In a recent cross-border investment conference organized by 1688, Alibaba’s online wholesale platform, merchants eager to dive into cross-border sourcing posed questions on a variety of topics, inquiring about strategies for newcomers to thrive on 1688, issues with product uploads, and more.
Back in November 2023, 1688 announced an upgrade to its cross-border e-commerce services, coinciding with internal changes within Alibaba.
In early 2022, Yu Yong, one of Alibaba’s cross-border business veterans, was appointed president of 1688. In November 2023, Alibaba Group CEO Eddie Wu announced that 1688, along with Xianyu (also known as Poshmark), DingTalk, and Quark, would form Alibaba’s first wave of “strategic innovation businesses.” Notably, 1688 and Xianyu were upgraded to become primary businesses under Taobao Tmall Commerce Group (also known as Taotian Group), Alibaba’s domestic e-commerce arm.
While this may seem like an aggressive move, industry insiders speculate whether it’s more of a defensive move by Alibaba. 1688, a mainstay in China’s B2B e-commerce sector, must now protect its domestic factory merchants while venturing into overseas B2B territory.
No turning back
1688 has been in the spotlight before, credited to its connections with major OEM factories producing a range of goods from apparel to electronics, sparking buzz on social media.
Take Mu Qin, for instance. She stumbled upon 1688 through recommendations on social media platforms like Douban and Bilibili, subsequently making purchases mostly in May 2023. Her purchases comprised primarily earrings and necklaces. “Buying from 1688 means getting quality items at a good price. It’s a win,” she said.
It is this perceived cost-effectiveness that has made 1688 a new favorite for many consumers. But for 1688, its true capability stems from its source factories.
As China’s largest online wholesale trading platform, 1688’s main battleground is the B2B market. According to a report by iResearch Consulting Group, the export value of cross-border e-commerce in 2022 reached RMB 66 trillion (USD 9.1 trillion), achieving a 9.4% growth. Projections indicate that, by 2028, global cross-border e-commerce will surge by 25%, reaching RMB 21.3 trillion (USD 2.9 trillion).
Contrast that with a saturated domestic market, where e-commerce platforms engage in price wars, squeezing merchants’ profit margins. To secure more significant returns, expanding into overseas markets is becoming increasingly imperative.
One standout in 2023 is Temu, an overseas e-commerce platform and the sister company of Pinduoduo. Since its launch in September 2022, Temu has reached 47 countries worldwide, amassing over 200 million app downloads. Temu adopts a high-volume, low-margin strategy, introducing a full-service model and a buyer review system. Under this model, merchants relinquish some pricing power, and factory-type sellers are more likely to profit.
The recruitment of factory-type merchants has become a core component of Temu’s supply side, drawing merchants from 100 high-quality industrial zones in China, including those in Guangdong, Fujian, Zhejiang, Jiangsu, Shandong, and more. Factory-type merchants were originally the backbone of 1688’s supply side.
Although Temu primarily targets consumers, the influx of factory-type merchants may be sufficient to concern 1688.
From the perspective of factory-side resources, 1688 is well-suited to go global. Out of China’s 192 A-level and above industrial belts, 1688 has a presence in 174, with an annual business volume that can reach up to RMB 2 trillion (USD 278.4 billion). In the minds of merchants on platforms like Taobao, Pinduoduo, or influencers selling goods on Xiaohongshu (also known as Red) and Douyin, 1688 is the go-to for finding suppliers.
From one perspective, 1688 can already be considered part of the cross-border e-commerce landscape. Attracted by its rich factory resources, overseas businesses would typically use service providers to purchase goods from Chinese factories via 1688. This is a practice also known as reverse cross-border purchasing. Furthermore, 1688’s mobile app now has a dedicated portal that serves as its official cross-border channel.
According to data provided by 1688, in 2023, its online transaction scale surpassed RMB 800 billion (USD 111.3 billion), with a quarter of the transactions coming from cross-border businesses. 5.94 million cross-border buyers used the platform between January and November last year, representing a year-on-year increase of over 76%. With this solid foundation, 1688 won’t need to start from scratch in its foray into cross-border e-commerce.
