International trade mission

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Chances are, you’ve only recently heard of Alibaba. It’s the first name in e-commerce in China, with sales worth more than those of Amazon and eBay combined. It reportedly controls nearly 80% of China’s vast, rapidly growing internet shopping market, and its Alipay payments unit completed more mobile payment transactions in 2013 than PayPal and Square Inc. put together.

But Alibaba was a relative unknown until news broke in March of a planned IPO. And now, as people are quickly learning, Alibaba is no longer just a Chinese company. Its business-to-business (B2B) service links small enterprises around the world with manufacturers in China, and its business- to-consumer (B2C) operation gives them a shop window in the world’s most populous market. The company employs 24,000 people and has more than 36m registered users.

James Hardy, Alibaba.com’s head of Europe, is bringing the principles of Chinese e-commerce to Europe. Alibaba.com is the B2B arm of the parent company that aims to become the go-to English-language platform for cross-border trade, and to help small businesses, worldwide, to expand to overseas markets. The platform serves millions of buyers and suppliers – from more than 240 countries and regions – and people trade everything from fashion and high technology to industrial chemicals, kidney beans, and trampolines. But, in Europe, this internet giant has a low profile.

“It’s a significant challenge,” Hardy says. “In China, Alibaba is the dominant player, and brand awareness is 100%. Brand sentiment is pretty much 100% as well, whereas – within the European market – we’re a challenger brand. Your very first challenge is to generate brand awareness. Without that, you’re always going to have a problem trying to persuade somebody to become a member, or to use your services.”

Start small

British business Blends for Friends, based in Kent, is the kind of venture that Alibaba.com is hoping to attract in Europe. It takes tea grown in China, blends and packages it in the UK, and sells it back to upmarket Chinese consumers through Alibaba’s B2C service, Tmall. Tmall is a one-stop shopping platform with around 70,000 ‘stores’, of which 20,000 or so are non-Chinese.

Some, such as Blends for Friends, are small operations that use the platform to avoid the headaches and expense of setting up physical shops and warehouses far from home. Big, global brands – such as Clarks, Lacoste, Mothercare, Clarins, Marks & Spencer, Accessorize, Gap and Nike – use Tmall too, lured by the sheer scale, and increasing wealth and sophistication, of the Chinese consumer market.

At the end of 2013, the value of online retail sales in China surpassed those of the US for the first time. By 2015 or 2016, Chinese e-commerce is expected to be worth more than that of the US and the European Union combined. In Europe and the US, consumers frequently shop at stores’ individual online outlets, and only 25% of sales are through an e-commerce platform. In China, however, 90% of e-commerce is through shopping platforms, usually Alibaba.

Now, with a New York public listing in the works, it’s clear to see how far the company has come since it was launched, 15 years ago, by former English teacher Jack Ma in a flat in Hangzhou, south of Shanghai. Its expansion, Hardy says, has been primarily driven by data and quick-fire online research.

“What always drives the strategy is the underlying mission, which was identified very, very early by Jack Ma,” he says. “Right from the start, it was to make it easy to do business anywhere. The focus over the years has been on SMEs because it’s fairly easy for big companies to do business anywhere. The challenge is for small and medium-size companies.”

Reading between the lines

Alibaba has a central business intelligence unit, which functions as an in-house market research agency. It pores over the immense quantity of data that the business generates, and combines that with external data.

Big-picture national data on imports and exports can often be unhelpful to SMEs, with a couple of big car purchases or oil deals overwhelming small details that would spell opportunities for niche businesses. “What’s happening from the SME point of view – and where demand is coming from – is where Alibaba.com has a lot of information,” Hardy says. “We can see demand for UK products coming from other UK businesses; people in the US really like to buy British brands, and demand is hugely increasing from China.

“The biggest market for Sherlock Holmes is China; the biggest market for Downton Abbey is China. Then the Olympics, the royal wedding – all of these things have led to a huge increase in Chinese consumer interest in British products, and in Chinese reseller businesses looking for British brands to supply them in wholesale quantities. You would never really see that from open export data.”

If the data points to opportunities for expansion into new markets, or to creating a new Alibaba vertical, small-scale trials are a key part of the company’s research. “We will conduct really fast, extremely cheap tests to identify: ‘Is that market responsive to our products and our messages – our offering overall?’ That stops big mistakes being made and allows us to make data-driven market entries.

