--- title: "Understanding Alibaba and JD.com Means Understanding the Future of Chinese Business" description: "Regardless of your industry or profession, this is an article you must read. Understanding the duel between these two giants will help you understand the future business landscape of China. E-commerce is a major engine of China's economic growth, contributing significantly to the rapid growth of the past decade, and its momentum has already led the world. 'Internet+' has also become an important strategic plan for China. It can be said that e-commerce will be an important tool for China's future 'governance' of global trade, and China's future positioning should be as a global product distribution center. The essence of e-commerce is..." author: "New Distribution" publisher: "New Distribution" email: "zhaobo258@gmail.com" telephone: "+8615854817671" published: "2016-01-20" language: "en" canonical: "https://xinjignxiao.com/en/articles/understanding-alibaba-and-jd-com-means-understanding-the-future-of-chine-39a88591/" markdown: "https://xinjignxiao.com/en/articles/understanding-alibaba-and-jd-com-means-understanding-the-future-of-chine-39a88591.md" original_source: "https://mp.weixin.qq.com/s/Mdd0ZX9TOqba60xfevNqYg" translation: "https://xinjignxiao.com/zh/articles/%E8%AF%BB%E6%87%82%E4%BA%86-%E9%98%BF%E9%87%8C-%E5%92%8C-%E4%BA%AC%E4%B8%9C-%E5%B0%B1%E8%AF%BB%E6%87%82%E4%BA%86%E4%B8%AD%E5%9B%BD%E5%95%86%E4%B8%9A%E6%9C%AA%E6%9D%A5-39a88591.md" attribution: "New Distribution — https://xinjignxiao.com/en/articles/understanding-alibaba-and-jd-com-means-understanding-the-future-of-chine-39a88591/" usage_policy: "https://xinjignxiao.com/ai-policy.txt" --- # Understanding Alibaba and JD.com Means Understanding the Future of Chinese Business > Regardless of your industry or profession, this is an article you must read. Understanding the duel between these two giants will help you understand the future business landscape of China. E-commerce is a major engine of China's economic growth, contributing significantly to the rapid growth of the past decade, and its momentum has already led the world. 'Internet+' has also become an important strategic plan for China. It can be said that e-commerce will be an important tool for China's future 'governance' of global trade, and China's future positioning should be as a global product distribution center. The essence of e-commerce is... Regardless of your industry or profession, this is an article you must read. Understanding the duel between these two giants will help you understand the future business landscape of China. Chinese e-commerce is a major engine of China's economic growth, contributing significantly to the rapid growth of the past decade, and its momentum has already led the world. 'Internet+' has also become an important strategic plan for China. It can be said that e-commerce will be an important tool for China's future 'governance' of global trade, and China's future positioning should be as a global product distribution center. The essence of e-commerce is to connect 'products' and 'consumers' in the fastest and best way. The five major models of Chinese e-commerce are: industry chain model, platform model, O2O model, flash sale model, and social model. JD.com is a model of the industry chain model, while Tmall is a representative of the open platform model. Let's compare the differences between these two giants, 'Alibaba' and 'JD.com'. **1. 'Alibaba' is a big platform, 'JD.com' is a big merchant** This starts with Liu Qiangdong's 'Ten-Stage Sugarcane' theory. He believes that the first five stages of a product—creativity, design, R&D, manufacturing, and pricing—should be done by the brand owner. The next five stages—marketing, transaction, warehousing, delivery, and after-sales—should be done by the retailer. JD.com's positioning is the latter five stages: based on transactions, extending to warehousing, delivery, after-sales, marketing, and other stages. So when manufacturers cooperate with JD.com, they only need to focus on the production stage, and the circulation stage is handled by JD.com, which aligns with the concept of professional division of labor. It can be said that JD.com is a retail service provider, working for brand owners. This is JD.com's self-operated e-commerce. Alibaba is a platform e-commerce company. Its positioning is that the above ten stages still need to be done by the sellers themselves. As a platform, it only provides display opportunities and traffic sources. It needs to attract as many sellers as possible, give them a site, let them update and maintain it themselves, and charge them deposits, service fees, commissions, etc. Sellers will naturally be market-oriented, so eventually a bustling marketplace with a wide variety of categories is formed. Therefore, 'Taobao' has a rich variety of categories—everything you can imagine, everything you need. That's the origin of 'omnipotent Taobao'! **2. Alibaba develops horizontally, JD.com extends vertically—one fat, one thin** Therefore, Alibaba's positioning is to help sellers make money; JD.com's positioning is to make money for itself. Ironically, Alibaba has never really helped sellers make money, and JD.com has never made money for itself. Why is that? For Alibaba's 'Taobao' or 'Tmall', sellers only get traffic, and to compete for traffic, they often need to pay extra costs: not only being dragged into price wars but also constantly buying ad space (prices rise), leading to skyrocketing competition costs and generally difficult survival. This is also why more and more sellers are giving up on Taobao, and this is summarized as the arrival of the bottleneck of traditional e-commerce. So, Alibaba hasn't helped merchants make money, but it has benefited many consumers because Chinese consumers can indeed buy cheaper products. Of course, this is a double-edged sword because many counterfeit goods have flooded in. The ease of seller entry determines the difficulty of management: if the door is opened wide, counterfeit goods come in; if it's tightened, products are not abundant. This dilemma is determined by Alibaba's open platform positioning. On JD.com, 60% of products are handled by JD.com itself. JD.com is like an internet retail enterprise that buys products wholesale and sells them online, earning the price difference. When you order on JD.com, you pay to JD.com, packaging and shipping are done by JD.com, and after-sales is also handled by JD.com. So JD.com needs a huge procurement team, sales team, customer service team, and logistics team. JD.com's model of centralized procurement and widespread delivery inevitably requires significant warehousing, so it must do logistics. It has already established a national call center in Suqian, Jiangsu (Liu Qiangdong's hometown) with a total area of over 