The recent upgrade signals that 1688 is stepping up, leveraging artificial intelligence technology to roll out three cross-border sourcing solutions: the Xunyuantong API, overseas direct procurement, and source exchange.
Among them, the Xunyuantong API has been touted as the primary business. Through an API interface, it redirects the official 1688 webpage to overseas procurement websites collaborating with the official site. With controllable, systematic, and replicable services, the API’s aim is to help scale businesses. According to publicly disclosed data, after European and American procurement merchants accessed the API, their daily order growth increased by 69%, and Japanese procurement merchants’ daily orders also increased by 42%.
Reinventing the wheel or charting another path?
Alibaba is a titan in the e-commerce industry, operating a wide range of ventures covering both domestic and international retail and wholesale markets. While each arm of its business is expected to operate independently, competition among them is inevitable.
Alibaba’s international business segment can be divided into international retail and global wholesale, featuring the likes of Lazada, AliExpress, Trendyol, and Alibaba.com:
- Lazada primarily focuses on Southeast Asia and continues to contend for top spot in the fast-changing Southeast Asian landscape.
- Trendyol dominates the e-commerce scene in Turkey, with orders in the 2023 fiscal year soaring by approximately 47% year-on-year, and its gross merchandise value (GMV), based on local currency conversions, witnessing a 110% surge.
- AliExpress, known as the “international version of Taobao,” mainly handles international retail. In the 2023 fiscal year, AliExpress expanded its reach to 215 countries and regions, offering a plethora of high-value products. It also actively invested in new markets like South Korea, achieving a growth of over 30% in South Korean orders.
- Launched in 1999, Alibaba.com focuses mainly on global wholesale operations. According to Alibaba’s 2023 financial report, as of March 31, 2023, Alibaba.com had over 220,000 paid supplier members worldwide. Additionally, the platform witnessed a 110% growth in GMV and a 47% increase in orders in 2023, with a compound annual growth rate (CAGR) of over 100% in paying buyers over the past three years.
From a business perspective, there’s a significant overlap between 1688 and Alibaba.com. Both primarily cater to B2B clients, with 1688 historically focusing on domestic online wholesale. It’s no wonder that many merchants, upon hearing about 1688’s international venture, immediately equated it to an overseas version of Alibaba.com.
So, do 1688’s cross-border operations clash with Alibaba.com, or do they complement each other?
Firstly, in terms of customer engagement, 1688 facilitates indirect interactions between merchants and overseas buyers through API integration, with all dealings handled by procurement agents. In contrast, Alibaba.com allows merchants to directly engage with overseas buyers, enabling them to receive asset deposits more easily, improving customer retention.
Additionally, concerning shipping and logistics, under the cross-border model, merchants using 1688 are only responsible for domestic logistics—sending their goods to domestic cargo terminals. Once inspected and approved, the domestic shipping task for merchants is complete, with the remaining international logistics handled by procurement agents or service providers.
On the other hand, Alibaba.com offers two shipping modes. Merchants can either utilize their own freight forwarders or customer agents when drafting orders. Alternatively, products labeled as “ready to ship” on Alibaba.com can be ordered and fulfilled directly by Alibaba’s logistics network, allowing merchants to ship products to Alibaba’s warehouses for a fee, following which the warehouses dispatch the shipments accordingly.
Alibaba has been gearing up for international freight, with its logistics arm Cainiao continuously enhancing its global logistics network, primarily serving merchants on platforms like AliExpress, Tmall International, and Lazada. As of March 31, 2023, Cainiao operates 15 overseas sorting centers.
Cainiao has also collaborated closely with Lazada and Alibaba.com, launching a service called “AliExpress Premium Shipping” that offers freight support for cross-border e-commerce across different platforms. However, whether 1688 will join forces with Cainiao to roll out new logistical methods remains uncertain.
Overall, although 1688’s cross-border operations and Alibaba.com exhibit direct business conflicts and vastly different operational models, the main difference lies in their direct engagement with overseas buyers. Moreover, they cater to sellers with different preferences. As for how 1688’s operations will impact AliExpress, Lazada, and Trendyol, it remains to be seen as it gradually launches its cross-border services in Southeast Asia, Europe, the Americas, Japan, and South Korea this year.
