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Home / Business / In the war with Alibaba: top brands fight against China e-commerce giant

In the war with Alibaba: top brands fight against China e-commerce giant

SHANGHAI – It looked like a banner year for doing business in China. The US clothing company expected an increase in online sales by 20 percent on Alibaba's Tmall, due to the huge reach of the e-commerce giant.

But executives soon learned that what Alibaba is, can also take it away.

The company refused to sign an exclusive agreement with Alibaba, and instead participated in a major sales campaign with its arch rival JD.com Inc. Tmall punished them by taking steps to cut traffic to their store front, Two executives told The Associated Press. They said banners disappeared in prominent spots in Tmall's stores, the company was blocked by special sales and the products stopped appearing in top search results.

Well-known US brand slumped sales by 1

0 to 20 percent

"Based on our sales record, we should have been in a prominent position, but we were at the bottom of the page," said the e-commerce director Brand, who for fear of further reasons only retaliation on the condition of anonymity spoke. "This is a clear manipulation of traffic, which is a clear punishment."

While the Trump government urges China to gamble on fair trade rules, companies are in a calmer, but no less important, struggle for rule-based access Capturing $ 610 Billion Online Marketplace

Executives from five major consumer brands told the AP that after refusing to enter into exclusive partnerships with Alibaba, traffic to their Tmall store fronts fell and had a negative impact on sales. Three of them are American companies with annual sales of billions, which are dependent on growth.

Alibaba Group Holding Ltd. denies the punishment of companies.

In a statement, Alibaba said that the persecution of exclusive businesses is a common industry practice of compulsion "completely wrong."

"Alibaba and Tmall conduct business in full compliance with Chinese laws," said Alibaba. "Like many e-commerce platforms, we have exclusive partnerships with some of Tmall's dealers, and the dealer chooses such an agreement because of the attractive services and value that Tmall brings them."

The executives spoke out of fear Reprisals were only on condition of anonymity with the AP, but their concerns were reiterated by a US industry group, brand consultants and policymakers in China and JD.com itself.

In a speech on cyberspace, Chinese President Xi Jinping said, Ensuring that free and fair online competition is a regulatory priority that "cultivates a fair market" must protect the environment, strengthen intellectual property protection and oppose monopoly and unfair competition, "state media reported.

In his month-long investigation The AP interviewed more than 30 people and checked two verts Alibaba, which contained the previously unreported exclusivity clauses. The AP found that the platforms that control access to Chinese consumers online have such enormous power that even multibillion-dollar foreign companies struggle to defend themselves.

"We urge the authorities to quickly identify and take action" Stephen Lamar, Executive Vice President of the American Apparel & Footwear Association, added that members of his industry group had complained about Alibaba's unfair competition practices.

JD.com is a member and sponsor of the Trading Group

Imagine a company twice as profitable as Amazon, serving more people every year than across North America. That's Alibaba. It claims to be in the sales market for nearly $ 550 billion a year – more than anything sold online across the US economy.

The trials of affected companies provide a rare window into a bleeding business culture that could spread in China as Alibaba uses its aggressive, innovative and highly profitable ecommerce model globally. As their products are manufactured in the United States – and some of them – as a result of the tight sales figures in China's critical growth market, China-US trade imbalances may deepen, which is a major problem for the Trump administration. 19659018] The competition between Alibaba and JD.com is so infamous in China – and so filthy – it's called "Big Dog War" after Tmall's mascot and the white dog of JD.com.

Wang Hongbo, a consultant who helps Chinese brands sell abroad online, reiterated the concerns of the companies that spoke to AP.

"Many brands complained about it and because they did not stand up, they had to face Tmall," he said.

JD.com said over 100 Chinese brands defected last year due to pressure from its main competitor, a claim that Alibaba and some brands have contested. The exodus seems to have had a lasting effect.

"Based on the feedback we received from these dealers, the move was mainly due to the compulsion tactics of our competitors, which, if proven true, would be illegal and unequivocal against the dealers." said Sidney Huang, JD.com's Chief Financial Officer, in a telephone conversation in November.

Peebird, a Chinese fashion company, is one of those who left JD.com last year, but Weng Jianghong, the CEO of E -Commerce said Alibaba did not force them and the decision to focus on Tmall is strategic.

"We will centralize and develop the limited resources of our company on Tmall," he said

Many companies, including JD.com claims exclusive deals, but JD.com claims that it does not strategically push dealers to exclusivity.

"We support fair and open competition because a wider choice for brands and users is always better," said JD .com in a statement "We win customers by providing them with a first-class shopping experience, rather than limiting the possibilities of brands or consumers."

JD.com is still trying to get brands back. "We believe there will be more traders coming back," Huang told analysts last month. "But I do not expect a very quick fix."


In the second half of last year, Tmall controlled six out of ten dollars spent on online sales to business customers in China – and even more for sectors such as apparel – and therefore enormous power on companies that rely on Alibaba to provide online access to Chinese consumers.

The AP-reviewed contracts offered a number of benefits in return for exclusivity. A contract stipulated that trademarks without Tmall's written permission should not operate shop fronts on other e-commerce platforms. The other agreement provided that new products would not be launched on competing platforms and prohibited brands of sales promotions on other platforms without the written permission of Tmall.

