Teaching Note
Teaching Note
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IMB 688
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TEACHING NOTE
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INTRODUCTION
The case provides an opportunity to study the social sustainability aspect of e-commerce businesses in
emerging markets such as China and India. The case narrates the evolution of e-commerce ecosystem in
China, by Alibaba Group’s various e-commerce business initiatives, in the backdrop of Chinese economic
development in the new millennium. Students get to see how Alibaba Group, one of the largest internet
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companies across the globe, has enabled small businesses in China to emerge and grow, by creating a
digital ecosystem for retail businesses. Students are then provided an opportunity to examine if and how
the evolution of this socially sustainable business model in China can be replicated/adapted to the second
most populous and emerging economy, India.
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SYNOPSIS
The case narrates the evolution of the Alibaba Group, starting with [Link] in 1999, in four different
phases, with the last phase beginning after its IPO in 2014. The evolution is described from a social
sustainability perspective, highlighting Alibaba’s initial efforts to help small businesses in China access
the world markets and later, its focus on facilitating e-commerce led entrepreneurship in rural parts of
China. Alibaba established in the following order, business to business (B2B), consumer to consumer
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(C2C) and business to consumer (B2C) platforms, namely, [Link], Taobao and Tmall; with the first
platform mainly connecting Chinese businesses with the world markets, and the last two targeting the
domestic consumer base. Not surprisingly, Alibaba Group’s evolution coincided with China’s economic
growth, as the e-commerce platforms have significantly contributed to the growth of businesses1 and
1
For example, China’s share of world’s manufacturing output increased from 7.5% in 2001 to 23% in 2013.
[Link]
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_________________________________________________________________________________________________________
This note was prepared by Haritha Saranga, Professor of Production & Operations Management and Huang Yanghua, Institute of Industrial
Economics, Chinese Academy of Social Sciences, Beijing, Peoples Republic of China, for the sole purpose of aiding classroom instructors in the
use of Alibaba – Building a Social Sustainability Ecosystem for Ecommerce, Case No. IMB 687. It provides analysis and questions that are
intended to present alternative approaches to deepening students’ comprehension of the business issues presented in the case and to energize
classroom discussion.
Copyright © 2018 by the Indian Institute of Management, Bangalore. No part of the publication may be reproduced or transmitted in any form or
by any means – electronic, mechanical, photocopying, recording, or otherwise (including internet) – without the permission of Indian Institute of
Management Bangalore.
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consumerism in China. Specifically, the development of e-commerce ecosystem by Alibaba Group,
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created a platform where not only retail businesses, but also allied third party service providers could
emerge and grow, creating a win-win for all parties participating in Alibaba’s various market platforms.
After its IPO in 2014, Jack Ma, Alibaba Group’s chairman, explicitly defined “E-commerce in rural
areas” as one of the three strategic directions going forward.
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The case discusses in detail the two rural initiatives “Taobao Villages” and “Rural Taobao” that the
Alibaba group pursued as part of its rural strategy. In October 2014, Jack Ma promised an investment of
RMB 10 billion over the next 3 to 5 years, to help establish 1,000 county-level service centers and
100,000 village-level service stations. It is estimated that the e-commerce of Taobao villages created more
than 840,000 direct job opportunities and rural Taobao reached 202 counties in 22 provinces and
established 9,278 village-level service stations by August 20162.
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LEARNING OBJECTIVES
• To learn how internet and digital technologies have helped small businesses grow during the last
decade and a half, in the most populous country in the world
• To understand the role of the e-commerce ‘‘ecosystem’’ that Alibaba Group has created in providing
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access and facilitating growth of small businesses and rural entrepreneurs in China
• To study how the various stakeholders participating in market-based e-commerce business platforms
can influence the business models to create synergies for all stakeholders
• To explore the role of the governments in regulating and exploiting the digital technologies for social
sustainability causes and growth of rural economy
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The following articles can be prescribed as additional reading material along with the case.
1. Van Alstyne, M. W., Parker, G. G., and Choudary, S. P. Pipelines, Platforms and the New Rules of
Strategy. Harvard Business Review. April 2016, 54-62.
2. Porter, M. E., and Kramer, M. R. Creating Shared Value. Harvard Business Review. January–
February, 2011, pp. 3-17.
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ASSIGNMENT QUESTIONS
1. Why does Alibaba focus so much on small businesses? Is it only to fulfill corporate social
responsibility? If not, how is it helping them in their business pursuits, financial viability, and
sustainability?
2. What is the role played by the other stakeholders in Alibaba Group’s ecosystem? How do you see the
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demand by sellers on Taobao for free listing in the initial years, and Jack Ma conceding to their
demand? What were the consequences of these actions?
3. Compare and contrast the concept of ‘‘Taobao Villages’’ with ‘‘Rural Taobao’’. Do you think ‘‘Rural
Taobao’’ is a sustainable strategy? If so, how? If not, why not?
2
[Link]
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4. If an E-commerce firm in India would like to adopt a strategy similar to that of Alibaba’s, in terms of
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ecosystem building and focus on small businesses and rural markets, what are the challenges it would
face? Is adoption of similar strategy advisable and if so, do you have any suggestions for successful
implementation of such a strategy?
ANALYSIS
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In traditional businesses, value is created by converting raw materials into finished goods through
efficient management of supply chains. However, most of the value is captured by the intermediaries,
who typically do not add any value to the product per se, while connecting the producers with consumers.
