Alibaba’s Million-Job Boast Reflects Slower China Growth Outlook

EghtesadOnline: Jack Ma talked the talk when he met Donald Trump this month, promising to create a million jobs in the U.S. by linking small businesses with Chinese online buyers. Now Michael Evans has to walk the walk.

News ID: ۷۷۳۴۰۵

23 January 2017

The president of Alibaba Group Holding Ltd. is responsible for realizing Ma’s vision, which some analysts criticize as being unrealistic in scope and problematic in implementation. Yet Evans said the online emporium’s dealings with 10 million small businesses in China can be the template for its U.S. efforts.

“We understand the power of connecting small businesses to consumers -- in this case, new consumers for their products -- and the leverage that gives the small business to hire more people,” Evans said. “For the next five years, it’s going to be a business priority and focus in the U.S.”

According to Bloomberg, Alibaba is trying to broaden its revenue sources as China’s economy grows at the slowest pace since 1990. Ma’s attention-grabbing pronouncement was portrayed as a new initiative, though the company has been talking up a U.S. expansion since Ma said he wanted more than half of sales to come from outside China by 2025.

Last quarter, that portion was about 26 percent, according to data compiled by Bloomberg. Hangzhou-based Alibaba releases third-quarter earnings Tuesday. Sales are expected to increase 45 percent from a year earlier to 50.1 billion yuan ($7.3 billion), according to estimates compiled by Bloomberg. The period includes the blockbuster Singles’ Day promotion in November.

That would mark a second-straight decline in growth for the e-commerce company, where explosive expansion was the norm before its initial public offering. Still, the company’s shares are outperforming the New York Stock Exchange this year.

Now Alibaba faces a cooling economy at home. China’s gross domestic product expanded 6.7 percent last year, and that’s expected to drop to 6.4 percent this year, Bloomberg economist surveys show.

To diversify, Alibaba convinced mega-retailers such as Macy’s Inc. and Costco Wholesale Corp. to open online shops; led a $2.6 billion deal to privatize department store chain Intime Retail Group Co.; and ramped up its outreach to small- and medium-sized enterprises.

Alibaba already has 650,000 U.S.-based companies registered on Alibaba.com, a business-to-business platform primarily used for sourcing, and more than 7,000 brands across its platforms including Tmall Global, where businesses sell directly to consumers.

Recruiters will fan out across America to lure more businesses, Evans said. Their pitch: China’s appetite for cross-border retail e-commerce is expected to reach 3.6 trillion yuan by 2020, according to AliResearch, a unit of Alibaba.

“Today, these people are selling products in their local communities,” Evans said. “The key is to connect them to new sources of demand -- consumer demand in China and Asia.”

Ma said after his Jan. 9 meeting with Trump that U.S. expansion will especially target the Midwest region and items such as wine and fruit. China is pivoting toward a consumption-driven economy, and a burgeoning middle class wants higher-quality baby formula, organic beauty products and Alaskan salmon.

Skeptics say it will be difficult to sway mom-and-pop shops to transform into global traders, and the anticipated flood of new businesses on Alibaba’s websites will make it harder for them to stand out.

“This goal is too ideal,” said Julia Pan, a Shanghai-based analyst at UOB Kay Hian. “In reality, it will be very hard to get 1 million SMEs to all thrive on its platform.”

Alibaba is undaunted. The company makes money from listing fees that can total 150,000 yuan; sales commissions of up to 5 percent; technology fees of as much as 60,000 yuan; and marketing costs.

That full-service clout appeals to Eduardo De Arkos, a San Francisco-based entrepreneur sourcing agricultural tools and plastics on Alibaba. De Arkos wants to start a clothing business, and he said he found a partner in Shenzhen to manufacture the garments and ship them domestically.

“China was always the logical next step just because of the sheer size of the market,” De Arkos said. “Sticking with Alibaba to sell to the Chinese makes sense because of their dominance.”

But there are significant obstacles to e-commerce transactions between Wisconsin and Wuhan. Relations between the U.S. and China may worsen under President Trump, who has called for high tariffs on Chinese goods and accused the country of stealing American jobs.

The U.S. government also just put Alibaba back on its blacklist for selling counterfeits. There are limited numbers of Chinese speakers in the U.S., fears of intellectual-property theft and unfamiliarity with the mechanics of shipping goods to China.

The costs of marketing to a Chinese audience also may be prohibitive for small businesses, said Mark Tanner, founder of China Skinny, a Shanghai-based consultancy that advises U.S. brands on selling to the country.

“A million full-time paying jobs in the U.S. would be quite difficult,” he said. “To be really successful in China, you need to be on the ground, be responsive in the middle of the night U.S. time and also speak Chinese to really understand the customers.”

Alibaba has solutions for those issues, Evans said, and they’re called Taobao Partners. Hundreds of translation and customer-service agencies help U.S. companies with details including corporate registrations, foreign exchange, product designs and returns. They’re mostly China-based, third-party companies with offices in different time zones, Evans said.

“This is China. There’s no problem you can’t throw a thousand bodies at,” said Michael Zakkour, the Asia Pacific practice vice president of Tompkins International China who helps connect Western businesses with Taobao Partners. He estimates there’re as many as 6,000 of those. “As wave after wave of new brands come and start selling, those partners will easily add more capacity or a whole slew of new ones will pop up.”

Alibaba also uses affiliate Cainiao Smart Logistics Network Ltd.to help sellers like New York-based Jed Stiller, whose Stadium Goods ships limited-edition Nike and Adidas sneakers from Delaware to Shanghai.

Stiller said as much as 10 percent of his projected $100 million in annual transactions comes from Alibaba’s Tmall Global platform. If that reaches 15 percent, he may hire as many as 70 people to focus on that business.

“In order to scale this, we have to be able to help small businesses in the U.S. with buyer and seller services,” Evans said. “If they hired their own Taobao Partners, it would be way too expensive.”

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