Taobao villages; how the internet is blurring rural-urban boundaries

Taobao Marketplace is China’s premier online consumer-to-consumer market place. It is owned by the Alibaba Group, a company that grew in fame for its online wholesale platform. Recently, Taobao was covered by The Financial Times in an article describing how the marketplace spurs entrepreneurship in rural areas.

Village epicenters called Taobao villages, where 10% or more of the families are involved in e-commerce operations with joint revenue of over 1.5 million USD, are mushrooming. Entrepreneurs are investing in order processing operations, and hiring people to make sure that products are packaged properly and on time for shipment. There are even reports of youth returning to the village from the city after their studies to help grow the business.

Taobao advertisements are seen in Qinghe village, Hebei province. Photographer: Tianyi Li/Alibaba Group Holding Ltd. via Bloomberg

 

What’s under the hood?
One element that drives success for the platform is a demand for authentic and healthy products, directly from the countryside with Chinese rural consumers. A backlash following the stream of food scandals in the country’s food industry. The platform can now link producers and consumers directly together, and they are able to forge deals based on trust.

But this is not the most compelling element of the platform. What the FT article also mentions is that poor and less-developed rural areas are spurring sales growth the most. What I thus suspect to be the real driver underlying these new rural business models is revealed by what this rural e-shop owner says in this short video. As the most import problem that Taobao solves, he states:

“With a real shop, the worst thing is that customers pay on credit. The advantage of Taobao is that you can’t pay on credit”

Instantly you can see the value that the platform has been able to create. Before, a rural shopkeeper’s market was tightly geographically constrained to where the influence of the next village took over. No wonder that many of its customers could get away with putting their purchases on the tab. With the internet enabled marketplace, this geographic constraint is lifted. Shopkeepers are now able to filter out rural dwellers who have cash in hand to directly pay for their purchases, amongst a population of a couple of 100 million people.

Through creating new and expansive market connections, the internet has been able to accommodate a new revenue stream, and to accelerate cash flow within a rural economy. It is a classic mechanism that creates economic development, just like cash accelerated trade in the barter economy. And it all flows naturally from what people on both sides of the trade aspire to achieve.

Take-aways:

  • the internet is blurring urban-rural boundaries; an e-commerce site can contribute to rural development!
  • expansive social networks generate new opportunities for value creation
  • value creation can only be achieved if these networks allow people to fulfill their own purposes.

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