09/11/2017 A chat with ex-VP of Alibaba Porter Erisman on new opportunities in ecommerce

A chat with ex-VP of Alibaba Porter Erisman on new opportunities in

ecommerce
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Sumit Chakraberty (https://www.techinasia.com/pro le/sumit-chakraberty)

10:33 AM at Nov 4, 2017 11 min read

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Porter Erisman with Alibaba boss Jack Ma. [A still from Crocodile in the Yangtze.]

This is the second part of an in-depth interview with former Alibaba VP Porter Erisman, who has devoted his time to writing books and
advising internet companies after leaving the Chinese tech giant. His second book Six Billion Shoppers (https://www.amazon.com/Six-
Billion-Shoppers-Companies-Commerce/dp/1250088674/) released a little over a month ago.

While the rst book Alibabas World provided an insiders view of the growth of Alibaba and its founder Jack Ma from their formative
years of ecommerce in China in 2000, Six Billion Shoppers draws upon Erismans travels in emerging ecommerce markets across Asia,
Africa, and Latin America.

The rst part of this Tech in Asia interview (https://www.techinasia.com/ex-vp-of-alibaba-porter-erisman-on-the-clash-of-ecommerce-

models-in-asia) with Erisman went into the main thesis of the book around a clash of ecommerce models from the West and East in
emerging markets. The second part dives deeper into cultural and political differences and how they impact ecommerce strategies.

Amazon, I think, is really going to start looking at Southeast Asia in a serious way because its very
well set up to sell cross-border into these emerging markets.

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09/11/2017 A chat with ex-VP of Alibaba Porter Erisman on new opportunities in ecommerce

In Six Billion Shoppers, Erisman delves into history and behavioral research to support his view that the Chinese are inherently more
social than people in the West. This was reinforced during his visits to the rural interior of China in Guizhou province to witness the
tight-knit community vital to the success of farming in terraced paddy elds, where water ows from one plot to another. Unlike the
wheat farming of the American West, this was no individualistic pursuit, he writes. Sorting out the irrigation routes required the co-
ordination of the entire village.

Later he came across a 2014 study in the journal Science that presented a rice theory of culture. The researchers hypothesis was that
the standing water required for rice cultivation fosters a more collectivist view than wheat farming that just needs rain. They correlated
this with behavioral differences between people not only in different countries, but also in rice-farming and wheat-farming regions of
China.

To Erisman, this helped explain why ecommerce and other internet businesses were so much more social in China than in the US,
something that he had already observed over a long period of time.

Here are excerpts from our interview with Porter Erisman:

(https://www.amazon.com/Six-Billion-Shoppers-Companies-Commerce/dp/1250088674)

Youve said there are historical reasons for the Chinese being more social than people in the West, and this is re ected in
ecommerce sites and WeChat. But how much do we really know about Chinese preferences when its so hard for foreign
companies to do business in China?

I think theres two reasons foreign internet companies havent worked in China. The rst is more based on politics and regulations. So
for example anything involving news and information or social networks, the government simply doesnt allow them to succeed. But
something like ecommerce is politically neutral.

My belief is that the Western companies didnt succeed in China because they simply didnt build something that t the needs of the
China market. I got started in China in 1999, and at that time all the big internet companies from the US were beginning to get into
China, but they just couldnt understand the China consumer.

So youre saying it was more their mistake than any regulatory pushback that impeded Amazon and eBay. What about Uber?

Uber could have worked but its culture and way of speaking was totally at odds with the Chinese political culture.

If Uber had approached the government and said, What can we do to help you create jobs here, and by the way, how can we help by
supporting your autonomous car industry? they would have had a good chance of succeeding. But their approach even in western
markets has proven to be disastrous and in China, culturally, they made a number of mistakes. From the very rst day they entered
China, I could see they were headed for a train wreck.
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09/11/2017 A chat with ex-VP of Alibaba Porter Erisman on new opportunities in ecommerce

Even Airbnb seems to be struggling. Theyve been around for three years and they dont have the kind of traction they should
have got.

Yeah, unfortunately were in a new era in China. When I was rst involved with the China internet industry, there was a big fear that the
Chinese government was going to build a sort of China intranet, where our internet is totally sealed off from the world. But up until a few
years ago, the internet in China was relatively open, so long as you didnt allow people to challenge the government.

At this point, if I meet with foreign internet executives who want to go into China, I ask them to focus
on just about any other market rst.

But at this point, if I meet with foreign internet executives who say they want to go into China, I ask them to focus on just about any

other market rst, because the political situation is so hostile now to internet companies that its very dif cult for them to succeed. I
think thats a more recent phenomenon, and thats not how it was for the rst 15 years of the internet in China.

