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1.0       INTRODUCTION                                                                                       3

2.0       NEWS ARTICLE SUMMARY                                                                  3

3.0       EFFECTS OF OPR ON MALAYSIA’S ECONOMIC GROWTH                      5


5.0       SUGGESTIONS TO BOOST ECONOMIC GROWTH USING MONETARY POLICY IN MALAYSIA                                                                        9
            5.1       Rate of Fixed Required Reserves                                                     10
            5.2       Open Market Operations                                                                  10
            5.3       Moral Persuasion                                                                              11
            5.4       Monitoring Bank’s Portfolio                                                            11

6.0       CONCLUSIONS                                                                                         12

1.0              INTRODUCTION
Monetary policy is guidelines that provide the monetary authority of a country in regulating the supply of money and to stabilize the growth of economy (Friedman, 1968). In Malaysia, Bank Negara Malaysia (BNM) conduct monetary policy based on S.22 of Central Bank of Malaysia Act 2009 by influencing the level of interest rates that borrowers have to pay on their loans and depositors earn on their deposits. During the peak of economic overheating and when the threat of inflations high, monetary policy will be tightened by withdrawing fund from the banking system and raising interest rates. The higher interest rates will encourage people to save more and spend less. It would also make it more expensive for people to borrow money. This will cause consumption and investment to slow down to a level that is more sustainable and reduce the prospect for high inflation. Conversely, when economic conditions are weak, fund will be injected into the banking system to reduce interest rates, spending and borrowing would increase. The resulting increase in consumption and investment would stimulate further economic activity, leading to higher income, employment and economic growth.

To give a clear explanation on how monetary policy in Malaysia and its effects on economy growth rate and unemployment rate, this assignment will discuss about one monetary policy in Malaysia by referring to one local news article. The article which is publish in The Star Online, under the title ‘BNM cuts interest rate to 3%’ is reporting about the Bank Negara decision to reduce the Overnight policy rate (OPR) by 25 basis points to 3% in 2016. Important macroeconomics variables will be highlighted in the chosen article and this assignment will also discuss the impact of the monetary policy variables highlighted in the article pertaining to Malaysia’s economic growth rate and rate of unemployment.

2.0              NEWS ARTICLE SUMMARY
As reported by Joseph Chin (2016), in The Star Online on 13th July 2016, Bank Negara Malaysia (BNM) has unexpectedly reduced the Overnight policy rate (OPR) by 25 basis points to 3% at its Monetary Policy Committee (MPC) meeting citing rising risks from Britain's exit from the European Union. This move could see banks lowering their lending rates and making it cheaper and companies to take loans. Correspondingly, the saving rates could also go down.

The overnight policy rate is an overnight interest rate set by BNM used for monetary policy direction. It is the target rate for the day-to-day liquidity operations of the BNM. OPR is the interest rate at which a depository institution lends immediately available funds (balances within the central bank) to another depository institution overnight. The amount of money a bank has fluctuates daily based on its lending activities and its customers’ withdrawal and deposit activity, therefore the bank may experience a shortage or surplus of cash at the end of the business day. Those banks that experience a surplus often lend money overnight to banks that experience a shortage so the banking system remains stable and liquid. This is an efficient method for banks around the world to practice 'Accessing short-term financing' from the central bank depositories. The interest rate of the OPR is influenced by the central bank, where it is a good predictor for the movement of short-term interest rates.

In Malaysia, changes in the OPR trigger a chain of events that affect the base lending rate (BLR), short-term interest rates, fixed deposit rate, foreign exchange rates, long-term interest rates, the amount of money and credit, and, ultimately, a range of economic variables, including employment, output, and prices of goods and services which is the micro and macro factors on the economic. The new base rate (BR) framework encourages greater transparency from banks and will enable customers to make better financial decisions. Previously, calculations of BLR lacked transparency and some banks were lending below the BLR to attract customers and boost loan growth. Under the new system, customers cannot borrow below the base rate. The BLR is usually adjusted at the time in correlation to the adjustments of the OPR which is determined by Bank Negara Malaysia during one its monetary policy meetings. For this case, Monetary Policy Committee (MPC) meetings.

The article also reported the official statement from BNM which justifying the move to reduce the OPR. According to BNM, the action is in tandem with the global economy continues to record growth at a more moderate pace, across and emerging market economies.

BNM also stressed that in Asia, persistent weakness in the external sector has weighed on growth, although demand remains supportive. Looking ahead, there are increasing signs of moderating momentum in the major economies. Thus, the reduce will be the catalyst for Malaysian economic growth amid the decision of European Union (EU), in United Kingdom Brexit.

