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Alibaba’s China-Japan Portal: Is This The Way To Cross Borders?

June 3rd, 2010

For IT shops at bigger retailers, that handoff might sound like an indignity. Too much loss of control. Not enough competitive advantage through technology. Cross-border e-tailing is too important to farm out. It’s the job of IT to support online sales in other countries in the same way the department has always had to support retailing: with systems running everything from the Web site to fulfillment and logistics.

But here’s the problem with that kind of thinking: E-tailing itself, just presenting products on a Web site, is relatively inexpensive. The trouble is, the cost of doing all the rest of the IT tasks required for cross-border selling is high—so high that it requires a major initiative to open up a new country.

In practice, the cost is usually too high. As a result, tiny companies can now do what bigger, prouder organizations can’t.

And how much competitive advantage can come from that garden-variety logistics IT, anyway? This isn’t rocket science, just a healthy dose of solid IT combined with a huge amount of grunt work. Transactions have to be logged. Currency has to be converted. Packages have to be shipped. Yes, IT has to support all that. But anybody’s IT can do it.

Besides, the big advantage for a retailer comes from being in a market where its competition isn’t. Offloading much of the misery of opening a new territory, so a retailer can get there first, fast, cheaply and with a smaller financial risk, just makes sense—at least in the beginning. There’s plenty of time later to squeeze out every last bit of efficiency. If Wal-Mart can take back its supply chain, any retailer can bring a cross-border sales operation back in-house once it’s a success.

Of course, there are lots of cross-border challenges that go far beyond IT: taxes, permits, intellectual property laws, banking and privacy, among others. Like the IT problems, these issues are perfect candidates to farm out to a local expert.

Which leaves one more problem for big retailers: Right now, Alibaba—which controls an 80 percent share of online retail in China—only caters to small and midsize businesses.

Still, if Alibaba makes this approach work for small retailers—and it probably will—it may be time for big retailers to look hard at this model, too. Once the kinks are worked out of the link between China and Japan, Alibaba will be extending its reach.

“Once we prove this model out, we can take it anywhere,” Spelich said. Mainly that means anywhere-to-China. At least for now.


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