Alibaba Building a Social Sustainability Ecosystem for E-commerce

IMB 687
Exhibit 3
Mega ecosystem
cosystem of Alibaba including core and supporting services

ALIBABA BUILDING A SOCIAL SUSTAINABILITY

ECOSYSTEM FOR E-COMMERCE

Source: Policy Research Unit of Alibaba Group, 2014. HARITHA SARANGA AND HUANG YANGHUA

Exhibit 4

According to AliResearch, Taobao University had successfully held 40 sessions of e-business seminars
aimed at county heads, covering 26 provinces, 184 prefecture-level cities and 504 counties and training
1,398 county-level leaders and cadres. Taobao University also trained 100 personnel service providers in
the country to assist traditional county-level corporations in transition, business startups, innovation and
other aspects. Rural Taobao worked with third
third-party logistic service providers and opened up the logistic
channels in rural areas through subsidy and other means. Ca

villages. Mantianxing program42 cooperated with 51 counties in the country by December 2015 and traced
the sources of high-quality
high agricultural products. Ant Financial connected more than 2,300 rural financial
institutions, served more than two million rural ee-business people and a large number of rural Alipay
users and provided business loans to 180,000 small and micro corporations in rural areas, lending RMB
30 billion in total.

Source:
Haritha Saranga, Professor of Production & Operations Management and Huang Yanghua, Institute of Industrial Economics, Chinese
Academy of Social Sciences, Beijing, Peoples Republic of China, prepared this case for class discussion. This case is not intended to serve as an
endorsement, source of primary data, or to show effective or inefficient handling of decision or business processes.
42
Mantianxing program was initiated in 2015. This program is targeted to create a unique ID for each product by using the QR code solution, in
order to trace its footprint. Copyright © 2018 by the Indian Institute of Management Bangalore. No part of the publication may be reproduced or
transmitted in any form or by any means electronic, mechanical, photocopying, recording, or otherwise (including internet)
Page 16 of 16 without the permission of Indian Institute
nstitute of Management Bangalore.
Alibaba Building a Social Sustainability Ecosystem for E-commerce Alibaba Building a Social Sustainability Ecosystem for E-commerce

I believe the spirit of equality and transparency at the heart of the Internet will make it Exhibit 1
possible for Chinese society to leap-frog
frog in its development of a stronger institutional and Evolution of Alibaba during 1999-2017

--- Jack Ma, founder of Alibaba Group

starting Alibaba.com in 1999 was to facilitate the access of world markets

members, more than 10 million out of the nearly 40 million micro, small and medium enterprises

various digital marketing platforms. In the process, Jack Ma built an empire of e-commerce economy,
vertaking the combined profits of Walmart, Amazon, and eBay.1
55 million packages every day
and were expected to reach 100 million packages by 2020.2

However, the ever-ambitious Alibaba Group had a new objective, that of bringing the entire rural
population of China into the online e-commerce, through Rural Taobao strategy. By the end of August
2016, within a mere two years after the initiative began, 1311 Taobao villages3 and more than 135 Taobao
Note: Alibaba was founded by 18 partners led by Jack Ma in 1999, with the first venture capital of 5 million USD. In May 2003, the
towns4 across 18 provinces of China were on board. It was only a matter of time before the entire rural
Taobao.com, a C2C online platform, was launched. Alipay was introduced in October 2003 as an essential supplement online pay service to
hinterland became part of Taobao Villages facilitate transactions on Taobao.
digital marketplace that was not only profitable, but also inclusive and socially sustainable. Of course, the
Source: Created by case authors, using publicly available information on Alibaba and information from various Alibaba websites
role of local governments, especially the grass root county and township governments, is critical in
making this particular dream come true. It was the dual approach of , wherein the local
governments helped to create an ecosystem that gave rural people access to internet and other related Exhibit 2
services, and the concept of , spearheaded by Alibaba group, which made it a success. Quarterly Revenues of Alibaba Group companies by segment
(for June Quarter 2017)
However, the growth in Chinese e-commerce
e market was slowing down as the market began to mature,
and Alibaba needed to find new avenues for expanding its business beyond China. Alibaba had already Business Domain Sector Revenues (in Billions Platform
made entry into e-
e-commerce
-commerce markets of other emerging countries including the secondseco most populous RMB*)
country in the world, India, by acquiring stake in local players. While the Indian online market itself was Core commerce Wholesale + Other 3.7 Alibaba.com
International commerce 2.6 AliExpress, Lazada.com
retail
was enormous. India consist
consisted of one of the youngest and the second largest population of mobile phone China commerce retail 36.7 Taobao.com, Tmall.com,
users5 in the world, just ripe for explosion of e-commerce in the near future. Similar to China, India also juhuasuan.com, cun.taobao.com,
ural population was huge, with Chaoshi.tmall.com,
more than 700 million people living in semi-urban and rural areas.6 The online market in India was Alimama.com, TMALL
GLOBAL, HEMA, Intime Retail
already a major battlefield, with homegrown e-commerce companies such as Flipkart and Snapdeal at
Cloud Computing 2.4 Alibaba Cloud
Digital Media & 4.1 UC, UC News, Youku, Tudou,
1
https://www.digitalcommerce360.com/2016/05/05/alibabas-annual-web-sales-easily-surpass-us-e-retail-sales/ Entertainment AliSport, Alibaba Music, Tmall
2
Clark, Duncan. Alibaba The house that Jack built. Harper Collins Publishers, 2016, pp.16. TV, Aligames, Damai.cn
3
Main criterions of Taobao villages by Ali-Research: (1) location of transaction: operation space is village based, and administrative village as Innovation Initiatives 0.6 Auto Navi, YunOS, DingTalk
the basic unit; (2) scale of transaction: annual ecommerce turnover exceeds 10 million RMB; and (3) size of online business: over 100 active
online shoppers, or % of households dong online business exceeds 10% of total households. & Others
4
5
Main criterions of Taobao township by Ali-Research: no less than 3 Taobao villages in a township or sub-district. *1 USD = 7 RMB approximately, as of June 2017
https://en.wikipedia.org/wiki/List_of_countries_by_number_of_mobile_phones_in_use Source: Alibaba Group
6
https://en.wikipedia.org/wiki/Demographics_of_India

