The future of e-commerce within China cannot be separated from the quality of China’s logistics industry. Unfortunately, the latter is still in shoddy shape.
“The experience of the consumers is determined by logistics,” said Taobao Chief Financial Officer Daniel Zhang, speaking at a press conference in Beijing. When shipments arrive late and broken, trust in e-commerce itself is damaged.
The press conference occurred in January, and its purpose was to announce Alibaba’s plans to take a more active role in solving the problem. The group wants to spend US$1.51 billion on logistics, and raise another US$3.04 billion from as-yet-unnamed partners. Investments will focus on building warehouses, but will also target other selected logistics segments.
“Because everything [related to logistics] is lousy in China, the opportunity is great,” group chairman Jack Ma said to his audience of logistics CEOs, trying to rally them to the cause. He forecast that growth in the logistics sector would be “unimaginable.”
Ma and other managers emphasized that Alibaba does not want to compete with logistics companies; it would much rather train up reliable partners, and let them use its information network and new warehouses to improve services.
Several logistics providers that asked not to be named complained to China Economic Review that Alibaba is pushing exclusive contracts that lock them out of working with other e-commerce companies. But given the sheer volume of business the group is generating, Alibaba will likely find some eager to pass beneath the yoke.
Taobao processes five million orders a day on average; during a recent one-day promotional event on Taobao Mall, 21 million shoppers purchased more than US$146 million worth of goods. The unexpected volume caused the payment system to temporarily freeze, and many merchants struggled to fulfill orders in the aftermath.
Better logistics is a necessity, but Alibaba’s management appears to hope it is a temporary one.
“We are putting our money in to show people this business is a viable business,” said Zeng Ming, head of strategy for the Alibaba Group. “After that we believe there will be many more willing to copy us … Who knows, maybe we will exit this sector one day.”