Temat: Made in India

Alibaba.com's Passage to India

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On a trip to India last month, Alibaba.com CEO David Wei observed that conditions in the country's impoverished rural areas reminded him of his homeland, China, some 30 years ago. Back then, leaders in Beijing had just started to liberalize development policies, sparking China's economic Big Bang. India has begun a similar transition, and Wei's company, the world's largest online business-to-business (B2B) matchmaking service, is keen to help small and medium-sized companies be a part of that economic transformation.

"We're not just coming to India for a return on our investment," Wei told Alibaba.com employees at the company's new Mumbai headquarters on Dec. 16. "We believe we can help Indian SMEs to conquer poverty. We did that in other countries and I think that we can do it again in India."

Wei said India, with its teeming masses of mom-and-pop enterprises, is full of potential. Along with the U.S., Japan and China, India is one of four countries where there is "no limit on the time or investment" Alibaba.com is willing to spend to gain share, Wei said. If business owners can be convinced of the benefits of international online trade, India may be the most promising because it has the most room for growth.

The vast majority of the country's small businesses are barely aware of e-commerce. India's Internet users totaled about 81 million last year, just 6.9% of the population, according to Internet World Stats. In contrast, the U.S. has 240 million Internet users, a 90% penetration rate, while in China, where Alibaba.com dominates B2B e-commerce, there are more than 420 million netizens, about one-third of the population. "India's e-commerce sophistication is at a similar stage to China's seven years ago," says Brian Wong, Alibaba.com's Global Sales chief. "They are now starting to harness the power of the Internet to do global trade."

Alibaba.com entered India in 2008 through a partnership, and in less than three years, the base of Indian suppliers using the Alibaba.com international website has grown into the company's largest outside China. During the first half of 2010, an average of more than 30,000 Indian businesses signed up to use the site every month. Registered India users totaled 1.57 million on Sept. 30. That's about 11% of all registered users of Alibaba.com's international website.

To position itself for continued rapid growth, Alibaba.com on Nov. 1 took over sole responsibility for India operations, establishing its own direct sales force and in-country customer service team. With more than 75 employees in four offices across India (Mumbai, Delhi, Chennai and Amenabad) and a fifth planned, Alibaba.com is ramping up sales as well as customer training and support.

No one is expecting a quick payoff. Despite the high-tech reputation of Bangalore, home of India's vaunted outsourcing and software programming industry, the country as a whole is an information age late bloomer. Broadband telecommunications services are available to just a fraction of the population, so Alibaba.com's services will for the foreseeable future be difficult for most Indians to access. That's why the company is concentrating on a handful of cities with adequate infrastructure and thriving local economies.

Alibaba.com's initial goal is the help Indian SMEs learn to use the Internet to export their products and services, as well as to source from overseas. Chinese and Indian companies would seem to be natural trading partners, and Alibaba.com is a major connection for Chinese manufacturers. But there are significant hurdles to overcome. Bilateral trade between the world's two most populous countries jumped 43% last year, to nearly $62 billion. But this figure is well below potential. China and India together produce nearly a tenth of the world's economic output, but China-India trade accounts for a mere 0.2 percent of the global total.

India's policymakers and politicians have started to shake off protectionist, socialist-era trade policies from the last century, but tariffs on imports remain high and cross-border commerce is festooned in bureaucratic red tape. While India has a strong manufacturing base in sectors such as textiles, machinery and jewelry, the country's SMEs lack an international outlook. Wong noted, however, that there are signs of change. "There's growing confidence in some of the key industries in India's ability to compete in the global marketplace, and the government is supporting these efforts," he said. In addition, as India's largely agrarian economy continues to modernize, more of the country's citizens are launching small businesses. "Entrepreneurship is definitely on the rise," says Sandeep Deshpande, Alibaba.com's country manager for India.

These trends bode well for Alibaba.com's India push. But convincing SMEs and start-ups that the Internet is a useful marketing and sales tool is another challenge. Many Indian business owners are uncomfortable with technology and are skeptical of trading via the Web. "When we compare India suppliers and China suppliers, I would say more than 80% of India suppliers don't have very much knowledge about the Internet," said Niraj Choksi, the business development manager for DVN Group, a Mumbai-based jewelry manufacturer that uses Alibaba.com. "Even if they are marketing themselves online, they lack the ability to represent themselves properly. The words and language they use makes them look like fraudsters." This lack of sophistication is reflected in Alibaba.com's India membership roster. The vast majority of the 1.57 million registered users joined for free. Only about 3,000 have signed up for the enhanced e-commerce services and tools available to paying "Gold Supplier" members.

Those willing to venture into e-commerce are being rewarded. T.S. Ramen, chief executive of Asian Adores, a Mumbai-based manufacturer of specialty leather products, turned to Alibaba.com in 2005 when he wanted to start exporting. "We were catering to local customers, but we thought we could expand into international markets," said Ramen, who sells custom-designed wallets, laptop cases and other promotional gift items on a contract basis to companies including Citibank and India's top bank, ICICI.

Ramen said Alibaba.com has been "very cost-effective" in attracting customers from the U.S., Europe, Australia, the Middle East, and recently South America. When trying to reach international buyers, "the Internet is much more convenient than other marketing modes," such as hiring overseas marketing agents, Ramen said. With online trade, "you are able to move fast," he said. "As long as you are willing to make it happen for yourself, it can happen quickly."

Getting that message out to more Indian SMEs is the first order of business for Alibaba.com. But the company isn't focused entirely on exports and international trade. Alibaba.com officials said they also want to bring B2B e-commerce to India's vibrant domestic market. The company in 2011 has plans to launch a new website for trade within India's borders. While the site will be similar to Alibaba.com's market-leading China B2B site, 1688.com, content and service offerings will be tailored specifically for Indian businesses.

Alibaba.com officials say they are determined to avoid the missteps Internet companies often make when entering new countries by failing to adapt to local preferences. "We would never consider using the same domestic model from China" in India, Wei said. "India will require a very different model."

Considering India's current stage of development, it's clear that persistence is an essential part of that model. "In China we are in a hurry to do everything," Wei said. That mindset is unlikely to be a successful one on the subcontinent, he said. "In India, you can see that patience is very important. We have the patience and we have the commitment."

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