Lastly, BNM believes that the OPR reduce will bring advantage to Malaysia economy as domestic demand continues to be the main driver of growth. Private companies will be supported by growth in income and employment, and measures implemented will prosper the economic growth.

According to the statement released by BNM in the article discussed above, the OPR was reduced in light of the rising risks from Britain’s withdrawal from the European Union (EU), also known as Brexit. The central bank decided to cut the rate due to the uncertainties in the global environment, which could negatively impact Malaysia’s growth prospects. The rate reduction consequently also lowered inflation forecasts for this year. Inflation forecasts are lowered to 2% to 3% in 2016, compared to an earlier projection of 2.5% to 3.5%, and as expected to continue to remain stable in 2017.

Generally, the news of OPR reduction gave the stock market a boost, especially property counters which had been sluggish in 2016. After the announcement of the OPR cut, the FBM KLCI closed up 6.42 points or 0.39% to 1,660.39, led by UOA Development REIT, which jumped 30 sen to RM2.49 with 7.50 million shares done.

The OPR cut also lent support to the Malaysia Ringgit, which has jumped to 3.96 to the US dollar, and expected to strengthen further to around 3.95.

Against the Singapore dollar, the ringgit rose to 2.9403/9449 from 2.9446/9492, while it improved against the yen from 3.8039/8098 to 3.8015/8081. On the other hand, the ringgit rebounded higher against the British pound from 5.2637/2715 to 5.1967/2049, but eased against the Euro to 4.3940/4008 from 4.3889/3960 in the week when the OPR cut is announced.

Banks will likely be negatively impacted by the BNM’s decision, with the already challenging economic environment. Their margin will be further compressed with the lower benchmark interest rate.

However, according to Kenanga Research, Malayan Banking Bhd (Maybank), AMMB Holdings Bhd (AmBank) and Affin Holdings Bhd are likely to be the least affected by the downward revision in the OPR. These banks are believed to be able to mitigate this impact better, because their fixed rate lending comprises around 30% of their total loan portfolio (versus the industry average of 24%).

Thus, it is not surprisingly to see another OPR cut in the same year as the moves clearly give a boost to Malaysian economy. This is because If economic growth continues to slow more than expected, this may cause the central bank to reduce the OPR by another 25bps in the next meetings.

Though the reduction in OPR comes as a surprise, it does mean more disposable income for consumers. However, with the current uncertain economy in 2016 the OPR cut is seen as justifiable as it is the only measures that can be taken to correct the slow growth of Malaysian economic in 2016.

As the result, Following the OPR reduction, there was an immediate and complete pass-through to interbank rates, with the 3-month KLIBOR (Kuala Lumpur Inter-Bank Offered Rate) declining by 25 basis points the next day. This consequently led to lower lending rates. The weighted average Base Rate (BR) of commercial banks declined by 22 basis points by end-August. Correspondingly, the weighted average lending rate (ALR) on outstanding loans was lower by 15 basis points in the same period.

Since the adjustment, BNM assessed that the monetary policy stance has remained consistent with the macroeconomic outlook and kept the policy rate unchanged for the rest of the year. The domestic economy remained on track to expand as projected for 2016 and 2017. While the baseline estimate was for a slight improvement in global growth in 2017, the downside risks remained elevated following uncertainties over the growth momentum, policy shifts in major economies, unresolved issues post-Brexit and policy uncertainties arising from the outcome of the US presidential election in November. Global financial markets remained susceptible to heightened volatility amid setbacks and shifts in investor sentiments. Nevertheless, the BNM acknowledged that there were signs of positive developments, notably the prospects of a shift towards fiscal support for growth in the advanced economies.

In a country, there will be unemployment. Full employment is difficult to achieve. OPR as a Monetary Policy can be used for achieving full employment. If the monetary policy is expansionary then credit supply can be encouraged. It could help in creating more jobs in different sector of the economy (Amassoma & Esther, 2015). As we all know, the purpose of expansionary is to avoid unemployment by decrease in interest rate in order to make easy credit.

In order to avoid unemployment from raising, BNM will using easy money policy which increase the total supply of money in the economy more rapidly than usual by lowering interest rate in the hope that easy credit will entice business into expanding (Loganathan, Yussof & Kogid, 2012). One of the policy is OPR.

Figure 1: Malaysian unemployment rate.

