Ann Bierbower

Alibaba’s Efforts for Domestic Growth

2015/11/10 Ann Bierbower
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As Alibaba expands abroad it is not overlooking its home market, with domestic growth being one of Alibaba’s key strategic areas. That’s with good reason. Whilst only 10% of products sold in China’s physical stores are imported, 40% of products sold online are foreign. With China’s hinterland underserved by brick and mortar stores selling foreign products, Alibaba is playing a part in bringing the world to them. Three factors are helping to drive domestic growth.

1. Rural Focus

Alibaba plans to expand its empire into the remotest areas of China. It is investing 10 billion yuan in logistics, hardware, and training. Over the next three to five years, ecommerce infrastructure will become available in 100,000 villages in China.

Villages in hard to reach places have thus far missed much of China’s ecommerce boom, with their remoteness partially to blame. Yet with online shopping maturing in major cities, and evolutions such as mobile shopping enabling widespread access, looking to rural areas for new growth is a smart move. Not only does it bring new shoppers onto Alibaba’s platforms, it also provides online job opportunities to rural Chinese. Owning a Taobao shop or becoming a logistics driver has now become a viable way to make a good income while being able to stay close to home.

Chinese living in smaller cities and villages are typically more traditional than big cities consumers, and are much more likely to be reached by traditional communication channels such as television. Alibaba’s Single’s Day Gala, broadcasting on Hunan TV tonight, is a good approach to reach these villages who may not have considered ecommerce before. Expanding into smaller cities and villages also capitalises on Alibaba’s impressive logistics investment.

2. Logistics Feats

Singles Day gives us the opportunity to look at the booming logistics industry in China. Last year Ciaonao coordinated the delivery of 278 million Singles Day packages in China and overseas. This year is expected to see more than 1.7 million delivery personal, 400,000 vehicles, 5,000 warehouses, and 200 airplanes deployed by Alibaba’s logistic partners with imported products reaching consumers in as little as 48 hours.

To ensure that even China’s smaller regions are well-serviced, Alibaba’s logistics arm Ciaonao is ensuring that the ‘last mile’ of those in the hinterland get their packages too by providing estimates on the number of packages for various routes down to the county level to coordinate delivery.

3. Ecommerce is Well-Suited for Rural Residents

A good logistics system is crucial when aiming to reach sparsely populated parts of China that often have dodgy infrastructure. This is vital to the continued growth of China’s ecommerce as the First and Second Tier cities become saturated. Residents in smaller Tier cities are responding enthusiastically to the ecommerce drive. The number of online shoppers in rural areas increased 40.6 percent to 77 million in 2014 according to the China Internet Network Information Center (CNNIC). Growth in online shopping in counties and villages in China now outpaces that in cities. Penetration is only expected to increase as further investments make it more attractive.

Taobao and Tmall, even more so than other tech players in China, seem to resonate with rural residents. For example, WeChat, China’s most popular, do-it-all app, enjoys 93 percent penetration in Tier One cities versus 27-28 percent in Tier 4-5 cities. This is further evidence of just how different consumer behaviour is across China, even in their online usage.

Alibaba’s commitment to bringing the world to China is no easy task but is well-planned. Alibaba’s rural efforts and logistic feats in conjunction with China’s urbanisation, increasing internet penetration and growing ecommerce expansion will all assist Alibaba in reaching every corner of China.
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