E-commerce opens the door for Chinese SMEs

Alibaba has been a hottie in both media and Internet industry lately with eBay shuts down in China as it pinched by Taobao, which is followed by the news of Alibaba’s software strategy that can hurt eBay further. Alibaba Group’s Vice-president of Corporate Affairs Porter Erisman talks to Amy Cheung of The China Perspective on how e-commerce, China’s SMEs and Internet citizens create a thriving marketplace.

The China Perspective: What is the business potential generated by China's SMEs?
Porter Erisman: The Internet has opened the door for millions of SMEs to start their own business online. Today, Alibaba China (china.alibaba.com) is the largest Chinese language B2B marketplace for domestic China trade. With more than 16 million registered users, it is the biggest online and offline SME community in China, and it is adding more than 20,000 new members a day.

Most estimates suggest that there are around 25 to 30 million SMEs in China. According to the National Development and Reform Commission, SMEs represent more than 99% of all companies in China and account for more than half of the country’s GDP.

However, the Internet and e-commerce adoption rates of Chinese SMEs is far behind that in the West, representing a huge opportunity for the Alibaba Group. Alibaba China currently has around 10% of the addressable market as paid members. Our focus is getting the other 90% of Chinese SMEs online and into the Alibaba community.

TCP: How does the new business software company Alisoft complement the other companies under Alibaba Group?
PE: We believe that there are five pillars to a successful e-commerce platform: marketplace, trust, payment, search and software. Until recently the Alibaba Group had covered four of these pillars through Alibaba.com, Taobao, Alipay and Yahoo! China. With the launch of Alisoft, the Alibaba Group is now providing a business software service to Chinese SMEs that will help them improve their business efficiency and connect e-commerce to their back end systems.

TCP: Which one of the five companies in the Alibaba Group generates the highest revenues? Chairman Jack Ma has said last year that the company would boost Taobao-related revenues. How would Alibaba achieve that?
PE: The Alibaba Group derives the majority of its revenues from our B2B marketplace, Alibaba.com. We promised in October 2005 that Taobao would be free for another three years and we will keep this promise. Being free has allowed Taobao to grow its user base while encouraging online community as the company listens to customers to understand the unique needs of buyers and sellers in China. But Taobao is a business and we have a solid plan in place for revenue generation and profitability. Our theory has always been, only after our members make money using our marketplaces should we make money.

We recently announced that users of Alipay who are not doing business on Taobao or Alibaba.com will have to pay technical service fees starting in the first half of 2007.

TCP: As an e-commerce giant, how do you see e-commerce's role in SME's business operation?
PE: E-commerce has become much more than just an additional sales channel for Chinese SMEs—it is the driving force behind their entire business. E-commerce is changing the way SMEs do business, from communications, to customer relationship management, to after sales services. It levels the playing field and enables small businesses to engage in international trade and compete with large companies which they would normally not be able to compete with. Our role is to provide the right marketplaces, the right infrastructure and the right tools to help our strong e-commerce community of more than 50 million individuals and businesses grow.

TCP: How would Yahoo China be re-organized and re-positioned to compete with Baidu and Google?
PE: Yahoo! China is focused on search and community. Our goal is to combine the power of Yahoo!’s world class search technology with the collective knowledge of China’s online community to produce the best local search engine. As part of the Alibaba Group, Yahoo! China will also play a valuable role in powering e-commerce in China and become a leading advertising platform for China’s SMEs.

TCP: What are the moves for Alibaba to consolidate or establish its presence in various market segments in China namely the north, east, south and west?
PE: Alibaba wants to cover all cities and regions in China where there is a large population, robust trade and high e-commerce usage. Until the end of last year, we had three customer service branches located in Hangzhou, Shanghai and Guangzhou to cover the coastal cities which have traditionally been the strongest for trade and e-commerce.

However, following the rapid growth of e-commerce in the rest of China, especially in the West, and as more SMEs look to international trade to boost sales, we recently launched our first customer development and service centre in Chengdu. In 2007, we have plans to roll out another nine service centers around China, including Beijing, Tianjin, Chongqing, Nanjing, Dalian, Shijiazhuang, Hefei, Shaoxing and Hong Kong.