Such sales events are the lifeblood of online commerce in China. The country's massive single-day promotion in November, which began as an anti-Valentine's Day gimmick, is now the world's largest e-commerce event. Last year, Alibaba said that $ 25 billion worth of merchandise was sold on its platforms alone, compared to just $ 14.5 billion in US online sales for Thanksgiving Day, Black Friday and Cyber ​​Monday, according to data from Adobe Systems Inc. [19659032] Brands cited commercial, ideological and legal reasons for refusing to terminate the deal with JD.com.

Some said that different people shop on JD.com and Tmall in different ways, so cutting off JD.com means blocking access A pool of potential buyers

"From the data we look at "It is clear that these are different consumer pools," said the head of a listed company in China. "If I lost the JD business, I would lose some of that business, and another part is basically: This is flagrant anti-competitive behavior."

Others cited legal concerns. "We did not want to do it in part because we thought it might be an illegal trade restriction," said one executive for a second publicly traded company.

"We are blamed when we attend promotional events on other platforms," ​​he added. "What's never said, but actually happens, if we do not cooperate as we want it, is our traffic. It's no coincidence."

Two companies stated that they grant Alibaba concessions, exclusive product launches, their Increase prices on JD.com or remove ads promoting JD.com sales. Traffic to their Tmall shops recovered. One company said it had finally closed its flagship on JD.com to save Tmall's sale.

"You have to go begging," said the China director of a multi-billion listed company.


Tmall and JD.com have different business models, but they are pushing more and more into the box.

Alibaba's online marketplaces connect buyers and sellers. Alibaba earns money from advertising, as well as commissions and fees. JD.com operates a similar marketplace, but like Amazon, also sells branded products, sells and sells the merchandise itself.

Alibaba has pursued JD.com's long-standing dominance in electronics, while JD.com hopes to achieve that Cut in Tmalls core category clothing. Both have turned into food and invested hundreds of millions of dollars in acquisitions to extend their reach to brick-and-mortar stores.

The result is an escalating grass fight that brings a daunting message for brands: either you're with us or against us. The Chinese have a name for this unwritten rule, "he xuan yi," choose one of two.

"Choose one of two is a tacit understanding that has been achieved by everyone, but you do not say it directly," said Zhuo Saijun, who until 2015 was general manager for ecommerce research Analysys Ltd., a Beijing-based big data consulting firm, was. "This is certainly a problem for the development of retail sales channels, it is a business ethics problem, and so monopolies are developing."

Some policymakers have voiced concerns about monopolistic tendencies in Chinese e-commerce and called for more effective regulation and enforcement.

"Unfair competition still exists" Wang Bingnan, deputy director of the Chinese Ministry of Commerce, said in a speech in June about the Chinese e-commerce market. "Conduct such as coercion" selects one out of two, "he added," and regulators find it difficult to pinpoint, prove, or handle them.

It is unclear whether Alibaba's actions are illegal or if there is evidence of coercion that brands have accumulated in court According to Chinese anti-monopoly laws, companies that dominate a market can not be exclusive A 2015 regulation also explicitly prohibits e-commerce platforms from restricting the participation of brands in promotions on other platforms

The rules are intended to prevent dominant players from competing, which could ultimately harm brands and consumers, monopolistic ones Players have absolute control over the prizes.

JD.com has previously complained about anti-competitive tactics, and in 2015, the company filed a complaint with the State Administration of Industry and Commerce, a corporate regulatory body that accused Alibaba of bringing in brands , exclusive sales promotions on Singles Day to make – an indictment that denied Alibaba. The lawsuit was taken to a regional office in Zhejiang province, where Alibaba is located.

Never heard of that again.

Regulators did not respond to requests for comments.

Alibaba said while JD .com focuses "on groundless complaints to explain why they are losing brands, we at Alibaba are focused on making our platform the best for our dealers."


The struggles now being waged in China's e-commerce sector could affect the culture and standards of e-commerce globally – at least when Alibaba's chairman Jack Ma makes his way.

Alibaba wants to serve 2 billion consumers by 2036 – or about one in four people on the planet. The value of goods sold on Alibaba's platforms in fiscal year 2017 was already $ 547 billion, higher than Sweden's gross domestic product.

In June, Ma told investors that his company would be the fifth largest economy in the world. "Just say USA, China, Europe, maybe Japan and us," said Ma.

The company aggressively recruited foreign brands to sell on its platforms, and they came in droves. Alibaba said it signed 60,000 international brands in November for its massive single-day sale compared to 5,000 in 2015.

Alibaba's retail sales outside China are also growing rapidly – they have more than doubled in the past fiscal year to 7.3 billion yuan, or 5 percent of total sales.

America remains at the heart of Ma's ambitions. He told President-Elect Donald Trump in January 2017 that he would create a million US jobs by facilitating trade between US companies and consumers in China – a promise he now made through the brewing war between the two Sees countries endangered. 19659060] Brands, now caught up in the big cat-and-dog war, have chosen different strategies to avoid collateral damage.

An ecommerce manager for a major European brand said she would be happy to offer completely different products on Tmall and JD .com will be worried, but she worries that her bosses will not respond because she cutting off potential buyers.

Sometimes, she says, it feels like "working for these platforms."

– –

Associated Press reporter Anne D & # 39; Innocenzio contributed from Las Vegas. Associated Press researchers Si Chen and Fu Ting have contributed from Shanghai.

Follow Kinetz on Twitter at twitter.com/ekinetz

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