Background of the Topic
The question about the globalization of Taobao arises from the fact that several internet companies are investing in China. This situation poses competition to Taobao, which it did not face in the past. This aspect can be reinforced by the explanation of Ashling J. (2005) in the journal article ‘Internet companies invest in china’ as the growth of usage of the internet and e-commerce has been on the decline in the US, and it is booming in China with 100 million users of the internet. This has caught the attention of major internet and e-commerce companies, and they started entering China. In this regard, it is important to quote the commitment of Yahoo with Alibaba.com regarding business on the internet (Ashling J; 2005). As Yahoo purchased shares in Alibaba.com and the competitors like eBay also have forayed into the Chinese market, the share of business of Taobao may be lost to the competitors. Hence, the necessity of globalizing the operations of Taobao comes to the fore and can be a good research topic.
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Taobao is an e-commerce company that is part of the Alibaba group and is the largest consumer-to-consumer segment company in China. As it has not only withstood the competition from eBay and Amazon but also marginalized the former in China and transformed into a leader in the consumer-to-consumer segment of the online business. Recently, it entered into business-to-consumer segment also. Being the largest e-commerce company in the largest populated country and its entry into the business-to-consumer segment poses both possibilities and necessity to it to globalize its operations to be cost-effective and also to increase its revenues further. The paper in its literature review discusses the possibilities of globalization of the company, and in the analysis, the section explains the necessity to globalize itself and the ways and means of doing business in the context of globalization of its operations.
While considering the globalization prospects and possibilities of an Asian e-commerce company, it is important to review the penetration of online markets through Asian corporations. According to Michael DC & Sutherland G (2002, 1) in 2000, ‘most businesses felt enormous market pressures to announce an e-commerce strategy’ (Michael DC & Sutherland G; 2002, 1). However, from 2002 onwards, the best approaches regarding e-commerce emerged alongside the IT infrastructure that enabled the firms to introduce online shops for web shoppers. The growth of ‘B2C online revenue in the Asia Pacific by 138 percent in 2000’ (Michael DC & Sutherland G; 2002, 21) prompted financial brokerage firms and that further resulted in a boom in e-commerce markets leading to the emergence of companies like Taobao. The annual growth rate of online markets in China is 40 to 50 percent, and that is due to the increase of internet users in the population. This converted the nascent online market into huge sites of customer bases. Despite this massive growth rate, the business to the consumer market in Asia-pacific remains small indicating that there is much to evolve and emerge regarding online trading and retailing in countries like China. This estimation even presents a good future for companies like Taobao (Michael DC & Sutherland G; 2002, 1, 21, 24, 26).
While reviewing about e-commerce or a site regarding that the online reputation system is important. It has been widely accepted by internet users and in this regard, Zhangxi Lin., Jun Li (2005) explains that the ‘success of the online consumer to consumer auction is largely owing to the widely accepted online reputation system;'(Lin Z, Li J; 2005). This helps in studying fast-growing online auction markets in China. As a country that is largely populated in the world, the study of e-commerce companies in China can provide important outcomes in explaining the trends of electronic market. Lin Z and Li J (2005) explain that the fast-growing auction markets in China make the internet users to use online reputation data. Hence, they have collected the relevant data regarding online reputation from eBay as well as Taobao.
Though the reputation data regarding lognormal distribution is the same, Taobao has neutral scores in contrast to eBay (Lin Z, Li J; 2005). The fast-growing Chinese market provides a background for the reputation system of C2C markets. It is also important to study the determinants of C2C online sales in China to determine the necessity of globalization of Taobao. Hence, comparison between China and the US with the help of Taobao and eBay and relevant sites is important for the topic. As the reputation system of China has shown a significant effect on C2C online sales, the analysis can decide whether the reputation of Taobao is enough to globalize it. Wu Wei-fang; Ye Qiang (2008) explains that the negative ratings may yet times volatile and will not show enough negative effects on online sales if the reputation system of the e-commerce site is having enough positive and neutral score for a certain period (Wu WF & Ye Q; 2008).
Comparing with eBay
The eBay business model is about letting the customers using these systems. According to Bunnell D & Luecke RA (2000, 71), eBay charges the customers for using its system of internet interaction and Taobao does the same. Both the companies get net revenues by subtracting the cost of infrastructure, operating expenses from seller fees they receive. This type of privilege offered to the customers to use the internet to purchase the goods of their like helps the companies to expand offshore even in the absence of manufacturing hubs. eBay is operating in Asian countries like China and India but Taobao only operates in China. Though both the companies have similarities in operating their systems with the customers, the contrasting point is that Taobao operates only in its home country, but eBay expanded beyond the borders of its home country.
The expansion of eBay has resulted in its ‘stratospheric market evaluation’(Bunnell D & Luecke RA; 2000) but the Taobao will not be able to do that type of market evaluation unless it goes global. Bunnell D & Luecke RA reminds that eBay is a small company in 1997 but its offshore operations and services available in as many countries as possible helped it to grow at a rapid rate (Bunnell D & Luecke RA; 2000). When compared to the revenues, Taobao earned 18.8 billion Yuan (China Web; 2000) in 2008 and eBay earned approximately 4 billion USD (Slideshare.net; 2008). It seems that the earnings of the latter are better than the former though, the actual thing is different. This is because the Taobao operates only in China, but eBay operates in many countries. Even operating only in one country though largest populated in the world, Taobao is ahead of eBay if the geographical locations are considered while comparing the revenues.
According to Bland EM., Black GS & Lawrimore K (2007) the online customers feel that eBay is user-friendly, and Taobao users also feel the same. The eBay offers ‘sellers with several tools or options from which to choose to help make auctions as effective as possible at increasing the likelihood that a transaction will occur’ (Bland EM., Black GS & Lawrimore K; 2007). The same is also a fact with Taobao but again, the contrast is that eBay is being globalized but Taobao has not. However, the globalization of Taobao depends on the decision of management of Alibaba.com as the flagship company of the conglomerate. Another significant comparison is about internet shoppers’ caution while purchasing as well as paying for the products. The trust they keep on the e-commerce sites influences their willingness to make payments for online purchases. In this regard, Bland EM., Black GS & Lawrimore K indicate that ‘a well-written and prominently displayed assurance of security encryption on a website increased the consumer trust’ (Bland EM., Black GS & Lawrimore K).
This type of customer trust exists with both eBay and Taobao but still, the latter has not expanded its operations internationally. The above-mentioned trust can be mentioned as the social trust for the e-commerce website and it exists for both Taobao and eBay (Bland EM., Black GS & Lawrimore K; 2007). However, the customer trust and love will be more on Taobao as it does not charge an administration fee for the transactions less than the value of 10,000 RMB. This concession is not available in eBay and Chinese people prefer Taobao. This implies that Taobao is capable to catch the pulse of the customers in the region it operates and eBay did not do so when it forayed into China. This indicates the shrewdness in the management of Taobao if it wants to globalize its operations as it can do business as per the aspirations and demands of the customers in the region (Anping Yuze Hardware Wire Mesh Co., Ltd: 2009).