Page 2 of 16 Page 15 of 16
Alibaba Building a Social Sustainability Ecosystem for E-commerce
ecosystem that can help even more people make a decent living and push for change that
benefits everyone.
--- Jack Ma
India, the second largest nation in the world, which used to be a mélange of several small nations with a
variety of cultures and 780 different languages,34 was stitched together into a single country under the
British rule in the 19th century. The differences persist across various villages, towns and cities of India,
which has been divided into 29 states and 7 union territories. In addition to language barriers, the
differences in tax structures and custom duties between various states have hampered the growth of e-
commerce in India by creating inefficiency in the way distribution centers are set up and warehousing,
logistics and supply chains are managed. However, the introduction of Goods and Services Tax (GST) in
2017 removed some of these obstacles by streamlining issues related to warehousing and logistics.
Another major challenge for e-commerce companies operating in India is the cash-on-delivery (CoD)
payment method started by the market leader Flipkart in 2010 to attract buyers who lacked trust in online
purchasing. By 2017, CoD accounted for nearly 75% of all e-retail activities in India.35 The option of
CoD not only necessitated creation of cash logistics by the e-commerce platforms but also allowed buyers
to change their mind after the purchase had taken place, contributing to a significant quantity of returns
(nearly 30% to 40% of orders) and associated logistics costs in the Indian ecommerce space.36 While
potential for ecommerce in semi-urban and rural areas in India was touted to be very high,37 there were
equally serious challenges in terms of lack of physical and digital infrastructure, language barriers,
internet illiteracy, etc.38
ce 2010, the job growth rate in the formal
sector averaged only 2%, which in fact counts as nearly zero growth in jobs, after accounting for
population growth rate.39
GDP, 45% of Indian exports.40 The informal sector, where small businesses in India mostly operated,
generates approximately 80% of employment in India.41 With 12-15 million Indians slated to enter the
labor market each year, there was much that ee-commerce platforms such as Flipkart, Amazon and Alibaba
could offer in terms of creating jobs as well as business and self
self-employment opportunities in urban and
rural
ural India. Based on Chinese experience, if used diligently and with appropriate ecosystems, e-commerce
e
could help small businesses in India to grow and generate both direct and indirect employment and
contribute towards social sustainability in underdevel
underdeveloped areas. The question is, can established e-
government and other institutions in creating a conducive ecommerce environment? What are the
challenges involved in adopting the Chinese e-commerce model, given the unique characteristics that
distinguish India from China?
34
https://en.wikipedia.org/wiki/Languages_of_India
35
https://en.wikipedia.org/wiki/E-commerce_in_India
36
37
http://www.businesstoday.in/magazine/cover-story/cash-on-delivery-impact-on-e-commerce-companies-customers/story/202680.html
http://economictimes.indiatimes.com/industry/services/retail/how-ecommerce-giants-like-amazon-and-flipkart-are-piloting-rural-distribution-
model-to-cater-small-town-customers/articleshow/47635478.cms
38
http://www.yo-kart.com/blog/ecommerce-in-rural-india-untapped-potential-challenges-road-to-improvement/
39
http://www.livemint.com/Opinion/S0FE91jpvLOv4bn4aVdBNK/Why-inclusive-growth-is-indispensable-to-India.html
40
http://smestreet.in/msmes-contribute-for-more-than-37-of-gdp-and-employment-for-805-lakh-indians/
41
http://www.ilo.org/newdelhi/areasofwork/informal-economy/lang--en/index.htm
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Alibaba Building a Social Sustainability Ecosystem for E-commerce
first and third places (in terms of GMV) tearing each other apart, and Amazon briskly gaining momentum
to grab the top slot, right at the heels of Flipkart. However, none of the existing players in India had either
made profits or mastered the art of penetrating into the rural markets, as Alibaba had done in China. The
losses were mounting year on year, with venture capital investments, although very aggressive in the
initial years, beginning to dry up as years passed. Alibaba was watching the e-commerce scene unfolding
in India from the sidelines, having invested in Snapdeal and PayTM, the third and fourth ranked players
in the Indian online retail market, but had not entered the fray directly yet. It appeared to be the right time
to make an entry, with internet access and mobile connections expected to reach 829 million7 and 90% of
the population respectively by 2021.8 However, it was still not clear,
India. Can Alibaba repeat what it did in China? Can it build an e-commerce ecosystem that is both
profitable and socially sustainable in India as well? It was time for some serious decision making for Jack
Ma.
E-COMMERCE IN CHINA THE INCLUSIVE GROWTH MODEL
China launched the Reform and Opening-up policy for accelerated development of the economy, towards
the late 1970s. Before the transition, China was an underdeveloped country with scarce capital, abundant
labor, and outdated technologies. According to economic growth theory, capital accumulation and
technological progress are two necessary conditions for economic growth. China being a transition
economy, some basic pre-requisites for a market economy such as property rights protection, the rule of
law, and efficient price mechanism were absent. During the period of economic reforms, the state played
an active role in amending those flaws and facilitated faster economic growth. China established a
sophisticated policy system in attracting foreign capital, promoted exports and encouraged technological
upgrades to facilitate industrial development. A prerequisite for these policies to work was the transfer of
rural population was 82.1% of its total
population. However, this ratio decreased drastically to 43.9% by 2015. In 2016, there were about 28.2
million migrant workers, and about oneone-third of these migrant workers served in manufacturing.9 During
its more than three decades of consistently high growth rate, China became the and the
favorable supply situation, wherein any Chinese individual who thought of entering into an online
business, had access to abundant ssupply of products for trade.
Moreover, Chinese market was more integrated than other major developing countries (e.g., India and
South Africa), which served as a favorable ground when e-commerce was introduced in China. China has
a long history of having centralized authority, which reinforced commerce-augmenting institutions such
as universal language, metrology, taxation, and financial system. Chinese government has been making
successful efforts in improving transportation and information infrastructures, lowering regional
institutional barriers to entry, and facilitating the flows of factors of production towards efficiency.
Among others, China ted the
7
http://indianexpress.com/article/technology/tech-news-technology/internet-users-in-india-to-double-by-2021-says-cisco-4696154/
8
http://www.livemint.com/Consumer/zxupEDYD560LJrnoRxcn4L/Mobile-phone-penetration-in-India-set-to-rise-to-8590-by-2.html
9
source: National Bureau of Statistics, Monitor and Survey Report on Migrant Workers 2016,
http://www.stats.gov.cn/tjsj/zxfb/201704/t20170428_1489334.html
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Alibaba Building a Social Sustainability Ecosystem for E-commerce Alibaba Building a Social Sustainability Ecosystem for E-commerce