6,000 square meters, implementing a unified customer service system. It has improved its own logistics and delivery system, now covering 1,300 administrative districts and counties, offering services like 'limited-time delivery', 'extreme speed delivery', and 'night delivery'. JD.com has over 70,000 employees, most of whom work in warehousing and delivery. In the future, delivery personnel can also be used as salespeople, becoming offline traffic entry points for O2O. By building its own logistics, JD.com is not affected by other logistics companies and is one of the few e-commerce companies that can guarantee delivery during holidays. It integrates the industry chain of traditional manufacturing enterprises and internet marketing, making it easier to control the entire process, ensuring product quality, winning user reputation and high loyalty. However, JD.com's massive logistics system also has drawbacks. How far can this development model expand? **1. If it doesn't expand, costs are too high; if it expands, the workforce becomes too large, which is too dangerous.** **2. Heavy asset operation means funds are tied up in fixed assets, and capital cannot turn over efficiently.** According to Liu Qiangdong's plan, JD.com hopes to have 600,000 employees in the future. Such an expansion pace carries enormous risks. Managing a company with 600,000 employees while maintaining efficiency in both retail and logistics is not as simple as imagined. For comparison: In 2013, Taobao + Tmall completed 11.3 billion orders. Assuming JD.com's logistics team's per-capita order completion capacity remains unchanged, it would need a logistics team of 1.44 million people to deliver those orders! Jack Ma also questioned JD.com: In ten years, China will have 300 million packages per day. Can JD.com handle that? JD.com needs to spend more costs to maintain order volume, product supply, logistics and warehousing, etc. This is JD.com's weakness. So, JD.com invests too much, earns reputation, but no profit. **3. Alibaba is 'Internet+', JD.com is '+Internet'** Alibaba is more like an internet company, which is 'Internet+'. It relies on infinitely expanding product categories to give consumers more choices, and it has seized China's economic growth dividends: foreign trade transformation, retail industry reform, grassroots entrepreneurship boom, and even rampant counterfeiting and credit deficiency, continuously expanding. It's no surprise that it became a tycoon. JD.com is more like a traditional retail enterprise, which is '+Internet'. As a traditional company, money must be earned penny by penny, and efficiency is life. JD.com is destined to be miserable. So it needs to continuously introduce capital and eventually go public. Then it uses the raised funds to continue investing and expanding, striving to ensure a complete industry chain, smooth logistics system, and excellent product quality and service, thereby increasing the number of consumers. Whether the internet is your surface or your soul determines your gross margin! In recent years, Alibaba's gross margin has remained around 70%, reaching as high as about 78%. JD.com's gross margin only improved to about 9.9% last year... Alibaba stands on the premise of millions of merchants struggling to survive; JD.com moves forward on the blood of capital and the footsteps of martyrs! **4. Alibaba is open, JD.com is closed** Alibaba's approach is still an open model. For example, it cooperates with other companies to build Cainiao Logistics, where warehouses are shared. Logistics companies, Taobao sellers, and various enterprises can all use this warehousing service. This will form logistics transaction data, and through analysis, it can know what products are needed, when, and in which region. Thus, various sellers can place items in regional center warehouses in advance, and transportation costs are naturally lower than shipping one by one to buyers in different places. It can also enable 24-hour delivery for online shopping. This initiative builds a logistics ecosystem, shares resources, and greatly promotes the development of Chinese e-commerce. JD.com's massive logistics system is centered on warehouses, covering second-tier cities. This is also the fundamental guarantee for its fast delivery. But JD.com's logistics is independent, and its model is relatively closed. **5. JD.com has logistics, Alibaba has payment** In terms of independent resources, Alibaba's Alipay has over 300 million real-name users, with nearly 200 million active users. JD.com's Online Banking Payment has not disclosed its numbers, but the gap between the two is significant. Although after JD.com cooperated with Tencent, users can pay with WeChat Pay, WeChat Pay is ultimately a Tencent product. Besides paying fees, over-reliance on WeChat Pay could also affect the development of JD.com's financial services. **6. JD.com is imitating Alibaba, Alibaba is imitating JD.com** Although JD.com is mainly self-operated, its open platform (POP) business is also growing rapidly. From focusing on 3C products to a full-category plan, from all self-operated to opening third-party platforms. Since the second half of 2013, JD.com has begun providing warehousing services to third-party platforms. After the warehousing and logistics deployment is basically complete, JD.com will open 60% of its resources to partners. But: issues like fake orders, counterfeit goods, poor service, etc., exist on Tmall, and they will also exist on JD.com's open platform! JD.com started with the 3C industry, and Alibaba has also begun to invade other vertical industries and deepen its presence, such as culture and entertainment, finance, transportation, education, etc. For example, through equity acquisitions, it brought Sina Weibo, AutoNavi, Wasu Media, China Vision Media, Youku Tudou, and UC (UC Browser) under its wing, building a culture and entertainment sector. It has also laid out an internet ecosystem in mobile platforms, vertical O2O, cloud computing services, audio and video services, and more. In addition, Alibaba has entered the education industry by investing in the TutorGroup platform, entered the tourism industry by acquiring Qyer.com, and strengthened its logistics and physical store areas by acquiring stakes in Haier and Intime. Commentary by Shui Muran: China is about to move from a 'market economy' to a 'capital economy' era. Whether it's Alibaba or JD.com, they share a common feature: they are both models of 'capital operation'. The essence of capital is not money, but a right of control. Using control to bring more control is called capital operation. Optimizing the allocation of social wealth through capital operation, thereby creating more social wealth, is the social value of capital operation. 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