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

Posted on by Bart Doorneweert

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.

The value chain in transition

Posted on by Bart Doorneweert

My team and I recently conducted fieldwork in Kenya. The purpose of our stay was to gain a deeper understanding of the use and adoption of information technologies amongst farmers. We aimed to map out the agricultural value chain, so as to grasp the structures and systems of information exchange which underpin its workings.

When we were mapping out the value chain we came to an important realization. The patterns that appeared in our maps did not in any way resemble what we learn from the text books. In our text books we are presented orderly abstracted value chain setups, also referred to as governance configurations in wordy terms.

When mapping out the true system in Kenya, we produced something that appears a lot more messy and complex than the text book would lead us to expect. Kenya appears to have a very decentralized distribution landscape, where there are three types of zones that trade amongst each other, net demand, net supply, and the urban zones. Connections between people in each of these zones are flexible, and reach out to a variety of other connections in other (including more remote) zones.

A market is not just a place where the local buyer meets the local seller. Rather, it is a place where people come in from all over, and where grading, (re)packaging, distribution, forwarding, input purchase, as well as grocery and clothes shopping etc, all happen. The market is a multiple purpose, flexible node in a web of human interaction and exchange of goods, rather than a shackle in the value chain. The picture below captures but a glimpse of this complexity.

Kagio Market

Interestingly we not only encountered this pattern of complexity in Kenya. We also saw it in the context of Maharashtra in India, where we ran a parallel inquiry. It thus appears that we can’t apply the model of a value chain to capture these contexts. The classic, orderly pattern of exchange in value chain form, based on a hierarchy in power residing downstream, has been disrupted.

I was really surprised by the observation, but if you think of it, this change is only the natural result of the ubiquity of (mobile) communication technology, which is expanding the possibilities of coordination for the individual. No longer does the power to coordinate reside exclusively with the downstream players. Small brokers, and farmers now have tools available that can increase their reach to the market, bypassing incumbent trade channels if they prove to be a barrier or insufficient. And, they’re not afraid to use them! New technology has put the landscape in transition, and we now have to tap into a value web to get ourselves organized on the market, rather than a value chain. The prevalent notion of a value chain is a relic from a bygone era of industrial organization.

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This is the sixth piece in a continuing series of posts (starting here) on what the role of human-centered design could be in development work. I’m working on this together with Niti Bhan, who will also be posting her observations at her Perspective blog. Posts are categorized as VCD