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E-commerce evolution, China Online Marketing, Shanghai, China

From Internet marketplaces Alibaba.com and Taobao.com to online payment tool Alipay, Yahoo! China and business management software Alisoft, Jack Ma, founder of Alibaba, seems to be riding high on a wave of hi-tech.

Many industry observers are raising the question – what is his next step?

And he does have more plans. The 42-year-old e-commerce leader gave his reply during the Fourth Alibaba Online Businessman Forum held in mid-September, when Ma made an hour-and-a-half speech on his strategic vision.

More than once Ma stressed the concept of the "ecology" of the sector.

"Alibaba’s business has been expanding and will continue to do so. I have never been more excited and confident in Alibaba’s direction forward," says Ma.

"In the next five to 10 years we will invest 10 billion yuan to create a mature e-commerce environment, offering a package of value-added services to both current and potential customers, both at home and abroad," he says.

The services will range from pre-transaction e-commerce training programs to online payment tools and post-transaction logistics and financing support.

Transition amid explosive growth

Jack Ma

Founded in December, 1998, Alibaba.com has grown with remarkable speed over the past nine years.

It has long been the dominant online business-to-business (B2B) marketplace where small- and medium-sized firms connect with each other. According to domestic Internet research and consulting company iResearch, Alibaba again held the largest share of the market in the first quarter of this year in revenues and registered users, both more than 60 percent of the total.

But Ma has is not content with the status quo, given the vast business potential of China’s e-commerce market.

"In the next decade, the local (e-commerce) industry will be enjoying high rates of sustainable growth. Now is only a starting point for Alibaba," he says.

Ma’s projection is in line with statistics from iResearch. The consultancy projects the local e-commerce market will grow 50 percent annually, reaching revenues of 7.5 trillion yuan in 2012, up from 480.9 billion yuan in 2006.

Yet the number of local companies now using e-commerce as a business tool is still small. A report from Alibaba says that sales from online transactions in 2006 accounted for just 16.62 percent of the nation’s total. The figure was even smaller in 2005, when 9.85 percent of sales were made online.

In addition, the great number of non-registered corporate users is where Alibaba also senses business opportunities.

In China, small- and medium-sized enterprises (SMEs) account for 95 percent of the total targeted customers of e-commerce companies like Alibaba. There are more than 40 million SMEs in the country, while the number of registered corporate users Alibaba is well below half of that, some 16.7 million.

Opportunities are there, but "how to make them happen is another critical issue left for Alibaba", says Wang Fang, analyst with iResearch.

Executives from Alibaba have been in intensive discussions over the past three months on how to implement a transition to attract more corporate users to join, says Ma.

"A better e-commerce ecology is what we unanimously believe is the best solution."

Alibaba is now positioned as not only a B2B marketplace where businesses can find each other, but also a business facilitator that helps them conclude deals by offering as additional services.

Wang from iResearch gives a nod to the new drive. "It sounds like a good idea, and could strengthen Alibaba’s brand awareness and loyalty," she says.

Lack of basic e-commerce skills, non-secure payment tools, inconvenient logistics, difficulty in raising funds and underdeveloped regulations have been holding SMEs back from trying online transactions.

The situation gained the attention of the Chinese government, which in its 11th Five-year (2006-10) Plan is offering SMEs preferential policies to grow the nation’s e-commerce industry.

But Ma says "we cannot wait for government policies – we must to do it on our own".

Ma has actually been implementing an expansion campaign for several years. In May 2003, Alibaba launched B2C and consumer-to-consumer (C2C) portal Taobao.com, which in a year climbed up to the top position in China, even surpassing global giant eBay.

Taobao now has 40 million registered users, some of whom are also conducting transactions through Alibaba.

In October 2003, Alibaba launched Alipay, a secure online payment tool. In October 2005, Alibaba acquired the local business of United States-based web giant Yahoo!, where SMEs can find business information and post advertisements. In January 2007, it introduced Alisoft, which aims to help SMEs to manage customer relations, inventory, sales, accounting and marketing.

But it was not until this year that Alibaba’s new strategy came into public view, when the company announced it will upgrade its five businesses from divisions into subsidiary corporations, expecting separate operations will be more focused to meet customer needs.

Alibaba is now considering connecting SMEs in search of funds with venture capitalists (VCs) at home and abroad, says Ma. VCs, including Boston-based IDG and SAIF Partners from Hong Kong are studying top Alibaba-registered businesses, and corporate executives say cooperation is coming soon.

IPO for overseas expansion

Alibaba is now preparing for an initial public offering (IPO) in Hong Kong, likely for later this year, which analysts believe could pave the way for its overseas expansion.

At present Alibaba.com is one of the few of its operations that generates profit for the company, which has had to invest to support several of its other efforts.

Taobao, despite its leading position, has required extensive annual funding. Yahoo! China is still battling counterparts Baidu and Google. Alisoft is in the early stages of development.

"The funds Alibaba gets could be used in operations and to develop or buy new businesses," says Wang.

But strategically, this is only a part of an IPO strategy. "It also enhances Alibaba’s reputation among overseas enterprises," she adds.

David Wei, CEO of Alibaba.com, says the company thinks it necessary to tap overseas markets and is working on that.

Alibaba has 3 million registered overseas users, mostly in Hong Kong, where its plans to open an office this year then gradually expand to Taiwan island and Japan.

"We will do it selectively," says Wei.

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