Further, the traditional way of doing business (which increasingly is being referred to as ‘‘offline
business’’) is (i) capital and asset intensive (as it requires investments into creating physical shops and
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outlets, warehouses, and distribution centers), (ii) costly (as one has to incur overheads and hold stocks of
inventories at each point in the supply chains), and (iii) less profitable (as one must share the profits with
multiple intermediaries). The offline business is also limited in its reach, owing to the need for
geographical proximity to the consumers.
While the online business needs products and services to meet the needs of the consumers, the online
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platforms also create value by facilitating interactions between producers and consumers. Since the
platform owners do not produce any products/services themselves, but are acting as intermediaries, there
are no fixed costs of investments and they do not even incur variable costs of production. In addition,
unlike the traditional businesses where the intermediaries incur the storage and distribution costs
(see TN-Figure 1), the online market-based platform owners such as Alibaba, do not incur even these
costs. Therefore, the question is – what is the value they are creating and how is this value being captured,
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and who is appropriating this value? Firstly, from the microeconomic theory, we know that, the price
discovery takes place based on supply and demand. When the supply is more than the demand, prices
reduce and when the supply is less than the demand, prices increase. While in traditional businesses, the
price is determined based on supply and demand within a local region market, online platforms facilitate
price discovery based on a much broader region, limited only by producers and consumers who have
access to internet and/or national borders. Thus, it creates higher value for producers for products in short
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supply and higher value for consumers for products that are in oversupply. Secondly, the elimination of
intermediate channels of costs and profit sharing (as shown in TN-Figure 1), allows the producers and
consumers to capture a higher share of the value. As a result, the participants in online business do not
mind sharing a part of this value with the platform owner, who is facilitating the interactions and creating
this value. In addition, as the intermediaries of traditional supply chains get eliminated, prices of
products/services fall. This results in higher demand, as more consumers would be able to afford these
products/services at a lower prices, which in turn creates higher economic activity in the country. This
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higher economic activity generates more jobs and employment opportunities, resulting in social
sustainability, a critical need for countries like China and India with huge population.
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TN-Figure 1
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Traditional vs. E-commerce supply chain
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Manufacturer Distributer Wholesaler Retailer
Manufacturer E-Retailer
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E-commerce Supply Chain E-commerce Platform
However, for the value to be created, one must have a critical mass of producers, consumers and other
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necessary service providers, transacting in the market place. This is called the ‘‘network effect’’. To
attract more number of consumers to the market place, there should be sufficient number of producers
selling various products that the consumers are looking for. However, producers (or sellers, in online
marketplace lingo) would register in a specific platform, only if they see value in participating in that
marketplace, in other words, they expect sufficient demand for their products. The scale in the
marketplace helps with better prices on the demand side for the consumers by creating competition
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among suppliers; and economies of scale-related benefits for suppliers by aggregating demand from a
large number of consumers. As the number of consumers and producers increases in a platform, the more
number of consumers and producers would flock to that platform, for the reasons mentioned above. Once
the volume of producers and consumers, and the transactions between them reaches a critical number, the
platform starts to dominate other platforms and begins to see exponential growth.
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To enable this critical number of transactions in a hassle-free manner and create value, the online
platform owner must create an online ecosystem that facilitates business and must wait patiently until this
critical number is reached, before beginning appropriation of value from this service. Therefore, success
of online platforms depends not only on the ability to bring producers and consumers of products/services
together, but also on how smooth the transactions are on the platform, whether the ancillary services such
as financial, marketing, logistics, and other related services are in place, and for how long the platform
owners can afford to wait before monetizing their service.
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Question #1: Why does Alibaba focus so much on small businesses? Is it only to fulfill corporate
social responsibility? If not, how is it helping them in their business pursuits, financial viability, and
sustainability?
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When [Link] was established in 1999, small businesses in China had very few avenues to access
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the world markets. For example, as the case facts mention on page# 5, all small businesses had to register
under the Bureau of Industry and Commerce, and to gain access to foreign buyers, they had to participate
in the annual trade for small businesses. This was not only expensive; it also gave them only limited
exposure. On the other hand, there was sufficient demand outside for Chinese products, but very limited
online presence of Chinese companies, for foreign companies to trade with.
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Therefore, this was a business gap that Jack Ma identified, to create [Link]. The larger businesses,
that were trying to export to other world markets, had to establish linkages through face to face meetings;
therefore, just having an online presence alone may not help them as much. Also, most large businesses
had better access through public channels to attract customers from other countries.
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From then onwards, the focus on small businesses was embedded in an organic fashion into all of Alibaba
Group businesses. For example, the motivation for Taobao came from the competitive threat that Jack Ma
perceived eBay would pose to the small businesses enlisted under [Link]. Therefore, to keep eBay
under check, Jack Ma started Taobao, which was a consumer to consumer (C2C) e-commerce platform.
However, as he had envisaged, many small and medium size businesses also enlisted under Taobao,
which eventually led to the creation of Tmall, the business to consumer (B2C) platform targeting Chinese
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consumers.
As mentioned in the case, Jack Ma was good at identifying gaps and converting challenges into
opportunities. His shrewd business acumen and the right amount of paranoia about competition helped
him create opportunities for various small businesses whenever he found gaps. The gaps also meant, there
was pent-up demand for the products and services these new businesses were offering. Also, many a time,
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it helped address the needs of other small businesses in Alibaba’s various platforms, enabling them to
flourish and grow together in the process. A good example is opening of Taobao platform for third party
logistics service providers. Since the sellers needed logistic services to deliver products to buyers, there
was a clear need for logistic service providers. By creating a space for these service providers in Taobao’s
platform, Jack Ma ensured that there was a match between demand and supply. As a result, more than
eight thousand private courier firms have sprung up to deliver packages sold on e-commerce platforms
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across China3. Other services such as store front designers, models, photographers, short-term loan
facilities for working capital needs of buyers, etc. also belong to the same category (see Exhibit 3).
