Jack Ma (and Alibaba) Dreamed of Turning SMEs into Multinationals – Globally (2 of 2)

Facebooktwitterredditlinkedin

I’ve been sitting around this week (sick) and reading about what Jack Ma has been doing. He has been out of Alibaba for several years. Ant financial has been structured. The Chinese government issues have quieted down. And Jack appears to be mostly hanging out in Tokyo. Staying low key. I’m interested to see what he going to do next. 

I’ve been thinking about a piece I wrote a few years ago (Part 1) about how Alibaba.com (the B2B platform) was attempting to digitize and democratize global trade. They wanted to dramatically expand global trade from something by large companies to something small and medium enterprises (SMEs) could do. It was a pretty sweeping idea. And it was one of the 2-3 big things that Jack Ma was working on in his last years at Alibaba.

In those last years, Jack spent a ton of time flying around the world meeting with governments, especially their Ministries of Trade. He was also pushing hard to get his e-commerce platform eWTP (electronic world trade platform) going. As mentioned, he wanted to “flatten” and democratize global trade. Basically, make it so any small company could buy and sell around the world. But that means getting lots of governments to have certain regulations for ecommerce enabled and managed trade. So he spent years crisscrossing the globe trying to get those regulations in place in country after country. There was some notably successes, such as Rwanda.

Around this time, I ended up interviewing the management of Alibaba.com and visiting their exhibit at CES in Las Vegas. They were focusing on US-China as the first axis for this type of SME-driven cross-border ecommerce (i.e., global trade). Their plan, which was both simple and sweeping, was to create a global B2B marketplace platform and the digital and service tools such a platform required. I said it sounded like they wanted to enable “SMEs to act like MNCs”, in terms of their ability to operate cross-border. Note: They later kind of stole that phrase from me and started using it in their descriptions. 🙂

The platform business model for this is simple. It’s a B2B global marketplace. The challenge is in the digital tools and enabling capabilities. 

Keep in mind that for Taobao, it’s a B2C marketplace connecting Chinese consumers and small merchants and brands. The merchants and brands are mostly domestic, but some international. The required tools and enabling capabilities are payment, logistics / delivery, trust / identification / escrow, etc.

But for a global B2B marketplace you want to connect SMEs everywhere to SMEs everywhere. That means enabling small factories in Texas to order custom parts from small factories in China, who might have ordered custom parts from small factories in the Philippines and so on. It’s way more complicated. What do you need to make such transactions simple and convenient?

  • Information on buyers and sellers? Reviews and feedback?
  • Trust? Verified identities? Escrow? Business licenses?
  • Payments? Taxes paid? Customs and other government fees?
  • Government filings and compliance? In hundreds of countries?
  • Logistics and delivery? Globally?

There are very good reasons why SMEs don’t do multinational operations.

Fortunately, at the CES exhibit, Alibaba.com was showing some early versions of their tools and enabling capabilities. I thought 4 tools were pretty cool.

Tool 1: The App Lets You Search for Products Globally

Platforms are in the business of lowering Coasean transaction costs. One of the most important of these costs (especially for a global platform) is the search cost. If you a 1-2 person business (say a table designer in Texas), how do you confidently find the right manufactured product in China or India or Rwanda?

Well, now you can download the Alibaba.com app on your smartphone. And you can start searching for the manufactured product you want (say iron legs for your custom tables). The app will show you options from China and from around the world (in theory). This will be based on what you say you want, what you have bought before and what they know about you. But it won’t just search the big manufacturers, it will search hundreds of thousands (millions?) of SMEs. And you can view the ratings and reviews of these suppliers, just like any other e-commerce search.

The app also lets you search with the camera. You point your smartphone at the product you like (in person, at a photo of it, etc.) and the app will search manufacturers for something similar. I tried this at CES by pointing the camera at a microphone – and I immediately got a list of manufacturers with similar products in China.

Tool 2: Video Conference with Simultaneous Translation

The next step is usually to talk with 5-10 companies you think might be good suppliers. But now communication is a problem. This is not a one-time purchase like B2C. This is probably an ongoing relationship with lots of purchases. Traditionally, this has meant flying to China or having staff that speak Chinese. And lots of sending faxes. Or whatever. Communication can be a big issue in cross-border transactions.

However, the Alibaba.com app had a video call tool with simultaneous translation. I tried it at CES and it worked really well. The person I called showed up on my screen and their spoken Mandarin was translated to English text on my screen. My English was translated on their screen to English. 

