How to Source Products from China, and Sell There Too
There’s no bigger name in the ecommerce industry than Alibaba. It was launched in 1999 in China, but it now services millions of businesses and consumers, offering wholesale and retail products worldwide. We recently spoke with its vice president of global sales and service, Brian Wong, to discuss Alibaba, opportunities for ecommerce retailers on that site, and global trade generally.
Practical eCommerce: Some of our readers may not be familiar with Alibaba. Please tell us about the company: When it was founded; where it’s located; how big; and that sort of thing.
Brian Wong: “Alibaba is one of the largest ecommerce companies in the world. We were founded in 1999. We essentially have five different businesses. The first is really focused on business-to-business, which is facilitating trade between suppliers and buyers all over the world. Over 240 countries are represented in that marketplace. We also have a consumer marketplace called Taobao, which facilitates consumer-to-consumer transactions. This is mainly in China. And we have a business-to-consumer shopping mall called Tmall, which is also the largest in China. It’s mainly focused there. We have an online payment gateway business called Alipay. There are over 700 million users on that. It’s mainly facilitating payments online. And we have AliCloud, which is a cloud computing business in Mainland China. Finally, we own Yahoo! China as well.
“We are a company with about 23,000 employees. We have offices in 13 cities around the world: U.S., Europe, India, China, Hong Kong, Taiwan, Korea, Japan.
“I think, in a nutshell, that’s our business.”
PEC: Where are Alibaba’s headquarters?
Wong: “We have an office here in Silicon Valley, in Sunnyvale. So, in the U.S. we have our operation base there, and as I mentioned we do have offices in other parts of the world with a majority of our operations being located in China.”
PEC: For our readers, smaller ecommerce merchants, how should they view Alibaba in terms of a potential business partner?
Wong: “I think Alibaba, for smaller merchants, can be extremely valuable both from a sourcing and a sales standpoint. Alibaba, the name, relates to the concept of finding a little bit of magic and finding all of these treasures. Alibaba the website really is the same sort of concept. We’ve got, as I mentioned, over 240 countries represented in this business-to-business marketplace on Alibaba.com. There are over 100 million products in 46 categories. Everything from toys to textiles to jewelry to home products, electronics, you name it. What an online retailer can do is really find new kinds of products for them to sell online.
“One of the biggest challenges for online retailers is to differentiate themselves. How do you find new products? Most people go to trade shows and every year will look at the newest things. But you know, there are lots of manufacturers around the world that are making stuff that we don’t even know about that you can actually find on Alibaba. For example, there’s lots of rattan – which is a bamboo product in Vietnam – whether it’s furniture or handicrafts. India has great jewelry. Turkey has lots of different handicrafts there or even hazelnuts. Seventy percent of the world’s hazelnuts come from Turkey. But how many of us actually know where to find these? So, Alibaba from a supplier standpoint can be very effective in finding new products.”
PEC: Say an ecommerce merchant sells furniture. He or she goes to Alibaba.com and finds a supplier of a furniture accessory to carry on the ecommerce site. How is that transaction consummated in terms of paying for it, getting the goods here, that sort of thing?
Wong: “Well, the first thing you do is identify the supplier based on the specifications you’re looking for — the composition of furniture, the type of furniture. You probably shortlist that using the Alibaba search engine at Alibaba.com. You basically just type in the keywords and then you’ll have a list. But oftentimes there are lots of suppliers and so you narrow it down by region, and by additional keywords. Once you identify that shortlist, then you would send them, via the Alibaba platform, an RFQ — request for quotation — to really understand what the pricing is, volume requirements, and other details.
“When you get it down to that level then there are two different scenarios. One, if they’re China-based suppliers, we have some additional services that we offer for factory inspection and product inspection. We even have an online escrow payment system that you would use to consummate that transaction. So, that way you can get all the information you need to feel safe and you could actually pay for it that way.
“Second, if it’s outside of China (we’re still building this platform on a global basis) you’d get your quote back, you would then agree on a price, and then you would follow the sort of things that you would do in an offline transaction. You’d probably do the same due diligence. You want to make sure this company’s a valid business.