The other alternative was, for Alibaba Group to provide these services themselves. However, given the
scale of their platforms, and the business model they were following, it made more sense to create
opportunities for third party service providers, which also happen to be mostly small businesses, creating
the e-commerce ecosystem that feeds on itself. Of course, Alibaba Group has its own service providers
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such as Cainiao (logistics), Ant Financial (financial), Aliyun (cloud computing), etc. However, these are
only add-ons, targeting specific segments of business, and would not be able to meet the business needs
of all sellers and buyers in Alibaba’s platforms. The focus in an online platform business should be to
increase the ecosystem value, unlike the traditional businesses where the focus is on increasing the
3
Clark, Duncan. Alibaba – The house that Jack built. Harper Collins Publishers, 2016.
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primary stakeholder’s value. By providing access to third party service providers on its platforms, rather
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than providing all the services themselves, Alibaba group could maximize the value created in its
ecosystem.
Thus, the focus of Alibaba on small businesses is more organic in nature and is essential for its survival
and growth. The corporate social responsibility aspect comes in much later, around 2014, when Jack Ma
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started the ‘‘Rural Taobao’’ initiative, very likely nudged by the Chinese government to improve China’s
rural economy. Until then, the small businesses were part of the business logic to create an ecosystem to
take care of the emerging needs of Alibaba’s various e-commerce businesses and to increase the value of
the ecosystem.
Question #2. What is the role played by the other stakeholders in Alibaba Group’s ecosystem? How
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do you see the demand by sellers on Taobao for free listing in the initial years, and Jack Ma
conceding to their demand? What were the consequences of these actions?
Freeman (1984: 46), considered to be father of Stakeholder Theory, broadly defined stakeholder as “any
group or individual who can affect or is affected by the achievement of the organization’s objectives”. As
per this definition, all the sellers and buyers on Alibaba Group’s platforms can be considered as
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stakeholders. Even according to the narrower definition by Stanford Research Institute (1963), which
defines stakeholders as “those groups on which the organization is dependent for its continued survival”,
the sellers and buyers become stakeholders of Alibaba’s businesses.
Since optimizing ecosystem’s value is beneficial for all stakeholders in the long run, and since the
ecosystem’s value is positively correlated to the volume of sellers and customers interacting on the
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platforms, any behavior of sellers and buyers that increases the transaction volume is beneficial to the
owners of the ecosystem. Therefore, the enlisting of small businesses, who began selling products on
Alibaba’s online platforms at much lower prices than offline stores, definitely helped survival and growth
of these platforms. Similarly, as more and more consumers began to buy online (especially, after the
SARS4 outbreak in China and the associated isolation within their residences), the demand for online
products increased, again resulting in increased sales and subsequent increase in sellers registering in
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online platforms. Similarly, other third party services, which facilitated smoother online transactions and
delivery of packages to buyers, also increased trust in online platforms, and consequently increased sales
volumes.
The demand by small businesses enlisted on Taobao, to uphold the promise of free registration for 5
years, while was in their self-interest, helped Taobao to attract the critical number of transaction volumes
by the end of 5 years. It was also one of the contributing factors why eBay, the incumbent, failed to
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survive in the Chinese market. When Taobao was established in 2003, eBay was dominating nearly 85%
of Chinese online C2C market. However, at that time, eBay was charging registration fee for sellers to
enlist under its platform. The promise of free registration for 5 years by Taobao, along with the escrow
service (Alipay) introduced by Alibaba, which facilitated smooth and credible payment transaction, began
4
SARS is the short form for Severe Acute Respiratory Syndrome. An outbreak of SARS in China, from November 2002 to June 2003, caused a
nation-wide isolation in order to control infections.
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to attract many sellers to Taobao’s platform. However, in 2005, Jack Ma decided to start charging the
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sellers on Taobao’s platform, reneging on his promise. The sellers were naturally unhappy with this
change, as they were expecting the free registration to continue at least until 2008. Therefore, being
legitimate stakeholders in Taobao’s business, and since they were being affected by the organizations
actions, the sellers demanded that the free registration should be continued. If they had not demanded this,
and Jack Ma had not conceded, one does not know whether Taobao would have grown so fast to not only
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overtake eBay, but thoroughly annihilate it by 2008. This kind of behavior by the stakeholders is known
as ‘‘accretive’’ in nature,that is, it adds value to the platform.
Of course, eBay’s errors in judgment also contributed to its failure in the Chinese market. However, the
actions of sellers on Taobao, though were in their own self-interest, helped Taobao continue its free
enlistment service, which in turn attracted many more sellers and the associated increase in number of
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buyers and transactions. The lesson for Alibaba Group and other online platform businesses from this
incident was loud and clear. It is important to have patience and innovate different ways of earning
revenues when it comes to platform-based businesses, in comparison to traditional businesses. One must
wait for a critical mass of online sellers and one must also find other avenues of making money, such as
add-on services to survive and grow in this business.
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However, the stakeholders can also indulge in ‘‘depletive’’ behavior,that is, extracting value from the
platform. The selling of counterfeit products by some of the vendors on Taobao is an example of
depletive behavior. This resulted in Taobao being added to the “Notorious Markets List5” in 2011 by
United States Trade Representative (USTR), which not only threatened Alibaba’s reputation, but also
complicated its plans for an IPO. Alibaba had to take many corrective actions such as delisting some of
the largest counterfeit sellers from Taobao and had to lobby vigorously with the USTR to get Taobao
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removed from the list. Therefore, the online platform owners must maintain a fine balance between
yielding to and controlling various stakeholders’ behaviors, depending on whether they are beneficial or
detrimental to the growth of the whole ecosystem.
