What they are doing: Alibaba and JD.com

Source: TMTPOST

Over the past decade, the retail industry has taken flight with digital transformation. In particular, global e-commerce sales have experienced double digit consistently; the global retail e-commerce sales is expected to hit 4.48 trillion USD in 2021, almost twice of 2017’s 2.29 trillion USD. It is thus worth taking a look at two of the biggest e-commerce firm in China- Alibaba and JD.com- and how their innovations and foresight in the industry has propelled them to become eBay and Amazon of the East.

Both companies have achieved enormous success amidst the e-commerce boom. Alibaba 2017 Singles’ Day reached $25.4 billion (168.3 billion RMB) while JD.com sales leading to the actual day totaled $19.14 billion (127.1 billion RMB).

Alibaba

Alibaba sales during 2017 Single’s Day totalled $25.4billion USD in Gross Merchandise Value (GMV). Source: Xinhua.net

Founded in 1999 by Jack Ma, Alibaba spent its early days as a listing website for thousands of Chinese businesses. However, recognizing that serving the end-consumer was crucial in this digital age, Taobao and Tmall was created to provide customer-to-customer (C2C) and Business-to-Customer (B2C) services respectively. Taobao serve as a platform between individual Chinese sellers and end-consumer. In contrast, Tmall requires sellers to be licensed businesses and provide all documentation to confirm the authenticity of the goods, hence quality of products is assured on the Tmall platform. To orchestrate millions of orders on a daily basis is only possible with Cainiao, their proprietary logistic platform as well as adopting the latest innovations and employing millions of couriers.

Overview of Cainiao Network. Source: Alizila

Cainiao is the logistic arm of Alibaba and has been credited as the backbone of Taobao and Tmall’s success. Formed in 2013 with several logistic providers, Cainiao was formed to meet the logistical demands from the booming e-commerce sector with the ultimate goal to realize delivery anywhere in China within 24 hours and across the world within 72 hours.

Instead of setting up its own courier service, Cainiao adopted an asset-light “platform model”, aggregating logistical resources and optimizing the delivery network through the utilization of third-party couriers as “transportation tools” to deliver goods nationwide. Such a model simplified operations and eliminated significant labor cost associated with the traditional logistic industry. The massive volume of orders from Taobao and Tmall was attractive enough to lure couriers to join the platform and adopt Cainiao’s logistics system such as their barcode.

Cainiao largest smart warehouse in Huiyang, Guangdong Province. Source: Business Insider UK

Cainiao network of warehouses covers over 250 cities in China, offering same-day and next-day delivery to more than 700 districts and counties. The 3,000 square-meters warehouse (shown above) in Huiyang is home to over 100 Automated Guided Vehicles (AGVs). Named Zhu Que, or Vermilion Bird, these robots navigate around the warehouse, carrying up to 600 kilos of the products to human workers who will then pack the orders and post to customers worldwide.

Cainiao also run the world’s largest logistics database, processing up to 9 trillion records a day. Over 70% of its current shipment rely on in-built algorithm to optimize the delivery route. Furthermore, 1 million smart logistics vehicles equipped with Cainiao’s advanced big data and algorithms will be deployed over the next decade, with an estimated annual saving of $1.4 billion USD.

In late 2017, Alibaba increased its stake in Cainiao, taking majority rights of the logistics unit. With Jack Ma pledging over 100 billion RMB over five years in Cainiao and R&D, we will undoubtedly see more developments in Alibaba’s warehousing and delivery capabilities.

Storefront of a Hema Supermarket Source: ejinsight.com

Hema (literal translation to “Hippo”) Supermarket is another proud innovation by Alibaba, integrating technology to marry online and offline experience in grocery shopping. As a members-only supermarket, customers can use Hema’s mobile app to look for products and pay using Alibaba’s Alipay. A dining area is available for fresh produce to be cooked by chefs for a minimal fee. Other than online orders, in-store online purchase is also available. Customers simply scan the barcode of their desired products, indicate quantity and make payment. Orders will then be filled by employees and sent via conveyor belts to the delivery center next door where it will be shipped to customers’ home during the allocated time. Hema Supermarket promises 30minutes delivery for orders within a three-kilometer radius.

