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The Alibaba Effect: How China's eBay Transformed Village Economics

Sep 11, 2014
Originally published on September 11, 2014 10:58 am

The Chinese e-commerce behemoth Alibaba is poised this week for what could be one of the biggest IPOs in Wall Street history. One reason Alibaba has been so dominant in China is its business-to-consumer platform, Taobao, a sort of Chinese eBay.

Last year, Taobao and Alibaba's brand-name retail site, Tmall, drove nearly a quarter of a billion dollars in transactions.

Along the way, Taobao has even transformed village economies.

Not so long ago, East Wind village in eastern China's Jiangsu province didn't have a lot going for it. The community mostly exported wheat, rice and soybean — and young men looking for a better life.

"Our village was a traditional farming village," says one of the residents, Sun Han. "People tilled the fields and raised pigs."

Then, in 2003, Alibaba launched Taobao, which allowed people far from China's major cities to sell products online. For East Wind, that meant a whole new industry: furniture.

Today, Sun Han runs a furniture factory along the village's "Internet Business Road." Sun's factory, one of more than 600 in East Wind that now make furniture, ships all over China and as far away as New Zealand.

"Now in our village, most people own cars," says Sun, 31, who wears a pink shirt, jeans and sandals. "Not only do they own cars, they compare who owns the better car."

China has nearly 3.5 million businesses selling products on Taobao. These companies, many of them mom-and-pop operations, employ millions of people across the country.

In East Wind village, shipping firms, paint manufacturers and veneer makers have sprouted up to support the furniture industry. Handsome Zhang — really, that's his name in Mandarin — jumped into the shipping business in 2011. In his first full year, he made $50,000 — a small fortune in rural China.

"As villages develop, they become stronger," says Zhang, who wears torn jeans, sports copper-tinted hair and drives a white Kia sports car. "Taobao drives the economy. It increases migrant workers' employment opportunities. It drives everything."

With his new wealth, Zhang, 25, dreams of touring America, though he's fuzzy on the itinerary.

"What's the capital of the U.S.?" he asks. "The Statue of Liberty is in Washington, right?"

Told it's actually farther north, Zhang says, "Oh, New York. I want to see New York."

In the meantime, Zhang enjoys eating out and singing in karaoke clubs while some of his peers are left to toil in factories and construction sites.

The transformation of East Wind village began about 400 miles away in Shanghai, where Sun Han stumbled into an Ikea one day.

"I saw a lot of Ikea furniture," says Sun, standing in his factory amid the whir of sawing machines and the shriek of packing tape being stretched across cardboard boxes. "I felt their structure was very simple, and the prices were pretty high. I thought if I produce and sell them, the profit would be pretty high."

Sun bought a bookshelf and found a factory to copy it. He'd already sold things on Taobao, such as prepaid phone cards, but he worried that he just didn't have the skills to run an online business.

But he taught himself how to be an Internet entrepreneur — and an effective one at that. In the beginning, in 2007, he says he made more than $1,500 a day with a staggering 100 percent profit margin.

Soon, everyone and his brother in East Wind was opening a furniture factory.

Profits have since come down to Earth. Xu Feng, who runs a veneer company here, says the furniture business is high-volume these days, but with much tighter margins.

"Market competition is very tough," Xu says. "Furniture producers are competing, and naturally they will push down the price of raw materials. So you need to lower your prices accordingly. The future will be very good. But competition will be even fiercer."

As for Sun Han, the man who knocked off Ikea, he's now trying to build his own furniture brand. He remains grateful to Taobao. Without the e-commerce platform, he says, East Wind village never would have changed.

"Young people would have kept moving to the cities and not coming back," he says. "The village would have been just old people and kids."