Question #3. Compare and contrast the concept of ‘‘Taobao Villages’ with ‘Rural Taobao’’. Do you
think ‘‘Rural Taobao’’ is a sustainable strategy? If so, how? If not, why not?
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Taobao villages have emerged organically, making use of the local opportunities, either agriculture-based
or industry-based, to start online businesses on the Taobao platform. The fact that Taobao villages are
highly concentrated around China’s industrial clusters corroborates the existence of these opportunities.
Clearly, the availability of products at wholesale prices and easy access to customers through Taobao’s
online platform resulted in high level of entrepreneurial activity in these areas. In the instance of
agricultural products, the elimination of middle men between the farmers in villages and consumers in
cities who end up paying at least six to seven times more than what the farmers receive6, is a big incentive
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for farmers to start online businesses. Naturally, once the demand for online products in these villages
started increasing, the third-party service providers began to emerge, creating the necessary ecosystem
5
This list details marketplaces that reportedly “engage in and facilitate substantial copyright piracy and trademark counterfeiting.”
6
The emergence of self-organizing e-commerce ecosystems in remote villages of China: a tale of digital empowerment for rural development
[Link]
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around these businesses. Of course, without the soft and hard infrastructure, in terms of access to internet,
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broadband, road and rail, these businesses could not have succeeded. The Chinese government’s focus on
infrastructure development through various five-year plans created opportunities and enabled emergence
of these small businesses in rural parts of China. Once the basic infrastructure was in place, the pent-up
demand and market gaps spurred the entrepreneurial activity, and the budding grassroots
entrepreneurs/leaders made full use of the e-commerce platforms. In the process, they also encouraged
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other villagers to join in, generating direct and indirect employment opportunities and made significant
contribution to economic activity in the villages, thus converting them into Taobao villages.
Rural Taobao, was an initiative started by the Alibaba group in collaboration with local and provincial
governments. It seems that the idea was inspired by the success stories from Taobao Villages. While the
entrepreneurs in Taobao villages emerged naturally, entrepreneurship in Rural Taobao was induced, with
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the help of funding by Alibaba and governmental support. Village centers for enabling online shopping
for villagers, with requisite equipment and manpower were established, and the initial online shopping
experience was provided in a planned fashion. The ‘‘Taobao partners’’, the personnel required to manage
the village centers, were selected such that they possessed strong roots in the specific village with
significant linkages to many villagers. These Taobao partners were expected to play roles similar to that
of grassroots leaders in Taobao villages, and spur entrepreneurial zeal in villagers.
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Rural Taobao follows the format of a typical top-down community development programs, wherein
government, NGOs, and social enterprises play a key role in driving development by providing
leadership, financial resources, and technical assistance7. However, such interventions have been found to
be ineffective in many instances, as they create dependence of disadvantaged community on external
actors, making it unsustainable8. In the Rural Taobao experiment, in addition to local and provincial
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governments, Alibaba, the private party’s involvement is significant as provider of not only financial
assistance and technical training, but also as provider of direct access to customers through its online
platform Taobao. Further, help is provided to develop ecosystem for e-business through Alipay, MYbank,
Cainiao network, and third party logistics providers operating on Taobao platforms. However, no amount
of access to customers and ecosystem facilities would create sustainable business opportunities, unless the
villagers have skills to build or source products that appeal to customers on e-commerce platforms.
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Therefore, the primary challenge is to identify products/services with sufficient demand and whose
production matches the skill levels of villagers. The second challenge is to ensure villagers do not feel
pressurized to participate in this business activity, but to make it interesting, beneficial and voluntary, just
similar to how the entrepreneurship evolved in Taobao villages. One must also note that, there are
different trajectories to entrepreneurship and there is no telling what would emerge out of this external
intervention. The Taobao partners therefore have an important role to play here, in terms of identifying
these unexpected outcomes and supporting them in whatever way they can. Selecting people with strong
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roots in specific villages to some extent helps in achieving this objective. Since most families in villages
are related to each other, the Taobao partner would be in a position to influence the behavior of villagers,
thus acting as a grassroots leader and could make this into a community-led initiative. If these two
challenges are resolved, the Rural Taobao project could spur sufficient innovation and entrepreneurship in
7
[Link]
8
[Link]
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villagers, so that the economic activity in the villages continues in a sustainable manner even after the
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external intervention is completed.
Question #4. If an E-commerce firm in India would like to adopt a strategy similar to that of
Alibaba’s, in terms of ecosystem building and focus on small businesses and rural markets, what
are the challenges it would face? Is adoption of similar strategy advisable and if so, do you have any
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suggestions for successful implementation of such a strategy?
Despite the status of the emerging market with high growth potential, India still has significant amount of
population below the poverty line. According to World Bank statistics, 270 million Indians are below the
international poverty line, with an income of less than $1.9 a day, which means, 1 in every 5 Indians is
poor9. Further, 80% of India’s poor live in rural areas, making rural economic growth an imperative for
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any kind of poverty eradication initiatives in India. While India has managed to bring about 140 million
people out of the poverty during the decade between 2001 and 2011 (see TN-Exhibit 1) using large scale
welfare programs such as price-support for food, energy, fertilizers and “right-to-work” in rural areas,
these programs are not sustainable in the long run. On the other hand, China has eradicated poverty
completely in its cities and is on the target to eradicating poverty in its rural areas by 202010. While India
and China were at the same level of poverty in 1995 (42% of the population below poverty line), during
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the last two decades, China managed to bring its poverty ratio down to less than 5% of its population11.
