Alibaba.com under the microscope
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Alibaba – the world’s biggest e-marketplace
E-marketplaces are electronic exchanges where buyers/importers and sellers/exporters can register themselves with the view to communicating and transacting business with one another over the Internet. There are various types of e-marketplaces; some charge a subscription fee to belong to the exchange, others charge a small fee for each transaction that is done via the exchange; others generate money from advertising or from the sale of value-added services; while others are a mixture of these various business models. They are generally created and run by a third-party entity (the site owner; an individual or company) that has created an online environment – the marketplace – which has some common components to it. The typical components of an e-marketplace include:
- A database in which is stored both the buyers’ and sellers’ details
- A registration facility which enables buyers and sellers to register themselves on the database
- A browsing facility which enables users to browse through the database for partners usually based on the product category and according to whether they are a buyer or seller (there may be other ways of organising the data)
- A transaction facility which enables the buyer and seller to transact business with one another (not all marketplaces facilitate transaction between buyer and seller)
- An information portal which provides the buyer and seller with additional supporting information and advice to make their business easier
- A search facility, enabling users to search for the product, buyer or seller they are interested in
E-marketplaces can also be classified according to whether they have a business-to-consumer (B2C – such as Digital Planet and Kalahari.net in SA and Taobao.com in China), business-to-business (B2B – such as Alibaba and Global Sources), or consumer-to-consumer (C2C – such as the Junk Mail in SA) focus. B2C and C2C e-marketplaces are generally more local rather than international in their focus. B2B e-marketplaces may be either local or international in their focus – the last-mentioned category being the one we will focus on in this article. Perhaps the best example of an international B2B e-marketplace is Alibaba.com.
In a recent Fortune magazine front-page article, they referred to Alibaba (created by Jack Ma) as China’s hottest Internet company, having quadrupled its user base from 6 million in 2004 to 25 million in 2007. It has 3.6 million virtual storefronts (companies that have ‘set up shop’ on Alibaba), spanning more than 5 000 product categories and achieved sales of US$182 million in 2006. Most of its revenue (71%) comes from a small core of “Gold Suppliers” that pay a monthly subscription fee. Gold Suppliers are verified and authenticated by a third-party credit reporting agency; their profiles are up-to-date; they have been awarded a ‘TrustPass’; buyers can take a virtual tour of their company; they can post an unlimited number of products online; and they tend to be more serious about business. [Source: Fortune Magazine, December 2007]
Although Alibaba started off as a Chinese e-marketplace and still has a strong Chinese and Asian/Indian focus, it is today a truly international B2B marketplace with buyers and sellers from around the world. A quick search of ‘South Africa’ reveals that the following sectors have got traders registered with Alibaba (as at May 2008):
- Clothing (bikini - 1)
- Construction (bathtubs - 4, cement - 19)
- Energy and petroleum (charcoal - 9)
- Food and beverages (alcohol - 33, beverages - 20, CI - 2, mineral water - 28, fruit juice - 24, biscuits - 5, fish – 33)
- Furniture and decoration (furniture - 41)
- Crafts and gifts (greeting cards, candles)
- Health and medical products (aloe - 11, food – 33)
- Household appliances (heaters - 12)
- Household goods (garden ornaments - 2, match - 43)
- Raw and processed materials (iron ore - 26)
- Footwear (boots - 7)
- Jewellery, watches and glasses (bracelets - 13)
- Toys and dolls (dolls - 6)
At first glance this seems quite impressive but when digging a little deeper we find:
- Very few sub-categories under these headings (the sub-categories are listed above in the brackets, with the associated numerical value reflecting the number of traders listed in each sub category).
- A lot of misclassification of products under the wrong headings (for example ethernet adapters under ‘footwear’ and oil regeneration filter under ‘alcohol’).
- A seemingly unnatural grouping of traders – one would expect to find a far wider number of product categories serviced by only a handful of traders per category. Instead there are only few product categories but often with a large number of traders listed under each. A possible reason for this is that the traders are reacting to ‘waves’ of foreign enquiries that come about every now and then for typical South African products such as iron ore, fruit juice, cement, scrap metals, etc.
- Badly composed headings (e.g. the heading ‘CI’ can be found under ‘food and beverages’ – what is ‘CI’; under this heading is listed mineral water and metal scrap?).
- Traders dealing with vastly different products – some of the listed traders can be found in different categories selling Russian crude oil, edible oils and African ladies wear, or cement and cigarettes.
- Traders that do not provide comprehensive company information (e.g. traders have the option on Alibaba of providing a company introduction and many of them do not – this is opportunity missed to market the company; also many traders do not have websites – another opportunity missed).
- Traders that provide patently incorrect details – without indicating exactly who, browsing through the company information, it is clear that some of the traders provide information about their company size and turnover that is just not true.
- There are mostly traders listed on these pages – there are relatively few manufacturers listed on the site.
Making use of Alibaba.com
So, is it worthwhile becoming involved in Alibaba.com. Definitely, but as with any business activity, you need to put effort into it. ExportHelp suggests the following steps to using Alibaba.com:
- Step 1: Become familiar with Alibaba.com – Don’t just jump in and list your company and products. Instead, browse the website to see what they offer and how they work. Have a look at what your competitors and other suppliers are offering and how they present themselves. Decide for yourself what you like and what you don’t about their respective virtual storefronts. Check out Alibaba’s ‘Gold Suppliers’ listing; is it perhaps worthwhile becoming a Gold Supplier member?
- Step 2: Check out the competition – Yes, we believe Alibaba to be one of the leading e-marketplaces today, but there are others. We discuss the competition very briefly below. Maybe one of the other e-marketplaces is better suited for your company.
