8 Jun 2019

E-COMMERCE



TABLE OF CONTENTS





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 JD.com and Tmall.com.

1.1              JD.com

JD.com 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 (JD.com 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 (JD.com, Inc., 2017).

1.2              Tmall.com

Tmall.com (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, Tmall.com, 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.


2.0              ELEMENTS IN BUSINESS-TO-BUSINESS (B2B) MODEL

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.

Ariba.com is an example of how an e-procurement firm is works. Ariba.com 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.


3.0              ANALYSIS OF TMALL AND JD BUSINESS MODEL

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 (JD.com, 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, (JD.com, 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 Tmall.com and JD.com 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.

(3673 WORDS)



REFERENCES



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VarunJain. (2015, January 29). Discount and deal sites helping e-commerce boom in India. The Economic Times Retail. Retrieved from: http://articles.economictimes.indiatimes.com/2015-01-29/news/58586391_1_amazon-india-deal-sites-swati-bhargava
Vikas SN. (2015, July 28). Flipkart now allows to pick up your purchases from 20 offline experience zones. ET Tech Retrieved from: http://tech.economictimes.indiatimes.com/news/internet/flipkart-experience-zones-in-store-pickup/48248369

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