Why the Alibaba model is China’s next great export

Porter Erisman is a former Alibaba Group Vice-President and director of the independent documentary film Crocodile in the Yangtze: The Alibaba Story.

Back in 1999, as ecommerce boomed in the US and Jeff Bezos was named Time Magazine’s ‘Man of the Year,’ those of us living and working in China could only watch with envy and admiration as companies like Amazon and eBay transformed commerce in the developed world.

The hope of replicating Amazon and eBay’s success in China seemed a near impossibility. Less than one percent of China’s population was online. China’s logistics infrastructure was primitive. China’s finance sector was dominated by inefficient state-run banks slow to embrace online payment systems. And, perhaps most importantly, buyers and sellers who didn’t know one another simply didn’t trust each other enough to transact online. The barriers to consumer ecommerce in China seemed insurmountable.

Fast forward 15 years and it’s hard to believe that the consumer transaction volumes of my former employer, Alibaba Group, now surpass the worldwide sales of eBay and Amazon combined. By innovating services that fit the needs of local customers, rather than aping the models of its foreign counterparts, Alibaba overcame China’s long list of barriers to ecommerce.

To overcome the trust barrier, Alibaba made AliPay an escrow-based payment system. By allowing its buyers and sellers to communicate in real-time through its integrated chat system, Taobao replicated the very human offline experience of bargaining and building personal relationships in an online environment. These, along with many more localized innovations, provided the necessary breakthroughs for ecommerce to flourish in China after the US ecommerce models failed to gain traction.

See: Alibaba’s history in 9 photos

In the wake of Alibaba’s IPO, a lot has been said about the event’s significance. But one lesson stands out above all – Alibaba’s experience has proven that while ecommerce is slower to take off in developing countries, once it finally does take root, it is much more important to developing countries than to developed countries. Or as my former boss, Jack Ma, likes to put it: “In the West, ecommerce is just a dessert. But in China, it’s the main course.”

Alibaba’s experience in China should offer hope to other developing countries facing similar barriers to ecommerce. Just as China leapfrogged to mobile phones before the infrastructure for landlines was built out, China’s entire retail infrastructure has leapfrogged to ecommerce without having gone through the lengthy process of building out a national network of brick-and-mortar retailers. The impact of Alibaba and its consumer websites Taobao and TMall has reached beyond the urban centers and deep into China’s hinterland, transforming impoverished villages into “Taobao villages” where local villagers have created online shops based out of their farmhouses.

The good news for other developing countries is that there is no reason that the ecommerce revolution in emerging markets needs to stop at China’s borders. Now that China has proven that ecommerce can thrive in developing countries, investors and entrepreneurs in other countries can learn from Alibaba’s example.

Indeed, over the last 12 months as I’ve traveled the world to screen my documentary film, Crocodile in the Yangtze: the Alibaba Story, I’ve noticed an interesting trend. No longer are ecommerce companies in emerging markets calling themselves the “Amazon” or “eBay” of their home country. Whether it’s the founders of Konga.com in Nigeria, Flipkart in India, or Tokopedia in Indonesia, the entrepreneurs I’ve encountered are now more likely to learn from and compare themselves to Alibaba.

Alibaba’s greatest contribution to ecommerce may ultimately be that it has developed a unique business model which better fits the local conditions of developing markets. By demonstrating that the barriers to ecommerce unique to the developing world can be overcome, Alibaba has shown that ecommerce entrepreneurs can create a reliable ecosystem for commerce where governments and other institutions have failed. In the past, China was best known for its export of cheap goods. But China’s most recent export – the Alibaba model – provides hope that the rest of the developing world may be about to enter its own golden era of ecommerce.

Why the Alibaba model is China’s next great export