- Step 3: Focus on buyers first – Before listing your company as a seller on the website, browse Alibaba.com to see if there are not some buyers already listed on the website for your product(s). This is possibly one of the easiest ways to enter the export arena. Check out the buyers and visit their websites to see what they do, and if you feel so inclined, contact the companies to see if they are interested in what you have to offer. If you get no response from any of them, then you may need to rethink your strategy (perhaps your products are not appealing or there is a problem associated with your products that you are not aware of – you may have to dig a bit deeper). You may also want to do a search on Google using your potential buyer’s name. This exercise may come up with additional pertinent information that will help clarify your potential partner’s status and reputation in your mind.
- Step 4: List your company as a seller – You have done your homework and you feel confident that Alibaba.com is for you. Take the plunge and list your company on the site. You may want to list as a ‘Gold Supplier’, but perhaps you should kick off first by using the free service. If, after a while, you get little or no response, you may want to upgrade to a ‘Gold Supplier’; this will give you the opportunity to see whether you get a better response (you will have something to compare it to).
- Step 5: Consider your dealings with enquirers (i.e. buyers and importers) carefully – Even a reputable website such as Alibaba.com will have the occasional charlatan in their midst. Check out the enquirer’s website if they have one and take all the standard precautions before closing a deal. Don’t get sucked into a deal under pressure. Consider approaching your bank and Credit Guarantee for advice and getting legal advice is always a wise move.
- Step 6 – Don’t forget the other marketing channels – Yes, we are suggesting that you make use of Alibaba.com, if it makes sense to you. But loose sight of the other marketing channels such as taking part in trade fairs, marketing your self on your own website, finding and targeting potential importers over the Internet, advertising in trade magazines and chamber/association newsletters, and making use of thedti’s economic representative network.
Registering with Alibaba
OK, so you’ve decided to register with Alibaba. What’s involved?
What should you be aware of?
Alibaba themselves provide advice on safe trading online.Below, we have listed additional information to help protect you when doing trade on e-marketplaces and on the Internet generally:
- Protecting against fraud
- Ripoff reported on Alibaba
- Internet fraud
- Scams and fraudulent dealings on Alibaba
- Scammers advertising on Alibaba
- Fraud Watch International
- The Federal Trade Commission (FTC): Computers and the Internet
Yes, the Internet (and Alibaba) can be a daunting place and you need to be careful. Remember, however, that most of these warnings discussed above are more applicable to the Buyer that the Seller. Still, you need to be cautious.
Consider using an escrow account to protect yourself
An escrow account is a third-party service, to whom the buyer makes the payment, and from whom the seller will receive the payment once the goods have been delivered to and accepted by the buyer. An escrow account thus provides protection for both the buyer and seller.
Here's how it works step by step:
- The Buyer and Seller agree on a price including shipping.
- The Seller sends the Buyer a pro forma invoice, including a detailed description of the product and with shipping shown as a separate cost and by what means it will be shipped (the shipping method must include some tracking capability)
- The Buyer then submits a copy of the pro forma invoice along with the payment and fee's for the transaction to escrow.com. There may be a small delay while payment is processed.
- When escrow.com receives the cleared payment from the Buyer to cover the Seller’s invoice (including transportation) and escrow.com's fees they send a message to Seller to ship the goods.
- When escrow.com receives confirmation from the shipper that the goods have arrived at the Buyers address the Buyer has 7 days to inspect the products.
- On the 7th day if the buyer has not contacted escrow.com disputing the quality of the goods escrow.com will send payment via telegraphic transfer (T/T) to the Seller per the payment details of the pro forma invoice covering the total price of the invoice.
If a dispute in quality arises:
- The Buyer would have to contact escrow.com and make arrangements for returning the goods via a trackable shipper to the Seller at the Buyer’s expense.
- Upon receiving confirmation from the shipper that the products have arrived back to the Seller the transaction is voided.
- At this point escrow.com will release payment to the Seller for the initial shipping cost.
- Funds are returned to the buyer from escrow.com minus initial shipping refund to the Seller plus escrow.com fees.
These are the basics of the process. For more detailed information of this safe payment method you should visit their website at www.escrow.com. Escrow.com is aimed primarily at the US, but does support international transactions from all over the world, escept for Burma (Myanmar), Cuba, Indonesia, Iran, Iraq, Liberia, Libya, Moldova, Nigeria, North Korea, Romania, Syria and Zimbabwe. You can use escrow.com for most tangible goods such as vehicles, electronics, and general merchandise. Escrow.com will not handle transactions involving illegal items such as drugs, weapons, etc. as defined by current laws. Escrow.com does not convert money between currencies. Payment must be made in US dollar by the buyer and escrow.com will transfer your payment to your bank also in US dollars. Your bank may automatically convert any monies received to your local currency. Contact your bank for exchange rates and other costs associated with this conversion.
Can I trust any escrow service provider? The answer is a decided NO! There are numerous dubious and unethical “escrow” service providers, eager to take your money and run. We suggest that you read this article carefully and always proceed with caution.
Disclaimer: Please note that ExportHelp cannot be held responsible for any action taken on your part based on the information we provide. Always seek legal advice before becoming contractually involved in any international trade dealings.
Who’s the competition?
This article was primarily about Alibaba.com. Yes, there are many other e-marketplaces around, many of whom compete with Alibaba. We recommend that you visit our e-marketplaces webpage to see what else is on offer and give them a visit. Perhaps there is another that is better for you!
We will continue our discussion of e-marketplaces next month and provide you with more information on the other e-marketplaces available to you.