“We have what we call an ‘Authentication/Verification’ service. Any ‘Gold Supplier’ that is an international supplier outside of China will have a little logo or badge that says it’s been ‘AV Certified’ so we know that that company is legally registered. Then after you confirm that, you’d have to do the other necessary precautions, such as ask for samples, do a product inspection, maybe hire a third-party to do a factory inspection. Then you would transact probably using TT — telephonic transfer — letter of credit or other traditional payment methods. So, two different ways to do it depending on where they’re located. Alibaba is trying to build out a lot of those services that we have in China for international markets outside of China. It’s just a work in progress.”
PEC: What about non-China merchants that may want to expand and sell their niche of products in China or around the world. How could you help them there?
Wong: “Well, most of what I’ve talked about up till now has been on the Alibaba.com platform. That’s our business-to-business marketplace. We also have a consumer marketplace in China, one of the fastest growing consumer markets in the world. American companies, including SMEs — small and medium enterprises — and etailers, export to China. It’s the third largest export market for the U.S., behind only Mexico and Canada. Granted, a lot of those exports are large companies. But even smaller companies are increasing their export volumes to a place like China. As an etailer, I think that it’s interesting to explore these options because the market is growing so quickly.
“One of the things that the Chinese consumer is interested in is imported products from countries like the U.S. They want a high quality, innovative, unique product that is different from what they have already in China. And so as an e-retailer, there is a market opportunity there. The key, however, is to really understand how to operate in a place like China. We have the Taobao marketplace — a consumer-to-consumer marketplace — which U.S. etailers can set up shop and try selling to consumers in China. There is also our shopping mall business-to-consumer site called Tmall.com. There we’ve got brands from Procter & Gamble to Coach and a lot of other well-known companies that sell their products on this mall. If your business is large enough to justify setting up a storefront on Tmall, then you can sell through that channel. It’s direct access to the China consumer.
“Now I have to remind readers that these websites are in the Chinese language. So to do business in China you need to find someone that can help you with the language. And the other thing is that, at least for now, there is a requirement that you have to be an authorized, sort of, distributor in China to sell in China through the Tmall marketplace. So, these are things that I would say are complexities of doing international trade. But they’re not insurmountable. It’s just that one would have to put in extra time to figure those things out beyond what they do, say, selling domestically.”
PEC: Let’s discuss the market in China. Give our readers some perspective in terms of the size of the potential ecommerce market in China compared to the U.S.
Wong: “As I mentioned, China is a fast-growing consumer market. Boston Consulting Group has a study out. They sized the current China market at about 145 million online shoppers, versus 170 million in the U.S. However, China however has the largest Internet population in the world: About 500 million Internet users are there today. It’s expected to continue to grow at a very fast rate. In terms of market sales, in 2010 the U.S. online market was about $176 billion. China, in 2011, was about $75 billion. But by 2015 China is expected to grow to about $300 billion. That should exceed the U.S. by 2015.
“Those numbers reflect that China today is close to the same size as America. But the population is about three times the size of America. Granted, the per-capita income in China is lower than the U.S. But already today the average spend of those who are spending money on the Internet in China is roughly equal to those in the U.S. About $1,000 per person per year is the average spend in the U.S. In China it’s roughly about $900. I spent a lot of time in the Mainland. I see the level of activity the young people there have on the Internet for buying things. Someone who’s about 25 years old and people in the urban areas, I’d say that about 75 percent of their purchases — whether it’s cosmetics, clothing, electronics — is actually done online.”
PEC: For merchants contemplating China in one way or the other, should they be concerned with issues having to do with fraud, intellectual property rights, and copyright protection?
Wong: “I think those are valid concerns. I think this is something a lot of politicians are focusing on as well. However, my point on this would be that China is not that different from selling to other markets, except that the market itself is much larger. Then in terms of the risks of copyright infringement and fraud, those things are real concerns. But they’re being addressed over time. Both the U.S. and the China governments are taking much more action in terms of trying to address this issue.
