Alibaba and Nigerian entrepreneurs

For Nigerian start-ups the major lesson to learn from the business model of Alibaba, the Chinese e-commerce company, is don’t just start a business; solve a problem. 

Alibaba, a hodgepodge of Amazon, eBay, PayPal and Google is proudly Chinese. Alibaba’s 7 million stores use Alipay, its payment processor, to transact billions of dollars yearly. 

Alipay, set up to ease online transactions, is the world’s largest payments processor and commands 70 percent of the Chinese mobile-payments business.

Jack Ma, the founder and former teacher of English who retired as CEO last year, has ventured into other related businesses. For example, Yu’E Bao, an online money-market fund anchored on Alipay’s heft. It lately paid $3.5bn for AutoNavi, an online mapmaker and $1.2bn, together with Yunfeng Capital, a private equity firm, for 18.5 percent of Yokou Todou, the YouTube of China. 

Beyond the acquisition spree and the imminent Initial Public Offering (IPO) that is likely to value the e-commerce giant at $245bn, Alibaba, “the world’s greatest bazaar” started life as an adapter rather than innovator; using existing technologies to solve its customers’ problems. 

In a 2005 New York Times interview Jack Ma said “In the US, B-to-B companies died because they focused on big companies. We’re focusing on small and medium-sized companies. We’re helping them make money.”

Unlike Amazon which sells directly to customers Alibaba’s Taobao and Tmall e- commerce platforms offer merchants marketing and advertising services. And because trust is in short supply the provision of an independent verification service allows buyers to vet the claims sellers make.  

Alibaba’s value proposition has helped buyers and sellers overcome information asymmetry i.e. lack of information and has reduced the high transaction costs associated with finding and vetting customers. 

As a result, all manner of goods, from “Alaska salmon to Boeing 747s”, from “fruits to forklifts” are traded. Rom Oil Mills, an Ibadan-based oil miller, was a listed company on Alibaba until Flour Mills acquired it in 2012. 

The Alibaba model is perfect for markets were trust is low and there are many underbanked people. With volume of transactions processed and data gathered by Alipay, Alibaba has ventured into financial services offering products such as loans. 

Take Jobberman, the four year-old Nigeria online recruiting company. It aggregates information of companies searching for employees and job seekers looking for employers make the job market liquid. Companies want to cut through the clutter of paper CVs, fill job positions quickly and at a minimal cost. 

Jobberman’s platform, with 700,000 registered users and 9 million hits per month, helps to match employers looking for the best talent and employees trying to find what company needs their skills. Users can search its database and alerts are sent for matches that suit both the recruiter and job seeker.

Jumia and Konga, two Nigerian e-commerce companies have overcome Nigerians distrust for purchasing online by allowing payment on delivery. Overtime aggregated data on purchasing and payment habits could be useful for financial services such as a credit bureau. Or, if they get around convincing Nigerians to leave cash in an escrow account, as Alipay does, they may move into the money transfer business as Walmart lately did.

According to information on Walmart’s website, money transfer via Walmart-2-Walmart is cheaper than MoneyGram, its partner and now a rival. However, users of Walmart-2-Walmart money transfer cannot send outsides of the US. 

A 2012 survey by EfiNA showed that 26.1 million and 20.1 million adults had received and sent remittances, respectively, within Nigeria six months before the survey was conducted. The bulk of those that received remittances got between N10,001 to N50,000.  

There are numerous ways technology can be used to solve problems. With the right government initiatives private investments will follow. For instance, China is investing in new wireless networks and extending broadband to the villages. This will boost China’s already booming internet economy of 591 million internet users. 

In 2015, the number of Chinese online will top 850m – the number of internet users in 14 African countries is expected to reach 600m by 2025, according to Lions go Digital, a report by McKinsey Global Institute. Countries like Nigeria, Ethiopia, Algeria and Angola are said to be punching below their weight. 

But neither Africa nor Nigeria is China. While most of the growth in internet penetration in Nigeria and Africa is urban, an increasing number of Chinese living in the rural area are getting connected to the internet. 

Though internet penetration rate is highest in coastal provinces like Guangdong, Fujian, Zhejiang and Shanghai, the number of new internet users is growing faster in landlocked and rural provinces e.g. Qinghai, Henan, Anhui and Beijing. 

For instance, 54 percent of the 26 million internet users in China in the first of 2013 were located in towns and villages. Alibaba, too, has seen a surge in the number of rural-based buyers and sellers; 22 percent of its 7 million stores are from such locations.

The trajectory of China’s growth is another point that makes Nigeria or Africa’s story different. Before Chinese global technology giants like Alibaba, Huawei, Xiaomi etc there were mammoth state-owned enterprises that smelted steel and mixed cement. In 2013, for the first time, revenue generated in China’s electronics exceeded that of the steel industry.

Steel smelting will not take-off in Nigeria next year; we don’t even refine the kerosene, petrol and diesel derived from the crude oil we export. Rather the service sector is driving the economy. The magnitude of change in the information and communication sector, after rebasing, was N5.6 trillion compared to the negative N6 trillion contributed by mining and quarrying.

Tayo Fagbule