B2B Payments

Alibaba’s B2B Plan Could Change The World Of Cross-Border Commerce

Alibaba is a huge fan of the B2B business model. The eCommerce conglomerate, which has overhauled China’s B2C online shopping industry, has launched several initiatives within the B2B market, including partnerships in other Asian economies to launch wholesale eCommerce services in Thailand, Vietnam and Malaysia. The company has also fostered B2B eCommerce startups through its competition recently held in Hong Kong to promote innovation and progress in the industry.

When Alibaba founder Jack Ma spoke with Indian Prime Minister Narendra Modi during a visit to the country earlier this year, the firm reportedly discussed the strength of the B2B online commerce business model and the potential for various markets, including India and China. Not only does B2B align with government regulations, but it also supports SMEs more than the traditional B2C model, Ma
reportedly said.

But the Chinese company’s latest venture could be its loudest endorsement of B2B business to date. Reports said that Alibaba revealed via an emailed statement Wednesday (May 6) that it is launching a new operation that uses the B2B business model to offer cheaper imports into China. The impact, experts say, could have widespread implications for cross-border commerce around the globe.

The Plan

Alibaba’s wholesale site 1688.com, founded to facilitate domestic trade, is going global. The company said it plans to launch a new service on May 18 that sees 1688.com inking deals with foreign suppliers – first focusing on Spain, later expanding deals with Portugal, Italy and South Korea, Alibaba said – in a plan that aims to turn 1688.com into the world’s largest import sourcing portal. Buyers and sellers will be able to directly transact on the website.

In a sense, 1688.com will be the inverse of Alibaba.com, sourcing from oversees for domestic commerce, as opposed to connecting domestic suppliers with overseas buyers.

Separate reports said that 1688.com department manager Liu Fei revealed that the new initiative will lower prices of imported goods from Spain, especially wine, by cutting out several steps of the traditional import process that usually requires product handling from general agents, regional agents, wholesalers and exporters, with the cost of the product going up each step of the way. According to Fei, a bottle of wine imported from Spain will cost half as much as it usually does when imported through Alibaba’s mechanism.

Aligning with Alibaba’s view that B2B commerce is more compatible with the varying regulations encountered across jurisdictions, the new service will also reportedly aid importers with the customs clearance process, product inspection, and logistics.

The Impact

Easing friction within cross-border commerce is one of the key frontiers for Alibaba to stay ahead of its competition, mainly Tencent. The efforts could yield lucrative results, experts said, considering a growing Chinese middle class and easing import restrictions.

“As China’s middle class’s demand for high quality foreign brand names increases, it would help Alibaba ride the next wave of growth,” said Australia & New Zealand Banking Group chief economist for Greater China Liu Li-Gang Liu in an interview with Bloomberg. Thanks to the opening of more free trade zones within China, he added, the process of importing goods is getting easier.

But aside from an increased flow of products in China, Alibaba’s plan to use a B2B business model to smooth out the cross-border trade process could have broader implications across the globe.

For example, reports said that 1688.com’s Fei also revealed Alibaba’s plans to introduce a broader range of cross border financial services, likely a tool that will go hand-in-hand with the eCommerce business and suppliers will need to overcome foreign exchange friction. Alibaba’s payment processing business Alipay recently launched cross-border services, and the company began its own fund management platform Yu’E Bao back in 2013. It is unclear which service Alibaba would use to strengthen its cross-border payment offerings to aid its new cross-border commerce plan, but the options are there.

Alibaba’s new cross-border commerce play has the potential to be a significant step in global businesses’ abilities to increase their operations overseas. In addressing not only cross-border commerce but also cross-border payments and regulatory matters, Alibaba could launch the world’s online shopping facilitators onto a new platform without borders. It’s an opportunity for other online firms to emulate Alibaba’s B2B business plan, and to access their piece of the $300 billion worth of cross-border eCommerce expected to be generated by the end of the year alone.

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