The Tao of Alibaba: Inside the Chinese Digital Giant That Is Changing the World
Brian A Wong
320 pages, PublicAffairs, 2022
Alibaba is one of the largest and most valuable companies in the world. Launched in 1999 by former English teacher Jack Ma and 17 others, the Chinese e-commerce giant has exploded into global markets, disrupting conventional businesses and creating previously unimaginable opportunities for millions of entrepreneurs and small businesses worldwide.
I joined the company in its infancy and contributed to its development for nearly 20 years. In my book, The Tao of Alibaba: Inside the Chinese Digital Giant that is Changing the World, I provide an insider’s account of the “secret sauce” behind Alibaba’s transformation from a tiny startup to a digital giant. But Alibaba’s story is not simply one of commercial success. The company has also made a remarkable social impact—within China and across the developing world—and helped catalyze the transition to a more inclusive digital-first economy in emerging markets.
In this excerpt, I share the story behind a significant new initiative for Alibaba as it sought to move beyond an e-commerce enterprise focused on maximizing profits, and create a replicable model for leveraging digital ecosystems for growing prosperity.—Brian Wong
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Not long after returning from Guizhou, I was visiting a former colleague at Alibaba, Chen Liang, who worked in the research department analyzing market trends. I mentioned my experiences in Guizhou and the sad reality of the hollowing of villages, the phenomenon of large proportions of working-aged residents leaving behind infants and elderly to seek urban jobs. He noted that, by contrast, Alibaba was learning of an unexpected rural phenomenon that some had started to refer to as “Taobao Villages.”
Taobao was Alibaba’s consumer shopping website, and he described these villages as often poor, rural hamlets where, on their own initiative, clusters of residents had formed e-shops, producing and selling on the Taobao platform a range of products that provided far more income than they had previously experienced. These entrepreneurial villagers, he explained, were building remarkable new levels of prosperity by local standards by developing small ecosystems of commerce, selling products such as farm produce, clothing, and furniture to consumers all over China and even to overseas markets.
Further, these e-shops were creating a ripple effect, since other local residents were benefiting from their success by creating their own businesses to provide support services, such as packaging, delivery, and web design. It was a completely organic process, the result of inventive villagers often learning about Taobao and the opportunities by word of mouth.
The Alibaba researchers were fascinated. They began to study the success stories and were arranging visits for company staff and some academic researchers to learn more about how digital knowledge was spreading and boosting incomes through these enterprising clusters. Chen Liang mentioned a particularly robust cluster in Jiangsu province, in a village called Dongfeng within the Shaji township, that had a burgeoning digital ecosystem around do-it-yourself furniture production. He suggested I see it for myself. “It will blow my mind,” he said.
I was still living in Hong Kong at the time, 2013, so I flew to Nanjing in Jiangsu province. Then I took a bus for three hours and a taxi for another hour ride to Shaji township and made my way to Dongfeng. I got off at the village’s gates and walked in to meet the team. The wide main avenue was dusty and relatively bare. There was a long row of traditional Chinese houses, each a cluster of rooms around a small open courtyard, mostly made of concrete and brick. Behind the houses was gray farmland that was largely lying fallow. This reflected the difficult efforts by the residents over the years to build their livelihoods.
My guide explained that for years the villagers had farmed, but the poor soil yielded modest crops. So some had switched to pig farming, but that, too, failed to boost incomes significantly. Finally, facing such impoverished conditions, villagers had turned to setting up small plastic recycling operations. In fact, it eventually became the destination of trash from the United States, Europe, and Japan. This refuse, shipped in containers, landed in a coastal port and then was transported to Shaji. There it was picked, sorted, cleaned, broken down, heated, and melted by local villagers; converted into reusable plastics and raw materials; and, finally, shipped elsewhere. The business had degraded the local environment over the years and earned Shaji township and its villages the unenviable reputation as “garbage villages.”
The first indication I saw that the area’s fate had taken a turn for the better were the Chinese characters painted on one of the walls in Dongfeng along the main road. It read, “Going away to work can’t beat staying home and Taobao-ing.”
I was introduced to Sun Han, who originated and led the transformation. He said that growing up in the Shaji area meant living with an unpleasant smell in the air. Two unsightly black ditches along the side of the road were filled with refuse from the recycling operations. The sky was always gray from the smoke.
He left the village for college and studied in Nanjing for two years but eventually decided to drop out to work. He took a variety of jobs, from stunt acting to an attempt to get into the wine business in Shanghai, but he did not find much success and drifted back home. He bought his first desktop computer and initially set up an e-shop on the Taobao platform to sell electronic devices and some locally made furniture based on his market research for potentially attractive product categories to sell. The business did not take off, so he paid a visit to Shanghai again and, during his trip, visited an IKEA store.
The store’s inexpensive, do-it-yourself furniture kits intrigued him. He bought a few samples and returned home, where he showed the kits to a few local carpenters and hired them to design and produce DIY furniture for the Chinese market, which he offered online. The demand from Chinese consumers took him by surprise and produced, in the first month, more than 100,000 RMB in gross sales, the equivalent of about $15,000.
That was the spark that lit the way. Sun Han expanded his DIY furniture business, and sales became so brisk that he helped other villagers jump in and start similar online businesses. Some produced their own furniture kits, and over time, others started businesses to provide needed services, including printing, packaging, product design, photo studios, and website development.
As we strolled through Dongfeng together, I noticed lots of the small trucks commonly used for deliveries in Chinese cities parked along the street and buzzing about. There were piles of packaging materials in front of some houses or stacks of wood for furniture. This was not a typical rural village scene.