The success of Taobao can also be attributed to its understanding of China’s lack of comprehensive online payment system as its majority of customers have debit cards rather than having credit cards. This situation made online transactions difficult but Taobao managed that its customers can use debit cards instead of credit cards for online purchases. This context of doing business is difficult than doing the same with the customers having credit cards because the customers having credit facilities do consume more than the ones who have only debit cards. Even in that atmosphere, Taobao was able to manage its online business far better than eBay when it entered into Chinese C2C business.
The customer base that has been formed by Taobao with several exemptions like the absence of administration fee for transactions valued less than 10,000 RMB and the use of Debit cards in the place of credit cards had laid a strong foundation in China’s online transactions. Consequently, eBay should not be in a position to compete with increasingly visible Taobao site, but the integration of Eachnet with eBay has paved way for competition as the latter is having popularity in China and also has certain exemptions like accepting debit cards and credit cards of limited payment gateways while doing online transactions in C2C business (Luo X & Feng M; 2010).
The Tactics of Taobao to win over the Customers
Apart from the above-mentioned tactics of enabling the majority of Chinese to access its site, Taobao’s management is quick enough to win over its competitors by announcing suitable strategies at an appropriate time. The best example is Taobao management’s decision-making tactics can be best understood by its announcement of making services of the site free for buyers and sellers in China. The announcement has been made after the acquisition of Eachnet by eBay and hours before the latter was about to announce its financial reports (Sensis Classifieds News Service; 2003). Though the strategies of Taobao were timely, the globalization of its activities is necessary as eBay found a secret way into China, and Taobao also should do the same to expand its market.
According to Business Week (2011/01/15), eBay acquired $150 million to buy EachNet, the top e-commerce site of China. The one-way Taobao could keep its market and customers intact in China is due to the management mistakes of eBay as it did not give power to local executives to decide against the backdrop of tough competition from Taobao. One such mistake is not recognizing the effect of Taobao not charging commissions and did not lose the lead in the competition for that aspect. This crippled the business of eBay in China, but this cannot be taken for granted in the future and one way to withstand the eBay in the future is to expand Taobao’s operations globally because eBay has a plan B for China by ‘linking Chinese entrepreneurs and exporters to eBay consumers elsewhere'(Business Week; 2011). According to Bruce Einhorn (2011), the strategy has been made keeping in view the sellers like Tang Fengyan.
The Tang Fengyan goes by English name Maggie and she is chasing global customers and these trends that are explicable in China’s sellers should prompt Taobao management to make its operations globally. Though eBay lost in the competition with Taobao in China, it still had Chinese business due to its global presence and with the help of its associate companies like PayPal. Moreover, as Taobao has a little presence outside China, eBay has an opening into that segment with 150 service agents who are deployed to cater to Chinese sellers. In that way, eBay made use of its global presence to get a business from Chinese sellers, a strategy that enabled the company to withstand despite losing its business to Taobao in China. As catering to the needs of sellers who see vie for global customers is also part of the online business or C2C market, Taobao needs to globalize its operations (Bruce Einhorn; 2011).
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eBay’s attempts to re-establish in China
One year before catering to the needs of sellers from china, ‘eBay announced a partnership with China Post and the US postal service in its latest bid to re-establish itself in china’ (AFP; 2010). The move can be justified as the Chinese market has been dominated by homegrown rival Taobao.com. The eBay plans to attract Chinese sellers by offering them shipping programs through which they can sell their goods to customers in the United States of America. Under this arrangement, eBay can expand profits by the ‘partnership centers on an express delivery service to the US that will be run by China Postal Express and Logistics Corporation, part of China Post(AFP; 2010).
Though this arrangement did not affect the lion’s share of the Chinese online market of Taobao, the future may not be that much good as now. This is because Taobao gets much from advertisements rather than commissions from buyers and sellers. If eBay also follows the same strategy through EachNet, it can make Taobao to think about expansion. Not waiting for its opponent to decide the global expansion, Taobao has its right time now to decide on expanding its operations globally. As eBay also has 400 million web users, it’s refocusing on China’s online business may not be difficult if it concentrated on Chinese merchants who find it more profitable to sell their goods in Western countries (AFP; 2010). In the attempts to re-establish, the eBay is treading the path of Taobao regarding payment method. Taobao’s management Alibaba.com has introduced Alipay, a payment method, any buyer can trust. In this method, the payment of the buyer will be in a bank account maintained by Taobao’s management and the payment will be done to the seller subject to the satisfaction of the buyer. If the buyer is not satisfied, the payment will be returned. In a quick follow up eBay also created a similar method named escrow for its buyers.
Thus a company, which limits its activities to China is making an international e-commerce company eBay to tread its path to capture or to withstand in the Chinese market. One important aspect that is helping Taobao is the international relations of its management ‘alibaba.com’, which is a business-to-business e-commerce company that is maintaining consumer-to-consumer e-commerce company Taobao. Though Taobao is a domestic online retailer or consumer to consumer company in China, the international relations of Alibaba group connecting Chinese manufacturers to their clients all over the world, who were looking for suppliers, helped it. The supplier power of Alibaba group is helping Taobao to withstand or to overcome the competition from eBay a global leader in online retailing and auctioning business.
However, without globalization, Taobao’s supplier power will be limited to China and it may lose a large number of customers overseas. The knowledge base of the Alibaba group in international e-commerce can help Taobao to serve its customers and to compete with eBay globally (Thomas Liquori; 2009). As Taobao has 67 percent of the online consumer to consumer market in China, eBay has only eight percent of it. As Taobao can attract more customers than its global competitor eBay, it launched a business to consumer platform in 2008, which is known as Taobao Mall. As this site expands Taobao’s business to a new level in which the suppliers and consumers can do their deals on Taobao’s mall.
This further compels Taobao to consider the businesses of overseas which want consumers in China. In that way, the company will be compelled to deal with international players and the absence of globalization may result in a lack of competition to its competitors. In the changing market scenario that is being changed globally, every domestic company like Taobao has to deal with international players and globalization of activities will only increase the market base and enhance the profit activities. The expansion of Taobao’s activities from consumer to consumer as well as business to business, the firm will not only have possibilities for globalization but also the compulsions in certain areas of getting suppliers from overseas to its domestic customers (Trites; 2008).