Following the OPR cut, unemployment Rate in Malaysia decreased to 3.20 percent in February of 2017 from 3.30 percent in January of 2017. Unemployment Rate in Malaysia averaged 3.31 Percent from 1998 until 2016, reaching an all-time high of 4.50 Percent in March of 1999 and a record low of 2.70 Percent in August of 2012. Unemployment Rate in Malaysia is reported by the Department of Statistics Malaysia.

From Bernama, February 21, 2017, Malaysia will enjoy the full employment when its unemployment rate for December last year fell to 2.9% from 3.5% a month earlier. The unemployment rate was also lower than the 3.3% posted in the same month in 2012. The number of employed and unemployed persons recorded a decline of 131,400 and 59,600 persons to 13.55 million employed and 425,000 unemployed persons respectively in December last year. the labor force participation rate eased 1.3% to 13,973,800 persons in December last year from 14,164,800 persons in the previous month. Year on year, it rose by 4.8% from 13,332,100 persons recorded in December 2012.

From the point, other aspects namely foreign workers, Unemployment as damaging issue in Malaysia Economic during times of Asian Crisis, the number of foreign workers in Malaysia has arisen up from an 850,000 people in 2001 to 1, 470, 00 people in 2004 and calculated to be 2,045,000 in 2007 and nowadays it reaches to be 2, 7 million foreign workers. Considering that 1,000,000 of foreign workers in manufacturing sector, which can cover up two thirds of the manufacturing sector 1.4 million work-forces in Malaysia. Its high correlation and presence had become the reason of Malaysia’s low wage architecture within last one decade. However, the existence of foreign labor in Malaysia had successfully kept up and managed the unemployment rate become stable and starkly even lower within last one decade expected range of 3% to 4% annually.

The presence of more than 2.7 million workers in Malaysia had become a pertinent issue which effected the economic growth. According to Firman Shah (2012), he had mention the presence of foreign worker had omitting and smoothening up labor shortages in certain areas of work in Malaysia. They had played complimentary roles to domestic labor in covering up and fulfilling the demand for labor market in Malaysia which help to stable the unemployment rate and fluctuates range between 2.9% to 3.6% per year within last one decade (The Composition of Malaysia Population 2010)

For monetarist, the presence of foreign worker had given effect to the unemployed graduates which later become a worrying trend to Malaysia. However, during financial crisis, the total retrenched workers are total majority workers which argue the displacement of them. 

Monetary policy is guidelines that provide the monetary authority of a country in regulating the supply of money and to stabilize the growth of economy. Thus, in implementing a good monetary policy, there are few factors that can need to be considered.

In this chapter, we will look into how can the government boast our economy by using monetary policy. We will discuss about 4 potential recommendation that are able to help further boast the Malaysia Economy Growth and push the country to achieve more economical success in the future.

            5.1       Rate of Fixed Required Reserves
BNM may require Commercial Banks in Malaysia to hold a fraction (or a combination) of their deposit liabilities (reserves) as vault cash and or deposits with it. Fractional reserve limits the amount of loans banks can make to the domestic economy and thus limit the supply of money. The assumption is that Commercial Banks generally maintain a stable relationship between their reserve holdings and the amount of credit they extend to the public.

When prices are rising, the central bank raises the reserve ratio (Karim, 2012). Banks are required to keep more with the central bank. Their reserves are reduced and they lend less. The volume of investment, output and employment are adversely affected. In the opposite case, when the reserve ratio is lowered, the reserves of commercial banks are raised. They lend more and the economic activity is favorably affected.

In order to stimulate positive growth in the economy the government will have to lower the rate of fixed required reserves, as this rate has an inverse relationship with the total money supply in the market. So, when the rate of required reserves get lower the total money supply in the market will increase. The formula for Money supply under this rate of fixed required reserves is as follows:

Money Supply=  × initial deposit

5.2       Open Market Operations
When BNM buys, or sells securities to the banking and non-banking public (that is in the open market). Aside from Cash reserve, commercial banks are also required by BNM to own liquid asset or securities sell by it. One such security is Treasury Bills. When the Central Bank of Malaysia sells securities, it reduces the supply of reserves and when it buys back securities it will increases the supply of reserves to the commercial banks, hence impacting the supply of money. This requirement was set to help further control and stabilize the Malaysian economy.

Generally, Open market operations is defined as the sale or purchase of securities. As it is known that the credit creating capacity of the commercial banks is dependent upon the cash reserves of that particular bank. Hence, the BNM is capable of controlling the credit in the market as well as the money supply of the market by changing the base of the credit-creation by the commercial banks. If the credit is to be decreased in the country, the central bank begins to sell securities in the open market. This will result to reduce money supply with the public as they will withdraw their money with the commercial banks to purchase the securities. The cash reserves will tend to diminish. This happens in the period of inflation. During depression when prices are falling, the central bank purchases securities resulting in expansion of credit and aggregate demand.