“For good practical knowledge, anything you sell to China, first of all, you want to make sure that you’re building your brand that’s associated with your products. Your products should be easily differentiated from the local products — whether it’s the quality or the design. People will say ‘Ok, if I sell a unique design in China will it be replicated?’ I think that if it’s unique and people associate it with your brand, then you’re building that recognition and hopefully if you have your own site, people will know that they can come to your site and buy an authentic product.
“One of the surveys we’ve done on Taobao showed that 95 percent of the people that shop on Taobao are actually looking for the authentic brand. They don’t want to buy fakes. So that’s why our rating system is so important is because anyone that is selling fakes is actually flagged and the feedback is posted on their profiles. I think there is also a trend now in terms of the consumers that are looking for authentic products because they want something that’s reliable and, frankly speaking, safe to use. This has been one of the big reasons why the government itself is pushing to control the quality of product and authenticity of product because it boils down to customer safety in the end.
“Now of course, if you’re selling a product that is at an extreme high premium price, then that gives room for people to make counterfeits and sell it at a lower price. Maybe there are going to be people that are willing to buy that because they can’t afford the higher-priced products. So, I guess you need to think about when you enter a market like China, what is the first products that you’re going to sell and how are you going to price them so that there’s less incentive for customers to opt and buy a fake one maybe with a similar appearance or brand appearance as yours but pay less? I think that those are all considerations.”
PEC: That risk exists in every market, doesn’t it? It strikes us that a premium, expensive product here in the U.S. would carry the same risk.
Wong: “Correct. I absolutely agree with you on that. This is why it’s not a unique challenge. But I think that oftentimes people associate this risk frequently with China because part of it is just a perception. But really, do the benefits outweigh the risks? In a market like China, what we’re seeing is there’s absolutely an opportunity there. It’s just about following good business practices.”
PEC: For a non-China merchant, is the bigger opportunity to try to sell products there on a retail basis? Or should the retailer consider China as a good source of inventory, and not attempt to sell there on a retail basis?
Wong: “When you mean good source of inventory, you mean as a sourcing destination as opposed to a sale destination, right?”
Wong: “I think the trend, in the past, was sourcing from China and selling to the U.S. This was really the way to go because of low-cost products selling to the U.S. market. I think that opportunity definitely still exists. But my advice now is really — for someone who has to make that choice — you have to first have a core competency. You have to be good at what you’re doing first. It always helps to start in your own market where you know the market but you’re trying to sell a new product.
“So, to anyone who has to make that choice, what I would say first is, get your own house in order and build a successful business here in the U.S. with a product that you think has value and sells well. You can source lots of these products from Alibaba and specifically from China. However, once that happens, if you feel the market is saturated or even if you feel like the competition in the U.S. is at a point where you’re not going to get that much more benefit from investing in that business, then it’s a good time to look at new markets. China is definitely one of those. Then what you have to do is build that capability to sell overseas.
“As I mentioned, a platform like Alibaba has a number of channels. It already has 370 million registered users waiting for you to post your products so they can buy them. That’s what you have on Taobao and Tmall, 370 million users that are very, very actively looking for international product. On Alibaba.com, if you are selling wholesale, you can sell your product to wholesalers that then would figure out the domestic retail piece for you. They sell the products at retail, but they’ll buy products from you in bulk. So, there is that sales channel.”
PEC: What is Alibaba’s view of the U.S. market? Alibaba purchased Vendio and Auctiva in 2010. Any other acquisitions on the horizon ?
Wong: “We believe that e-retailing is the future of the retail industry because people are becoming more and more comfortable with online and ecommerce and they are going to purchase more and more through this channel.
“We have not done any further acquisitions. But we believe that these two companies bring us over 250,000 online retailers already and we’d like to figure out more ways to help them— many of them I’ve spoken about already. And, frankly speaking, I think just ecommerce in general, we’re very optimistic both in the U.S. and worldwide that this is a future trend in that it will only grow in the next 10 years.”
PEC: Have you ruled out future acquisitions in the U.S.?
Wong: “No, I don’t think we have. I think we want to do well with what we have in place. But keep your eyes open and I’m sure you’ll see the news if we do make some decisions.”