In addition to expansion, Taobao has qualities that can prosper further that company in e-commerce business. Though the e-commerce company is in troubled times, Taobao could make its ‘Taobao mall’ a success and catapulted itself from C2C to B2C activities. By setting up of Taobao mall in line with eBay’s ‘flagship store’, Taobao has shown its mettle to compete with a global player and all the possibilities of it to enter the global market. However, one more important aspect of Taobao’s business activities is the free world of business as the site does the transactions for its customers free and gets revenue from advertisements. As the company is managing to get advertisements from domestic companies, globalization will only enhance its capability of getting advertisement revenue and can increase free services for its customers.
Jack Ma who is at the helm of Taobao’s affairs introduced free services, but one cannot ignore the heavy investment to build a business to consumer model of warehousing, distribution centers. An article on unknownerror.com explains that these activities will also lead to intermediate costs. If the advertising revenue in the newly entered business to consumer mode of Taobao’s business did not increase as much as the one, it is getting from consumer to consumer services, the Taobao’s profitability will be in danger. Apart from all these aspects, the core strength of e-business development is traditional industries, and enterprises are the core strength of e-business development. By not going global, Taobao is concentrating on only ever-growing internet users of China, and it seems that the management of the company is in a view that the Chinese online retail market or auction activities did not reach a saturation point.
As a result, the company is focussing on the combination of traditional enterprises and e-commerce to develop its customer base and hit rate for its size, which enhances the advertisement revenue (Unknown Error; 2011). However, it is not that much easy to develop distribution networks overseas for Taobao as it has developed in China. It cannot draw its back on the globalization of its operations simply for that reason as its revenues shored up to RMB five billion in 2010. 80 percent of the revenues were from advertising vs. Transaction revenue and according to Eric Jackson (2011), this may likely change in the years to come. The company’s advertising revenue is far better than its competitor Tencent, which has only accrued RMB 1.4 billion from advertising in the same period.
As the Taobao’s ad revenues were approximately four-fold than its competitor Tencent, and its global competitor eBay also offering free transaction services to its Chinese customers, the company cannot take them granted for a long period. One can also expect that the market share of Taobao in China has been saturated as well as online advertising. Regarding the free services of Taobao, the online ad revenue matters as the total Chinese internet ad market in 2010 is RMB 36 billion and out of that Taobao has got five billion RMB. If ad revenues of Taobao grow with time, it doesn’t matter, but Taobao has to maintain its transactions and customer base also growing to maintain the growth of ad revenue. Globalization can do this for Taobao without any uncertainty (Eric Jackson; 2011).
Online Consumers cannot ignore Taobao’s C2C platform as its turnover is larger than some B2C enterprises. This resulted in a strong consumer base as well as an influence. As a result, Taobao decided to enter B2C and according to China Manufacturer’s blog article, the B2C online store has covered nearly 130 million persons, and all the stage was set for intense competition in this sector as it will be the main battlefield for e-commerce companies in the coming years. As Taobao has been tempted to enter the B2C market, the company can run online department stores on a large-scale and can sell some professional products online. The advantages of zero cost and zero profit model run by Taobao on its C2C platform will benefit B2C activities, and the site can have a considerable advantage over its rivals.
An online customer involved in C2C activities in Taobao can also use its B2C services, and these types of customers stick to the site as they no more need to go to other sites regarding B2C operations. In addition to cash flow and logistics network bottlenecks, there are substantial security risks also in the context of B2C transactions. To avoid security risks, the maintenance of an escrow account is necessary to make sure that the customers are satisfied with the product they received. As Taobao has logistics within China, it may not have a problem in conducting its B2C operations. However, when its customers need the products of the overseas supplier or a business, it is necessary for the company to develop logistics overseas or to have much-needed collaborations with suitable companies. The development of logistics both in and outside China will help Taobao to increase its business as well as the transactions of its insiders who act as suppliers for its customers on the B2C platform (China Manufacturer; 2011).
Comparison of Taobao with Amazon
When comparing with eBay and Amazon, it is important to remind that Taobao despite limiting itself to China, is 11th the most successful website in the world. Walsh I(2010 ) states that it makes more money than most of the United States of America’s e-commerce websites. However, Amazon is an exception, but still, in China Taobao is the foremost e-commerce website. Like in the case of eBay, the dominance of Taobao in China’s online consumer to consumer business may be due to the way the e-commerce works in that country due to low credit card penetration. The delivery logistics also are complex when they are compared with those in the United States of America and other Western countries. Moreover, the customer support expected by Chinese people is different from the experiences and strategies of companies like Amazon.
To compare Amazon with Taobao, the way of working of Amazon in China can be examined. If the e-commerce websites insist only on credit cards, it is difficult to do business out of the important cities in China. Hence, the e-commerce websites in China also accept orders without cash and take it when the goods are delivered. When the business through credit cards and cash has been compared, one can understand that without allowing the business through cash, it is impossible to get the online business in China. Hence, Amazon also accepts cash on delivery while selling the products online in China. Moreover, in most of the cities in China, the goods are delivered by motorbike couriers and even high-end products are transported in this manner secured with a steel holding at the back of the motorcycle. Though Taobao also works in the same manner as Amazon, it recognizes the haggling nature of Chinese customers.
As the bargaining can be observed in Asian people, the same can be observed in online business also as Chinese web shoppers compare the prices of the products available on a website with those of other sites. Though Amazon forayed into the Chinese online market by acquiring Joyo, a Chinese company, it did not work as Joyo alongside DangDang is losing market share when compared to Taobao. Though Amazon has contemplated acquiring Taobao, it is almost impossible as the Alibaba group will not sell its important consumer to consumer company easily. This makes the acquisition costly and may not be profit bearing in the future keeping in view the investment that should be pumped in. Hence, Amazon found that the acquisition of 360buy is the best bet to increase business in China. 360buy is an online retailer who has been founded in 2007 and enjoyed growing business.
In addition to that 360buy is a company that enjoyed number one place in the business-to-consumer market. The success of 360buy is due to cheaper prices and fast delivery, and Amazon also is trying the same to compete with Taobao by having its logistic counters. However, Taobao is not slow in delivery, it may not serve an advantage for Amazon, but an aspect that just keeps it in the competition with Taobao. In this context, it is important to know that the online companies are delivering their goods faster than the past to compete with their rivals. Hence speed in delivery is one aspect that plays a key role to outsmart the competitors in the online retail business. As Taobao can deliver the goods as fast as its competitors eBay and Amazon, but still manages to be cheaper than them, it won the heart of web shoppers in China (Roj Sen; 2011). However, there are concerns of Taobao as well as Amazon regarding their business and threats from the competitors
One important concern is that the implementation of the open internet business that Amazon does. This is because, Amazon used its cloud computing services to offer internet leasing for computing for a special group of customers, and that makes this online retailer to stand aside from its competitors. This can be a concern for Taobao as it did not have IT infrastructure as powerful as Amazon, though it has a user-friendly online retailing platform. Amazon, Unlike eBay, acts as an ‘internet business incubator’ (Li Li S; 2011) by exporting its infrastructure and computing power, which cannot be done by Taobao. This special asset possessed by Amazon will bring special customers to its site and can make it popular among high-income individuals, an aspect that cannot be found in Taobao as of now.
