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Saturday, 31 January 2015 02:46

Lessons For Africa From Alibaba

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So we know that China has a strong division that has complete focus on creativity. They want the next Steve Jobs to come from this selection of innovators. But has this worked before? China already has a success story and with a population in excess of 1.4 billion people, serves as a proportionate example for the African continent.

“Ebay is a shark in the ocean. We are a crocodile in the Yangtze River. If we fight in the ocean, we will lose. But if we fight in the river, we will win” – Jack Ma, Alibaba Group executive Chairman

Much of what has been preached for emerging markets have not been the lessons from successful emerging markets, but rather success lessons from developed nations. There is a fundamental curse in this. It creates a perpetual cycle of dependence on these very developed nations.

Considering the quote above, Africa has some tactful lessons to learn from the Alibaba story. It starts with the following premise, considering the numbers of internet appeal in China, the market potential is not only massive, and it is growing. “China had 618 million internet users at the end of December 2013, according to China Internet Network Information Center, or CNNIC; that figure was up 9.5 percent year on year but still represented less than half the national population, showing clear room for growth.”

The best way to understand the Alibaba story is to understand the context of the Chinese market in direct relation to the opening quote by Jack Ma. Alibaba is ‘simply’ a mix of, eBay and PayPal with a ‘rush’ of Google around the edges. But, it Services the Chinese market first.

How big is Alibaba in real terms:

How big a market is China? Well, Alibaba – through its various sites – hosted $248 billion of online shopping transactions last year, which is, according to the Wall Street Journal, more than eBay and combined. The Journal cites data from a group called iResearch projecting that China’s e-commerce market has gone from $74 billion in 2010 to $295 billion by the end of 2013, with a  projected total of $713 billion by 2017. The Hong Kong broker CLSA says that 80 percent of China’s online shopping is done through Alibaba.

Why does Africa stand to learn from Alibaba? Well when you have a ecommerce phenomenon like Alibaba with profit greater than that of eBay and Amazon combined.

The ecosystem of Alibaba is made up of other sites such as where 80 percent of their revenue is derived from. But, it all started with the world’s largest business to business ecommerce platform, a place that helps connect buyers and sellers.

Sam Grobart researched the process of buying via Alibaba and was able to select clothing items from a manufacturer who uses Alibaba. In this way, manufacturers have a greater scope for connecting with buyers, giving them exactly what they want and even cutting out the middle man in the retail part of the sector.

What Alibaba has gone on to do is give the buyer the option of completing a “Buying Request” form. This is where the bur or customer can complete the exact specifications of what it is they are looking for and what their exact needs are. Grobart says that within one day he had replies from manufacturers in China, India, Pakistan and the Czech Republic.

Alibaba then allows the customer to pre and de-select suppliers based on their tier status. Gold tier status would mean they are verified and are not running a scam. So once you have selected which supplier you will use, the supplier needs some form of upfront payment. For this Alibaba has “Alibaba Pay”. This process will hold your money until you are satisfied with your order, before any money is paid to the manufacturer.

In terms of its business model, Taobao, Alibaba’s biggest website, is like a gigantic Chinese fête comprising of approximately 760 million product listings from 7 million sellers. “Merchants don’t pay to sell products on Taobao and that fee-free model is a big part of its appeal in China.” I can attest to the simplicity of the process when in 2012, when in Shanghai I ordered a Samsung smartphone and it was delivered the very next day. A few of my colleagues and friends from around the world also gave it a try, and were fairly impressed with the entire process.

Similarly though, model for ad-revenue is where merchants pay Alibaba for advertising and other Services that rank almost to an online optimisation model for the internet. Much like on Google, the ads from merchants appear with Taobao’s product-search results.

Similarly, Africa, in every corner of this continent there rests great need for business to business, customer to business, customer to market, farmer to market, buyer to buyer and market revenue models for displaced people from war stricken areas.

The great model I seek to accentuate here for the African market and an African innovator is that 80 percent of Alibaba’s revenue comes from Taobao and Tmall. What is significant about this 80 percent you ask? 80 percent of their revenue is from the Chinese market itself.

Consider that African has over 635 million mobile phones, over $1 trillion unbanked in the informal sector, border-locked countries with inadequate infrastructure – wouldn’t you say that there is a greater potential for an innovative model for Africa to expand commercialisation?

Africa’s mobile market is burgeoning and so is the need innovate on getting the various products out to the various tiers of income groups throughout Africa. With Africa on the precipice of technology and industrialisation, some form of model has room for the African market to bridge the gap between buyers, consumers, businesses with ecommerce as the foundation and traction.

Some lessons for Africa from Alibaba;

  • Solve the problem in your backyard and learn from other developing countries
  • Start local with the thought of global never far away
  • Mix invention of commercialisation with innovation of tech and use of tech
  • Remember the internet has the biggest footprint and access to markets
  • Tech start-ups are not just for software geeks
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