If all goes as Ma and Zhang hope, Alibaba and American companies could reap enormous rewards. Alibaba earns money by charging fees of 2% to
5% on transactions on its sites, and in fiscal 2015 it took in $12 billion in revenue. Bob Peck, analyst at investment firm SunTrust Robinson Humphrey, estimates that U.S. and European goods could generate $30 billion to $40 billion in annual sales on Alibaba by 2017. That could add as much as $2 billion a year to Alibaba’s top line. And while many of the goods sold by international brands are, ironically, made in China, an Alibaba bump of that size could still generate a double-digit percentage
increase in U.S. exports to China, which totaled about $120 billion in 2014.
That’s the best-case scenario. As Zhang admits, “What sells in the U.S. doesn’t necessarily sell in China.” For Alibaba there’s the risk that U.S. brands will use it to “showroom” goods—and then abandon it for other sales channels, says Ben Cavender, an analyst with China Market Research Group. Still, it’s a relationship with tremendous potential, and Fortune recently took a closer look at its rapid evolution.
Alibaba’s flagship website, Taobao, which launched in 2003, is essentially China’s eBay. It’s an eclectic virtual bazaar dominated by small businesses and individuals selling to one another, where shoppers can find oddball collectibles from mom-and-pop retailers, jeweled iPhone cases, and live scorpions. In its early years Taobao also became a market for counterfeits of foreign brands—a problem that persists today, though Alibaba has
taken steps to curb it.
Alibaba’s other site, Tmall, went live in 2008 with a business model sharply distinct from Taobao’s. Tmall is Zhang’s brainchild. He positioned it as a marketplace for higher-quality clothing, food, and electronics, with a focus on luxury brands. This is where visitors browse and buy everything from Olay face creams to Burberry coats. It’s also the site on which Alibaba has staked its growth. Taobao is still the bigger platform, generating $69 billion in gross sales for the quarter ended Sept. 30, compared with $43 billion for Tmall. But Tmall’s gross sales grew 56% year over year that quarter, four times as fast as Taobao’s.
Tmall owes its growth to China’s rapidly expanding, brand-conscious middle class. Currently there are 109 million Chinese people with a net worth between $50,000 and $500,000, according to Credit Suisse, which estimates that those ranks could surpass 500 million by 2022. It’s a demographic that’s very comfortable with e-commerce: 40% of Chinese consumers buy groceries online, for example, compared with only 10% of Americans.
What many aspirational Chinese want most is goods from abroad. Foreign brands often carry a better reputation than their Chinese equivalents; recent crises involving toxic chemicals in Chinese-made food and cosmetics have fueled that sentiment. Min Su, a forty something professional in Hangzhou, underscores the point. “I’m addicted to buying beauty products on Tmall,” she says. But she trusts only brands like
Kiehl’s and Lancôme, saying they’re safe to put on her skin. “I don’t buy in stores,” she says; she doesn’t trust them either.
Tmall oﬀers U.S. companies a portal to consumers like Min. But selling on the site is only half the battle. “It’s incredibly diﬃcult to set up operations in
China, even if you are a large brand,” says Cavender, an analyst. Like all foreign companies, Tmall partners must establish a Chinese-licensed business unit and a Chinese bank account. Paperwork to obtain licenses and permits must be filed in person, often with multiple agencies. Even opening a bank account can take months. Consequently, big U.S. companies that had already invested in China infrastructure—Nike, P&G, Gap, and, yes, Amazon are prominent examples—have taken advantage of Tmall. But for others the bureaucracy remains daunting.
That’s why Alibaba is holding the Access Asia 2017 Trade Summit in Los Angeles to help U.S. companies learn how to attack the obstacles and establish a successful trade business with China. RepDM, a partner in the project is a Los Angeles based company that also oﬀers turnkey services
to American companies to help them set up their export business
operations to China and other Asian countries. Together RepDM and it’s partner companies along with the Alibaba Group are working hard to
create a “cross-border” marketplace that oﬀers a huge, helpful regulatory loophole to start doing business faster and easier in Asia.