However, it falls behind Taobao regarding to deal with traditional companies and Asian customers, it has no experience and that renders the firm helpless when compared with the largest online retailer of China. This is because through Taobao’s IT infrastructure does not match with Amazon, the capability is about exporting and the platform it offers for its customers. Thus, it competes with World’s largest retailer Wal-mart and Amazon, which has tremendous IT infrastructure. However, apart from the above-mentioned IT capabilities, Taobao is far ahead regarding advertising revenue, and it earns huge profits from it. In that sense, Amazon still is not in a position to compete with Taobao as the former earns profits from commissions taken from sellers and buyers (Li Li S; 2011).
As Taobao’s management is aware of this fact, they manage to keep their prices low but the companies like Amazon try to get the sticker price. However, only web shoppers in western countries pay the sticker price and in Asia, very few people are habituated to it. This may be one of the reasons for the domination of Taobao even over the company like Amazon (Walsh I; 2010). Though Taobao is winning over its competitors through better management of complex logistics and pricing of the products, the customers who have international credit cards find it difficult to buy the products from Taobao. A web shopper named Butako posts an article that he is unable to buy some products using his Visa credit card through Amazon and Taobao in China.
He further observes that though Taobao can give the payment option through visa using its Alipay.com, it could not accept any of the international credit cards. Hence, the e-commerce business in China is difficult to get customers to have international credit cards. In addition to these owes, ‘Citibank, as well as HSBC in China, are not supported by Alipay’ (Butako; 2009). As a relaxation for the type of customers just mentioned above, ‘Amazon.cn has announced plans to cooperate with Alipay’ (China Retail News; 2008). Alipay and Taobao.com are two core businesses of Alibaba group. After initiating Alipay, it has played a significant role in increasing the growth rate of Taobao. This is due to the ‘independent third-party internet payment platform’ (China Retail News; 2008) offered by Alipay. This created more vitality in the payment receiving activities of Taobao when compared to its operations in a closed payment platform.
Thus, the cooperation of Alipay with Amazon has enabled the latter to ‘provide an additional payment method for its users’ (China Retail News; 2008). Before this collaboration with Alipay, Amazon used to sell goods through ‘cash on delivery, credit card payment, debit card, postal payment, and bank transfer. However, in this context, the competition between Taobao and Amazon comes to the fore, but Taobao’s opinion is that this above-mentioned cooperation will not affect Taobao’s business-to-consumer activities as there is no competition between them in the particular field of activity. That means, the payment method collaboration of Amazon is before the initiation of Taobao’s business to consumer activities and after that, the effect of the collaboration of Amazon with Alipay on Taobao has to be estimated (China Retail News; 2008).
After payment methods, the investment strategies of various online retailers and internet companies in China’s e-commerce market decide the prospects or possibilities of Taobao’s globalization. Eric Jackson (2011) explains the shareholding of Yahoo in Yahoo Japan and Alibaba.com and explains that the value of each share it holds in these companies increases from $8 to $18 when their traded securities and cash are considered. As Taobao is an Alibaba group’s company, the largest market of the former helps in enhancing the share value of the group. Even then the share value of Taobao and Alipay is not more than the value of Yahoo’s stake in Alibaba.com. The stagnant value of the share of Taobao or Alibaba group’s companies may be contributed to the limited global presence of Alibaba and the domestic limitation of Taobao. However, as Taobao has entered into business to the consumer market, it can win investors’ confidence and thus increase its share value.
This enables the companies which acquired shares in Taobao to flourish and giving accolades to the company at the global level. The acquisition of shares by global players like Yahoo in Taobao only increases the possibility of globalization of the latter. One more necessity for Taobao to go global is that the investors in North America find it hard to give Yahoo’s shares in Taobao, the price they deserve. This again emphasizes the need for Taobao to get publicity globally and that is possible when the firm expands overseas (Eric Jackson; 2011). The lack of value for Taobao’s shares exists despite its turnover is expected to exceed the United States of America’s Amazon. This is because the success of Taobao is helping many retailers to increase their turnover as ‘millions of people in China ranging from students, shop owners, retirees are using Taobao to sell and buy clothing, mobile phones, toys’ (Hillegass F; 2010) whatever they can find on merchandise.
Thus, the growth of Taobao has been explosive and within six years of its initiation, it has 1.2 million users and 3$ million turnover in sales of goods in 2009. As a result, analysts expect that the turnover of Taobao may exceed that of Amazon if it increases in the same manner. The reason is again the same. Taobao’s stuff is cheaper than the one found in its competitors’ sites. Hillegass F (2010) recalls the price of a skirt that has been priced at $175 in Hong Kong shop, but only $33 in Taobao’s online market and the secret of Taobao’s affordability of cheap prices is advertisement revenue, which is not available to its competitors. However, some analysts believe that the development of Taobao’s business can be attributed to the spread of counterfeit goods.
These goods which are available at a far lesser price than their original ones lure the online customers to buy from Taobao’s site, but this cannot be true as Taobao started a new project to fight against fakes. Consequently, it can be understood that the profits accrued through advertisement revenue help Taobao to offer goods at no commission to the buyers and getting no returns from them. By creating an internet community to its site, Taobao is making cash from advertisements that can be given to a site according to the hit rate it has got (Hillegass F; 2010).
The advertisements through the internet community of Taobao can only be increased by globalization. In this regard, Lee M (2010) mentions the challenge of Alibaba group holding Ltd., that it will get web advertising after sales of ‘Baidu Inc., China’s biggest generator of web advertising after-sales’ (Lee M; 2010). This is because Baidu’s advertisement revenue has been doubled in 2009, and its nearest competitor is Taobao, as the latter derives profits from advertisement revenue only but not from commissions from buyers and sellers. Citing Baidu and other opportunities for Taobao, some analysts opine that Taobao can still increase its advertisement revenue by paid-search. This can be a fact because Baidu generated 62.2 percent of China’s advertising sales linked to Web queries’ (Lee M; 2010) and even Google Inc., is second to Baidu. Though search and e-commerce are two different things, the roles of search engines and e-commerce websites are expanding as well as becoming clearer than in the past (Lee M; 2010).