Bag of grocery packed and sent via a conveyor belt to the delivery center next to the store. Source: lowyat.net

JD.com

Often referred to as the Amazon of the East, Jingdong (JD.com) is an e-commerce site specializing in B2C services. Founded by Richard Liu (Liu Qiangdong) in 1998, JD.com started off as an electronic store before moving into the e-commerce industry in late 2003. With heavy investment in artificial intelligence (AI) and delivery networks including the use of delivery drones and robots, JD.com is undoubtedly Alibaba closest competitor in both the e-commerce and delivery space.

JD.com autonomous bots processing parcels during 2017 Single’s Day.

JD.com differs from Alibaba with its asset-heavy platform model, relying on its own logistics unit to handle the delivery of goods from the warehouse to the end-consumers. Named JD Logistics, this gives JD.com control and flexibility over its delivery services without compromising on quality. JD Logistics recent fundraising valued it at around $10billion, a sign of strong confidence by investors at their global expansion strategies. Indeed, JD.com investments in supply-chain solutions such as automated warehousing and cross-border logistics have attracted investors and partnerships in Southeast Asia, notably a partnership with Japanese delivery firm Yamato.

JD’s first ever fully-automated sorting center. Source: JD.com

In October 2017, JD.com built the world first whole-process unmanned sorting center, automating the entire process from product entry, storage, packing and sorting. Located in Kunshan, Jiangsu province, the facility is capable of processing 9,000 parcels every hour, achieving the equivalent work of 180 human sorters while eliminating human error, saving JD.com millions of dollars annually.

A delivery bot travelling on the road. Source: Quartz

Another innovation is the JD’s delivery bot. With a maximum travel distance of 20km and carrying up to five packages at once, the delivery bot is designed to serve smaller communities such as university campuses. The cost of each delivery bot is $7,900 (50,000 RMB) and delivery cost of each parcel is estimated at $0.25 (1.5 RMB). It is currently undergoing pilot tests at university campuses in Beijing.

A JD.com delivery drone undergoing pilot test Source: JD.com

To reach rural parts of China where access is limited, JD.com has invented seven different types of delivery drones, each with different capabilities. With drones carrying up to 1000 kg and a distance of 100 km, they are set to be the next form of delivery in remote villages where many have not yet benefitted from the convenience of e-commerce. These drones eliminated the cost of delivering goods by car to rural areas, allowing better allocation of logistical resources. Nonetheless, battery power is still a huge issue cited by Chen Zhang, JD.com’s Chief Technology Officer (CTO). (Alibaba has been undergoing drone tests as well, albeit at a smaller scale.)

A lady at the entrance of JD’s unmanned store scanning the QR code with her mobile app while undergoing facial recognition. Source: Caixinglobal

Other than logistics, both Alibaba and JD.com have divested into other areas such as cloud solutions, supply chain financing and blockchain. An interesting area which both have significant investments in is unmanned store, which have gained popularity nationwide over the past few years. Using technologies such as mobile payment, facial and movement recognition, consumer data are collected to recognize preferences and buying habits. Such stores operate 24/7 and are restocked only when necessary, reducing significant labor cost.

The impact of the One-Child Policy and the rise of millennials has led to a double whammy of shrinking labor workforce and demand for better wages. Combined with the e-commerce boom, companies in China are forced to innovate and automate processes to save cost. In labour-intensive industries such as logistics, cost-saving measures are even more imperative.

Both JD.com and Alibaba have shaped the global e-commerce and logistic landscape, showing the world not only what China is capable of, but what technology is able to achieve. Today, innovations like artificial intelligence and big data analytics are no longer the exception but the norm. Companies that take an active approach in the adoption of innovations lead the pack while those that fail to do so risk becoming obsolete in this ever-changing global environment. In the e-commerce space, with omni-channel blurring the lines between bricks and clicks, we will definitely see more innovations as retailers fight for a slice of the $4 trillion e-commerce pie.