How Alibaba.com is turning SMEs into multinationals (Part 2 of 2)

Differing regulations across borders, problems with payments, language issues—these may all be solved for small businesses.

HANGZHOU, CHINA - OCTOBER 25: (CHINA OUT) Jack Ma, founder and chairman of Alibaba Group, president of the General Association of Zhejiang Entrepreneurs, makes a speech on the Zhejiang Entrepreneurs Association on October 25, 2015 in Hangzhou, Zhejiang Province of China. (Photo by ChinaFotoPress/ChinaFotoPress via Getty Images)

This article first appeared on Jeffrey Towson’s blog

In Part 1, I argued that Alibaba.com is attempting to both digitize and democratize global trade—and to dramatically expand it from large companies to small and medium enterprises (SMEs). That’s a pretty big idea. And in Part 1, I laid out a bit of the theory behind this.

But let me get back to what Alibaba.com is actually doing this year.

This is from my discussions with their management and a visit to their exhibit at CES in Las Vegas. The summary is they are starting to enable SMEs to act like MNCs in terms of cross-border transactions. (Note: I came up with that phrase, which I have since heard them using, so I’m patting myself on the back a little.)

All platforms start with one or two core interactions. From there, they can build in lots of crazy ways, but there are usually one or two simple and powerful core interactions. For Taobao, it is consumers and small merchants buying and selling physical products. And to enable these core interactions, Alibaba provided the marketplace platform and the tools required. These tools include proven identities, reviews and trust, payments and escrow, and logistics and delivery.

So if the goal is to create a marketplace for cross-border trade, what tools do you need to enable the core interactions? At the CES exhibit, Alibaba.com was showing the early versions of some of the tools they are developing. Here’s what I saw.

A mobile app that lets you search for products globally

As mentioned in Part 1, platforms lower transaction costs. One of the most important of these costs (especially for a global platform) is the search cost. If your business just has one or two people behind it (say a table designer in Texas), how do you confidently find the right manufactured product in China or India?

Well, now you can download the Alibaba.com app on your smartphone. And you can start searching for the manufactured product you want (say iron legs for your custom tables). The app will show you options from China and eventually from around the world. This will be based on what you say you want, what you have bought before and what they know about you. And it won’t just search for the big manufacturers, it will look for hundreds of thousands of SMEs. And you can view the ratings and reviews of these suppliers, just like any other e-commerce search.

The app also lets you do this with the camera. You point your smartphone at a product you like (in person, at a photo, etc.) and the app will show results for manufacturers that make something similar. I tried this at CES by pointing the camera at a microphone—and I immediately got a list of manufacturers with similar products.

A video conference tool with simultaneous translation

The next step is often to talk with five to ten companies you like. But communication is a problem. It means flying to China or having staff that speak Chinese. Or sending faxes. Communication can be a big issue in cross-border purchases.

However, the Alibaba.com app has a video call tool with simultaneous translation. I tried it at CES and it worked really well. The person I called showed up on my screen and their spoken Mandarin was translated to English text on my screen.

Virtual factory tours?

In many situations, you would do a factory tour (or have someone do it for you). Alibaba is working on virtual reality for this.

Contracting, logistics, and payment

Ok. You now have the products you want to buy and the manufacturer you want to contract. And this is where we hit the major problems for SMEs trying to do cross-border trade.

  • What kind of agreement do we need? In what language?  Do we need a lawyer?
  • What are the regulations for importing this? Are they different for China vs. Vietnam vs. India vs. Brazil?
  • How do we send the money? Do we need to have the money held in escrow?
  • Who does the shipping? How do we get it through customs?
  • What if the goods are damaged? What if they take the money and just don’t send?

This stuff is all pretty complicated. It’s not surprising that SMEs don’t really do much cross-border stuff.

This is where Alibaba.com is really offering some amazing solutions.

  • They provide standard contracts for both parties, in the appropriate languages, that are legal according to appropriate regulations.
  • They handle government services. This is important.
  • They handle all the logistics. Basically, door-to-door, including through customs.
  • They handle payment, with escrow. And they are even beginning to offer credit services.
  • If there are any problems, they have dispute resolution services.

Note some of their advertisements below. By the way, “Buy Now, Pay Later” is like the greatest slogan ever.

Photo by Jeffrey Towson.
Photo by Jeffrey Towson.
Photo by Jeffrey Towson.

In theory, you can find the item you want on your smartphone. You can trust the legal, government, and payment aspects. And you can click and buy—and get your items in about five to seven days. In terms of decreasing transaction costs (which is the point of digital platforms), that is pretty amazing. “Global commerce at your fingertips” is a good slogan for all this.

Photo by Jeffrey Towson.

And it gets better.

The example I just gave is for a small US company sourcing from a Chinese manufacturer. But a bigger idea is not just to connect US and Chinese companies. It is to connect all the world’s SMEs. A company in Texas with just one or two people could one day source from suppliers across Asia. And from India. And Latin America. And so on. And they could also sell. The same Texas SME that just bought iron table legs from China could then use the app to sell their customized tables internationally. They could sell to the USA, Asia, Latin America, Europe, and so on. That’s how an SME becomes a multinational.

And the idea is actually even bigger than that.

As mentioned, platforms start out with one to two core interactions and scale them up. But once the core users are active on the platform, new user groups and interactions start to emerge. Here are some examples:

  • Tencent went from QQ to online gaming. And then to Wechat and then to payments.
  • Alibaba went from Taobao e-commerce to payments. And then to entertainment (Tudou-Youku). Today, content creators are an increasingly important user group.
  • Didi went from taxi-hailing to ride-sharing and then to bicycles.
  • Grab in Southeast Asia began in ride-sharing and then expanded to payments. It is currently expanding into multiple areas, including healthcare.

A platform that has digitized and democratized global trade could expand dramatically from its one or two core interactions. Other user groups could join the platform. These could include designers, financial services companies, influencers, and content creators.

Anyways, the current US-China trade situation notwithstanding, this is all pretty exciting.

Jeffrey Towson is a private equity investor, Peking University professor, best-selling author, and speaker. He writes and speaks about Chinese consumers and digital China.

This article is part of KrSAIA’s contributor opinion series, where experts share their views on technology and innovation. The author represents his own views, not KrASIA’s.