China's Visionary B2B

Who says the dot-com era is over? Alibaba.com thrives as Chinese imports and exports boom. CEO Jack Ma has vision of helping SMEs buy and sell goods through his sites.

Who says the dot-com era is over? Alibaba.com thrives as Chinese imports and exports boom. CEO Jack Ma has vision of helping SMEs buy and sell goods through his sites.

NOW THAT RED HERRING is gone, one may think all the buzz about dot-coms and dot-bombs is finally over. Not so fast. China-based Alibaba.com is not only alive and kicking, but also taking giant strides in the global e-commerce industry.

Everyone knows China is becoming a huge exporter of manufactured goods and services, but how can an importer outside of China find reliable suppliers among the millions of Chinese manufacturers? Just click on Alibaba.com, boasts company CEO, Jack Ma.

Founded in 1999, B2B e-commerce site Alibaba.com now claims to have 1.7 million users from more than 216 countries. Click on the site and you will find Chinese suppliers of automobile parts, jogging pants, electric scooters, UBS flash memories and even an educational toy that helps children learn the holy Koran. Buyers can browse company information and trade leads in 27 industry categories and 700 product sub-categories.

"Alibaba.com is getting stronger and stronger," the 39-year-old Ma proudly declares. "There are at least one million businesses in China wanting to sell things abroad." But most of them are small-and-medium-sized enterprises (SMEs) that usually have no sales channels outside of their home country. "The only thing they could do before is travel around the world to open exhibitions or join trade fairs. That's too expensive for SMEs. For them, the Web is the best way to sell," explains Ma.

A significant part of the company's business lies in Chinese to Chinese interactions -- another area of rapid growth. Alibaba.com has 1.2 million users in China alone.

In addition, Alibaba.com now has a Japanese site. In the first six months of its existence, the site boasts double-digit growth in the number of Japanese subscribers. While backed by established Japanese partners such as Nikkei BP, Sumitomo-Mitsui Bank and the Japan External Trade Organization (JETRO), it has also raised fresh money from a Japanese venture capital firm, Japan Asia Investment Company (JAIC.)

'Crazy' Ma
Asiaweek magazine once affectionately called Alibaba.com's energetic CEO "Crazy" Ma -- perhaps quite rightly. Ma and his team of 18 founders raised $25 million from big-name venture capital firms -- Softbank, Fidelity and Goldman Sachs, to name a few -- smack in the middle of the dot-com bubble. From the beginning, however, Ma explained to his investors that Alibaba.com would make no money during its first three years, or until the company acquired 1 million subscribers. "I told them at the very first meeting, 'Don't push us. We know what we are doing,'" recalls Ma. And he flatly admits that his company didn't make money until 2002.

But Ma had reasons to believe his business model would work. For one thing, he already had Internet business experience by the time he and his colleagues founded Alibaba.com. Born and raised in Hangzhou, a two-hour drive from Shanghai, Ma was an English teacher who wanted to get into the business world. In 1995, the year Steve Jobs founded Amazon.com in the US, Ma personally raised $2,000 from his relatives and friends to launch Chinapage.com, which he says was China's first Internet company. Later, he was invited by the Ministry of Foreign Trade and Economic Cooperation (MFTEC) to help establish another Internet company. That gave him hands-on experience in working with the government, but he called it quits after 14 months. "I realized that you can never expect a government company to grow. So I left to set up my own," says Ma.

Also, Ma knew China's accession to the World Trade Organization (WTO) would come eventually. "It wasn't whether we should go or not, but where we should go," he says. In 2001, the year China joined the WTO, that country's trade performance remained outstandingly strong for both merchandise and services trade. In the ranking of merchandise exporters and importers, China rose to number four, ahead of Canada, according to the WTO. In 2002, China's imports and exports exceeded $620 billion. Exports rose 22.3 percent to $325.57 billion, and imports grew 21.2 percent to $295.22 billion, according to Chinese customs statistics.

Perhaps most importantly, Ma argues that his company knows what its Chinese customers want: "In the dot-com days, everyone had beautiful Power Point documents. But they don't want transactions; they don't even understand what transaction means. They need C = customers, and B = business," says Ma.

Ma feels global companies tend to focus too much on big companies. "SMEs are the future of Asia, and the future of China. Many people believe in big companies, saying we should get more money from big companies, we should do transactions with them, et cetera. But I disagree. Asia is Asia. China is China. Unfortunately, in Asia, the market is too fragmented that we have no standard. There is no standard for e-commerce, SMEs, or B2B. Our job is to establish the standard. We cannot create beautiful Power Points, but we know how to listen to our customers." And the company does listen. Alibaba's sales staff is encouraged to go door-to-door to reach out to company managers and to inspect factories.

Tough Times
The initial cash infusions from venture capital firms allowed the company to quickly expand globally. It transferred its headquarter from Hangzhou to Hong Kong and established bases in Silicon Valley, Beijing, Shanghai, Seoul, London and Latin America.