in 2004. After ten years of persistent implementation, the telephone access rates of all administrative
villages and villages increased from 88% and 90% to 100% and 96%, respectively; broadband internet
access rates of townships and administrative villages increased from 90% and 70% to 100% and 91%,
respectively10. These efforts contributed significantly to domestic market integration that serves as an
essential pillar for e-commerce business. With the help of strong broadband and high speed internet
infrastructure as a foundation, in 2016, e-commerce in China generated $777 billion online retail sales
and accounted for 15.5% of all retail sales in China and 39.2% of global e-commerce retail sales.11 As of
December 2016, a total of 467 million Chinese consumers (out of a total of 731 million internet users)
have shopped online, with nearly 95% of these consumers (441 million out of the 695 million mobile
internet users) shopping through mobile phones.12
-commerce business has been highly successful in urban regions, backed by strong consumption
ability, higher internet penetration rate, sound logistics, and greater access to finance. During 2014 2016,
however, rural e-commerce
commerce began to grow faster. In 2016, the internet users in rural China reached 201
million and the online retail sales in rural China accounted for approximately $137 billionbillion,13 increased
from $27 billion in 2014 and $53 billion in 2015. Alibaba group, whose platforms account for more than
75% of the online sales in China, has played a major role in this inclusive growth story. According to
Xiaozhun Yi, the Deputy (WTO) 14
puty Director General of World Trade Organization (WTO):
-commerce-driven growth can be
inclusive. First, e-commerce
commerce empowers micro, small and medium enterprises (MSMEs) to
compete with large enterprises
rises on the same stage. MSMEs can leverage affordable
digital platform services, which used to be too expensive for them to establish, to build
brand awareness, acquire and manage customers, and spur innovation. Second, e-
commerce knows no geographic boundaries. Remote rural residents can purchase the
same goods at the same price on the same platform as urban residents. Finally, e-
commerce allows more flexible and inclusive employment.
ALIBABA STORY
Companies in the 21st century need to solve social problems, not just make money
--- Jack Ma
Taobao partners worked with local villagers, showed them how to buy and sell online using the facilities
in service stations, identify entrepreneurs in the village and provided them the support they needed to
establish online businesses. Since the Taobao partner in each village was a local person, and was very
likely related to many villagers, the trust factor played a major role. The villagers were first shown
various products that were available online (which they did not have access to otherwise), and asked if
they would like to buy them. Since the prices of online products were much lower than offline products,
the typically price-conscious villagers found them more affordable. The Taobao partner then assisted the
villagers in buying the products online and the village service stations doubled up as ordering and
delivery points. Once the villagers started buying products online, they were told that they can also sell
online. Since selling directly to customers especially the agricultural produce without the middlemen
results in much higher revenues for the villagers, it usually does not require too much convincing to get
the enterprising villagers to open online stores. The Taobao partner then assisted these villagers in setting
up their e-businesses. Based on their experience with Taobao villages, Alibaba found that, it is easier to
convince someone to set up a business online, after they have had the experience of buying online.
County-level service centers provided the required support to the rural Taobao partners within their
county and helped develop the ecosystem and the infrastructure for e-
other businesses such as Alipay, MYbank, Cainiao network, and third party logistics providers operating
on Taobao platforms (see Exhibit 4 for more details). By May 2017, rural Taobao had reached more than
700 counties in 29 provinces and established more than 30,000 village-level service stations. The average
monthly income of rural Taobao partners32 was estimated to be nearly RMB 3,00033, with the highest
being RMB 16,000.
According to Ali Researchers:
If Taobao villages are clusters of e-commerce people in rural areas developed by
ordinary farmers in a bottom
bottom-up manner, then rural Taobao is the rural e-commerce
service system built and driven by the government and e-business platforms in a top-
and the main driving force is the innovation of ordinary people inspired by the market.
The ultimate goal of TaTaobao villages and rural Taobao is the same, namely the