The expectations galore in the same manner everywhere as an article published on ‘accounts receivable management’ predicts that Taobao reports five billion CNY in 2010, and it did the same. Out of five billion CNY four billion is from advertising operations, indicating the Taobao’s expertise in getting ads for a website as well as its power of internet community to generate advertisements. The advertisement revenue of Taobao in 2009 is just 1.5 billion CNY, but it has increased more than threefold within a year. Beaming with the flow of revenues, vice president of Taobaocom Lu Peng, expected that his company may be possible to reach the turnover of 400 billion CNY by 2010. According to him, this can be achieved by increasing operating revenue substantially.
One can find every reason to believe in him as Taobao charges nothing for a selling or a buying operation. However, even in this context, the advertisement generation capability of Taobao comes to the fore as its growth rate is more than that of its turnover. Hence, the company is making use of its internet community to get advertisements from corporate and other users. Some analysts say that this is due to the ‘adjustment in the Taobao.com search rules’ (qq.com; 2011) as they increase the hit rate for the site. Even in that sense, the company is ahead of its competitors. Increasing advertisement revenue by the adjustment of search rules doesn’t mean that Taobao is not expanding business. It forayed into business to consumer (B2C) and offered its investors a new platform on its site because this has rolled out a myriad number of online supermarkets to web shoppers in China in the form of a shopping mall, digital product mall, footwear mall and beauty saloon (qq.com; 2011).
2.6 Conclusion: Taobao is an online retailer confined to China, which has earned much in the consumer-to-consumer segment of e-commerce. The popularity of this site is due to free services offered to the customers in China, and this resulted in a large number of customers visiting the site for buying or selling their items or products. Using this popularity, Taobao earned revenues from advertisements on its site. In doing so, it has to increase its popularity online and free services and the less prices of the products than the competitors resulted in an increase of popularity and Taobao’s management has been an expert in transforming this popularity into advertisement revenue and earned profits. Its competitors eBay and Amazon failed to do the same in China and they also did not recognize the bargaining nature of Chinese customers and did not frame the policies in that way.
Thus eBay and Amazon were not able to compete with Taobao in China, and it remained the largest online retailer in the country. Taobao’s success in online business in China is in the backdrop of lesser credit card availability and that too only in urban areas. Taobao’s site used debit cards, and their representatives also collected cash on delivery of the product. Thus, the supply-chain management of Taobao is a bit complex than that of eBay and Amazon, who were used to accept credit cards and there is no issue of receiving cash on delivery of the product. Hence, when they entered the Chinese online market, they tried to conduct online business activities as they used to do in Western countries. This cultural and infrastructure gap has resulted in eBay, and Amazon lags behind Taobao and the firm the timeline to offer free services to its customers keeping in view the competition. Recently, keeping in view the possibility and necessity to globalize itself, Taobao forayed into the business-to-consumer market. This enhanced the possibility as well as the necessity of Taobao going global.
The methodology used in this paper is qualitative one that reviews relevant literature and information available about Taobao, its competitors and the chances and possibilities of its globalization. The qualitative analysis has been chosen to understand the causes and consequences of Taobao’s activities and its supremacy over the Chinese online retailing market. The competitors eBay and Amazon.com’s activities were also studied to compare them with Taobao in China and the chances of the latter to globalize its activities.
Why qualitative Study
Regarding the aspect of Taobao going global, the distinctive nature of qualitative analysis has been considered as the company that is considered for research is an e-commerce website and communications is its way of life and marketing is the company’s goal to sell the products online and auction them between consumers. As the field of Taobao is managed communication, the facts and deeds of the company would well explain the researcher and give enough details to assess the possibility of globalization. While analyzing an organization of marketing and communication, it is important to engage or interact with as many number of stakeholders and this aspect has been met by gathering relevant articles and posts of various buyers, sellers, and managers of Taobao. This is because it is necessary to assess the subjective nature of the social reality of an organization that is subjected to qualitative analysis.
Hence, this analysis involves interpretive view of the researcher while doing analysis. To interpret, one has to gather events, incidents, benefits as well as losses if any for the management and stakeholders in the course of activities of the company. This will be made possible when the researcher understands social reality. In the context of Taobao, the social reality is e-commerce and its ways and means of working with the consumers as well as suppliers or manufacturers. Hence, the reasons for the success of Taobao in consumer to consumer sector and its foray into business to consumer sector and the way it is earning profits will be known and discussed and interpreted in the context of globalization, keeping in view its parent company alibaba.com or Alibaba group (Daymon C & Holloway I; 2003).
Possibility of Globalisation
As the internet grows more user friendly, it will be accessible to more number of individuals and the chance of transactions online will also grow. This aspect has been the reason or the success of Taobao as it used efficiently the internet communication in two different ways. The first way is to communicate with the buyers and sellers and that has been done by Taobao with free service offers. The second type of communication that completed the success of Taobao is regarding advertisements and the firm’s efficiency in dealing with clients who want online advertisements. The first aspect has increased the hit rate for the site as more number of customers started visiting it and that number is far larger than Taobao’s competitors. The increased number of customers visiting Taobao resulted in the transformation of the site into a commercial hub and advertisers recognized it as one place that can be viewed by most number of visitors.
Taobao also convinced the manufacturers and service providers that its site is a place that has the most number of viewers than any other e-commerce site. The internet as a new medium has been successfully used by Taobao in China like eBay in Western countries. However, the difference is dealing with the customers who are different in thinking about online transactions. As eBay found that customers in western countries have credit cards and they don’t bargain, followed such policies and was successful. However, Taobao’s case is different as only a few customers in China have credit cards and they even bargain on the internet. They try to buy from the site, which offers a product at a lesser price than its competitors. Taobao framed its policies in such a way to deal with the above-mentioned type of customers in China (Carolyn Penfold; 2003, 83).
The Fundamental Cause of Success of Taobao
According to Li X., Xuan Q & Kluver R (2003, 143) ‘internet has certainly opened the door to a flow of information that is historically unprecedented to Chinese people’ (Li X., Xuan Q & Kluver R; 2003, 143). Taobao provided an open space for the exchange of buying and selling information online for free and this resulted in a popular online activity, which is known as online transactions. The online auctions by Taobao enabled both sellers and buyers to get what they ought to. As China’s internet users are being doubled every ten months according to CNNIC (2001), Taobao used it effectively to increase its online customers for its e-commerce website and before the onset of 2010, it entered extended its business to business-to-consumer segment from the consumer-to-consumer sector (Li X., Xuan Q & Kluver R; 2003, 143).
Regarding the business of Taobao, Giese K (2003, 193) states that ‘China’s integration into the world market and the globalization and distribution of technological innovation has had a great accelerating effect on the change of life spheres in Chinese cities’ (Giese K; 2003, 193). The presence of commercials that show foreign lifestyle and availability of online facilities prompted the users to use e-commerce websites like Taobao to shop online. The manufacturers also found a convenient way to market their products and an easy method of marketing that targets the customers of high income. Thus the internet usage in China has created an identity for Taobao and ‘brought it from periphery to center both at personal and social level’ (Giese K; 2003, 194).
