October 13th, 2015 Bridge Cafe (Wudaokou)
Ying LOWREY, 刘鹰, Professor of Economics, Tsinghua University; Deputy Director of Tsinghua Research Center for Chinese Entrepreneurs.
Five hundred million and counting. China has more internet users than the entire population of the United States, and recently disclosed government plans are aimed at connecting over one billion users to 3G or 4G mobile networks by 2020. Not surprisingly, with a quickly proliferating internet use came the unprecedented growth of China’s e-commerce: a market which in 2014 reached a net worth of over 440 billion USD. Despite facing innumerable competitors, it comes as no surprise that companies such as Alibaba and JD are making sizable profits, attracting China’s increasingly urban population to their online stores.
Yet, as argued by Tsinghua University Professor Ying Lowrey, focusing on success stories of everyday online retail may not do justice to a much broader phenomenon that is currently taking China by storm.
According to Prof. Lowrey, in fact, Alibaba is doing much more than dominating over China’s e-commerce landscape; rather, it is allowing the country’s overall economy to grow by means of a new economic model – one based on “unleashing grassroots entrepreneurship”.
At the very heart of this innovative model lies the expertise of small retailers, manufacturers, artisans, and farmers eager to expand their market by turning locally-sourced goods (or agricultural produce) into commodities available nationwide, if not internationally.
Often times, however, China’s most geographically dispersed peoples pay the price of living away from urban centers by not having access to the technology that would allow their business to grow. Small business owners and entrepreneurs thus find themselves stuck in their local reality, often having to deal with a stagnant market that leaves no room for progress and innovation.
“That’s when Alibaba comes in”, commented Prof. Lowrey. After claiming the record for the world’s largest US-listed initial public offering last year, in fact, Alibaba decided to ensure its further development by investing over 10 billion RMB in what became known as the company’s ‘Rural E-Commerce Strategy’ – an initiative meant to give greater visibility to rural entrepreneurs. At the time, the e-commerce giant invested in 1000 counties across Mainland China, while kick-starting micro financing projects in a total of 100,000 villages for the establishment of so-called “Taobao Village Stations”. Each Taobao Village Station “would then be equipped with the technology and infrastructure necessary to allow each community, however small, to be connected to the internet in a fast and secure way”, Prof. Lowrey explained. Statistics have shown that the establishment of Taobao Villages around China lead to astounding results: by June 2014, the population of China’s rural netizens had grown by 28.2%, 84.6% of whom mainly rely on mobile internet services.
Addressing the question of what made Alibaba’s visions of net-preneurship possible in rural China, Prof. Lowrey mentioned Alibaba’s shift to Big Data technology and the establishment of AliCloud. In Lowrey’s view, “the greater a company’s computing power, the greater its possibility to join the e-commerce community in an efficient way”. This is certainly true for the Chinese e-commerce juggernaut; at present, in fact, Alibaba’s servers support the capacity of 17 million website access per minute. Greater computing power thus equips “a country, a business, a school, or even an individual” with competitive advantages that become all the more crucial within the e-commerce realm. Today, after having switched to Big Data and having reaped the benefits of the use of AliCloud, Alibaba hopes for Chinese businesses to move away from IT (information technology) systems to DT (data technology) ones. This much needed structural change, Lowrey argues, would eventually allow Chinese businesses to perform even more complex tasks, such as “implementing systems for the traceability of agricultural products” and improve the overall security of foodstuffs sold across China. At the same time, greater traceability would possibly lead to the emergence of what Lowrey defines ‘the invisible moral standard’, whereby producers and manufacturers feel compelled to provide the best service they can offer and selling the best products, while not allowing counterfeit ones to enter the e-marketplace.
As Big Data helped Alibaba bring the “Rural E-Commerce Strategy” to its full realization, the company now seeks to “employ the same technology to increase its competitiveness on a global scale, alongside promoting cross-border”, Prof. Lowrey said. In fact, Alibaba’s new long term vision consists in “fostering a collaborative e-ecosystem of various international partners that will serve the world’s 2 billion consumers with the most highly efficient logistic services at the company’s disposal”. Seeing this vision fully take shape may require a decade of efforts on Jack Ma’s side; yet, the prospect of giving rise to an economic system that is almost entirely based on the success of smaller-scale entrepreneurs (“mass flourishing”) worldwide is too rewarding for Alibaba not to continue following its development strategies in the foreseeable future.
For the time being, what is certain is that the growing popularity of net-preneurship initiatives will continue fostering China’s “willingness, capability and aspiration to innovate” – the fundamental driving force behind every successful economy.
Responding to a question on what could be identified as Alibaba’s key to success, Lowrey spoke about the ‘Alibaba Way’ by paraphrasing a famous Chinese proverb: “Give people a day’s profits, and they’ll eat for a day. Teach people how to do business, and they’ll thrive for life”. The core of Alibaba’s competitive strategy, therefore, lies in the company’s ability to empower entrepreneurs at across all levels of society. Lowrey calls this “growing by unleashing”, and believes Alibaba has gone to great lengths in its effort to improve China’s contemporary business culture.
Addressing a question on the challenges that the ‘Alibaba-model’ may face in the foreseeable future, Professor Lowrey argued that China’s leading e-commerce firm always seeks new strategies to favor its future development, and it is thus likely to deal with potential with relative ease. Further, when asked to elaborate on what Alibaba’s future might entail, Lowrey argued that the results obtained upon having implemented the ‘Rural E-Commerce Strategy” are indicative of how the company should continue providing support to small businesses and invest in micro-finance projects across China. “Alibaba knows that society needs constant innovation”, Lowrey said, “and I hope it will be able to hold on to that principle”. Yet, if ever there was a concrete obstacle for Alibaba and the realization of its visions, that may come from three parts: one is the State’s pervasive bureaucracy, or its excessively tight regulations; the second one is the severe competition from domestic and international markets; and the third is themselves. As media has noticed that Alibaba has involved in very intensive capital operations in purchasing businesses from all spectumes. I am a little worried about the remaining impact of 20th century Wall Street on Alibaba that might lead to a direction foucing on short-term profit gaining rather than the long term wellbeing.
Written by Carlotta Clivio