Jack Ma, the founder of Alibaba began his e-commerce journey in 1995, by creating an online business areas.
directory called which facilitated Chinese companies15 to be discovered by
E-COMMERCE IN INDIA THE EMERGING MARKET
10
Data from Miao Wei, Narrowing the Urban- , vol.
33, 2014. Alibaba was founded with a simple mission to help small business owners make money.
11
Online retail data is from E-Commerce in China 2016 (in Chinese), Ministry of Commerce, China, available via
http://images.mofcom.gov.cn/dzsws/201706/20170621110205702.pdf
But our next challenge is to join forces with the people of China and beyond to build an
12
Data from E-Commerce in China 2016 (in Chinese), Ministry of Commerce, China, available via
http://images.mofcom.gov.cn/dzsws/201706/20170621110205702.pdf. 32
13 The rural Taobao partners receive a commission from the villagers on the sales conducted through the service station. Alibaba also provides
Estimates by Ministry of Commerce, China
14 some financial support to supplement this variable income from village sales.
Inclusive Growth and E- 33
15
https://en.wikipedia.org/wiki/Jack_Ma RMB 3,000 is equivalent to USD 430. 1 USD = 7 RMB approximately, as of June 2017.

Page 4 of 16 Page 13 of 16
Alibaba Building a Social Sustainability Ecosystem for E-commerce
AliResearch, the research wing of Alibaba group, after an in-depth investigation of the Taobao villages
found that Taobao villages had become incubators of many startups, exploiting the opportunities
presented by the digital marketing platforms and the ease of doing business online. Many sellers were
conducting online business from their homes, converting their drawing rooms into offices and coopting
family members, friends and relatives to run support services such as sourcing, packaging, delivery, etc.
People, who could not take up full time jobs due to family responsibilities or handicaps, found e-business
to be a more suitable occupation. Many retired personnel, including army and industrial workers, and
even youngsters working in cities were attracted by the potential of ecommerce in rural China. For
example, Shuyang county in Jiangsu province consisting of 31 Taobao villages had strong entrepreneurial
culture and attracted 6,500 undergraduate students, veterans and migrant workers to return home from
urban China to start businesses. It was estimated that every active online store in Taobao villages on
average created 2.8 direct job opportunities. In addition to direct jobs such as customer service,
marketing, sales, goods packing, dispatch, etc., e-commerce was also found to create diversified and
flexible indirect jobs in the neighborhood for tailors, carpenters, express delivery men, and photographers.
AliResearch estimated that active online stores of Taobao villages created more than 840,000 direct job
opportunities by the end of August 2016.
RURAL TAOBAO
sustainable
as it enables people to live better lives.
--- Jack Ma
Since Taobao villages have done such a good job of enabling small businesses in rural areas, in response
to the call by the Chinese government to increase growth of rural economy, Alibaba decided to create
more such villages all over China, and thus began its strategy in collaboration with local
and provincial governments. Alibaba adopted a three three-pronged approach to enforce the rural strategy: (i)
bring convenient and affordable goods and services to rural areas, (ii) provide support to develop an
ecosystem for the sustainable development of the rural economy and society, and (iii) help rural areas
build the infrastructure of ee-business, including trade, logistics, payment, finance, cloud computing, data,
etc. In order to implement and realize the rural Taobao strategy, in October 2014, Jack Ma promised an
investment of RMB 10 billion in 3 to 5 years, to help establish 1,000 county-level service centers and
100,000 village
village-level service stations.
Rural Taobao was a pub public private partnership (PPP), with local governments providing the necessary