However, India still has nearly 20% of its population below the poverty line. China managed to achieve
this incredible feat by ensuring a protracted period of economic growth led by export of manufactured
goods, social protection, and human development policies. A series of government initiatives in China,
including creation of physical infrastructure such as roads, railways, electricity, drinking water, as well as
digital infrastructure, such as telecom, broadband and internet connectivity helped reduce urban-rural
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divide in the country and helped increase economic activity in e-commerce platforms like Taobao.
While India has been emulating China’s policies to a large extent in poverty eradication, the authoritarian
government and single-minded focus on poverty eradication that centrally coordinated China possessed
and a more decentralized India lacked, resulted in inconsistent and largely unsuccessful implementation
of these policies in India. Therefore, it is imperative that India finds more market-driven and self-
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sustaining strategies aided by private businesses and grassroots entrepreneurship to reduce poverty levels
in the country. Businesses need a successful community to provide demand for their products, and a
community needs successful businesses to provide jobs and wealth creation opportunities. Today, many
organizations from developed countries where growth has stagnated are looking towards emerging
markets such as India, which have high growth potential. However, to realize this growth potential,
companies must change their business models and look to create ‘shared value’. As propounded by Porter
and Kramer (2011)12 – “creating shared value involves creating economic value in a way that also creates
value for society by addressing its needs and challenges”.
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9
[Link]
10
[Link]
11
[Link]
12
[Link]
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Rural Taobao is a good example of creation of shared value by Alibaba group through their Taobao
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platform and the ecosystem surrounding it. As seen in TN-Figure 2, there is a ‘‘give and take’’
happening between e-commerce platforms, communities in villages, and the Chinese government, which
creates synergies for growth and makes it a sustainable partnership. The e-commerce platforms, by
creating necessary ecosystem for online trading, provide farmers and other small businesses in villages
direct access to customers, eliminating middlemen. This provides direct and indirect employment
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opportunities for villagers through participation in the ecosystem and simultaneously increases the income
earnings of farmers and other village traders. This in turn increases the purchasing power of the whole
village community, generating increased demand for the e-commerce platform.
TN-Figure 2
Synergistic partnership between government, e-commerce platforms and the village
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communities in creating ‘‘shared value’’
Government
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E-commerce Village
Business ecosystem
Platform Community
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Increased Demand
Creation of physical and digital infrastructure by the government enables village communities to take
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advantage of e-commerce platforms; and in return they contribute towards higher economic growth, by
participating in e-trading activities. The government also needs to come up with appropriate regulatory
framework to facilitate ecosystem development by the e-commerce platforms, which in return inspire
entrepreneurial activities and create more jobs in rural communities. These synergistic partnerships result
in the total pie being increased over a period of time in a socially sustainable manner, and all the players
get to share the pie. Something similar can certainly help the Indian cause as well.
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However, some of the challenges unique and not so unique to India remain. The unique challenges are
language barriers, given the number of different languages in use across various states of India. Coupled
with this, the high rates of illiteracy in rural parts of India would pose significant challenges with adoption
of digital technologies. Other major challenges include the lack of physical infrastructure such as proper
roads, electricity, access to drinking water, etc. which not only pose challenges for attracting required
manpower to support digital activities in rural areas, but also to create logistics and delivery systems
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Teaching Note – Alibaba – Building a Social Sustainability Ecosystem for E-commerce Page 11 of 19
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necessary for e-commerce. In addition, lack of digital infrastructure, such as broadband facilities and
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access to internet and computing facilities, clubbed with lack of electricity, would pose severe challenges
to promote e-commerce trade in rural parts of India. Cash on Delivery (CoD) that has been popularized by
Flipkart to attract customers that are reluctant to pay upfront for products bought online, is another major
challenge hindering the growth of e-commerce in India, in rural as well as urban areas.
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On the positive side, some of the mobile wallet companies such as Paytm, partly owned by Alibaba
group, have managed to penetrate Indian cities and towns and seem to have partially succeeded in earning
the trust of Indian people. Companies such as Thomson Reuters have developed a service on a monthly
payment ($5 per month) basis that provides information on weather and crop prices, along with
agricultural advice, which has been subscribed by nearly 2 million farmers. This service has been found to
increase the incomes of 60% of the farmers, in some instances tripling their incomes. There are many
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other digital solutions that local entrepreneurs in India have been exploring in various parts of the
country, including telemedicine, microfinancing, safe drinking water, solar power generation, etc. to
address the existing gaps in products and services creating shared value for both businesses and
communities.
However, since efforts at the state and central government level have not been successful so far, the
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private sector must play a leading role in bridging the infrastructural gaps that are hindering success of e-
commerce in India. There is a need for public-private partnership, with central and state governments
making investments in physical infrastructure, simultaneously collaborating with players in the Telecom
sector and E-commerce to bridge the physical and digital gaps. E-commerce companies on the other hand
should take leadership in not only creating the ecosystem necessary for rural penetration, but also in
identifying, encouraging and supporting right kind of businesses and entrepreneurs to set up online shops
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in semi-urban and rural parts of India. It is important to learn from the Chinese experience and adopt the
best practices that have worked there and find customized solutions to address the unique Indian
problems. Alibaba, with its huge success in both urban and rural Chinese markets is best placed to exploit
these gaps and create a socially sustainable ecommerce ecosystem in India as well.
TEACHING PLAN
No
The case discussion can be started with the following general question about the difference between
traditional and ecommerce supply chains, to establish the context and salient features of an e-commerce
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business. The instructor, for example, can start the class discussion by asking:
“I am assuming all of you have purchased products online, as well as from offline stores… So, what is
the difference between the two outlets? Especially, from a supply chain management point of view, how
would you distinguish an ecommerce supply chain, vis-à-vis the traditional brick & mortar supply chain?”