I was surprised when I read in the book that you thought China was in fact more open than India, because everyone here
thinks of China as being a walled garden.

One of the beauties of being a democratic country is that people will speak up when their vested interests are at risk. So in India, with all
the regulations and strong associations and old money conglomerates, there was actually a lot more opposition to ecommerce than there
was in China.

Maybe because the Chinese media is state-run and its government could see the bene t of ecommerce, it was always pretty well
embraced. The whole reason China opened the door of the internet was to help with ecommerce and economic growth.

And yet Amazon has been gaining market share in India and last year virtually sank Snapdeal after Jeff Bezos committed US$5
billion to winning this market.

Its true, but theyve had to build all these creative structures to get around the limits on foreign retailers, and I think Amazon basically
said we cannot afford to lose India like we lost China. What I also hear is that theyve really empowered the head of Amazon India and
given him a lot of freedom to run the business as he sees t. Which is not the case in China.

If youd asked me ve years ago, would Amazon have a chance, Id have said very small chance. But by sheer investment and
determination and making the right decisions on how to localize the power, I think theyve done a very good job and its surprised me.

Most of your research for this book would have happened last year, right? I read your detailed interview with Snapdeal co-
founder Kunal Bahl where he talks about localization and all the advantages Snapdeal had. But when it came to the crunch, it
lost marketshare within months to disappear from contention. How do you see that from the current perspective?

Ill admit Im surprised. When I met with him, he was pretty optimistic. They had launched this thing, Shopo, where it was really like any
little mom-and-pop shop could use their mobile phone to create a shop. [Shopo, which had been acquired by Snapdeal, was shut down
this year.]

What I noticed in China during the C2C days, consumers were patient when things didnt go well or they didnt get the product they
wanted. But in India, Flipkart and Amazon set the expectations of consumers so high by controlling so much of their infrastructure that
basically consumers would rather deal with a more trusted big retailer than a smaller mom-and-pop retailer. And they also seemed to
appreciate the guarantees of an Amazon better. So, it may be the case in India that the infrastructure was so weak, that it really required
someone to come in and build it to create a good enough quality experience for consumers.

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Southeast Asia is so fragmented, its tough for one player to build a really great marketplace in each
market.

Snapdeals decline has come at the cost of Amazon and Flipkart losing millions and millions of dollars. In China you did not see

companies just losing millions and millions of dollars in crazy price wars. Amazon and Flipkart maybe raised the bar of the quality
expectation to such a high level that it sort of helped India leapfrog beyond the C2C phase a little bit.

But yeah, as I was putting the book to print from publishers eight months ago, it seemed like wow, its not working out for Snapdeal quite
like it had seemed it would.

So they shut down Shopo and now theyre saying theyre pivoting to a Taobao model. Whats the logic in that?

India has a gap theres not a very solid C2C player. If you look at China, theres such a huge manufacturing base, all these millions of
manufacturers making products. Once they couldnt sell for export as much, after the nancial crises, they turned to the domestic
market. And these entrepreneurs were able to quickly design and sell products through C2C marketplaces.

India has that, but not quite as much. It seems like a lot of things in India are actually being made in China these days. So, I think there is
an opportunity thats not been tapped yet.

Youve talked about how much small retailers gained from ecommerce in China, and not just the manufacturers. What impact
could C2C have on other emerging markets?

C2C in China started with little retailers selling things like phone cases or accessories. You had students in universities who were
creating multimillion dollar businesses just buying products in volume from Alibaba.com and selling them on Taobao.

If you look at Tmall today in China, its not just brands, its actually a lot of authorized retailers or dealers of brands, and a lot of them
grew from just being a mom-and-pop shop. So, I mean, until just the last few years, ecommerce in China was really grown by smaller
retailers, not the brands.

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Former Alibaba VP Porter Erisman, author of Alibabas World and Six Billion Consumers. Photo credit: Porter Erisman.

[Periodically, concerns are expressed over a slowdown in Chinas economy and the middle class pulling back on spending. But ecommerce
has de ed such forecasts time and again, and is now projected to cross a trillion dollars this year. Last years Singles Day shopping event
in China grossed over US$14 billion four times more than similar shopping events like Cyber Monday and Black Friday in the US.
Erisman feels the boom is far from over as rural China gets into the act.]

See: China preps for craziest ever shopping spree as Singles Day looks set to top $20b (https://www.techinasia.com/china-
singles-day-spending-data)

Youve said that expectations of Chinese ecommerce growth slowing down any time soon are misplaced. Where are the new
areas of growth?

I think the new areas of growth are coming from things like global brands that are now selling directly into China. Thats a really big
trend.