physical infrastructure and Alibaba providing funding, training, manpower
manpower, and internet traffic to the rural
businesses (see Exhibit 4 illage service station was provided a
computer, a screen, and other necessary equipment to conduct online sales. The service stations were
manned, typically by young people (called rural Taobao partners) who were returning home or had strong
relationships with local villagers, and knew how to operate computers and use internet. These rural
Page 12 of 16
Alibaba Building a Social Sustainability Ecosystem for E-commerce
foreign enterprises searching for Chinese products. In 1997, after China Yellow Pages was sold to a local
telecom carrier, Jack Ma was invited by the Ministry of Foreign Trade and Economic Cooperation
(MOFTEC) of China to start and manage a ministry-affiliated online fair of Chinese products. In 1999,
Jack Ma quit this enterprise and started Alibaba.com, to facilitate trade by Chinese small businesses that
were trying to export their products to the global market.
According to Jack Ma, his objective behind to make it easy to do business anywhere.
This statement went on to become the mission statement of Alibaba Group16.
MSMEs however was no accident. He was a native of Zhejiang province, which was full of small
businesses led by grassroots entrepreneurs. In fact, during his early entrepreneurial career, he himself had
established a small business in translation services and had faced challenges that were typically faced by
most MSMEs in China. For example, all small businesses had to register under Bureau of Industry and
Commerce, and to gain access to foreign buyers, they had to participate in seldom-held fairs such as the
China Import and Export Fair (Canton Fair)17 for small businesses. This was not only expensive, but also
gave them only limited exposure. On the other hand, there was sufficient demand outside the country for
Chinese products, but very limited online presence of Chinese companies, for foreign companies to trade
e gave a
search on the internet and found no Chinese company, during his trip to the United States in 1994. This
finding gaps (institutional
gaps, information gaps, market gaps, logistics gaps and finance gaps) and converting them into business
opportunities.
Exhibit 1
evolution). During the first phase (1999-2003), Alibaba.com, the business to business (B2B) trading
platform came into being, with an explicit objective to provide Chinese small businesses an easier access
to foreign trade. In 2001, China became member of World Trade Organization (WTO)(WTO), which opened up
many opportunities for exports of goods made in China. Alibaba.com therefore was quite timely, and
became a huge hit among the small businesses
businesses, which until then were weighed down by the customs and
trade related regulatory hurdles and la language barriers. The Chinese government was also trying to
facilitate exports of manufacturing goods to increase economic growth in China and was happy to accept
-border trade. Chinese government showed an open attitude towards e-
commerce. For example, online sellers who could not meet the requirements of business registration were
allowed to register as an online business with their personal IDs.18
In March 2002, eBay, the American auction based e-commerce company, entered China by acquiring
EachNet, which made a successful business out of the consumer to consumer (C2C) online bidding and
16
http://alibabagroup.com/assets2/pdf/Alibaba_Group_Corporate_Overview_Eng.pdf.
17
The fair was started in the spring of 1957 in Guangzhou, capital city of Guangdong Province. The fair opens twice annually in spring and
autumn of each year.
18
State Administration on Industry and Commerce, Interim Administrative Procedures on Online Transaction and Related Services (SAIC No.
49), 2010.
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Alibaba Building a Social Sustainability Ecosystem for E-commerce Alibaba Building a Social Sustainability Ecosystem for E-commerce

