Page 346 - Introduction to Electronic Commerce and Social Commerce

Opening Case: Cross-Border EC—Partnering with Tmall Global 333

commerce and who has a site or portal that is already serving Tmall has a number of key features supporting cross-
a broad spectrum of cross-border consumers. border EC, but two of the more important are Alipay and
This was the approached used by Costco when they Tmall’s bonded warehouses and logistics-partner network
decided to offer some of their products to the burgeoning (Tran 2015). Alipay is Alibaba’s payment platform (sort of
B2C market in China. like PayPal). It is the largest payment system in China, used
Costco’s 2015 annual report provides an overview of the much more than credit or debit cards which Tmall also sup-
company and the general strategy and operating principles ports. The platform automatically handles currency conver-
(Costo 2015). Costco Wholesale Corporation began opera- sion so that Chinese buyers pay in Yuan and retailers are paid
tions in 1983 in Seattle, Washington. From the beginning in their home currency (once a buyer has received their
they have focused on operating membership warehouses in goods). Basically, once a merchant is hooked up to Alipay, it
the USA and Canada, as well as a handful of foreign coun- provides entŕee to China’s 300 M online buyers. The other
tries including the UK, Mexico, Japan, Australia, Spain, key feature revolves around a set of bonded warehouses
Taiwan, and Korea. Worldwide there are 686 warehouses, located in five major cities (Shanghai, Guangzhou, Hangzhou,
the bulk (569) of which are located in the USA and Canada. Zhengzhou, and Ningo) where merchants can pre-ship prod-
These warehouses, which average about 144,000 sq.ft., are ucts in large quantities. The warehouses are in duty-free
run by 200,000 employees and service 81 million cardhold- zones dedicated to handling imports and delivery for interna-
ers. Cardholders pay annual fees that vary by country, tional merchandise purchased online. They not only enable
although they are around $55 in the USA. faster shipping times to customers but also lower fees on cus-
Their basic strategy is to offer lower priced, high quality, toms and duties. Technically, the warehouses are operated by
nationally branded, and Costco private-label (Kirkland customs, but in reality the actual goods are the responsibility
Signature) products across a range of categories including of Alibaba’s logistics subsidiary, Cainiao, who uses a net-
food, sundries, hardlines, softlines, fresh foods, and ancillary work of third-party logistics providers (3PLs) to perform the
products (e.g., gas stations and pharmacy). Given the low necessary warehouse activities including the sorting, pick-
price strategy, the profits come from selling focused inven- ing, delivery, and customs clearance.
tory (3700 SKUs) with high sales volumes and rapid turn- In exchange for these types of key services, which aren’t
over coupled with “operating efficiencies achieved by free, retailers must meet certain criteria. Among other things
volume purchasing, efficient distribution and reduced han- they have to (Tran 2015):
dling of merchandise in no-frills, self-service warehouse
facilities.” They also come from membership fees. • Have a retail or trading license.
In 2015, Costco total sales were $114B with an annual • Prove they own the brands or have rights to distribute
growth rate of 20% annual. The overwhelming majority (97%) them.
of these sales were in-store. Costco was late getting to EC and, • Provide their Tmall site in Chinese.
as a consequence, they lag behind their competitors. Their ane- • Have products manufactured outside China inspected and
mic EC sales are also a consequence of their expressed strategy. approved by Tmall.
EC sales don’t generate memberships, nor do they encourage • Provide customer service including Chinese language
much foot traffic along with in-store impulse buying. service support.
While Costco’s international presence is limited, it was • Support customer returns and provide a return location in
hard for Costco to ignore China’s astounding retail growth, China.
especially from online sales. In order to test the retail market • Provide shipping direct to the consumer in China.
in China, Costco decided in 2014 to enter the market by set-
ting up shop on Alibaba’s Tmall Global site without capital Many of the required services can be and are often out-
investments in Chinese real estate. sourced to third-party providers, who are preapproved and
In recent years, the Alibaba Group (see Section 11.9) has endorsed by Tmall Global.
made a concerted effort to encourage cross-border online
B2C imports. Toward this end, in 2014 they launched a
new cross-border EC website called Tmall Global. It’s a The Results
platform that enables foreign companies to sell to Chinese
consumers without having a physical presence in China. Today, Costco’s Tmall Global site sells around 200 items
This was particularly attractive to Costco because they from its food, healthcare, and private-label Kirkland
were wary of following the same path of the big box stores. Signature product offerings. They also used their base in