When Jack Ma was being interviewed by CNBC about the biggest IPO in the world, something struck me that I wanted to share. America is an already established, well-oiled machine, in terms of infrastructure, as opposed to China who has not had that for the last 20 years. Even today, China is still trying to establish the infrastructure and systems to be more like a modern country.
One thing that really stood out in that interview was the discussion about trust. Alibaba got a lot of money and a lot of trust from the shareholders, many of whom are actually small business owners.
Alibaba is used by all the small and medium size entrepreneurs in China who do business in the villages and rural areas. In those areas, there’s no infrastructure. They are very poor and there are no big box stores, no Walmart, and no major chain stores. These are the reasons we rely on Alibaba to do business with all these other people of that little village.
Trust I learned is the really “Killer App” for Alibaba. To do business for China’s consumers, we try to nurture relationships and learn how to be trusted. Trust is really the only foundation to build upon. Once you build trust, everything else flows.
How do you build trust with people who are 6,000 miles away? By first trusting them. I think that it’s a mindset thing. China has historically been a very low-trust society because of all the turmoil over the years.
In Chinese, we call it Quanxi – to build relationships. Everybody else in the world knows that if you do business in life, you rely on relationships; but in China, it’s 4-5 times more important than anything else. There’s no system like Google where you can get information. This is really very, very limited. It depends on the trust of the local people.
When visiting China, for example, we always advise our clients to get to know the local mayor, the local governor, the local minister. They are the ones who would know firsthand which companies are paying taxes, have a good reputation, and how much revenue they do, whereas it’s difficult to find that on the traditional system.
People don’t trust people to spend money, so they created a system called Alipay – to allow buyers and sellers to pay each other through a secure system. If America’s small businesses want to buy product from China, they don’t have the money to fly 8,000 miles and then stay in a hotel for 2 weeks to look for manufacturers who make their own products.
They created that in Alipay, so they can see the factories in China, the video of the factories in China, and the different rankings. You can literally talk to them by email, by fax, by Skype, and look at the video of the company, so you can get a better picture. Even small factories in China can afford to do business with small companies in America.
Alibaba is the ultimate ecosystem for small business owners, from China to the world, to Europe, to South Asia, South America, and especially North America. People could say, “Well, I have an idea, I’ve invested in your product. How can I make this product? How can I make this in China?” With Alibaba, the playing field is leveled. Trust in the “Killer App” enabled Alibaba to go from zero to the largest ecommerce company in the world, and the largest IPO in history, in just 15 years. They did it in China, not in America. That in itself is a perfect manifestation of Chinese consumers.
Many years ago when Sam Walton bought Wal-Mart, he didn’t start it in a big city. He started in Arkansas, in the middle of nowhere, a place that nobody else cared about. But they knew that this was going to be the area that people need the product the most.
That’s how Wal-Mart grew to become the largest retailer in America, and in the world. Alibaba is in the same playbook, but with Chinese characteristics, and doing it in China and not here.
Today Alibaba is selling Tesla – they have come a long way, baby.
schan@uschinapartners.com
www.saviochan.com
212-984-0788
U.S. China Partners
100 Park Avenue, Suite 1600
New York, NY, 10017
Blog by Savio Chan 