But Ma and his team had their share of struggles. Ma recalls: "The year 2000 was a difficult year. Our team was young -- only a year old. We saw things were still going up, but knew it would surely go down. We didn't know how deep it the fall would be, how bad it would be. Besides which, we had virtually no revenue."

In late September of 2000, Ma announced that Alibaba had arrived at its year of risk and opportunity. He told his people, "If we don't adopt the right strategies, we will die." That gave birth to three B2C strategies; B2C=back to China, B2C=back to Central (from Hong Kong back to Hangzhou,) and B2C=back to the Coast, the richest region of China.

Downsizing and restructuring followed. But Alibaba's membership continued to grow, even in the middle of such jitters. By its third anniversary in March of 2002, membership in its China site had reached 1 million -- a breaking point Ma had promised his investor. Ma was ready to move. For the year 2002, the company set only one target: Make a profit of one dollar. "We said, 'Let's make one dollar in profits for the whole year. We spend 5 million US dollars, we should make at least one back. If we spend 10 million, we should still earn one dollar.' So, we spent the whole year trying to make one dollar," says Ma. "When we set the target, everyone said I was stupid. But the whole company had a clear target throughout the year. The young people in the company had never had experience making money. Even if we say we are going to make 10 million dollars, how are we going to make it? But the one dollar target is something we could make if we just saved electricity, for example."

That strategy seemed to work. By October, the company had made half a million RMB, much better than one dollar, and Ma says revenue continues to grow. Just how well Alibaba.com is doing right now is beyond verification, as the company doesn't disclose financial figures. But company sources say the company's revenues retain double-digit growth each month.

China Money
Ma says his company has got plenty of cash. "The reason why we got JAIC investing in us is not because we are short of money: It's just for our Japan strategy. Now we have solid cash. We are even thinking about investing out," he says.

But how exactly does Alibaba.com make money, when the worldwide recession makes it impossible for a dot-com company to rely on revenue from banner ads? The answer is membership fees from China. Because of the company's B2C strategy, almost 99 percent or its revenue today is from China. Alibaba.com now offers two types of membership. A "China Suppliers" member pays $8,000 per year. China Suppliers is an online community enabling international buyers to source quality products from China. All listed China Suppliers members are qualified export enterprises, screened by third party credit agencies. Alibaba.com started the premium service in late 2001. "We started from $3,000. In China, at least 1 million businesses want to sell things abroad, especially after we joined the WTO. The market is huge. Our customers welcomed our services, so we raised the fee to $5,000. In the middle of 2002, we increased the price further to $8,000. Our customers seem to have no problem with that," says Ma.

In addition, the company started to charge a TrustPass membership fee to any company who wants to join Alibaba.com as of March 2002. Now, every applicant must pay $299 and go through an Authentication & Verification (A&V) processes. Thousands of companies have since joined the site and the number is growing by about 200 daily, according to Ma.

Thus far, Alibaba.com has never tried to charge from outside of China. But money from outside is starting to come. "We notice that foreign companies who want to come to China would pay us. Even GE signed a contract with us in February; they want to purchase 200 products through Alibaba.com, as they believe that the quality of our members is high," Ma explains, though he cautions that this is only a test case.

Japan, Japan and Japan
This year, Alibaba.com's No. 1 priority is Japan. "We told everybody that we only do three things now: Japan, Japan and Japan. This is the message we've got. 'Let's learn from Japan about quality and service.' If we can serve Japanese customers well by their quality and service standards, we can serve customers all around the world. If you want to be a first-class company, you have to learn first-class quality service," Ma explains.

Japan is China's largest trading partner. In 2002, China's foreign trade with Japan reached $101.91 billion, according to Chinese customs statistics. The US and EU ranked second and third in terms of total trade volume with China, exporting and importing $97.18 billion and $86.76 billion with China last year respectively. According to Alibaba.com's Web survey, close to 90 percent of surveyed businesses in China want to do business with Japan. Ma says: "I believe three years from now, trades between China and Japan are going to skyrocket. When we see a wave, we have to prepare for it before it arrives. That's why we have set up a Japan site and Japan team,"

Ma is not in a hurry. "We will spend five years -- even 10 years -- looking at that. It's not a short-term thing."

But helping Chinese companies sell their products to Japan isn't the only goal. Alibaba.com is also looking to help Japanese SMEs enter China. Ma was invited to several business seminars in Japan over the past two years and realized that Japanese companies wanted to get to China, but didn't know how. Alibaba's hope is that in five years, those Japanese SMEs who want to enter China will visit Alibaba first.

A Matter of Mission
Alibaba.com has time on its side, as China takes increasingly gigantic strides into the arena of global trade. The company appears to be one of the very few survivors of the dot-bomb era. Is it just luck? Ma thinks it's a matter of mission. "We don't know theories, but we are the ones who came in from the bloody battlefield, and we know which way to go. It's not investors' money that will take us there, and it's not money that forces us to go. It's our mission: to help China's suppliers." In fact, every new employee must go through a six-month training program to learn about the company's mission, vision and values.

Ma's guru-like charisma and energy may have something to do with his company's success -- but don't tell him that. According to him, the moment you think you are successful, you start to fail. @