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Alibaba set to benefit US SMEs, ease trade tensions

By Frank-Jürgen Richter

Global Times, July 30, 2019

In early 2017, Alibaba’s founder Jack Ma promised to create one million jobs in the US when he met the US President Donald Trump. That promise has been severely tested during the ongoing trade dispute, but a few days ago Alibaba formally opened its digital platform to US small and medium-sized enterprises (SMEs).

Although many US businesses have used the Alibaba portal to sell into China, Alibaba has not offered a full-service model to US B2B or B2C clients. From now on, as well as effectively offering modes of digital meetings, it offers financial, payments and logistics aid to facilitate goods transfer between businesses or from businesses to customers.

All this could change with Alibaba’s digital stack of software aid with its very clear focus on SMEs. An uplift of US jobs ought to follow – but maybe not a million. The midwest industrial small-cap firms might benefit most from Alibaba’s boost in interactive sales management.

Part of the benefit will follow from the business streamlining aspect within the Alibaba platform. One dire issue for SMEs is their lack of sufficient personnel to take on the specialization of increased trade and the subsequent need to understand more regulations within finance, legal and even health and safety rulings. Overall, SME firms lack the absorptive capacity to take in new knowledge, especially in the IT area, as well as the ever-changing regulatory aspects that affect the totality of their operations.

Thus, the Alibaba business model is interesting – it offers a clear means whereby vendors and buyers in the SME space can discuss products, numbers and timetables; it also offers full business support to move the goods end to end, via intermediaries, all tied into a supply chain. This model has revolutionized Chinese SME’s processing. Alibaba creates digital and financial security along such supply chains, albeit only between B2B or B2C – where the Bs are SMEs. The US SMEs digitally unattached will have the chance to be supported by Alibaba.

The timing of this new program of business support is interesting. Many people in the EU and the US hardly notice the large logistics providers like FedEx, UPS and so on, but often perceive numerous “local white vans” which complete the last few miles of delivery, especially in the countryside that is impassable for huge long-haul trucks. Or, we think only of Amazon as the sole vendor of goods throughout the US and Europe that has a business model similar to Alibaba insofar as it connects customer payment to vendor payment via logistics carrier services – so easy, that customers hardly consider the complexities. But the regulators in the US and in the EU are considering if Amazon and others in the FAANG (Facebook, Apple, Amazon, Netflix, Google group) have stifled completion and have evaded fair taxation. Alibaba, too, sometime in the future, might suffer that same regulatory scrutiny even though they will concentrate on the US B2B global marketplace. It is hoped they will grow their business into the projected $23.9 trillion B2B market, according to the US International Trade Commission, while it states the business-to-consumer e-commerce market is valued at $3.8 trillion. Alibaba notes about one-third of buyers on Alibaba.com were US-based, yet 95 percent of sellers in the US originate in China – now all will benefit from a smoother business model.

I note that the Alibaba model could help SMEs in crossing borders thereby easing trade disputes. Instantly the North American issues spring to mind – the incessant and frequently repeated border crossings of goods between Mexico and Canada with respect to a final US destination. Presently sanctions apply to be managed by individual firms – but would they within a managed chain such as offered by Alibaba? Or would sanctions be acknowledged straightforwardly within its business support model and costed-in correctly? Within a global view I am sure several US, European and Chinese manufacturers might wonder if they would be branded as sanctions-busters within the multimillion-dollar trade dispute, and if so, what might be the ramifications given the clarity of Alibaba’s trade model. Only time will tell.

Meanwhile the Alibaba Group continues to expand and refine its business models. In the West many have noted how Amazon and logistic providers are delving into data analysis. Not only to provide efficient delivery routes, but to connect customer demographics into their logistics and vendor models. Their urge is to utilize artificial intelligence (AI) and data mining to provide novel answers benefiting customers as well as service providers. They tend to rely on external analytics providers, except for Amazon that has diffused into analytics for delivery as well as automotive self-driving research. In contrast, Alibaba seems to look more deeply at issues, even to purchasing chip-set manufacturers to offer specialist designs for its own massive data analytic programs. The large Chinese population offers huge demographic analysis possibilities and a few Western AI analysts appear to be jealous, but one might rest assured that Alibaba will endeavor to be well-ahead in its business development program not only in China, but with across Asia, and now after entering the US regulation space.

I am sure that this new trade development will ease China-US trade tensions as well as benefit SMEs generally. Trade ought to be a relatively simple two-way process business to business. I know there are many legal facets and product specific factors to be met in each trade, but platforms like Alibaba would seem to cut out some difficulties that face SMEs. They are to be applauded in their continuing venture into the US market space.

 

The author is founder and chairman of Horasis, a global visions community.