CO, an old friend from grad school sent me this (slightly modified) email this morning:

I work a side job for an endurance coaching service.  We are sponsoring a few races and were looking to include the laces as freebies in race packets.  I may be in the market for about 5,000 pair of bungee shoe laces and found some interesting prices on Alibaba… I’ve never used Alibaba or even heard of it prior to a Google search.  Do you have any recommendations I should look into if I got serious about purchasing?

Unless they have lived in China before, most foreigners are unfamiliar with the Alibaba Group, even though its subsidiaries (Tmall, Taobao, Alibaba) collectively sell more merchandise (by value) than eBay and Amazon combined.  To quickly understand the differences: Alibaba is B2B, Taobao is C2C and Tmall is B2C.

In Chapter 12 I mention that:

Altogether in 2012, e-commerce revenue totaled $196 billion.1During the 2012 Single’s Day (November 11^th or 11-11) on the mainland, Alibaba Group e-commerce properties (Tmall and Taobao) purportedly broke the single day sales record with over 100 million visitors and $3.03 billion.2

This is not to say that there have not been significant hurdles that Alibaba had to overcome to reach these new heights.  Two years ago the company was rocked with the revelation that 2,236 sellers had defrauded buyers.  As noted then by The Economist, Alibaba’s reputation was on the line so a slew of personnel responsible were axed and new quality control mechanism were put in place.   And because of its recent concerted efforts to crack down on fraud, Alibaba was removed from the “Notorious Markets” list maintained by the USTR regarding the sale of counterfeit goods.

So to answer CO’s question, while I cannot vouch for all of the material sold by sellers on Alibaba sites, I can say that I usually trust the built-in rating system more today than I did  four years ago.  I am not saying it is perfect or that there is no longer  fraud, but many of my friends (both local and expat) regularly buy products from the e-tailers, including shoe accessories.

Selling to the mainland

In Chapter 7 I spend a bit of time discussing one way foreign firms can sell into China with ExportNow, a turn-key solution that gets your product onto Tmall, to be sold on the mainland.

While I won’t rehash that chapter, I wanted to point readers to a new report published this week by McKinsey & Company regarding e-commerce growth on the mainland.  According to the write-up from the WSJ:

China’s e-commerce market, largest in the world behind the U.S., is booming, with sales expected to reach $420 billion to $650 billion by 2020, up from $190 billion to $210 billion in 2012, according to McKinsey. Around 40% of China’s consumers wouldn’t have made purchases if not for the option of e-commerce, added the report, which used data provided by a major online company to analyze online spending from consumers in 266 cities.

The persuasive power of e-commerce is really playing out with shoppers in China’s smaller cities, where retailers like Swedish apparel giant H&M haven’t expanded. Consumers in so-called fourth-tier cities, like Wuzhou in China’s eastern Guangxi province, are spending as much as 27% of their disposable income online. That compares to 18% of disposable income for big-city dwellers, the report said.

That last statistic is the one that I will highlight to friends, family members and clients.  Consumers in fourth-tier cities are spending more than a quarter of their disposable income online for the same reasons that their peers do so in other countries, lack of local consumer options.  Yet before thinking you may strike a goldmine, consider that the average salary in these smaller cities obviously varies on age but is substantially less than Tier 1 cities which are roughly $9,000 a year.3 And Wuzhou — far from being an Alpha city, has roughly the same size of population as Bengbu, a city I lived in for more than 2 years.  In fact, the average annual salary in Bengbu is less than $5,000.

So keep that in mind before trying to sell boat loads of diamond and platinum coated cutlery nationwide.

Also, if you want to try selling through Taobao (which is C2C) here is a simple, English translation of a step-by-step guide to do so.

Be mindful that if you are looking to sell bulk items into China, you may eventually be able to partner directly with Alibaba.  As I mention in Chapter 3, Jack Ma (the founder of the Alibaba Group) announced that “Tmall will work with [a new customized] center to build a database of international suppliers that Chinese consumers are most interested in.  It would then collect orders to make group purchases.”4 The new system is expected to be rolled out within the next two years and part of the domestic plans is to deliver anywhere on the mainland within 24 hours.5.

Thus, in addition to using ExportNow or hiring someone to list it on Taobao, perhaps you should look into finding an Alibaba account executive to connect your inventory and supply chain into their new streamlined system.

Update: David Schatz sends me this relevant new story from the latest print edition of The Economist: E-commerce in China – The Alibaba phenomenon

[Note: this is not an endorsement of any particular service, I hold no financial or equity stake in any of the aforementioned services or companies.  These were used as examples and illustrations.]

1. Bezos’ Kindle-Less Amazon Mashed in China by Ma’s Alibaba from Bloomberg [↩]
2. See Black Friday in Red China by Evan Osnos and Singles Day: China’s online shopping holiday from the Associated Press [↩]
3. Guangzhou has highest average salaries for cities in mainland China from South China Morning Post [↩]
4. Tmall Plans to Link China’s Consumers with Foreign Goods from Caixin [↩]
5. The plans are being rolled out together however the domestic 24-hour delivery service is expected to be completed within 1 year.  See 马云1000亿建电商物流 目标全国任何地区24小时内送达from ifeng [↩]