            5.3       Moral Persuasion
The Central Bank of Malaysia is responsible for issues licenses or operating permit to Commercial Banks and also regulates the operation of the banking system. It can, from this advantage, persuade banks to follow certain paths such as credit restraint or expansion, increased savings mobilization and promotion of exports through financial support, which otherwise they may not do, on the basis of their risk/return assessment.

In the recent years, this usage of moral persuasion has become a popular tool of credit control. It is a general term describing a variety of informal methods used by BNM to convince commercial banks to behave in a particular manner that going to generate positive gain for all parties in the society better. The Moral persuasion can take in the form of either Directive and Publicity.

            5.4       Monitoring Bank’s Portfolio
Sometime the problem we have in our economy is that the banks in Malaysia only like to borrow money to certain groups of business man only because of their stable and traditional way of business nature. If this is left it will impact the healthy growth of the nation economy as a whole as other industry such as renewable technology, technology development, online businesses that might only see profits in some years to come cannot progress as they cannot attain loan from bank. That is where BNM come in, the BNM must set the guideline and guide.

To stimulate positive economic growth, the government must direct the commercial banks in the country to provide sufficient money supply across all industries and sectors (Schiller, 2016) so that the Malaysia economy can grow positively with balance. For instance, the agriculture industry would obtain the same growth rate as heavy industrial sector in our economy hence enable it sustain the growing of our overall economy. It is very important that the government can strike this balance among all the sectors in the economy so that our growth can be sustainable and progress further in the future.

Monetary policy play important role to implement in economic growth by stabilizing in influencing through a number of channels. For example, in price stability, by increasing in price level achieve is adjudged substantially to be a monetary phenomenon, monetary policy uses its tools to effectively check money supply with a view to maintaining price stability in the medium to long term. The expectation in economic activities will be higher and contribute to higher consumer spending and attractive companies’ investment by cut interest rate to make the cost of borrowing, resulting higher investment activity and the purchase customer durables.

As discussed in previous chapter, OPR is known as a monetary policy in Malaysia. It also used for monetary policy direction. The OPR is interest rate at which a bank lends to another bank, which is set by BNM. This rate has an effect on the country’s employment, economic growth and inflation. It is an indicator of the health of a country’s overall economy and banking system. The exact mechanics of OPR can be seen on how BNM sets the rate that is consistent with the long-term goals of stable prices (about 3% inflation in Malaysia’s case) and economic growth at full employment. Assuming the OPR is higher than before, than BNM needs to reduce the supply of money in the system. This relative scarcity will increase the market price for overnight deposits.

The OPR can be seen as the right tool to correct Malaysia’s economic growth. It is a sensible tool to adopt the wait-and-see approach if performance of the economy does not stray too far from forecasts.

Amassoma. D., & Esther, F. O. (2015). The efficacy of monetary policy variables in reducing unemployment rate in Nigeria. International Finance and Banking, 2(2), 52-72.

Dogan, T. T. (2012). Macroeconomic variables and unemployment: the case of Turkey. International Journal of Economics and Financial Issues, 2(1), 71-78.

Friedman, M. (1968). “The Role of Monetary Policy”. American Economic Review. 58, pp1-17

Economics Online Websites. (2014). Monetary Policy. Retrieved on from

Joseph C. (2016). BNM cuts interest rate to 3%. The Star Online. Retrieved from:

Karim, Z. A. (2012). Interest Rates Targeting of Monetary Policy: An Open-Economy. Star Study of Malaysia, 2 (1059-1073).

Loganathan, N., Yussof, I., & Kogid, M. (2012). Monetary policy and unemployment shocks in Malaysia: do they connect? 3rd International Conference On Business and Economics Research Proceeding. 48-58.

Schiller, B. R., & Gebhardt, K. (2016). The macro economy today. New York, NY: McGraw-Hill Education


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1.0              INTRODUCTION

Wigand (1997) defines E-commerce as denoting: "the seamless application of information and communication technology from its point of origin to its endpoint along the entire value chain of business processes conducted electronically and designed to enable the accomplishment of a business goal. These processes may be partial or complete and may encompass business-to-business as well as business-to-consumer and consumer-to-business transactions”

There are four basic types of E-commerce relationship namely; Business to Business E-commerce (B2B E-commerce), Business to Consumer E-commerce (B2C E-commerce), Administration to Business (A2B E-commerce), and Administration to Citizen (A2C E-commerce).

