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China’s Alibaba help SMEs

February 25th, 2004 · No Comments

I have tracked Alibaba since it was launched about 4-5 years ago. In some ways, I would have liked to do something similar for Indian SMEs. Alibaba helps Chinese SMEs connect to each other and with international buyers. It raised a lot of money in its early days (in excess of USD 25 million) from the likes of Softbank and Goldman Sachs. Then, as the bust happened, it too hit a wall. There were some doubts on the company’s road ahead (reflected in 2 HBS case studies).

Well, as it turns out, 2003 has been a banner year for the company – it had a free cash flow of USD 12 million, and recently announced that they have raised USD 82 million in fresh funds. Alibaba is now Asia’s largest the biggest b2b sites.

WSJ writes (also excerpted from another story whose link is not available):

Electronic commerce is changing the way companies all over the world do business, making it easier for them to buy and sell to each other and to connect with customers. But in China, e-commerce is having an especially big impact in helping small private businesses sell nationally and even internationally.

Hampered by poor roads, a creaky transportation network and fractured local markets, small companies have a hard enough time doing deals in other provinces within China; traditionally, it would have been near-impossible for them to identify potential partners abroad. By acting as global trade fairs, Chinese e-commerce sites are allowing many smaller companies to reach a far wider market and to compete directly with larger competitors.

Fu Xiaohui, a researcher who works for a consulting company under the Ministry of Information Industry, estimates that the value of business-to-business deals hit 275.6 billion yuan ($33.30 billion) in 2003, while business-to-consumer deals were valued at 5.2 billion yuan.

Alibaba.com seems to be off to a strong start. Founder Mr. Jack Ma says the company has nearly three million users in 200 countries and attracts nearly 6,000 new users daily…Its sites include two business-oriented ones: an English-language site matching Chinese and international businesses; and a Chinese-language one targeting companies in China. A third Chinese-language site links Chinese consumers with other consumers and businesses, much like U.S.-based eBay.

While anyone can access the two business sites, users who pay a membership fee are entitled to post detailed information about themselves, and can access additional information and services. Alibaba.com charges an annual fee of between $5,000 and $8,000 for Chinese suppliers who post detailed content about themselves on the company’s international business-to-business Web site, for example. More than 4,000 Chinese suppliers have signed up for the for-pay international service, with a 70% renewal rate, Mr. Ma says.

For its domestic business-to-business Web site, suppliers who pay a $300 annual membership fee are entitled to additional services, after they have met background and credit checks by Alibaba.com. Mr. Ma says that Alibaba.com had 30,000 paid subscribers for the domestic service in 2003 and that the company receives more than 3,000 inquiries daily about the service.

A key goal of these services, Mr. Ma says, is to help small and medium-size companies earn money by linking them directly to buyers and markets to which they otherwise wouldn’t have access. Another is to help them assess the credit-worthiness of potential business partners. As China’s market economy takes off but before the establishment of any national credit-rating systems, the ability to accurately assess potential partners’ credit-worthiness is critical to running a successful business, whether it be a national commercial bank or a corner store.

To reach Mr. Ma’s goal of becoming a global player, Alibaba.com will have to make the transition from serving as an online global trade fair to a for-pay, online transactions service — a critical test that faces the company over the next few years.

“That’s always been the holy grail for B2B,” says Duncan Clark, chairman of BDA China Ltd., a technology-research company, referring to companies that facilitate online business deals. “If Alibaba wants to live up to Jack’s promise of becoming a major force in global business, it will need to be taking a fee on the deals it is facilitating.”

Mr. Ma said the funds will go toward developing technology, training personnel and building customers to move the company’s business-to-business Web sites from a “meet at Alibaba” model to a “work at Alibaba” model.

Tags: Emerging Enterprises

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