I mean Chinese consumers are discovering totally new products that theyve never heard of, even some things Ive never heard of. Now
you can be in a small village in China and instead of just buying something locally, you will buy lobsters shipped in from Maine in the US,
and have a lobster dinner. I was in Slovenia recently and theyre selling their brand of juice into China. People are buying just directly
from sellers and brands from all around the world. Even in the US, I cant think of a website where you can get all those things. So cross-
border trade will be a big area of growth.

People are buying just directly from sellers and brands from all around the world. Cross-border trade
will be a big area of growth.

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I remember travelling in China on a bicycle 20 years ago and meeting people in the rural interior. Their idea of splurging at that time was
literally having some kind of meat with their meal. And now the middle class has risen where they can splurge on a treat from something
overseas that theyve read about.

Youre seeing also that ecommerce has given rise to ntech. Alibaba is using ecommerce as a way to get people addicted to using their
mobile phone for managing their nances, and I think in all these other markets youre going to see the same thing happening. China is
almost a cashless society in some areas at this point. Like I went to a coffee shop in Shanghai on my last trip there, they had a sign that
said no cash, no credit cards, only mobile payments accepted, and I think thats going to be a trend in other emerging markets soon.

Will cross-border sales give Amazon a second chance in China?

Tencent and JingDong and Alibaba have done such a great job of cross-border, Amazon would have to come up with some kind of a great
platform for China. I think its too late for Amazon to do well in China. Thats the bad news for them. The good news is they have a great
opportunity to do really well in other emerging markets.

Southeast Asia is so fragmented, its tough for any one player to build a really great marketplace in each market. Amazon, I think, is
really going to start looking at Southeast Asia in a serious way because its very well set up to sell cross-border into these emerging
markets.

Southeast Asia, taken as a whole, would be more like India with multiple languages and multiple markets, and all the
inef ciencies in some of the markets, except Singapore, of course. Would that be how you see it?

The way I see it is actually one giant domestic market like India has a potential to sustain more than one giant domestic ecommerce
marketplace. In Southeast Asia I think theres more of an opportunity for cross-border to come in.

Alibaba or Amazon is already set up to sell into those markets, so they have a chance to take market share from the local players. People
might skip from buying a product at their local retailer or domestic ecommerce marketplace to simply buy it cross-border in some of
those smaller countries. Id say Southeast Asia is very much up for grabs right now. India is also kind of up for grabs but its getting more
solidi ed, like the leaders are getting more entrenched.

You have Alibaba backing or acquiring local players like Paytm in India, and Lazada and Tokopedia in Southeast Asia. Tencent
has backed Flipkart in India and Shopee in Indonesia. Amazon prefers to go it alone in India and has just set foot in Singapore.
Which is the game plan that appeals to you?

The rst wave of ecommerce expansion was that Amazon and eBay went to Asian markets and tried to very quickly set up their own
operations. Now what their Chinese competitors are doing is investing in proxies but still giving the local proxy the power to run ahead
on their own.

Alibaba is getting aggressive in emerging markets, either by investing in local players or by trying to sell through AliExpress. If you go to
Latin America or Russia, and look at the list of the most popular shopping websites, one of them will be AliExpress.

See: Pros and cons for Alibaba in battle with Amazon on neutral ground (https://www.techinasia.com/alibaba-vs-amazon-in-
india)

Its sort of like a cold war where you have the emerging market model of Alibaba competing head-to-head in these markets with the
developed country model of Amazon. Itll be interesting to see the battle between Amazon and Alibaba throughout the emerging
markets in the next 10 to 15 years.

Theres also a play between Tencent and Alibaba, right?

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I think Tencent is really well positioned in China and theyre a great company. But their business model is sort of so uniquely Chinese,
its hard to see it translate to other markets. And also the management is notoriously local in their thinking. I mean Alibaba is global
because from day one, Jack Ma the founder was an English teacher and had a global vision for the company.

So I think Tencent is sprinkling some money around just to not get totally left out. But ecommerce is not really in its early DNA and its
just very hard for them to manage any operation outside of China. Their senior management is so much more locally focused, which is
why theyve succeeded in China. But its also what holds them back from doing well internationally.

Please click here to go to Part 1 of this interview (https://www.techinasia.com/ex-vp-of-alibaba-porter-erisman-on-the-clash-of-

ecommerce-models-in-asia)

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Editing by Malavika Velayanikal and Michael Tegos

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Filed under: Ecommerce (/category/e-commerce-social-commerce), Features (/category/features), Q&A (/category/q-and-a)

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Anthony Lim (https://www.techinasia.com/pro le/anthony-lim-4) 5d ago (/a-chat-with-former-alibaba-vp-porter-erisman-on-ecommerce-in-southeast-asia#comments-439822-

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How do i get in contact with Mr. Porter Erisman?

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