While all four of these E-commerce types are of importance to the growth of the information economy, this paper focuses on the first type of E-commerce implementation: B2B E-commerce alone by comparing on two existing B2B internet transaction companies namely and

1.1     Inc. (hereinafter as JD), formerly 360buy, is a Chinese electronic commerce company. It is one of the largest B2C online retailers in China by transaction volume before opening their market to Malaysia customers through Pos Malaysia. The company was founded by Richard Liu in 1998. Its B2C platform went online in 2004. JD started as an online magneto-optical store, but soon diversified by selling electronics, mobile phones and computers. With its headquarters stationed in Beijing, JD also operates subsidiaries in Shanghai Guangzhou, Chengdu and Wuhan, located in East, South, West and Mid China. JD is a pure internet retailer, with a self-operated online business. The company ranks second in value terms in China’s online retailing (Euromonitor, 2014), combined with running a third-party platform for other merchants. JD continually seeks to diversify its products to appeal to its target customers. As of 2014, there were over 60,000 third party sellers on JD’s online marketplaces; but the sales revenue from those third-party merchant’s accounts for a small proportion of the total sales ( Inc., 2015). JD runs a nationwide logistics network, operated by its own staff instead of a third party logistics network, to achieve same-day and next-day delivery services for customers in different areas, with a real-time package tracking service and reliable service standards The national fulfillment infrastructure consisted of a network of 124 warehouses  with an aggregated gross floor area of approximately 2.2 million sq. meters in 40 cities and 3,201 delivery stations and pick-up stations in 1,862 districts and counties across China as of December 2017 (, Inc., 2017).

1.2     (hereinafter as Tmall), a subsidiary of China’s largest online retailer Alibaba Group, focuses on business-to-business (B2C) online retail. Tmall was first introduced by Alibaba in April 2008 as Taobao Mall, a dedicated B2B platform within Alibaba’s consumer e-commerce website. In 2010, Alibaba launched an independent web domain,, to differentiate listings by its merchants, who are either brand owners or authorized distributors, from Alibaba’s consumer-to-consumer (C2C) merchants.

In 2014, Alibaba launched Tmall Global, a platform for international brands which offers products directly to consumers in China. Tmall Global allows Chinese consumers access to branded products sourced and fulfilled directly from overseas. In addition, consumers may directly settle payments with the international merchant in Renminbi through Alipay, Alibaba’s international settlement service, which is the Chinese equivalent of PayPal. Tmall ranked number one among all Chinese B2C retailers in 2014 in terms of transaction volume, with a gross merchandise volume of 30 billion yuan – about four times the amount facilitated by JD, its closest competitor. Tmall accounts for a 61.4% share of the B2C online retail market in China, followed by JD’s 18.6% and 3.2% of Suning (iResearch, 2015).

In 2017, with the coloboration with Malaysian government, Tmall through Alibaba subsidiary opening their business to Malaysian market. Malaysian customers are able to shop with Tmall using credit card or Alipay which is also can be made through local bank like CIMB. The international moves that set up online stores on Tmall Global benefit from the exposure to the hundreds of millions of visitors on Tmall and Taobao Marketplace (Alibaba’s C2C website), enabling them to establish their brand awareness in China without the need for a physical presence in China. International merchants can register, set up an online store through Tmall Global, and be able to use registered trademarks from jurisdictions of their home countries. Foreign brands on Tmall Global consist of brands from the whole world, including Costco from the U.S., Countdown from New Zealand, Lottemart and e-Mart from South Korea, RT-Mart from Taiwan, Fresta from Japan, King Power from Thailand and Lazada from Malaysia.


2.1       Exchange (B2B Hub)

Exchanges or B2B hubs is an independent digital electronic marketplace where suppliers and commercial purchasers can conduct transactions. Exchanges have garnered most of the B2B attentions and funding because of their potential market size.

For buyers, B2B hubs make it possible to gather information, check out suppliers, collect prices, and keep up-to-date on the latest happenings all in one place. Sellers, on the other hand, benefit from expanded access to buyers. The greater the number of potential buyers, the lower the sales cost and the higher the chances of making a sale. Some sites also have experienced higher average revenue per buyer.

Thus, marketplaces make it significantly less expensive and time consuming to identify potential suppliers, customers, and partners, and to do business with each other. As a result, B2B hubs can lower the following costs:

·         Product Costs - A cost incurred by a business when manufacturing a good or producing a service. Product costs combine the cost for raw material and labor.

·         Transaction Costs - This is the cost of making a sale or purchase. For instance, the cost for a corporate purchasing agent to place an order typically starts at RM100.