That means Taobao understood the social psychology of Chinese customers and followed a business model that attracted them as well as the online advertisers. According to Giese K (2003, 194), individuals themselves relate to groups within specific contexts and that trend has been manipulated successfully by Taobao as it attracted the view of the groups who want to sell, purchase or shop online to save their time. The development of the urban middle class in China enabled Taobao to cash upon their leisure activity so that they can use that time to shop online. Giese (2003) further states that the internet in China has been dominated strongly by interpersonal communication and Taobao communicated its business activity through that type of communication. This has resulted in accelerating of socio-cultural change that created an online customer base for Taobao.
Chinese customers or internet users tend to help each other with practical advice for living. Regarding internet shopping, this practical advice will normally be regarding the quality of the products and their lowest price offered by an organization. Taobao was successful in offering quality products at a lesser price than its competitors prompting its internet customers to offer their practical advice regarding the products available Taobao’s website. Moreover, as the language is certainly one of the clearest indicators of the changing role of individual who are dealing online, the Taobao, which offers its site in Chinese can be considered as one of the factors that paved way for the success of the online business site (Giese K; 2003, 193-198). Hence, if Taobao is completely set to go global and preferred first destinations could be India or Singapore.
The reason is that both the countries belong to Asia and the customers in India are the same as those of China and Singapore can be considered as a country among the ‘world’s fifteen leading information societies’ (Lee W & Chan B; 2003, 249). As the Singapore government has been motivated to build a nation with a competitive economy, the scope for online transactions will be more and thus e-commerce websites could have success. From 1994 to 1999, the internet penetration has reached 46 percent among the individuals aged between 187 and 71. Moreover, the internet users will also spend much time in information search, which can lead them to e-commerce websites if the firms advertise in such a manner. Most of the information searches will be about the products and services available online.
Hence, that atmosphere can be used by Taobao to have success in online retailing in Singapore. The suggestion is because the firm has succeeded in the consumer-to-consumer segment and entered the business-to-consumer segment. In this regard, it is useful to the firm if it go global because it can offer it, customers, the products available or manufactured overseas. This can be possible and the supply chain management will be economical if the firm goes global. If it did not happen, Taobao has to confine its customers to local manufacturers only and cannot face global competitors offering products from diversified manufacturers. Hence, this is the time for Taobao to go global, but it is necessary to learn about cultural diversity as the management has to interact with different cultures once the company goes global.
Hence, it will be useful for Taobao to operate in Singapore due to its cultural diversity as it opens up floodgates for cultures to interact because many multinational companies have their branches or head offices in Singapore and thus the people from different countries work in that country. According to Lee W & Chan B (2003, 250), Singapore people will spend one-third of their online time on communication and this can lead to e-commerce or shopping online. Given the high diffusion and extensive use of the internet in communication, the globalized nature of Singapore could be an ideal place alongside India for Taobao to go global.
As Taobao was successful in imparting utility value to the internet by doing business online, it can help people who have problems in verbalizing their thoughts during shopping. These types of people will be mostly found in countries like Singapore and Taobao can start its globalization in that country (Lee W & Chan B, 2003, 249-250). Moreover, the revenues of Taobao from advertisements also should prompt the management to globalize as the advertisement clients will be more in number in countries like India and Singapore. Though these two countries are not considered, once globalized the base of advertisement clients will grow for Taobao and globalization is suggestible for the company to increase its revenues.
Taobao has reached $2.2 billion and $5 billion in revenues in 2009 and 2010 respectively and these figures indicate the highest hit rate of the customers on its site as well as transactions in China. As it is less known and viewed site in the countries other than China, the ad revenue can be contributed solely to the companies who need publicity in China. Though there are agents to Taobao like ‘taobaoenglish.com’, the international ad revenue is a minute figure but cannot be ruled out. That means there is enough chance and market for Taobao to enter the global market with the same policies it is using in China. Companies like eBay and Amazon, which charge commission from buyers, sellers and auctioneers find it difficult to accustom to Taobao’s free service and earning from advertisement revenue, but it is not difficult for Taobao, which is accustomed to free services in China in extending them to other countries. As Taobao can convince the firms and individuals who want to advertise online to make it an ad on its website, ‘the internet related business activities can be moved from small market to quite a large market’ (Hardaker G & Graham G; 2001, 39).
Though China is not a small market, compared with the global market and globalization of Taobao, it has been mentioned like that in this context. Instead of confining to a market segment or a region called ‘China’, Taobao’s globalization is having the capability of adding pace to its growth rate. According to Hardaker G & Graham G (2001, 39), ‘the web in the context of marketing is very much a marketing communications channel. As Taobao is successful in attracting buyers, sellers and advertisement clients, the interactive marketing information system can be best used by it as an organization that can create, process and distribute information. The creation, processing as well as distributing the information will matter only if it has been done in the context of time and Taobao has mastered it, but confined itself to China. The aspect of seeing the internet as a ‘glue’ and also as a catalyst according to demographics, lifestyle, and transactions, Taobao’s globalization will only add to the business as well as profits. If any doubt about implementing the same policies in other countries exists for Taobao’s management, it can consider a similar country India, as a first step for globalization.
This suggestion stems from the fact that in countries like India, customers will be attracted to the e-commerce companies that offer free services. In addition to that, India also has a vast market of internet users after China in Asia. As of the latest, Taobao entered into business-to-consumer segment also, it finds a good number of online customers in countries like India as the company offers consumer-to-consumer services also. The companies, which offered paid e-mail services in countries like the US and UK, had offered free e-mail services in India and earned revenues from advertisements online.
Thus the internet companies, as well as e-commerce firms in countries like India in Asia, have a history of earning revenue and profits from advertisements by offering services free. Other than India as well as other countries in Asia, Taobao has the opportunity of finding customer bases in the online markets of western countries also. This conclusion can be drawn from the information provided by Hardaker G & Graham G (2001, 103) as the US will continue to dominate e-commerce business all over the world with an estimated 80 percent share in the market. These conclusions were drawn in the absence of Taobao, and now the presence of it and its success would not prompt any analyst to draw such conclusions (Hardaker G & Graham G; 2001, 39).
Expected Problems in Globalisation
The foremost problem that might be faced by Taobao to globalize its e-retailing business is about the slow response for e-commerce activities from individual customers. Unless the internet users trust the site or the company, they do not purchase online. Hence, it is important to have a reputation in the country to enter into e-retaining and e-commerce business. To do so it will be better for Taobao to enter the business-to-business segment and gain reputation. This reputation can be used to flourish in the business-to-business segment as well as consumer-to-consumer activities also. Moreover, the legal problems also may hamper the growth of companies like Taobao in the context of globalization. ‘If purchaser and supplier are in different countries, there may be a conflict between the laws and taxation of the two countries’ (Dennis C., Fenech T & Merrilees B; 2004).