At Sun Han’s family home, I saw that the traditional structure had been transformed into a mini logistics and supply operation. One bedroom had been turned into his makeshift office, what used to be a chicken coop and space for animals was used for storing wood and other production materials, and a third room was filled with packaging materials.
He explained to me that he had been happy to educate his neighbors in how to use the Taobao platform and provide advice on setting up e-commerce businesses. He, like the other villagers, was proud of this digital transformation and the widening circles of prosperity it was creating. The garbage village had transformed into China’s number-one Taobao Village and real-world proof of the replicability of the digital ecosystems model.
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It was, to say the least, an impressive display of the power of an idea, breaking through years of economic disappointment to raise the prospects of a one-time backwater, making it a demonstration of a new business model. And, as I had been told, it was a model sprouting up in other rural areas.
Walking with my hosts along the streets of Dongfeng, I noted that many of the homes had undergone or were undergoing a transition into some kind of business establishment, with the whine of the small commercial trucks providing the soundtrack of a new life for the residents. That was my epiphany: the Taobao Village paradigm was not only helping the residents of Dongfeng village; it was also potentially replicable and could be shared with others.
I left the area feeling energized. Alibaba, I realized, was really on to something that had the potential to help rebuild not just China’s vast interior but, I thought, perhaps other emerging markets such as Africa or Southeast Asia, regions facing their own growth challenges.
It was a heady experience. In my mind, I started to challenge assumptions about the long-standing futility of economic development efforts in low-income countries. It occurred to me that Alibaba might be able to disseminate and teach the e-commerce model that was proving an engine of economic transformation in rural China.
That engine was running strong. Today, the threshold for what is described as a true Taobao Village is an annual e-commerce transaction volume equivalent to $1.5 million and at least one hundred online e-shops, according to a World Bank study of the phenomenon. By that measure, the number of such sites shot up to 4,310 in 2019 from 20 in 2013, a remarkable statement about how this model for growing prosperity has spread organically in poor regions.
When I returned from Shaji and related my experiences to Jack, he paused and then threw out a new proposal. He suggested that I bring my new appreciation for the transformative power of digital ecosystems and Taobao Villages to the company’s efforts at global expansion.
I agreed and threw myself into what was, in effect, Alibaba 3.0. I had already started to see that there was more to this story than an e-commerce success. Alibaba had built something that was changing once-poor Chinese villages, relying on the unique features of the digital economy and the Alibaba model. I was fascinated and motivated to see how we could further develop this breakthrough development paradigm.
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Jack shared with me concerns he had about staying true to our values as we accelerated our growth outside of China. One of his key worries was how we might be able to become more proactive in sharing our good fortune by teaching the digital ecosystem model to entrepreneurs in emerging markets as a new kind of development paradigm.
This led to a program I would help to lead, working with budding entrepreneurs from emerging markets to provide training and support in deploying the Alibaba digital model, called Alibaba Global Initiatives (AGI).
The new model we were defining and teaching leveraged the capabilities and low barriers to entry of the digital economy and empowered entrepreneurs and rural communities. These groups had never been able to compete on an equal basis with enterprises in developed markets. The e-commerce revolution gave them more access and opportunities, and Alibaba was very much a contributor to this radical change that was taking place.
The New Digital Frontier: Expanding Economic Opportunity in Developing Countries
Little by little, it was becoming clear that Alibaba and its approach to commerce might be offering a model for a potentially unprecedented transformation of the economic system. It represented a new frontier.
Digital platforms could empower populations that had been marginalized or underserved. And the demonstration of this concept was coming from the bottom up, not being handed down by the major multilateral development organizations, though they potentially had a significant role to play in supporting the spread of the new model.
One source of strength was the importance of data as a fuel and lubricant in this model. In traditional industrial economies, businesses are typically characterized by a zero-sum mentality— commodities like oil are scarce resources, and value creation comes from hoarding such resources and blocking out competitors. But in the new economy, data is an essential and a renewable, reusable resource that can be easily shared, consumed by multiple parties simultaneously, and— this is key— made more valuable as more applications are found.
Merchants use data for consumer insights, logistics planning, sourcing supplies, and new product development, while consumers use data in the form of product recommendations and cost comparisons, which then generates more data.
That is why one of the great innovations of the digital economy is that the objective should be “growing the pie” through network effects and collaboration, contrary to some of the old competitive principles taught in business schools. As a result, more value can be created for everyone with such ecosystems. The traditional barriers to entry are falling. Many of the entrepreneurs benefiting from the Taobao Villages, for example, had little more than a middle school education, little if any business experience, and extremely limited capital.
In distilling the essence of Alibaba’s model of creating easily accessible digital ecosystems, in defining a central role for entrepreneurs in virtually any location and enhancing their capabilities with support systems, we were translating our success into a catalyst for inclusive growth in regions that had lagged.
Some experts have worried about the risks of emphasizing digital businesses, concerned that they might concentrate economic power with a tiny number of people who could just turn around and exploit poorer citizens, but I was clear that by far the bigger risk was in missing the opportunity altogether.
Populations around the globe that reside in the bottom 40 percent of income levels have largely remained poor despite the best efforts of multilateral aid organizations and national development strategies to break the shackles of poverty. The old models are poised to change, the faster the better. Digital technology stands out from previous economic breakthroughs in part because of the low threshold for adoption and the ease of replication.
When Jack first toured Africa in 2017, he observed that, in many places, what he was seeing was not so different from the poorer areas of China he had sought to transform with his platform in 1999. What many saw as Africa’s shortcomings— heavy youth unemployment, weak infrastructure—were, in his view, opportunities to deploy digital platforms that would help entrepreneurs and small businesses leap over inadequate legacy systems and reach global markets. His views helped lead an important new phase in how Alibaba pursued its mission.