·         Inventory-carrying Costs - This is the cost of keeping a product on hand or in a warehouse.

There are two types of marketplaces:

        i.            Vertical Marketplaces
These marketplaces serve specific industries, such as the steel, aerospace, automobile, chemical, floral, or logging industry. Mainly, vertical marketplaces supply a smaller number of companies with products and services or specific interest to their industry.

      ii.            Horizontal Marketplaces
These marketplaces sell specific products and services to a wide range of companies. Horizontal marketplaces supply companies in different industries with a particular type of product and service, such as marketing-related, financial or computing.

2.2              E-Procurement

E-Procurement is where a firm creates and sells digital market where sellers and buyer transact for indirect inputs by earning fee for market -making services, supply chain management and fulfilment services. is an example of how an e-procurement firm is works. creates a unique web-based platform, called Ariba Commerce Cloud, which includes applications for spend management, collaborative finance management and sales acceleration management. This platform connects to more than 300,000 global business, and claim to be one of the largest web-based trading communities in the world.

2.3       Infomediary

The term infomediary was originally coined by Hagel and Rayport (1997) to describe a new breed of company that would act as custodians, agents, and brokers of customer information and marketing it to businesses on consumers' behalf while protecting their privacy at the same time.

Today, although the privacy-protection aspects of their proposed definition have not necessarily come to fruition, there are a number of companies whose business model is premised upon gathering information about consumers and selling it to other businesses. A vendor-oriented infomediary sells the information it gathers to vendors who use it to target products, services and promotions to particular consumers.

Vendor oriented infomediaries can be classified into two basic subcategories:

        i.            Audience Brokers
Audience brokers capture information about customers and use it to help advertisers reach the most appropriate audiences for their advertising. A leading example is Google AdSense.

      ii.            Lead Generators
Lead generators gather customer data, from which they then create customer profiles and preferences. They then direct vendors of products and services that fit these customer profiles to the customers. For example, AutoTrader operates a national network of auto dealers to whom web users are referred to in return for a fee per lead.


3.1       Value Proposition

JD sells a large variety of products with 15 categories, from the common merchandise most online retailers provide, such as home appliances and books, to products and services most American online retailers don’t sell, such as insurance quotes, fund, lottery tickets, fresh fruits and travel plans.

JD targets young and middle-age customers who are accustomed to shopping through mobile platforms and computers. Unlike America’s established retail market, China’s modern retail market formed as late as the 1990s; as a result, there are no established retail brands like Wal-Mart, Macy’s and Nordstrom in the market. Due to the short history of Chinese retail markets, Chinese customers easily embraced online shopping when e-commerce emerged in the 2000s. If comparing the penetration rate and the transaction value of online shopping between China and the United States, China’s online shopping market is larger and more advanced.
Tmall caters to online and mobile consumers looking for branded products and a premium shopping experience. It is a trusted platform for consumers to buy both homegrown and international branded products unavailable from traditional retail outlets. Brands and retailers operate their own stores on Tmall’s platform with unique identities, enabling sellers to control their own branding and merchandising. As of March 2016, there were over 140,000 brands on Tmall (Alibaba, 2017). Because of the large number of global brands and the stringent requirements for merchants to operate on Tmall, an online store on Tmall has become a validation of quality, allowing merchants to take advantage of Tmall’s significant traffic to build brand awareness.

            3.2       Revenue Model

A firm's revenue model describes how the firm will earn revenue, generate profits, and produce a superior return on invested capital. The function of business organizations is both to generate profits and to produce returns on invested capital that exceed alternative investments. Profits alone are not sufficient to make a company "successful'. In order to be considered successful, a firm must produce returns greater than alternative investments.

Tmall relies heavily on their selling format known as ‘New Selling Format’. The New Selling Format seems more efficient because it could trim down the operation costs by outsourcing the logistics service to some third-party firms. The application of the revenue model is boosted by China’s rapid economic growth, the amount of deliveries experienced a speedy growth during the past decade; as a result, the delay of delivery is very common.