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Teaching Note – Alibaba – Building a Social Sustainability Ecosystem for E-commerce Page 12 of 19
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This question will trigger the discussion around the modalities of ecommerce business versus the
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traditional retail business, and how the two supply chains differ. While all students would have purchased
products online, not necessarily everyone would know the differences between the two supply chains. The
instructor can probe until the differences become apparent, emphasizing on the fact that an e-commerce
downstream supply chain is relatively shorter compared to the brick & mortar based traditional supply
chain, ultimately leading the discussion to arrive at TN-Figure 1.
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The instructor can probe the students further by asking whether this shortening of supply chain is
detrimental or beneficial to the business. This discussion should reveal that it is indeed beneficial and that
additional savings are attained in the e-commerce supply chain due to the elimination of middle men and
the associated savings from transportation and storage of goods at various channels, such as distribution,
wholesalers, and retail outlets. These savings can be shared between the vendors in terms of higher
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profits, buyers in terms of lower prices, and with the platform provider for the value-added services the
platform provides.
The instructor should then ask – what was the role of intermediaries in the traditional supply chains,
whether they were adding any value at all. This discussion should bring out how traditional supply chains
had established downstream supply chain channels that covered a given geographical area with a network
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of distributors, wholesalers and retailers, in order to physically connect the producers with consumers.
Since this traditional network may not be present in an e-commerce supply chain, it becomes the
responsibility of the platform provider to create these connections between sellers and buyers. This is
where the instructor can ask - how exactly these connections get created in online platforms. Some
discerning students would point out that, the more popular a platform is, the more buyers would get
attracted, and consequently the more sellers would want to register in the platform. However, others
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would point out that, for the platform to become popular among the buyers, it should have interesting
products and attractive deals, and be able to distinguish itself from the competing platforms. This would
in turn necessitate more competitive sellers to be present to begin with, which then becomes a chicken
and egg problem. If this discussion does not organically lead to identification of this problem, the
instructor can raise it, emphasizing the importance of sellers, buyers and the transactions between them in
high volumes, for an ecommerce platform to succeed. It is a good idea to list down all these factors on a
No
The instructor should park the question of how to achieve high transaction volume which is necessary for
the success of an ecommerce platform for a while and lead the class-discussion into the next pasture,
which is paraphrased in question #1:
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Did Alibaba focus on small business as a social obligation? Or was it a well-thought-out business strategy
with financial viability and profitability as a goal?
The instructor should start by asking – why was Alibaba focused on small businesses? To trigger the
discussion, he can point out that, both Alibaba and Taobao have had their roots in small businesses. Some
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Teaching Note – Alibaba – Building a Social Sustainability Ecosystem for E-commerce Page 13 of 19
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students may not immediately agree to Taobao being targeted towards small businesses, but others will
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point out that, it is true; while Taobao was started as a Consumer to Consumer (C2C) business, it did
attract small scale entrepreneurs and branded businesses also onto its platform. The branded retail
businesses were later moved into TMall, whereas the small-scale entrepreneurs continued to sell on
Taobao. While these details are being debated, the instructor should ask the class – why exactly did Jack
Ma focus on small businesses? Was it his philanthropy or his desire to help small scale entrepreneurs,
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given he himself was one? While some people may argue that all of this could be true, the instructor
should probe until the major driving factor is identified, which was the existing gap in the business? Both
in the instance of [Link] as well as Taobao, there was clearly a need for a platform where small
businesses could connect with the customers to sell their products, and Jack Ma clearly saw this
opportunity and exploited it using the opportunities that internet technology offered. Therefore, it was
clearly no social service to begin with. While the opportunities created by Alibaba did indeed help the
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small businesses and entrepreneurs in China to thrive, and simultaneously created many employment and
self-employment opportunities in the process, for Jack Ma, it was a clear-cut for-profit business.
Next, the instructor can link back to the earlier question of what it takes to build a successful e-commerce
platform, by asking:
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Was it sufficient to identify this gap? How do you make a successful venture out it? What were the
necessary conditions to build a successful e-commerce platform?
The instructor can now use the inventory of necessary conditions listed on the blackboard to lead this
discussion. Students may argue that, if you have sufficient volume of sellers and buyers, transaction
volumes would automatically follow. Hopefully, some student might start talking about the need for
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logistics to increase the transaction volumes. The instructor should point out that, this is a key element in
an e-commerce business, and without efficient logistics service, simply linking sellers with buyers on an
online platform will not work. To highlight this, the instructor should ask the students to recall their latest
online purchases; and what were the major elements of e-commerce business that they came face to face
with, and had an impact on their choice of e-commerce platform. They are likely to mention the following
aspects, not necessarily in that order:
No
The instructor can then point out that, while the first two elements were related to sellers’ competitiveness
and the technological capability of the platform, the latter elements would depend on how good the
support infrastructure is, including the store front designers, logistics providers, and incentives for buyers
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Teaching Note – Alibaba – Building a Social Sustainability Ecosystem for E-commerce Page 14 of 19
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to provide feedback on their purchases. This would lead the discussion towards the need for creation of an
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e-commerce ecosystem as the most important aspect. The instructor can next bring out the other support
services provided under question#1’s discussion in the teaching note, to ensure that the students get a
clear picture of what an e-commerce ecosystem consists of, and what other business opportunities
Alibaba had created for small scale entrepreneurs on its platforms. As the value created on the ecosystem
increases, so does the value appropriated by various players in the ecosystem, which ultimately
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contributes to the success of e-commerce platform. However, it is the various players participating in the
ecosystem that create the value, and hence it becomes the responsibility of the platform provider to
facilitate participation and ease of doing business online for these players. This would require patience
and ingenuity on the part of platform provider in terms of identifying gaps and filling them fast, as
demonstrated by Jack Ma with his Alibaba venture.