“Many western companies take the view that: ‘This is where we should be going’, then they look around for the data to support that. Alibaba does it the other way around. We say, give us the economic data – give us the internal SME data – then let’s run tests and some qualitative focus groups. It’s a data-first approach.”

The analysis of data can also help to identify whether anything in the market – such as an unreliable postal service, or customs barriers – is having undue influence on e-commerce.

“If you know what’s going on in the background, you can say, ‘That market’s still a fantastic opportunity – but we have to work out how to solve the problem’. If we can help the country to solve that problem, it becomes an opportunity for us – and, without background knowledge, that would be much more difficult.”

The big surprise – to western eyes at least, including Hardy’s, he admits – is the willingness of Alibaba to share its valuable data. But in a fast-changing market such as China – where things have to happen on a massive scale – commercial secrecy can be counter-productive.

“Many western companies will try to own everything that surrounds, or is part of, their business,” Hardy says. “Within Alibaba, there’s not even a goal to own everything – the idea is to facilitate the people who sit around those platforms, and encourage them through a very open ecosystem, where a lot of information is shared.”

The company worked with six partners last year to overhaul China’s logistics market, with the goal of enabling something that is bought anywhere in the country to be delivered within 24 hours. “Many companies would try to do that on their own, but it was quite characteristic of Alibaba that they said: ‘We can do this on our own, but it will take much longer, and the mission is to make it easy to do business everywhere – so we need to do it fast, and we can’t do that on our own’.”

Winning the long race

Despite its global outlook and huge number of international partners, Alibaba remains a distinctly Chinese business. Jack Ma’s initial vision had three parts: to be the platform of choice for sharing data; to be the business with the happiest people; and to last at least 102 years. The business started in 1999, so that means spanning three centuries.

“That was a really clear way of saying this is a long-term business, so decisions are made with the long term in mind,” says Hardy, whose own career has spanned three distinct eras: he is a latecomer to retailing, having previously worked as a solicitor, and in the marketing and communications field.

He doesn’t speak Mandarin, but is having lessons. “Culturally, it’s fascinating,” he says. “In western company culture, people often say that generally, the bigger the company, the slower they move; they talk about big corporates being like oil tankers. What’s really interesting about Alibaba is just how incredibly fast it moves. That was a real surprise to me.”

The Alibaba group was reorganised in May 2013 – from seven big business units to 25 much smaller ones – partly to bring more leaders through the business, but also to ensure each division can act fast, with fewer layers of management to work through.

“It makes all of those units much more nimble, and it’s a key element of Alibaba culture,” says Hardy. “One of our six key values is Embrace Change, and it’s a real mantra, internally. We can turn on a dime and, in my opinion, that’s a significant part of our competitive advantage. Coming from a western mindset, that is a challenge.”

At the Hangzhou headquarters of Alibaba, the ping-pong tables, casual dress code, lively colour scheme and open-plan architecture are all reminiscent of Silicon Valley. There’s a gym, sport is encouraged, and there are funds to help out employees who become ill. Less usual, perhaps, is the annual mass wedding banquet and fireworks display that the company hosts for the hundreds of Alibaba employees who have met their perfect match in the office.

“It’s a happy place,” says Hardy, “and that’s partly because, whenever you’re in a growing business, people tend to be happy because there’s more opportunity.”

The company’s other key values are: put the customer first; show passion; show integrity and commitment; and – crucially – work as a team. “I worked in the US for a long time, and, there, everyone wants to be on the winning team. If you have a series of teams within a business, people want to be associated with the team with the most successful product or market, or vertical,” Hardy says.

“The approach within Alibaba is that – as long as, between all of the teams, one of us manages to find a successful environment – everyone has succeeded.

“A key part of that is being willing to be on a team that will test something, in the knowledge that it might fail.

“As long as you learn something from it, that’s OK, because – if you do that enough times, always with that mentality of: ‘Can I find out something useful – can I find it out fast?’ – then it allows you to become very market focused.

“The only way you really know that is by testing. Focus groups have their limitations, data has its limitations. You still ultimately have to go into a market and test.”

• First published in Impact Magazine, Issue 5, April 2014