.19
This gave Jack Ma sleepless nights w Realizing that global small
worldwide transparent and fair play market, Alibaba launched the forward-looking strategy of
China, and consequently Taobao (literally meaning in Chinese) was born in May 2003. globalization. It provided a worldwide online platform to facilitate small businesses to utilize ecommerce,
This began the second phase between 2003-2008. Three important strategies internet financing, big data, market and logistic platforms, and to offer consumers across the globe to
by Jack Ma and his team sealed the fate of Taobao in the Chinese e-commerce market and gave eBay a purchase products and services internationally through its Alibaba and AliExpress platforms. Jack Ma
run for its money. First was the strategy, where the sellers could register under Taobao for free also believed that the world was evolving from the IT era towards a new era of Data Technology, in
and sell their products without paying any commission to Taobao. Meanwhile, eBay adhered to its which data would be the most essential input for an innovative society. The group launched its second
original formula of making profits by charging commission on goods traded on its platform. Second was forward-looking strategy of Big Data and Cloud Computing to explore the value of data, to reshape the
the establishment of Alipay in October 2003, which as a third-party escrow service20 ensured that the growth model.
payment by buyers was secure and reached sellers only after buyers were satisfied with the product they
had received. Although eBay introduced a direct payment system of Paypal, in this system, buyers were To promote e-
exposed to the risk of asymmetric information of online trade. The third was the introduction of a chat
service called - , which enabled the buyers and sellers to communicate with each other
without any cost, allowed possibility for negotiations and after-sales services. In contrast, eBay prohibited
online traders from sharing their contact information publicly and penalized off-platform transactions.21 THE TAOBAO VILLAGES
These three main strategies helped Taobao, an unknown entity outside China, to take on the mighty eBay,
a well-established ecommerce giant across the globe and beat it into a retreat.
-commerce in rural
In a much-quoted said:22
quoted analogy regarding his fight with eBay in Chinese market, Jack Ma had said China and make products more accessible to rural population, Alibaba came up with the concept of
in 2013. A village got qualified as Taobao village if (i) the number of households
eBay may be a shark in the ocean, but I am a crocodile in the Yangtze River. If we fight in enlisted in Taobao and Tmall was more than 100 or greater than 10% of the size of the village, and (ii) the
the ocean, we lose,
e, but if we fight in the river, we win. annual revenues from online sales of the village exceeded RMB 10 million. In 2016, there were 1311
Taobao villages in China, which had enlisted more than 300,000 online stores in Taobao. These Taobao
By 2005, within 2 villages were highly concentrated in the developed areas of east coast, with Zhejiang, Guangdong and
23
while Taobao garnered a market share of more than 70%.7 By 2008, eBay faded into obscurity in China, Jiangsu having the largest number of Taobao villages (506, 262 and 201) followed by Shandong, Fujian,
whereas and Hebei (108, 107, and 91). The distribution of Taobao villages was found to be highly correlated to the
innovative strategies, some of the fatal errors by eBay, such as charging high commission fee to the Figure 4).
sellers, standardizing the website design with its global site, prohibiting negotiation between buyers and
sellers, weak guarantee on the payment, and migrating the eBay China website to the United States, Figure 4
.24 Evolution of Taobao Villages (2014, 2015 & 2016, respectively)

Although the Taobao platform was originally meant for C2C business, some of the small businesses also
began to sell their products on Taobao, resulting in business to consumer (B2C) transactions as well on
this platform. During this period, as the Chinese economy was growing at a high pace (with an average