Different to Tmall, JD’s main profit comes from its direct sales revenue which is the price difference between purchase price and selling price. To attract consumers, JD carried out low-price policy for a long time and it sales revenue approximated to gross profit, so it didn’t make profit in 2010 though its sales revenue was 10 billion yuan. At that time, Richard Liu, Chairman & Chief Executive Officer, said, “Scale is more important than profits and larger scale will bring lower purchasing prices. We will make a breakthrough as long as we improve efficiency and reduce cost.” JD increases its bargaining power and realizes virtuous circle by making use of e-commerce’s short payment period. The payment period of traditional home appliance malls is around 100 days and the suppliers are worried about the cash flow occupied by retailers. JD makes preliminary judgment on products sales using the information collected by its own information system; besides, it carries out informatization management on such processes as order confirmation, storage, logistics and distribution in order to shorten payment period by the high efficiency of e-commerce. The short payment period can suppliers’ capital turnover pressure and JD’s cost of goods purchased so that it can get more stable cash flow and realize virtuous cycle. In addition, suppliers’ profit can be further increased because they don’t need to pay slotting allowances, renovation costs, promotional fees and festival fees.

JD owns more than 30,000 kinds of commodities which are 10%-20% cheaper than practical stores; its stock turnover is 12 days, its expense ratio is 7% lower than Gome and Suning and its gross profit rate is about 5%. In a word, the key to JD’s success is that it does not set up terminal experienced stores but becomes the online store of Gome and Suning and provides more economic goods than the two malls.

            3.3       Market Strategy

Unlike Tmall, JD focuses on a self-operated online retailing business although it provides an online platform for third-party merchants. By comparison, the revenue from its self-operated sector accounts for over 90% of its total revenue; although the revenue from the third-party merchants is increasing at an accelerated rate, it only accounts for less than 10% of its total revenue (, Inc., 2017).

JD takes the lead in China’s Internet retailing in terms of advanced logistics system built up and operated by its own staff members; this is quite different from Tmall, which mainly relies on third-party logistics companies. To remain competitive, JD has been improving its fulfilment infrastructure and technology platform, enriching its product offering and enhancing customer satisfaction so that it can attract new customers and new orders from existing customers. The company boasts the largest warehousing system among all Internet retailers, running seven large-scale logistics centers and 124 regional warehouses across China, with a total area of 2.2 million square meters as of December 2016, (, Inc., 2017).

In 2009, Tmall pioneered November 11th, known as “Singles Day” in China, as an annual promotional shopping day. Singles Day was established as an annual promotional event on Tmall to reward consumers through discounts. On November 11, 2014, Tmall and Alibaba’s other retail marketplaces generated a Gross Merchandise Volume (GMV) of 57 billion yuan ($9 billion) via Alipay within 24 hours. 43% of the total GMV settled through Alipay that day was attributable to mobile platforms.

Sellers on Tmall and Tmall Global pay commissions based on a pre-determined percentage of GMV for Alipay transactions that vary by product category and typically range from 0.3% to 5%. Tmall sellers also pay an annual upfront service fee—up to 100% of which may be refunded, depending on sales volume achieved by the seller within each year. Sellers also pay a security deposit to back-stop potential claims under Tmall’s consumer protection programs (Alibaba Group, 2015).

            3.4       Competitive advantage

Tmall’s most important resource is its brand loyalty which is associated with Alibaba Group, China’s largest online retailer and one of the top ten global Internet enterprises. Backed by Alibaba’s aura, Tmall has rapidly increased brand awareness and won a remarkable market share. Tmall became China’s largest B2B platform in 2012. At the end of 2015, it took more than 60% market share of the B2B market.

Tmall’s large size is another crucial resource. Aided by economics of scale, Tmall can reduce operation costs and improve efficiency due to its big sizes. In addition, Tmall’s scale strengthens its bargaining power to sellers and third-party logistics companies, in effect multiplying the profit margin.

Tmall’s third critical resource is Alibaba’s Alipay versatile payment platform. In addition to low transaction fees, Alipay provides many services, such as cash management, money transfer, utility bills payment, and asset management. Remarkably, Alipay provides an escrow service in which consumers can verify the merchandise before releasing money to the seller. As a market leader, Alipay has 300 million users and controls half of China’s online payment market as of 2015 (Alibaba Group, 2015). To increase Tmall’s transactions, Alipay charges a lower transaction fee for the buyers who shop on Tmall, offering a critical incentive that boosts Tmall’s sales revenue.

In sharp contrast to most online retailers, JD operates a nationwide logistics network which includes seven large-scale logistics centers and 124 regional warehouses across China. The logistics network is JD’s strategic resource, on which JD established a more effcient logistics system. Supported by this system, JD guarantees same-day and two-day delivery for over 90% orders without extra charge. By comparison, most Chinese online retailers can only promise same-week delivery. Due to this gap on delivery timeliness, JD enjoys a huge competitive advantage.

JD’s brand and customer loyalty also are critical resources. Since JD carefully selects suppliers and strictly controls product quality, in addition to its fast delivery speed, it has become synonymous/associated with high quality and fast delivery in China. As a result of its reputation, JD’s private-label products are popular across China.

