As the clock just ticked past 0.01am on November 11, 2015, the crowds at the Beijing Water Cube burst into cheers—real time statistics on a two-story LED screen showed that Alibaba’s sales exceeded 1 billion RMB ($158 million) within 72 seconds of the Singles’ Day Sale’s kick-off. Over the succeeding 24 hours, Alibaba (NYSE: BABA), the Chinese online retailer that launched the largest public offering in history last fall, swept sales of 91.2 billion RMB (US$14.3 billion), representing a year-over-year growth of 60%. First started in 2009 by Alibaba, the Singles’ Day sale has transformed into the annual online shopping extravaganza in China, participated by almost all online retailers, including Alibaba’s major competitor, JD.com (NSDQ: JD).
As the Western media are awed by the overwhelming enthusiasm demonstrated by retailers and consumers alike and the stellar sales statistics that surpassed those of Cyber Monday, many start to conjecture Alibaba’s next step in expanding overseas. In August, the company announced the appointment of Michael Evans, a former Goldman Sachs vice chairman, as president of the group to spearhead its international expansion efforts. According to an anonymous source from the company, Evans has been actively involved in opening new offices in Italy, France and Germany, while expanding existing operations in the U.K., U.S., Australia, Asia-ex-China, etc. Equipped with locally developed knowledge and business ties in the North American and European markets, Evans has articulated his two-part strategy for Alibaba’s global expansion: to consolidate the current position as a gateway for Chinese businesses to sell to international consumers and for international brands to sell to Chinese consumers; in the future, to transform Alibaba into the “global infrastructure of commerce” by enabling consumers to access any seller anytime anywhere in the world.
The ever more urgent need for global expansion arises from challenges facing Alibaba today that include a slowdown Chinese economy and increased competition from globalization. Concerns over the Chinese macro-economy have aggravated since the stock market crash during the summer of 2015. Recently announced third quarter GDP growth also missed the 7% target that Beijing had long strived to maintain. Nevertheless, Alibaba and its peers are still trying hard to capture the booming demand from Chinese consumers against the backdrop of a gloomy growth outlook of China. Alibaba’s sales campaign this year included hosting a 4-hour-long gala inside the Beijing Water Cube, the Olympics swimming center, which was aired by one of China’s most popular television channels and multiple video streaming websites and resulted in a 29.7% audience share, rivaling that of CCTV’s Spring Festival Gala. The gala also drew attention from Western media as many of their familiar faces made appearance at the event, such as Daniel Craig and Kevin Spacey.
Alibaba’s deliberate efforts to connect itself with foreign retailers and consumers have proved fruitful, as more than 16,000 international brands completed transaction on November 11 with buys and sellers hailing from 232 countries and regions. Going a few years back, Alibaba has conducted several acquisitions of e-commerce companies in the U.S. since 2010, including Auctiva, Vendio, SingleFeed, and ShopRunner (minority stake), some being logistics and fulfillment service providers in the U.S. It launched Ali-express (www.aliexpress.com), a crossborder B2C marketplace, in 2010, which, surprisingly, has attracted millions of Russian consumers and become by far the most popular e-commerce platform in Russia, where low-cost consumer products are relatively scarce. Nevertheless, in contrast to its dominant market position in the domestic (and Russian) market, Alibaba so far has not been particularly successful in entering the U.S. market. Its most recent attempt with 11main.com, an online marketplace serving small-time U.S. merchants, proved to be a disappointment. The obstacles are obvious—lacking in local knowledge and business networks, it is extremely difficult, if not impossible, for a foreign player to rival Amazon in the U.S. market, just like how eBay failed its C2C venture in China, Alibaba’s home turf.
Well aware of the difficulties, Jack Ma, the legendary founder of the Alibaba empire, claims that the company’s key strategic focus in its overseas market is to connect businesses in the West with the enormous and rapidly growing consumer base in China. During the 2015 Singles’ Day, 33 percent of total buyers purchased products from international brands or merchants, with sellers from the U.S., Japan, South Korea, Germany, and Australia ranking top on the list. The strategy has led Alibaba to not only launch flagship stores of major retailers such as Macy’s and Costco on its T-mall platform, but also specialized consumer brands in snacks, nutrition supplements, baby formula, etc. As the size of middle class is expected to double in the next decade, Chinese consumers now pay more attention to issues like food safety more than ever, unleashing massive potential in the imported food market. In 2014 Alibaba sold 600 tons of cherries shipped directly from Washington and California, and Ma vividly envisioned that within the foreseeable future Chinese consumers would be able to buy fresh seafood from Alaska and pork from Iowa. A report by Nielsen projects that the online grocery market in China is expected to reach 100 billion RMB by 2017.
Meanwhile, a lingering issue facing Alibaba executives during the company’s aggressive global expansion is the profusion of fake or counterfeit products sold through its platform. A recent Forbes magazine cover story features Jack Ma under the eye-catching headline ”200 billion empire built atop a mountain of fakes.” To be sure, the existence of fake products is a commonly known fact for Chinese consumers, and nobody reasonably expects to receive an authentic Louis Vuitton handbag when it is priced at 200 RMB. However, the challenges have certainly exacerbated as Alibaba works hard to convince luxury brands to enter its marketplace, who have long been concerned about the harm to the brand value as a result of co-existing with the counterfeits. The fact that Burberry’s flagship store on T-mall survived for less than a year also highlights a major shortcoming of online luxury goods market in China: a non-trivial portion of the value of luxury goods derives from the premium shopping experience provided at brick-and-mortar stores, which e-commerce retailers have found extremely difficult to assimilate. At this point, Jack Ma, recognizing that the small businesses remain the lifeblood of its C2C platform, has taken a relatively hard-line against allegations of counterfeits. Nevertheless, it is an issue that Alibaba will eventually have to address. The separation of the B2C platform (T-mall) and C2C platform (Taobao) is a meaningful first step. Hopefully, with the passage of time, the rising demand for authentic, high quality products from the growing middle class will cause the market for counterfeits to gradually vanish.
As Alibaba transforms itself into a dominant player in the international e-commerce industry, not only measured by sales volume, but more importantly, in terms of its reach to businesses and consumers worldwide, it has made concrete progress along the way. Years of experience in B2C and C2C operations have enabled Alibaba to better understand idiosyncratic consumer preferences and spending habits in various markets. Its rich knowledge of the domestic market also puts it in the best position to serve as the gateway for international brands entering China. But to accomplish its ultimate goal of becoming the “global infrastructure of commerce”, more on-the-ground work needs to be done by Michael Evans and his team to achieve wider presence and create greater brand recognition vis-à-vis its competitors in global markets.
Vanny Min is a J.D. candidate at Yale Law School. She graduated from Yale College, double majoring in economics and political science.