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By the end of this discussion, students should realize that, small businesses in Alibaba platform were an
essential part of its e-commerce ecosystem, and they essentially contribute towards its success in terms of
financial viability and profitability. This should lead to the second assignment question.
The discussion under question#2 of the teaching note clearly describes – who all are stakeholders in
Alibaba’s ecosystem and how value gets created in the e-commerce ecosystem due to the interactions
among these stakeholders, which in turn contributes to the growth and success of the platform. The
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instructor can direct the discussion towards evolution of Taobao, to drive home the point about value
creation in an e-commerce marketplace. The case lists the following three key factors that helped with the
growth of Taobao platform and subsequent demise of eBay:
The instructor should probe the students until the various dynamics between small-scale sellers and
individual consumers searching for products online become apparent, and how each of these three
strategies adopted by Jack Ma helped in converting these searches into successful transactions. Chinese
consumers were known to be quite price-sensitive and were used to haggle for good bargains in bazaars.
Also, since e-commerce was new at that time, they were quite reluctant to make online payments before
the products actually reached them. Alipay, being a third party escrow service solved the problem of
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payments. Also, the free chat facility ‘‘Ali Wang-Wang’’ enabled the buyers to haggle over prices with
the sellers, creating a physical bazaar-like feeling online, and provided the satisfaction of finding a good
bargain, an important attribute for Chinese shoppers. By asking students about their own shopping
experiences and what they liked best when they went to malls and bazaars where bargaining is allowed,
the instructor can bring out some of these psychological aspects of shopping.
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Teaching Note – Alibaba – Building a Social Sustainability Ecosystem for E-commerce Page 15 of 19
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The next important point to emphasize on is the ‘‘no fee’’ strategy that Jack Ma went back and forth with.
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Of course, the free enlisting was an important criterion for the sellers, most of whom were budding
entrepreneurs, just starting their own small businesses. Just like the e-commerce platform, even the sellers
had to wait patiently before they could start making profits. In fact, during the initial periods, most of the
sellers had to offer heavy discounts to attract buyers to their online stores. If they were expected to pay for
enlisting their businesses or commissions on their sales in these initial periods when they were still
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making losses, it would have become extremely difficult for them to survive till success followed.
The above points should illustrate what are the important ingredients for success and how the various
stakeholders, such as sellers, buyers and other support service providers are equally important to generate
value in e-commerce platforms. Someone may point out that, stakeholders may also cause damage to the
ecosystem, using the example of fake products being sold by some sellers on Alibaba’s platforms. If this
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point does not come out organically, the instructor can highlight this aspect and discuss how the
‘‘depletive’’ behavior of stakeholders to extract value from the platform for their own selfish goals
without worrying about other stakeholders can damage the reputation of the platform. This kind of
behavior would also necessitate the power of control to be retained in the hands of platform provider, who
in turn needs to look out for the benefit of all stakeholders of the platform. Since the value generated on
the platform is also beneficial to the platform provider, the incentives are aligned well and a shrewd
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platform provider is unlikely to abuse this power.
Question #3. Compare and contrast the concept of ‘‘Taobao Villages’’ with ‘‘Rural Taobao’’. Do you
think ‘‘Rural Taobao’’ is a sustainable strategy? If so, how? If not, why not?
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The instructor should start the discussion in this section by asking the students, whether the ‘‘Rural
Taobao’’ strategy was also more of a business strategy by Alibaba, as discussed earlier, rather than for
reasons of contributing towards social sustainability. Most students would argue that, motivation for
starting ‘‘Rural Taobao’’ was different from motivation behind Alibaba and Taobao businesses. At least
based on the case facts, it seems like there is much more of a social angle involved in Rural Taobao.
No
The instructor can turn around and ask the class, what does social sustainability means in this context?
How exactly is Rural Taobao helping to contribute towards social sustainability in rural China?
The discussion should then focus on defining social sustainability and how exactly Rural Taobao strategy
is meeting these needs. The answers from students are likely to touch upon a wide range of social and
welfare related aspects. The instructor should create a list of them in the center board, one each for the
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two questions:
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Teaching Note – Alibaba – Building a Social Sustainability Ecosystem for E-commerce Page 16 of 19
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What does social sustainability means in this How exactly is Rural Taobao helping to
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context? contribute towards social sustainability?
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Meeting healthcare needs Creating jobs, both direct & indirect
• Education for children • Providing necessary infrastructure and
• Providing livelihood opportunities support services for online businesses
• Provision of infrastructure • Providing funding opportunities through
• Access to capital resources Ant Finance
• … • …
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After sufficient points have been listed on the board, the instructor should direct the discussion towards
the three strategies that Alibaba used to facilitate social sustainability in rural China. The first strategy
under Rural Taobao is to get the villagers to shop online. The Rural Taobao partners at the village service
stations facilitate this. The second strategy is to provide support to develop an ecosystem for the
sustainable development of the rural economy and society. By creating the village-level service stations,
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county-level service centers, adequate training, funding and motivating villagers to open stores online,
Alibaba is creating online sellers in villages. The third strategy finally helps rural areas build the
infrastructure of e-business through third party service providers including trade, logistics, payment,
finance, cloud computing, data, etc.