Overall, JD and Tmall have asymmetric advantages in terms of resources. In comparison, JD leads in logistics, but Tmall dominates with its payment platform and support of third-party merchants. This difference roots in the histories of these two companies. JD started business in Beijing as a B2C online retailer. Since delivery speed determines the survival of e-commerce businesses in such a fast-paced metropolis, JD built its own logistics network in order to become the leader in shipment speed. Unlike JD, Alibaba Group rose from the C2C market, in which third-party logistics services are more efficient. Alibaba replicated this business model to Tmall, its B2B sector. Although it was reported that Alibaba Group started building its self-operated logistics network in 2015, but some industry observers have assumed that the self-operated logistics network was only a complement to its third-party logistics network.

4.0              RECOMMENDATIONS

In this chapter, this paper will outline 4 suggestions to improve the competitive advantage of both company discussed.

4.1       Customer Engagement

Communication is the most vital factor in e-commerce. Tmall and JD can be directly in contact with the customer through e-mail and other means such as social networking sites. They can directly target the advertisements about their new launches and offers to the customers. Effective customer engagement helps the online retailer to build brand in the market (Wirtz, 2013). Customers are also assured about the delivery of the product at their door step and they can return it if they found the piece damaged or unsealed. Companies are also putting lot of efforts in delivering the product faster like one day delivery, same day delivery within the city to keep the users engaged to their respective websites. (Bask, 2012) Pointed out the importance of logistic companies in the e-commerce markets. He also mentioned that more number of logistics companies is also tying up with the e-commerce companies to ensure cost-efficient delivery even to remote locations.

            4.2       Attractive Sales

The products can be offered at a discount price in the online markets to lure customers. Furthermore, customers who are more prices sensitive are quickly attracted to the product and they are comparing other product prices too. To an extent, it is a win-win situation for both seller and buyer in the e-commerce space. Merchant selling the product is getting exposure to a wide market and items are sold quickly, whereas consumer is getting the advantage of cost on the final price and the ordered goods are being delivered at the doorsteps. As recommends by JagvinderKaur, (2014), companies can shift to e-commerce for advertising their products online at a less cost. New businesses of coupon websites have emerged due to the e-commerce boom (VarunJain, 2015). The online coupons business segment has grown simultaneously with the e-commerce business and they are pushing the business of the e-retailers by issuing the discount coupons to the customers.

            4.3       Brick-and-mortar Stores

The main disadvantage of the online shopping is that consumers can’t touch and feel the product they want to purchase which is the benefit when it comes to traditional brick and mortar stores where customers will get the look and feel experience of the item. LathaReddy (2014), points out that some of the customers are still holding the traditional shopping because of lack of trust, lack of physical touch, security issues etc with respect to online shopping. Therefore, Tmall and JD can imitate the moves made by Flipkart India to have physical stores in every potential area (Viskas SN, 2014). The physical store can be filled with popular item. In this case, customers will have the trust on the product as well as the company. They can view the product in store and can book the same online at their convenience.

It is quite evident from the Flipkart scenario that big player in e-commerce should coming up with experience stores of their own which will not only help them in building the brand but also in providing a touch and feel experience to the customers.

            4.4       Mobile Apps

According to (Ghosh, 2015), one of the country’s online apparel retailers Jabong stated that customers should have the choice of shopping according to their convenience either on mobile app or website.

Tmall and JD need to concentrate on developing mobile friendly websites which make the best use of resources available on smartphone like screen size, location, QR code or near field communications.

Companies cannot do away with either apps or web based app both are going to stay. Companies need to formulate appropriate strategy having a balanced mix of app and mobile web. The considerations would be existing customer base, ability and willingness to invest, current brand presence and technology enablers.

5.0              CONLUSIONS

This paper provides information about an overall analysis of two leading B2B e-commerce company namely and and thereby examines their strategies with respect to E-business and marketing.

Other than that, this paper also outlined four recommendations to improve Tmall and JD competitive advantage. The four recommendation is revolved around the advantage of contemporary sales strategy, technology advantage and the potential of having a traditional method of physical stores to attract more customers and building brand image for Tmall and JD.

Summarily, the overall analysis of both company is good, but it is facing some tough competition from its global competitors like EBay and Amazon. But according to this paper analysis if talking about domestic market for both company i.e China, Tmall is the most superior E-business portal which is aggressively expanding & planting its roots deep into the Chinese market & at the same time shifting the mindset of the people i.e. from going & shopping from physical store to online stores, which is magnificent.

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