Taobao Villages: Alibaba Is Deeply Entrenched in More and More Rural Regions in China

Mar 07, 2017

A lot has been written over the last couple of years on how China is leapfrogging brick-and-mortar retail and has whole regions going from agriculture straight to an economy where people sell and buy stuff online.

The dynamics that this rapid change brings along are fascinating. (Rapid: e-commerce can spread faster than stores could be build.)

China Dialogue on the Chinese market size:

E-retail giants such as Alibaba and JD.com have transformed the way people consume in China. The country now has over 500 million online shoppers, making it the biggest e-commerce market in the world, both in terms of number of consumers and total spending – and the market is still expanding. Recently, the state has introduced a number of policies that specifically favour the development of rural e-markets. Analysts predict that the next five years will be a “golden era” for rural e-commerce. According to Alibaba research, the rural e-commerce market may already be worth 460 billion yuan (US$70 billion) in 2016.

Most fascinating is how Alibaba with its marketplace Taobao has morphed whole rural villages into specialized manufacturers. Thanks to the online marketplace those villages can sell to the rest of China (and abroad in some cases).

Quartz:

Until a few years ago, it took an hour to drive to the county seat, located 15 km (9.3 miles) away, due to poor-quality roads. Not that it mattered: Nobody had enough money to buy a car, and the township, like many rural areas in China, had been mostly drained of its working-age residents, who had all left the countryside behind for higher wages as migrant workers along the coast. Heze, the jurisdiction in which the township sits, was described in a recent magazine article (link in Chinese) as a place “synonymous with backwardness, the unwanted stepchild of Shandong province.” [...] Today, the township and its surrounding area are China’s domestic capital for one rather specific category of products: acting and dance costumes. Half of the township’s 45,000 residents produce or sell costumes—ranging from movie-villain attire to cute versions of snakes, alligators, and monkeys—that are sold on Alibaba-owned Taobao, the nation’s largest e-commerce platform. Daiji sold 1.8 billion yuan ($26.2 million) worth of costumes in 2016, and local officials guess the entire county sold nearly three times that, or about 70% of the costume market on Taobao. In Dinglou village, where the industry first started to grow, 280 of the 306 households run Taobao businesses. Most of the rest cannot work; if they could, residents say, they would be selling on Taobao. [...] In November 2016, the State Council Office on Poverty Alleviation, along with 16 other ministries, released guidelines calling for a massive expansion of e-commerce in rural areas as part of the fight against poverty. By 2020, the guidelines state (link in Chinese), impoverished rural counties should quadruple their e-commerce sales.

This is, of course, last not least a very cute PR story for Alibaba to push..:

In less than four years, 6,300 people in Daiji and its surrounding county have moved above the official poverty line due to e-commerce sales, according to data (link in Chinese) provided by Alibaba’s research arm. [...] Alibaba says that, nationwide, 18 villages considered to be in poverty by the national government are now Taobao villages, selling more than 10 million yuan ($1.45 million) worth of goods online per year. It estimates an additional 200 villages designated as impoverished by provincial poverty standards—based on higher income thresholds—have reached a similar sales marker. Villages in Hebei province’s Ping county, a few hundred kilometers north of Daiji and a nationally designated poverty area, produce children’s bicycles (link in Chinese). Meanwhile, in one village in the southwestern province of Yunnan, members of the Bai ethnic minority sell silver handicrafts (link in Chinese), recording 19 million yuan in sales on Taobao in 2015.

..but nonetheless, this also shows how deeply entrenched Alibaba not only on the buyer but also on the seller side becomes.

When a marketplace like Taobao makes you escape poverty, you then depend deeply on the income it provides. This makes it unlikely (not impossible, but unlikely) to switch to a different platform as a seller; wether that may be Tencent's WeChat, JD or Amazon Marketplace or any other platform. You go all in on what lifts you up higher than anything that came before.

So, whoever gets those sellers first online likely earns a lot of loyalty from them in the process.

Alibaba invests in rural infrastructure, via Quartz:

It’s focused especially on the central and western regions, where the company will invest 10 billion yuan to build 100,000 Taobao service centers in remote areas and expand logistics and training to bring villages up to speed for how to Taobao-ize their economy. The central government has signed agreements with both Alibaba and Jingdong, another major platform, to spur e-commerce development in the name of poverty alleviation.

Besides more 'traditional' companies and, for example, the whole Shenzhen consumer electronics ecosystem churning out gadgets, this is also what we mean when we talk about Chinese marketplace sellers:

Taobao entrepreneurs in Daiji have started selling costumes abroad, particularly to Malaysia, Vietnam, and other countries in Southeast Asia. The next step, they say, is to improve the quality of the costumes enough to reach higher-cost markets in Europe and the United States.

Not surprisingly, those small to mid-size operations need all the help they can get to sell their goods abroad. This long tail will almost always go with the one-stop-shop solution.

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