19
Sherman So and J. Christopher Westland, Revolution, London: Marshall Cavendish International Asia Pte Ltd., p.
97.
20
Alipay opened its 24-hour customer service hotline to improve user experience.
21
Besides those three strategies, Taobao created an effective authorization system to enhance trust between online traders, including tying ID and
goods and
services of sellers.
22
https://www.forbes.com/sites/helenwang/2014/08/07/alibaba-saga-iv-a-crocodile-in-the-yangtze-river/#721694578f89
23
Chinese Academy of Social Sciences, 2015 China E-commerce Market Survey Report, available via
http://www.cnebr.net/jxyd/content.asp?id=104&parentid=15. Source:
24
http://www.globalcma.in/wp-content/uploads/Alibaba_-The-House-That-Jack-Ma-Built.pdf

Page 6 of 16 Page 11 of 16
Alibaba Building a Social Sustainability Ecosystem for E-commerce
another reason for the establishment of Tmall, so that better quality and screening of genuine products by
branded sellers could be carried out, owing to more manageable scale and ability to charge for related
services.
By 2014, Alibaba and its associated online businesses on Taobao and Tmall had become so big that their
revenues surpassed some of the largest global companies such as Walmart, eBay, and Amazon. The sheer
size of business and the volume of sales on its plat
on November 11)28 necessitated Alibaba to upgrade its technologies. Thus, Alibaba entered the fourth
phase
. The huge amount of
data available to Alibaba, on small businesses and the consumers who were buying and selling on its
platforms, provided opportunities to offer more value-added services through big data, cloud computing
and analytics capabilities of Aliyun. These were also the services that Alibaba typically charged for and
hence contributed to its revenues significantly (see Exhibit 2).
In the meantime, the Chinese government began to establish regulatory framework for the fintech29
sector, with an objective to strike a balance between technological innovation, growth and financial
stability through prevention of systematic risks.30 As part of these regulations, Alipay, being a non
non-bank
) (the central bank of
China) to operate in China. To be on the safer side, Alipay was spun-off from the Alibaba Group and
restructured as a domestic company in 2011, which finally evolved into Ant Financial in 2014. This new
company enabled Alibaba group
benefit the society by resolving practical pain points and facilitating small transactions for customers as
well as small businesses. To meet these objectives, Ant Financial created an online financial ecosystem
money market fund). For example, within 48 days after its establishment in 2016, MYbank provided
loans worth approximately $5 billion to nearly one million small and micro businesses in China.31 The
mega ecosystem of Alibaba including the core and supporting services in all its platforms as of 2017 is
depicted in Exhibit 3.
During this period, online technology and social media companies such as Microsoft and Amazon had
become the main competitors for Alibaba. Realizing that the future lay in technology, and in the untapped
markets of rural China and abroad, Jack Ma announced the following three strategies as the focus points
Globalization
Big Data and Cloud Computing
E-commerce in Rural Areas
28
Taobao Mall
(changed to Tmall in 2012) initiated a sales promotion on November 11 in 2009, converted a folk event into a national wide online shopping
sales of Tmall in 2017 reached RMB 168.3 billion ($ 25.3 billion) in value and 812 million logistic orders.
29
tion to the financial services sector.
30
http://en.ndrc.gov.cn/newsrelease/201612/P020161207645765233498.pdf
31
Zhu, F., Zhang, Y., Palepu, K., Woo, A. K., and Dai, N. H. ANT Financial, HBS case # 9-617-060.
Page 10 of 16
Alibaba Building a Social Sustainability Ecosystem for E-commerce
GDP growth rate of more than 10% between 2000 and 2008) owing to exports and increased employment
opportunities, the domestic demand had picked up. As the annual household expenditure per capita in
China increased from approximately $600 in the year 2000 to nearly $1500 in the year 2009 (see Figure
1), the MSMEs found that selling on Taobao was the easiest way to reach the Chinese consumers. The
traditional way of doing business necessitated physical infrastructure, distribution and logistics facilities
which were in short supply. Real estate in China was very expensive and most small-scale vendors could
not simply afford to establish a physical outlet in a commercial street. Online business not only eliminated
many of these needs, but also removed the many layers of middle men of the traditional supply chains
that one had to go through and share profits with.
Figure 1
Household final consumption expenditure per capita in China (2001-2016)
Source: World Bank WDI Database
Note: Measure in constant 2010 USD
Also, Taobao had promised that listing under their platform would be free during the first 5 years after the
launch. When Taobao tried to introduce a registration fee in 2005, the sellers put up a major fight and
made sure that there was no fee until the 5 years were completed. In addition, sellers on e-commerce
businesses.25 As a result, the online retail
platforms did not have to pay the taxes that applied to traditional businesses
sales in China grew steadily as seen in Figure 2, with a significant contribution from transactions on
Taobao.
