November 16, 2018

SPOTLIGHT ON THE “TAOBAO VILLAGES”

Taobao : It is Alibaba’s e-commerce platform, launched back in 2003. This C2C platform gathers today over 500 millions of active users. Besides, they also developed a B2C platform in 2008 called T-Mall. These two platforms saw the transaction of some 3 trillion yuans over the year 2017.

It is very likely that a large part of the Halloween costumes worn this year in the coastal cities all come from the same place: a small village in a rural province of China, which specialized in the confection of costumes that they then sell online. This is what we call a “Taobao village”, another aspect of the retail revolution taking place in China. In this month’s article, we provide you with a reading of this phenomenon, which we hope can also be a source of inspiration for your approach of the Chinese e-commerce. What are exactly these “Taobao villages”? How rural entrepreneurs with few resources at hand managed to appropriate these tools and how do they use it? Knowing about “Taobao villages” and these micro-enterprises can be of interest, especially for European retail companies who also need to appropriate themselves the Chinese e-commerce.

A rural community geared towards e-commerce

The official definition of a “Taobao village” is a rural community in which at least 10% of the families use Taobao for retail, or where 100 online shops were open; and where the trading volume reach at least 10 millions of yuans. This definition is given by Aliresearch, the research department from Alibaba, whose mission is to collect and make use of the enormous amount of data Alibaba have at hands. The “Taobao villages” developed themselves firstly with Alibaba (hence their names, from Alibaba’s famous e-commerce platform). The Chinese authorities were then prompt to support these initiatives as they contribute to reach primordial goals set in the 13th Five-Year Plan: eliminating poverty, developing the Western provinces and slowing down the rural exodus. As a matter of fact, 45% of the Chinese population still lives in villages (often much bigger than our European villages). The dose of personal entrepreneurship at the roots of “Taobao villages” is seen very positively by the authorities: seen as one of the key of the development success of coastal cities in China, entrepreneurship now moves to the countryside. Today, JD.com are promoting their own platform to rural communities.

Increasing by 25% in 2015, the number of “Taobao villages” reached 2 118 in 2017, with a total of 120billion of yuans in sales (Aliresearch). Overall, 1.3% of the Chinese population is involved in some e-commerce activity in 2017 (approximately 10 millions). Alibaba’s support is concretized in a 2017-2019 investment plan amounting to 1.6 billions of dollars. Their objective is to open 100 000 Taobao centers in rural places. The Chinese government also makes substantial investments (for the reasons mentioned above). It claims 300 millions of dollars allocated to 200 rural counties to build warehouses, train skilled manpower… The government overtly encourages young Chinese to come back to their native villages to open businesses. It seems so far to be working as 52% of these online entrepreneurs are less than 30.

An experimenting field for micro-enterprises

These statistics seem to point at the success of a rather new business model, with a unique management style: these micro-enterprises are often run by people will low qualification level, who seize the opportunity of low entry barriers to experiment, test their products with the market and adapt them, thanks to the statistics provided by Taobao and the customers feedbacks available. Most of these micro-enterprises produce in the villages and then sell in the cities, but some are the other way around. For those who sell in the cities, e-commerce brought them a significant improvement as it abolishes distances and they could get access to markets where consumers have more purchasing power. Regarding what is sold, there are different strategies. Some villages get specialized in the local food products (Ningxia’s Goji berries, Suichang’s bamboos shoots, tea and sweet potatoes…) while some others get specialized in a product that is not related at all to their localization (outdoor equipment, costumes…) An interesting pattern then stands out: most of the time, the online shops of a village all get involved in the same activity, bringing the specialization to the level of the village (and constructing thereby a sense of identity within the products). The very denomination “Taobao villages” implies an organization to the level of the village. Lastly, it seems that local food products are more successful as consumers await local products that are cheaper and potentially healthier (organic agriculture).

Regional specialization?

Not only do “Taobao villages” bring new products to the coastal cities’ consumers, but it also impacts on the very structure of these villages, creating new associations. In order to guarantee a certain quality for instance, some villages put in place “Taobao associations”, in a way similar to the industry chambers. Moreover, “Taobao villages” require a development of the tertiary sector (sales, delivery, storage), which in some cases amounts to 50% of the local gross product. At last, other activities develop, such as the eco-tourism. This last aspect is all the more interesting as it is also readily observable in Europe. Not mentioning the thematic travels around Europe (such as “Grands Crus tours” in Fance), every year more numerous, one can think of this small Bulgarian village, Momchilovtsi, which local yogurt became extremely popular in China recently, albeit because of a company and not because of e-commerce. As a result, this village now sees buses of Chinese tourists coming to visit. This example is telling as it shows the strength of local identity in nowadays branding in China.

How to fight competition on these platforms

“Taobao villages” actually do not alwqys run so smoothly, and they do encounter some difficulties. First of all, access to digital technologies is still limited in rural China with 1% of the families having a broadband connection in most of the villages (the official goal announced in “Internet+” is a 98% coverage by 2020). Another limit which is more closely linked to the e-commerce characteristics: branding remains limited and many businesses suffer fakes issues. Thus, in Qingyangliu, a “Taobao village”, only 20% to 30% of the businesses are making profit. The identified cause is the fact that the market is saturated and dominated by large companies.

Seeing either as an opportunity, or as a concept with a debatable long-term profit, “Taobao villages” nonetheless are a characteristic trait of the revolution of retail in China. They picture the dynamic entrepreneurial mindset of Chinese businessmen. They also confirm the analysis that e-commerce in China do open many opportunities because of the low entry barriers and larger access, but that many challenges remain when it comes to build a brand image on this already saturated market.

By Manon Bellon

Image credits: Greg Jenkins

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