One can expect that Taobao’s management is not foraying into other countries’ market of online retailing due to these problems. However, there are ways and means to sort out. Moreover, the marketing techniques are difficult online as it is easy for customers to say no to a computer rather than an individual. However, other ways and means can make the online marketing of e-commerce business easy. An online retailing or e-commerce company can offer several payment methods, acceptance of more cards and even credit cards for shopping for qualified customers and prompt them to buy and shop online. However, the above suggestion may not suit Taobao as it has emerged from a country that has no enough credit card penetration in the early years of its starting and the customers who do not want to pay commission for their transactions online. They even expect the articles they buy online to be cheaper than the ones they buy at a real shop.
If Taobao has no reputation in the country it is foraying, it is difficult for the management to gain the trust of the prospective customers. However, the just mentioned disadvantages could be overcome by advantages like location. As geographical location is not necessary for any online retailer, a large investment is not necessary at the time of foraying into a new market. Moreover, it is easy to convince the online shoppers if the products are quality ones as they are educated and there is every possibility of them being above average and high-income individuals. Hence, it will be easier for Taobao to manage consumer-to-consumer activities in other countries due to its convincing policies. Taobao can manage well in a foreign foraying of its activities as there will be no need for marketing executives moving door-to-door in publicity of the firms.
The extension of Taobao to other countries is not only convenient to the customers in that country, but also paves way for strengthening the supply network of the company. Even for the enhancement of the supply chain network, Taobao does not have to have a real location but can manage the activities online and this can be an added advantage. As much as easy the navigation of the site, the e-retailer firm will have that much of advantage of getting new customers as there will be a chance for more number customers. However, it is better to enter the international market with consumer-to-consumer business at the time of entry into the online market of another or a new country. In this regard explaining the benefits of consumer-to-consumer services, Taobao’s website should have a lesser price for its products online and their prices are lesser than they buy (Dennis C., Fenech T & Merrilees B; 2004, p.2-6).
Prospects of Globalisation
The increase of customer base is sure with globalization and this also increases the chances of increasing business as according to Alhorr H.S., Singh N., Kim S.H (2010), the global e-commerce has been expanding rapidly. This finding has been based on industry estimates that indicate that ‘several trillion dollars are being exchanged annually over the web’ (Alhorr H.S., Singh N., Kim S.H; 2010). As the highest growth of the internet has been anticipated in countries like China, India, Russia, and Brazil, the growth of business-to-consumer e-commerce also will increase. Alhorr H.S., Singh N., Kim S.H state that according to Grau (2008a) this growth will be at 23.3 percent annually and also reaches the $168.7 billion in 2011.
However, it is not an easy task for Taobao to grow in the business-to-consumer segment in Asian countries other than China as Japanese and Korean companies lead the business in this segment in Asia. But the ‘global phenomenon that has initiated an enormous business revolution and that has affected the process of globalization tremendously (Alhorr H.S., Singh N., Kim S.H; 2010). However, any e-commerce company, as well as Taobao, needs to use a localized approach rather than a standardized approach in marketing and communications. In this regard, Taobao has to learn from the failures of eBay in China, which did not use a localized approach but used its successful policy in other countries. As a result, Taobao also should learn from eBay’s failure and should frame business policies when it goes global.
The possibility of going global for the firm increases, if it wants to extend its business-to-consumer operations. Unlike the consumer-to-consumer segment, the business-to-business segment is not limited to a single geographical region as consumers expect products from different manufactures all over the world in the era that is connected by the internet. As Taobao has no experience in conducting business-to-consumer activities, it has to understand the practices of multinational firms. But it is comparatively easier to Taobao to operate in countries other than China in which customers are used to pay for the services of online retailers. This is because, it is difficult to make the customers who are accustomed to free services to pay, but it is a bit easier to offer free services to the ones who are used to pay for the same. In this regard, Taobao has to understand the difference between standardization and localization.
Standardization is a strategy that works in homogenous markets and also offers standardized products as well as services. The marketing strategies followed in this process also do not consider the local issues. This is due to the argument that the technology develops and will be dispersed globally and hence the companies following this strategy have a unified brand and identity globally like eBay. However, as that company faced failure in China, Taobao needs to note that it can follow a standardized marketing model in western countries that concentrates on brand name and corporate identity and should frame localized policies in other countries. Moreover, as there are online agents for Taobao, who offers its products in different countries, it can unite all of them and can offer a single website that offers its services and operations in local and English languages.
For example, in China Taobao offers its services in the Chinese language. It is necessary to make its site available in English and other local languages also depending on the country it is about to operate. As the same website can be used to offer the services in different languages, the cost, and effort of maintaining will be less after getting permission from the government of the country in which the firm is operating. Though the cost and effort of maintaining the site is less, the complex nature of the international marketing environment poses the risks of diversity for an online retailer like Taobao. This problem of diversity can be addressed by adopting the localized marketing approach and recruiting the locals as the staff to deal with the customers. That means the company has to recruit the local people in a country in which it wants to offer its e-commerce services like consumer-to-consumer and business-to-business consumer services (Alhorr H.S., Singh N., Kim S.H; 2010).
While considering the success of consumer-to-consumer and business-to-consumer activities ofT
Taobao at a global level, the internet’s role in the business environment needs consideration. According to Javalgi RG., Wickramasinghe N., Scherer RF & Sharma SK (2005) the role of internet in a business environment will also play a role in economic, social as well as cultural terms. However, it is important to use internet marketing as per the localized issues and necessities. Alongside China, e-business is offering more effective business results in improving the efficiency and in reducing costs. Regarding Taobao, by offering its site in other languages including English as well as in Chinese, is enough to reach the customers overseas. When Taobao enters into a country, the management should make the site available in the language of that country as well as in English.
Moreover, the mechanism for information dissemination is an e-commerce site and Taobao is doing that well in multiple terms. It is disseminating information of buyers, sellers, manufacturers as well as advertisers and earning revenues. The usage of the new playing field from time and space using new technologies while doing e-business is not new for Taobao and it is easier to the same in other developing and developed countries, when it has done in China, which has an atmosphere of less credit card penetration as well as fewer credit-rated population. This knowledge and experience will help Taobao to accustom to the customers overseas, and this poses a possibility for the firm to go global. In doing so, it is important to consider the developing economies including the Asia-pacific region as Taobao’s experience suits best to the clients and customers in these economies. Though there are possibilities for Taobao to go global in the form of technology and expertise in offering free services as well as earning from Advertisements, the firm needs to embrace global driving forces like telecommunications infrastructure and government regulations.