Jack Ma realized that, to be able to provide better support to the individual sellers and small businesses on
25
During this period, the Chinese government, as in other emerging markets, was simply watching the emergence of e-commerce market and did
not have policies in place for taxation. Since Taobao was meant for individual consumers buying from other individual sellers (C2C), the small-
scale B2C businesses on the platform went unnoticed. However, when the Taobao Mall, the B2C business of Alibaba, was formally launched in
2008, there was a fierce debate on imposing taxes on online businesses. On the one hand, the tax authorities faced challenges in determining the
appropriate tax rate. Due to high variation of products traded online compared to offline businesses, the cost of monitoring/inspecting online
transactions for tax purposes was likely to be more than the tax collected. On the other hand, many advocates for no-taxation emerged in support
of the development of small businesses. Considering the challenges involved and the popular sentiment, the government decided to maintain
status-quo.
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Alibaba Building a Social Sustainability Ecosystem for E-commerce
Taobao, he would have to partner with third-party service providers and create an ecosystem around the
e-commerce business. Thus, began the third phase
Ecosystem Strategy . To make doing business online easy, Alibaba began to engage and partner with
many third-party service providers, including, distribution channels, financial services, website design,
training, management and technical consultancy, warehousing, logistics, customer and marketing
services.
Figure 2
Share of online retail in the overall Chinese retail sales during 2006
2006-2016 (%)
Source: E-Commerce Market Development Report 2016, Beijing: Social Science Archive Press, 2017.
For example, majority of Chinese banks were state-owned and naturally focused on lending to large
enterprises, or enterprises that had assets to mortgage. However, small businesses, micro-enterprises and
rural entrepreneurs were starving for funds and could not exploit the growing business opportunities
presented by e-commerce. While Alipay facilitated financial transactions between buyers and sellers,
there was a clear need for other financial services such as provision of funds for working capital needs o
sellers, loans for buyers, micro finance for small businesses, etc. Similarly, the sellers, especially in rural
goods, identify appropriate means to reareach the sold goods to buyers and storage facilities for their goods
as transaction volumes increased. Without these support services, it was difficult for online sellers to
survive in the business. Jack Ma however, did not want to get into the provision of all these necessary
services himself. Instead, he opened up the platform to third-party service providers, who not only helped
customers, but also became customers of the platform by hosting their services on Taobao. In
the process, they created an ecosystem wherein buyers, sellers and service providers became
interdependent and began transacting with each other in high volumes, a necessary ingredient for growth
(see Figure 3
that people needed in their daily life.26
26
http://tech.hexun.com/2008-08-09/108648485.html (in Chinese)
Alibaba Building a Social Sustainability Ecosystem for E-commerce
Figure 3
-commerce Ecosystem
Buyers
Sellers
Service
providers
E-commerce Platform
Source: Created by the case writers
Jack also separated the B2C business from Taobao, finally establishing Taobao Mall or Tmall in 20 2008, so
that more focused support could be provided to small businesses catering to domestic consumers. This led
to the emergence of the Alibaba ecosystem. The launch of Aliyun, the cloud computing service provider,
was driven intrinsically as businesses expanded. Alibaba was not born as a typical technological
company, but technological challenges emerged from the fast growth in both the value and diversity of
business, such as security and risk control for the Taobao and Tmall transactions and accounts, and the
extreme demand for extraordinary computing capacity for events. Aliyun was developed by solving those
challenges with emerging cloud technology, which later became a broader cloud service. The Ant
Financial, which originated from Alipay, was officially founded in 2014. It was a technology company
that utilized the data of online transaction and payment to develop a totally unique credit rating system
of that was different from traditional system, through which a wide range of financial services for consumers
and small businesses was developed. By 2015, after just one year of its founding, the Ant Financial
successfully obtained licenses of security, bond, banking, and fund from Chinese financial administrative
agencies. Later, the Ant Financial included all the online fin
financial businesses. Cainiao, the logistics arm
of Alibaba, was created in 2013 as a
major delivery services and financial companies. Cainiao started developing the Internet of Things to
make online package services more efficient. AliExpress, which was founded in 2010, was the online
platform for global buyers, and Alipay was employed for warranted payment and international delivery
services of AliExpress.
In the meantime, sale of counterfeit products by some sellers on the Taobao platform resulted in Taobao
bein 27
27
i
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