Tool 3: Virtual Factory Tours

In many situations, you would do a factory tour (or have someone do it for you) at this point. Maybe not for something simple like table legs. But for electronics, healthcare equipment and really anything that is complicated that is going to integrated into your products. The search and video calling probably gets you down to 3-5 suppliers you are thinking of working with. But they you want to visit the factory. See the processes. Assess the quality. Meet management. Alibaba was working on a tool that enabled virtual factory tours for this step.

Tool 4: Contracting, Logistics, and Payment

Ok. This is the big one.

You now have the products you want to buy and the manufacturer you want to contract with. And this is where we hit major problems for SMEs trying to do cross-border trade.

  • What kind of agreement do we need? In what language? Under what law? What clauses do we need? Risks? We definitely need a lawyer for anything significant.
  • What are the regulations for importing these products? Are the regulations different for products from China vs. Vietnam vs. India vs. Brazil? Have they changed recently?
  • How do we send the money? Do we send a down payment? Pay up front? Do we need to have the money held in escrow? What bank? How?
  • Who does the shipping? How do we get it through customs? Then who delivers it after that?
  • What if the goods are damaged or not correct? How do we do returns?
  • What if they just take the money and don’t send? Or refuse the returns? What do we do when a dispute happens?

This stuff is all pretty complicated, especially if you’re talking about lots of developing economies. This is where Alibaba.com is really offering some great solutions. 

  • They provide standard contracts for both parties. In the appropriate languages. And that are legal according to current appropriate regulations for such a transaction.
  • They handle the government services. This is important. Fees are paid. All the forms and required compliance are filed. 
  • They handle all the logistics. Basically, door-to-door, including through customs.
  • They handle payment, with escrow. And they are even beginning to offer credit services for buyers.
  • If there are any problems, they have dispute resolution services.

Note some of their advertisements below.

That’s pretty compelling. I’ve played with the app and the idea of sourcing things from around the world. In theory, you can search for the item you want on your smartphone, talk with the manufacturer, tour the factory and the place the order. Because you can trust the legal, government and payment aspects. You can just click and buy – and get your items in about 5-7 days.

In terms of decreasing transaction costs (which is the point of digital platforms), that is pretty amazing. “Global commerce at your fingertips” is a good slogan for all this.

***

And it gets better.

The example I just gave is for a small US company sourcing from a Chinese manufacturer. But the bigger idea is not just to connect US companies and Chinese suppliers. It is to connect all the world’s SMEs. A 1-2 person company in Texas could source from suppliers across Asia. And from India. And Latin America. And so on. And they could also sell globally to other SMEs. The same Texas SME that just bought iron table legs from China could then use the app to sell their customized tables to hotels and restaurants in Europe. They could sell to the USA, Asia, Latin America, Europe, and so on. That’s how an SME becomes a multinational.

***

And one idea is actually even bigger than that.

As mentioned many times, platforms always start out with 1-2 core interactions which they standardize and then scale up. Few have global scale like this one. However, new user groups and new interactions can also start to emerge. This is how Tencent went from QQ to online gaming. And then to Wechat and then to payments. And now to ecommerce.

Think about what the potential growth vectors are for a platform that has digitized and democratized global trade. It could expand dramatically from its 1-2 core interactions. So many other types of user groups could join the platform. These could include designers, financial services companies, influencers, and content creators. A global trade platform is a big idea. And it could also be the foundation of many other big global interactions.

Anyways, that was the idea that Jack was working on. Before China tech crackdown. And the US-China situation, which wasn’t great for their initial focus on US-China trade. But I still think about it. I’m hoping it will start gaining traction.

Cheers, jeff

——

I write, speak and consult about how to win (and not lose) in digital strategy and transformation.

I am the founder of TechMoat Consulting, a boutique consulting firm that helps retailers, brands, and technology companies exploit digital change to grow faster, innovate better and build digital moats. Get in touch here.

I host Tech Strategy, a podcast and subscription newsletter detailing the strategies of the best digital businesses in the US, China and Asia.

My book series Moats and Marathons is one-of-a-kind framework for building and measuring competitive advantages in digital businesses.

With my subscription newsletter, you will:

Get a deeper understanding of the strategies and business models of the best digital companies.

Get specific frameworks for measuring competitive advantage in digital businesses and for traditional businesses doing digital transformation.

Get an edge in predicting what is going to happen next and who is going to win.

Note: This content (articles, podcasts, website info) is not investment advice. The information and opinions from me and any guests may be incorrect. The numbers and information may be wrong. The views expressed may no longer be relevant or accurate. Investing is risky. Do your own research.

twitterlinkedin
Facebooktwitterredditlinkedin

Comments are closed.