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STEVE INSKEEP, HOST:

The Chinese e-commerce company Alibaba is poised for what could be one of the biggest IPOs, initial public offerings of stock, in Wall Street history. One reason Alibaba has been so dominant in China is Taobao, that's a website where small businesses sell directly to consumers - a sort of Chinese eBay. Last year Taobao helped drive nearly a quarter of a billion dollars in transactions and even transformed economies in some villages. NPR's Frank Langfitt recently visited a Taobao Village and sent this report.

FRANK LANGFITT, BYLINE: Not so long ago East Wind Village didn't have a whole lot going for it - it exported wheat, rice and soybean and young men looking for a better life. Sun Han remembers.

SUN HAN: (Foreign language spoken).

LANGFITT: Our village was a traditional farming village, he says. People tilled the fields and raised pigs. They also recycled plastics, which were severely polluting the environment. Then Alibaba launched Taobao, now people far from China's major cities could make products and sell them online. For East Wind that meant a whole new industry - furniture. Today Sun runs a factory along the village's Internet Business Road.

(SOUNDBITE OF FURNITURE SHOP)

LANGFITT: He ships all over China and as far away as New Zealand and there are more than 600 furniture factories in East Wind.

HAN: (Foreign language spoken).

LANGFITT: Now in our village most people own cars, he says. Not only do they own cars; they compare who owns the better car.

China has nearly three and a half million businesses selling products on Taobao. These companies - many of them mom-and-pop operations - employ millions of people across China. In East Wind Village shipping firms, paint manufacturers and veneer makers have also sprouted up to support the furniture industry. Handsome Zhang - really that's his name in Mandarin - jumped into the shipping business in 2011. In his first full year he made $50,000, a small fortune in rural China.

HANDSOME ZHANG: (Through translator) As villages develop they become stronger. Zaobao drives the economy. It increases migrant workers employment opportunities; it drives everything.

LANGFITT: Handsome Zhang is 25. He wears torn jeans, copper-tinted hair and drives a white, Kia sports car. He dreams of touring America - although he's fuzzy on exactly where.

ZHANG: (Foreign language spoken).

LANGFITT: What's the capital of the U.S., he asks? Washington, I say. The Statue of Liberty is in Washington, right? It's in New York, I explain. Oh, New York. I want to go see New York.

LANGFITT: In the meantime, he says, he enjoys eating out and singing in karaoke clubs while some of his peers are left to twill in factories and construction sites. The transformation of East Wind Village began 400 miles away in Shanghai - that's where Sun Han, the man who runs that factory on Internet Business Road, stumbled into an IKEA.

HAN: (Through translator) I saw a lot of IKEA furniture. I felt their structure was very simple and the prices were pretty high. I thought if I produce and sell them, the profits would be pretty high.

LANGFITT: Sun bought a bookshelf and found a factory to copy it. He'd already sold things on Taobao, like prepaid phone cards, but he worried he just didn't just have the skills to run an online business.

HAN: (Through translator) I didn't have too much confidence in myself. I thought doing business on Taobao requires technological know-how and special knowledge.

LANGFITT: But he taught himself how to be an Internet entrepreneur and in the beginning - in 2007 - he says he was making more than $1,500 a day with a staggering 100 percent profit margin. Soon everyone and his brother in East Wind was opening a furniture factory. Profits have since plummeted back to Earth and everyone complains the market here is too crowded. Another East Wind businessman, Xu Feng, runs a veneer company. He says the furniture business is high-volume these days, but with much tighter margins.

XU FENG: (Through translator) Market competition is very tough. Furniture producers are competing and naturally they will push down the prices of raw materials. So you need to lower your prices accordingly. The future will be very good. The competition will be even fiercer.

LANGFITT: As for Sun Han, the man who knocked off IKEA, he's now trying to build his own furniture brand and he remains grateful to Taobao. Without the e-commerce platform, he says, East Wind Village would never would have changed.

HAN: (Through translator) Young people would've kept moving to the cities and not coming back, he says. The village would've been just been old people and kids.

LANGFITT: Frank Langfitt, NPR News, Shanghai. Transcript provided by NPR, Copyright NPR.