tC
The instructor should first draw the attention of students to Figure 3 of the case which depicts Alibaba’s
e-commerce ecosystem. He should next draw the social sustainability framework depicted in
TN-Figure 3 on the blackboard to describe how this ecosystem needs to evolve and various stakeholders
need to come together to exploit the synergies and make the three-pronged strategy work. Firstly, you
need buyers for online products. However, these buyers, especially in villages, would need money and be
able to afford the prices to be able to buy the products being sold. If one can create opportunities for them
No
to sell products/services that they produce or have access to, then one can generate revenues for them, so
that they can also consume online products. The village service stations and Taobao partners in these
centers do precisely this. They show them how to become online sellers. However, the sellers would also
need other support services, such as funding, logistics and other infrastructure to successfully deliver their
products to buyers and provide adequate customer service. This is where, the ecosystem and the physical
and digital infrastructure helps. Once the buyers become sellers, and simultaneously consume the services
from third party service providers (who also incidentally buy and sell products/services online), you have
an ecosystem that feeds on itself in a sustainable manner. The larger the overlap between the three circles
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Teaching Note – Alibaba – Building a Social Sustainability Ecosystem for E-commerce Page 17 of 19
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TN-Figure 3
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Social Sustainability Framework for E-commerce Business
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Sellers Buyers
Service
Providers
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Once the concept of social sustainability is clarified, the instructor can direct the discussion towards the
differences between Taobao villages and Rural Taobao. The description under Question #3 in the
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teaching note can be used to do this comparison. The instructor should spend some time discussing the
challenges that a strategy like Rural Taobao would face and how to address these challenges to make it a
community-led initiative, rather than a typical top-down community development program.
Question #4. If an E-commerce firm in India would like to adopt a strategy similar to that of Alibaba’s, in
terms of ecosystem building and focus on small businesses and rural markets, what are the challenges it
would face? Is adoption of similar strategy advisable and if so, do you have any suggestions for
successful implementation of such a strategy?
No
Clearly, at the macro level, the answer to the above question is yes. If it worked so well for China, there
should not be any reason why it should not work for India, given the similarities in size and development
levels until recently. However, there are great differences too, especially in terms of rule of the land and
governance structures, etc. Both the case and discussion in teaching note under question #4 highlight
these differences.
The instructor can start this last part of the discussion by asking what the similarities and differences are
between the two markets. After the differences have been highlighted and listed on the side board, the
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instructor can ask, how easy or difficult was it for a company like Alibaba to navigate through these
challenges and penetrate the Indian ecommerce market, especially in the rural parts. As the discussion
progresses, students will realize that these are not easy to address. Especially, the digital infrastructural
challenges such as poor internet connectivity, lack of broadband facilities in remote areas and relatively
low penetration of smartphones in rural India, along with physical infrastructure related challenges like
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Teaching Note – Alibaba – Building a Social Sustainability Ecosystem for E-commerce Page 18 of 19
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road connectivity are essential for e-commerce, but cannot be addressed by an e-commerce platform
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provider. This is when students would begin to realize the critical role that the Chinese government has
played in establishing this infrastructure, without which it would have been impossible for players like
Alibaba to achieve so much success.
If following this discussion, the students become discouraged and start giving up on the idea of
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implementing a similar strategy in India completely, the instructor should chip in and say, but what is it
that Jack Ma is really good at? Someone will answer that, he is good at finding gaps and addressing them
with innovative ideas. The next question to ask therefore would be, what are the gaps in Indian market, is
there a way to address them? Clearly, there is a need for sustainable ventures and the first movers would
have a great advantage, given India’s size, if only they can overcome the infrastructural challenges.
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The instructor should ask the class for suggestions for implementation of a similar strategy in India.
Students are likely to come up with a wide variety of suggestions, including joint ventures with existing
players to penetrate deep into the market, to collaborate with local governments for establishment of
infrastructure. The instructor can finally close this discussion by connecting the sustainability framework
in TN-Figure 3 with the concept of shared value (discussed under Question#4 of teaching note) and the
need for future businesses to focus on creating more shared value.
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Conclusions --- 10 minutes
As a closing comment, the instructor can firstly summarize the class discussion and if there is time, give
an update regarding Alibaba’s foray into Indian and other emerging markets.
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Clearly, Jack Ma did not start the e-commerce business as a social obligation, but rather to fill an existing
gap in the market in a profitable manner. However, in the process, he created an ecosystem that not only
helped grow the business, but also created sustainable business ventures for millions of people in China.
Alibaba’s various platforms thus serve as examples for businesses that can address societal problems
while creating value for and by various stakeholders that participate on these platforms. It is a success
story that needs to be emulated by other emerging markets, especially those that need to create
No
As of 2018, Alibaba has made investments in the Indian e-commerce market through Snapdeal, Paytm,
and Paytm Mall. Had plans of investing in BigBasket, one of India’s leading online grocers13. While
taking the India entry slow, Alibaba is showing signs that it wants to build a strong brand in India and
have a meaningful play in the industry. It would be worthwhile to explore the rural e-commerce space of
India, following strategies similar to that of Taobao Villages in collaboration with local governments.
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That would be a win-win for both Alibaba and for India, which has one of the youngest populations in the
world and needs to build socially sustainable enterprises to reap its demographic dividend.
13
[Link]
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Teaching Note – Alibaba – Building a Social Sustainability Ecosystem for E-commerce Page 19 of 19
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TN-Exhibit 1
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Reduction in poverty headcount ratio of India, Brazil, China and Indonesia
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% of population
60.00
India Brazil China Indonesia
50.00
40.00
30.00
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20.00
10.00
0.00
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
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Source: OECD Economic Surveys: India 2017, [Link]
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No
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