Founded in 1999 by Jack Ma—who claims to have no knowledge of coding and very little experience with computers—Alibaba is an unlikely retail juggernaut.
What was once a startup employing only 18 people now has over 22,000 employees.
And as for the most profitable day of the year? Move aside Prime Day, it’s Alibaba’s Singles’ Day.
On November 11th, 2016–in just 24 hours–this holiday generated over $18 billion in revenue.
So what’s it about?
Alibaba helps connect wholesalers primarily based in China with nearly 200 businesses around the world.
This structure enables a company in the United States to identify a manufacturer abroad and have various products made and shipped.
Recently, the company has set it sights on increased international brand recognition. Last year, the company announced that former basketball player Kobe Bryant and the music group OneRepublic would join singer Katy Perry as global ambassadors.
And as of 2017, some market analysts have noted that Alibaba is a better investment than Amazon. That’s a pretty tall order. Let’s take a look at the inner workings of Alibaba.
Table of Contents
- How Alibaba Works
- Alibaba vs. Amazon [Infographic]
- Alibaba’s Top Selling Products
- Selling Products on Alibaba
- Selling Alibaba Products in the US
- Overcoming the Language Barrier
- Apps to Aid Communication
- How Alibaba Connects Buyers & Sellers
The international business-to-business (B2B) site connects suppliers with buyers across the globe on a single marketplace platform.
Suppliers manufacture and sell products in bulk to buyers looking for inventory for their companies.
The company also operates other related e-commerce sites, including Taobao, Tmall, and AliExpress.
- Taobao: C2C site similar to eBay
- Tmall: B2C site similar to Amazon that allows foreign companies to sell to Chinese consumers
- AliExpress: Alibaba’s B2C international arm that offers international shoppers goods at factory prices without a minimum order size
Whether a U.S. business is looking to wholesale in bulk, or to buy products for their business; whether they operate in the U.S. or globally; Alibaba is frequently a one-stop destination.
Given that Alibaba is a B2B website, their best-sellers are generally items that can be mass-produced and sold wholesale to replenish inventory for companies.
Apparel and electronics are huge. Consistently popular items range from synthetic bracelets and underwear to Bluetooth music systems.
Private labelers would be wise to focus on products that are small and light to reduce shipping costs–items that sell for between $15 and $200 are ideal.
A higher price point is risky because such items require higher capital to begin with and selling lower-valued products is generally untenable because most markets lack the volume to create a worthwhile revenue.
While sellers can join for free, basic membership on Alibaba severely limits the number of products displayed as well as access to promotional tools, rendering it functionally useless to most companies hoping to expand.
For vendors, then, it is important to examine the market to make sure there is an audience for said goods.
Alibaba is readily used to export items from China.
This, however, may change. Alibaba has announced an initiative to invite American small business owners and entrepreneurs to focus on products targeting Chinese consumers.
As it stands, selling on Alibaba can be cost-prohibitive to smaller retailers.
Tmall, the division that targets foreign companies, requires that verified Gold members provide a security deposit of up to $25,000, pay annual seller fees totaling up to $10,000, and give Alibaba a 2-5% commission on each sale.
These seller fees are in addition to the 1% charge associated with Alipay, the company’s Paypal-like payment processor.
Alibaba is an excellent marketing engine for suppliers, but new vendors should keep in mind that it can take years rise to the top of Alibaba’s search results and account for this expense.
Alibaba can be excellent tool for Amazon vendors looking to bulk up their inventory via overseas manufacturers. Before buying from suppliers, it is essential to check both Alibaba and Amazon to compare product price points.
This way businesses can make sure they are choosing items that will produce large enough margins to justify investment for the eventual resale in the United States.
When contacting potential suppliers via email it is important to inquire about minimum order quantities, pricing for production and samples, manufacturing duration, shipping options, and payment terms.
Not all suppliers will respond, but buyers can increase their response rate by keeping their queries concise.
Once vendors have received samples, it is important to inspect all goods before putting them back on the market. Sellers should keep record of any flaws or damage and think about the ways in which customers will treat these items. Businesses want products that will inspire confidence in consumers.
When vendors have identified a supplier and are ready to sell, they can log into or create an account with Seller Central.
Resellers using Amazon can take advantage of a range of options for managing inventory depending on the vendor’s particular needs and preferences.
For private labelers moving large stock, fulfillment by Amazon (FBA) can be a great option. If a vendor selects this choice, Amazon looks after their inventory.
When a customer places an order, Amazon handles shipping and delivery. This allows sellers to operate their business remotely from anywhere while ensuring that buyers receive quality service.