These forces impact e-business readiness and conceptualization of e-business readiness is key to growth in this sector in foreign soil. Hence, it is important to know the strategic value of the firm in terms of the ability to manage government regulations and telecommunications infrastructure as well as supply chain management on foreign soil. According to Javalgi RG., Wickramasinghe N., Scherer RF & Sharma SK (2005) telecommunications infrastructure, market infrastructure which includes web servers as well as logistics issues, user access infrastructure, and governmental and regulatory infrastructure. Hence, the possibilities of Taobao going global will enhance with its understanding of the above-mentioned four issues when it forays into the e-commerce market of another country. In other words, Taobao must select countries named e-business leaders by Javalgi RG., Wickramasinghe N., Scherer RF & Sharma SK (2005) as these countries ‘are well poised for e-business having the greatest intensity on the four key drivers mentioned above’ (Javalgi RG., Wickramasinghe N., Scherer RF & Sharma SK, 2005).
When a firm keeps in view the drivers that decide the policies of e-commerce business in a geographical area, the technology adoption behaviors show the impact on the business. However, as Taobao has operated in a geographical area that has less availability of credit cards as well as the laws that hinder the online transactions, it will be a complex task to operate in liberal economies. As the size of Taobao and the volume of its business is at an international level, the extension of supply chain management can be added to its decision of entering the business-to-consumer segment to globalize itself. To avoid cultural differences, it is necessary to consider ‘potentially culture-specific content’ (Kshetri N, 2010) while foraying into the overseas e-commerce market.
As Taobao entered into the business-to-consumer market also, the understanding of social and cultural contexts is as important as having the right perception about the usage of technology. This is because business-to-consumer segment success depends on local issues unlike the manner of business-to-business e-commerce that is driven by global forces. This is significant as cultural contexts drive consumer preference and policymakers of Taobao have to consider that while devising the strategies of e-commerce in a different geographical area other than the home country. This could be possible as the national governments are working in tandem in the era of liberal economic policies to engage business communities’ online activities to increase cost-efficiency.
This above-mentioned activity is important in linking e-commerce to the macro environment of a geographical area in which the Taobao has to foray into. Hence, the macro-level issues regarding the entry of an e-commerce firm into a foreign country are all well for Taobao and that ensures every possibility to it to go global. While going into fundamentals of e-commerce, according to world trade organization’s definition, ‘any transaction in which at least one of the following activities- production, distribution, marketing, sale or delivery-takes place by electronic means’ (Kshetri N, 2010). Consequently, e-commerce flourishes when several different uses of e-commerce technology will be used by a firm efficiently to generate revenues. However, it is important that not only the firm, the users also should be able to use technology for the flourishing of e-commerce.
Taobao can decide this factor efficiently by its experience and what is needed to be decided is to estimate the impact of rules, laws, and constitutions on the activities of consumer-to-consumer as well as business-to-consumer activities. In addition to that, there are normative conditions that decide the business in every geographical area. The normative issues put forth the ‘prescriptive, evaluative, and obligatory dimension into social life’ (Kshetri N; 2010) and these aspects impact the ways and means of the business. The regulative and normative pillars lead to cognitive issues that in reality through which the customers and supplies understand the meaning of advertisement or marketing strategies. These issues decide the extent of institutional pressures and Taobao should consider these problems while going global though it is having every ability to globalize itself (Kshetri N; 2010).
As per the discussion, it can be concluded that Taobao has enough possibility and necessity to globalize its activities. The possibility for globalization stems from the fact that Taobao is facing competition from international e-commerce companies eBay and Amazon, but it did not offer competition to them in other countries. The necessity is that the firm extended its activities to business-to-consumer also from the existing consumer-to-consumer segment. As the business-to-consumer segment involves the manufacturers or service providers and the firm has to link them with the consumers, it may find the customers asking for a product manufactured overseas. If the company is in a position to provide it to a customer in China from a manufacturer in another country, the cost-efficiency of the company will be decreased. If the company refuses to do so, it may not be as active in the business-to-consumer segment as it was in consumer-to-consumer activities. Hence, to get success in the business-to-consumer segment the company has to have links with overseas manufacturers and that can be cost effective when it has overseas consumers. That means Taobao has to offer its business-to-consumer services at the global level. As both business-to-consumer and consumer-to-consumer activities are being done on the same website, it can enter into the consumer-to-consumer segment also while going global along with business-to-consumer activities.
The literature review and analysis parts of this paper conclude that the popularity of Taobao’s e-commerce website is due to its free services to its customers as well as reasonable prices it offers to its customers. The rise in the popularity prompted the management to earn revenue through advertisements on the site. Thus Taobao’s management is doing well in fulfilling the fundamental aspect of online business and e-commerce; the information dispersion. It is gaining popularity by dispersing the information of buyers and sellers and earning revenues through information dispersion in the form of advertisements. This expertise of Taobao gives it a possibility of expanding its operations overseas as it has the capacity of gaining popularity for its website and also can earn revenues in the way other than collecting from the customers.
However, the analysis part of the paper not only explores the possibilities but also points out the necessities in and after going global. Before going global, the Taobao should select a country in which it wants to start operations first outside China. This should be an Asian country as the management is well versed with the consumer behavior in China and it matches with other Asian countries like India. After starting operations in a country like India, to gain experience in the western online market, it has to offer its services in a country like Singapore, which has a diversified society and credit card penetration and frequency of online transactions at par with Western countries. After being successful in Asia, and by competing not only with eBay and Amazon but also with other Asian e-commerce companies, it has to foray into online business markets of Western countries. However, whilst going global it is necessary to plan a supply chain management network in a country before it starts its operations there.
- Taobao should globalize its e-commerce activities.
- Taobao needs to go global to withstand the competition and consolidate the ad revenues in the future.
- While globalizing its operations it is better to enter one country after another rather entering into so many countries at once.
- Foraying into overseas online business by one after another country is to understand the business culture in that country as well as customer behavior.
- By doing so, Taobao can frame policies for each country so that it may not lose the race like eBay lost in China.
- It is recommended to enter India’s online market as the customers in that country are similar to Chinese and credit card penetration also almost resembles the condition in China.
- After having success in India’s online market it suggestible to enter Singapore due to the diversity in that country.
- The diversity in that country enables Taobao to understand both Asian and western customers and the policies that are necessary to be framed while entering into the online market of different countries.
- After India and Singapore, it can plan to enter into other Asian countries and Western economies also.
- Before entering into the online business of a country, Taobao has to frame policies of e-commerce activities on its website that are in tandem with the culture and consumer behavior of that geographical area.
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