Any Chinese village with at least 100 online shops that generate more than 10 million yuan (1.4 million U.S. dollars) in annual revenue is called a “Taobao village”, a buzz word coined after the country’s leading online shopping platform. In 2009, there were only three such villages, but the number had soared to 4,310 as of this Aug., of which 20 percent are located in China’s impoverished regions.
From coastal provinces in the east to west China’s inland, more and more Chinese villagers are living their own rags-to-riches tales thanks to online businesses, refreshing the growth of China’s regional economy in the process.
What are so unique about these e-commerce villages? How do these grassroots businesses succeed? What does this phenomenon mean for China’s growth in general? Li-An Zhou, applied economics professor with Peking University’s Guanghua School of Management offered his own answers at a recent lecture.
FRESH BUSINESS STRUCTURE
A “Taobao village” achieves industrialization and revival of local economy via e-commerce, mobile payment and modern logistics. In short, its development is based on the combination of industrialization, information technology and modernization. It boasts professional divisions of work and an intact industrial chain that encompasses design, research and development, finance, processing, marketing and logistics. Most of these grassroots entrepreneurs are college graduates, retired soldiers and migrant workers returning home who cooperate closely with the local governments to steer their businesses.
The typical village and township enterprises as people know in China first appeared in the 1980s and 1990s at the grassroots level and prospered from manufacturing products in high demand against the background of low efficiency at state-owned enterprises amid China’s planned economy. Meanwhile, Taobao villages follow a different industrial structure that integrates industrialization, information technology and modern services.
Secondly, township enterprises, in essence rural businesses complimenting their urban counterparts, were rather scattered across the country, while an e-commerce village is highly concentrated in its business division and industrial chain.
Also, all stages, including product design, research and development, manufacturing and marketing, are all operated within a township enterprise, but a Taobao village is a community where different businesses specialize in different jobs under highly professional work divisions and coordination.
Last but not least, their relations with governments are different. Township enterprises are collective businesses headed by local officials, while a local government only plays a supporting role of guiding a Taobao village to seize commercial opportunities and attracting quality services and logistics providers to cooperate with local businesses.
FROM FRINGE TO MAINSTREAM
A Taobao village is usually characterized by far-off, isolated location, marginalized population groups and fringe products. Despite concentrating in east China’s relatively more developed coastal regions, many of these villages are located in areas away from the hustle and bustle. Many of the employees in a Taobao village might not have high educational levels or professional skills, and their products might be worlds away from those high-end, expensive goods available in big cities.
Overcoming these business shortcomings, China’s e-commerce groups streamline demands for these products that are originally scattered in domestic and overseas regions into a huge online market at the doorstep of these villagers and enable them to make customized products to cater to diverse needs. Thanks to the Internet, grassroots entrepreneurs can spot and seize business opportunities efficiently and then provide high-precision goods that meet customers’ demand — which is rather difficult in traditional industries.
Meanwhile, local governments offer supports especially in areas local businesses are lacking, implementing policies to help them find talents, land and funds and pool resources in logistics, R&D, marketing and other aspects.
NEW ENTERPRISE-GOV’T BOND
These villages are trailblazers in a new type of rural industrialization and urbanization. In traditional theories of urbanization, modernization and industrialization, all resources (funds, labor forces, land and raw materials) flow from rural areas to cities on a one-way street and urbanization virtually means the elimination of rural areas. This has already become a reality as many villages suffer huge population losses amid the country’s fast development over the past 40 years. However, these e-commerce villages are changing the status quo. Thanks to the prospects of online businesses, more people, along with funds and other production factors, are returning to their hometowns, helping these regions achieve rural revival, local urbanization and community management transformation all at once via a new form of urban-rural integration characterized by two-way exchanges.
They also bring forth a new model in which local businesses are run by grassroots entrepreneurs, driven by the market and supported by the government.
TALES OF CHINESE GROWTH
Over the past 40 years in China, local enterprises’ business performances are usually intertwined with local governments’ performances. With China’s reform and opening-up and deeper globalization progress, this dual-competition mode helps unleash greater potential of both businesses and governments. Local governments pin high hopes on their e-commerce villages to boost local economies and improve local people’s livelihoods. In some regions, the development of e-commerce villages even become a key aspect when evaluating local officials’ performances.
Consequently, the enterprise-government cooperation in the development of an e-commerce village also helps boost competitions among entrepreneurs and among officials to a whole new level. As e-commerce offers a competition platform that is transparent, vigorous and without boundaries, local businesses and governments will have to stand more difficult tests in their coordination and innovation.