How Vendors Can Protect Themselves
While many people turn to Alibaba for the small business-friendly costs, the variety of suppliers and merchandise, and the one-stop platform, it is equally important to be cautious when sourcing from manufacturers overseas.
In addition to falling prey to counterfeit schemes, companies can suffer from lack of quality assurance and consumer skepticism as well as prolonged shipping periods. Alibaba’s supplier verification categories help to distinguish suppliers who can be trusted from those who may not be ideal business partners.
Different types of verification activities are conducted by a third-party, ranging from checking business licenses to reaching out to the business contact, conducting an on-site check of the company’s premises, and more. When suppliers become a Verified Member or Gold Member Supplier, users know that they’re generally trustworthy.
The highest level, Gold Supplier, is recommended by Alibaba. When a business is a Gold Supplier, a gold logo appears on their Alibaba site, indicating to buyers that the particular business has passed the highest verification level by Alibaba.
A number of services are available on Alibaba that help U.S. businesses establish trust when trading with and buying from Chinese suppliers. These services are not yet available to U.S. suppliers but are helpful to retailers making business deals with companies based in China.
Verified Main Product: This service inspects products for quality. When a product has this designation, it indicates to buyers that the product is as described.
Inspection service: If businesses are interested in a product that does not have a Verified Main Product logo, they can pay for an Inspection service from third-party inspectors. Alibaba will collect payments, but will not release it to the inspectors until businesses receive their inspection report.
Secure Payment: Alipay, similar to PayPal, provides secure payment when U.S. retailers buy from suppliers in China. Payments are only released to suppliers once businesses confirm that they have received the product. It also protects suppliers, who are notified of the payment receipt before shipping the order.Note that U.S. suppliers do not have access to this service. Common payments include bank transfers, letter of credit, Western Union, PayPal, and Escrow.
Trade Assurance: This free service refunds businesses up to a covered amount if suppliers do not ship on time or their product quality is not as described. The amount is usually between $10 and $20,000, enough to cover the initial deposit.
Customs Data: The Customs Data service provides access to public trading records of all companies that have shipped into the United States. Information is imported from U.S. Customs and Border Protection, and is helpful to U.S. retailers buying from foreign suppliers on Alibaba.
Language barriers are among the most difficult challenges of global retail and international trade, but Alibaba has tools to help tackle traditional communications barriers.
Multi-language sites: Alibaba’s 15 different language sites help suppliers connect with businesses whose preferred language is not English.
These sites include:
Currently, suppliers can create posts using local languages only on Japanese, Spanish, Portuguese, Russian, French, German, Italian, and Arabic sites.
For the remaining language sites, posts are written in English from Alibaba.com, and are automatically translated by its translation platform. Note that the automatic translation service is available for all sites, but retailers should be aware that software-generated translations aren’t always correct and literal translations don’t always make sense.
The AliSuppliers Mobile App, available for Andorid and iOS phones, allows suppliers to manage their buyer inquires, check new requests for quotations (RFQs), respond to requests from buyers, and directly chat with buyers using the TradeManager function.
The TradeManager Chat App is an instant messaging/chat service for suppliers and buyers. Through it, businesses can receive instant notifications when a message is sent to them.
In addition, they can create contacts and search their chat history. This messaging tool is available for Windows and Mac operating systems, in addition to the AliSuppliers Mobile App. Currently it is only available in English and Chinese.
AliSource Pro is a sourcing tool that helps suppliers and buyers find each other.
Businesses looking for suppliers can post an RFQ explaining what they are looking for. Information such as the product specifics, order quantity, and more is listed in the RFQ.
Alibaba then reviews the request and recommends the 10 best suppliers.
Quotes from suppliers are sent within 24 hours, and buyers are able to compare and contrast suppliers, and pick the supplier(s) that best fit(s) their business needs. This service is available to all buyers and to Verified Members and Gold Suppliers.
Suppliers can view their RFQs on the AliSourcePro Channel.
Under Recommended RFQs, they’ll see matches that Alibaba recommends, and under Preferred RFQs they’ll view those based on product categories the supplier previously picked.
In addition, businesses are able to search for existing RFQs on the AliSourcePro Channel by using filters such as: country, region, category, date approved, and more. For businesses targeting their products to specific countries, the option to filter by country/region is especially helpful.
AliSourcePro is not the only way businesses that buy or sell on Alibaba can find each other.
To search for buyers, suppliers can choose the buyers tab under the search bar, and enter a product name. They are able to filter by category, date approved, language, region, and country to make the search more targeted.
Likewise, businesses looking for suppliers can take similar steps by clicking on the suppliers tab under the search bar. They are able to use the same filters as buyers.