Navigating e-commerce realities
The main entities in foreign trade are mainly divided into three categories: physical factories, trading companies, and individual small-office, home-offices (SOHOs). Among factories, those with substantial scale and a well-established operational structure could enjoy a dual advantage in both sourcing goods and running e-commerce operations. However, factories may vary in their understanding of e-commerce operations.
Take Sangsang, for instance, which is a Zhejiang-based factory producing plastic flower pots. Despite being a small factory operated by fewer than 40 employees, it has been active on 1688’s platform for four years. During this period, Sangsang has garnered over 1,500 fans, achieved a perfect store rating, and demonstrated notable delivery capabilities, delivering up to 200,000 units of its main product within 7 days. With its “Super Factory” status, Sangsang has enjoyed above-average customer retention rates and sales.
Yet, Sangsang has opted not to utilize 1688’s cross-border sourcing solutions. The reluctance of the business to be an early adopter could boil down to concerns regarding operational investment.
Sangsang revealed that it maintains two accounts on 1688. One involves paying an annual fee, while the other invests RMB 300,000–400,000 (USD 41,730–55,650) annually in operations. “Paying the annual fee tends to attract more inquiries from clients, while the other account seems to be better at attracting the kind of clients we’re looking for,” the company explained. “To gain traction on 1688, various operations are necessary, including order placements and traffic generation, to gradually build a customer base.”
Although Sangsang has yet to jump on the bandwagon, it has previously received overseas orders, including from domestic trading companies and overseas buyers. “Freight logistics are very convenient. We have corresponding contracts, and the express fees are covered by the domestic port. As for customs clearance and subsequent logistics, they are handled by the other party.”
Given that it is currently self-sufficient, Sangsang understandably has no immediate plans to work with 1688 in terms of cross-border sourcing, noting the upfront investment that may be required.
Although 1688 has advocated for a streamlined operational model for cross-border sellers, advising merchants to maintain their existing business models without incurring additional costs when signing up, whether operations are truly unrequired to improve store rankings, exposure, and traffic opportunities remains to be seen.
Xiaoxiao, a small family-run factory that specializes in processing shoe sole materials, responded to inquiries about e-commerce and cross-border trade, saying that “processing factories fall into different categories, and that factories like [Xiaoxiao] can only operate offline,” adding that 1688 was unheard of.
It’s therefore evident that some manufacturers remain unfamiliar with all e-commerce platforms. There may also be other manufacturers that are capable of operating online but lack knowledge of channels, rules, and the platform types that suit their business. Rather than urging rapid adoption, identifying ways to bridge such information gaps may prove more effective.
Although a sizable number of merchants still hold a wait-and-see attitude toward 1688’s cross-border plans, there is another group that have already joined with the intention of becoming early adopters. On December 17, during a cross-border investment promotion conference organized by 1688, Jiang Yixin (alias: Baiye), the company’s head of cross-border supply, expressed that merchant enthusiasm is notably high. “Less than seven days after the official launch of our cross-border business, the number of successfully registered goods has reached 50 million,” Jiang said.
Merchants that have already joined 1688 have expressed that they do not yet sense the changes that have been implemented. Since the domestic and overseas versions of 1688 have not yet been officially separated, some say they are unable to determine whether the orders they receive are from domestic or overseas.
At the same time, infringement remains a concern for some merchants. Merchants who meet the criteria for cross-border trading, after completing a one-click entry, all items in their store that meet the criteria will be displayed on the overseas page. However, some merchants may prefer to input them selectively.
In 2024, the competition for factory resources will still be one of the core battlegrounds in the e-commerce industry. Will platforms with factory resources successfully establish overseas channels, or will platforms with overseas channels quickly plunder factory resources? In either case, this is a developing story that has just begun.
This article was adapted based on a feature originally written by Li Yao and published on Ciwei Gongshe (WeChat ID: ciweigongshe). KrASIA is authorized to translate, adapt, and publish its contents.