alibaba.co.jp)and conducts business-to-business trade between small and medium enterprises in Japan with buyers and suppliers, including some from China. Yahoo Japan and Alibaba’s Taobao have connected e-commerce platforms to provide B2C services both ways. Yahoo Japan has opened a section in Chinese in its shopping section, carrying millions of products from China (in Japanese language) while Alibaba’s Taobao is offering wares from Japan-based companies on “TaoJapan”, a Chinese-language section on Taobao’s frontpage. Japanese telecom/media giant Softbank has a major financial interest in both Alibaba and Yahoo Japan and stands to benefit handsomely from the IPO.

    As the economic momentum continues to move to Asia, e-commerce will increasingly be in the center of the new social dynamic. While China follows the world trend of rising inequality between the rich and the rest, Chinese leaders seemed to have learned the lesson of USSR Communism – workers need material rewards to stay motivated. The proletariat need incentives to stay the long hours on the mobile phone production line. E-commerce provides the lure and the fulfillment of those consumer desires. They can see what they want online, pay for what they want online, and have it delivered in the physical world (Maybe soon with Amazon-style drones?-). Socialism with Chinese characteristics takes an electronic turn.

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    AnthonyAnthony J. Pennings, PhD is a professor of global media at Hannam University in South Korea. Previously, he taught at St. Edwards University in Austin, Texas and was on the faculty of New York University from 2002-2012. He also taught at Victoria University in Wellington, New Zealand.

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  • About Me

    Professor and Associate Chair at State University of New York (SUNY) Korea. Recently taught at Hannam University in Daejeon, South Korea. Moved to Austin, Texas in August 2012 to join the Digital Media Management program at St. Edwards University. Spent the previous decade on the faculty at New York University teaching and researching information systems, media economics, and strategic communications.

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