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Alibaba’s Big Data Is Helping China’s Exporters Pivot to China

Jinshan Hong
·5-min read

(Bloomberg) -- As export orders started plummeting in March amid the coronavirus’s global spread, Chinese toothbrush maker Tommy Tu turned to the domestic market. With the help of Alibaba Group’s huge trove of data on what Chinese consumers are searching for, his factory shifted to making products that became local hits, like a battery-operated electric toothbrush for 9.9 yuan ($1.5).

The strategy helped Tu recover most of the lost foreign sales and reduce his Jiangsu-based firm’s dependence on exports to 60% of revenue, down from 90% earlier.

Spurred by the economic devastation unleashed by the pandemic, hundreds of thousands of Chinese factories like this -- some of which had exported almost everything they made -- are re-focusing on the domestic market of 1.4 billion people. They are turning to e-commerce giants like Alibaba, Pinduoduo Inc. and JD.com Inc. with deep pockets and years of observing consumer behavior, in what could be a long-term pivot.

“We have to focus more on domestic sales,” said Tu, who doesn’t anticipate a “return to the old days” of robust overseas demand. “We have to move away from just blindly sticking labels on products to actively researching, designing and building our own brand.”

Chinese factories are having trouble in overseas markets not just because of the global economic contraction caused by the pandemic. Political tensions are flaring between China and the U.S., Australia and Canada, while rising labor and material costs are propelling foreign clients to turn to more affordable exporters such as those in Southeast Asia.

With China’s status as the factory to the world -- an economic model that powered its growth in the past two decades -- coming under pressure, President Xi Jinping is ambitiously seeking to boost domestic consumption in a revamp of the world’s second-largest economy.

Though China’s exports demonstrated strength in feeding global demand recently-- rising 9.5% in dollar terms in August from a year earlier -- exports will be pressured in the long term as other nations increase output, according to Nomura Holdings Inc.

“Amid the global weakness, domestic demand is where the market is,” said Raymond Yeung, chief greater China economist at ANZ Bank. “China has already become more of a domestically driven economy even before Covid-19.”

Many exporters had already been seeking to expand domestic sales, and the pandemic accelerated that, said Wang Hai, a vice president at Alibaba overseeing consumer-to-manufacturer e-commerce. In just three months, Alibaba gathered more than 300,000 Chinese export factories to tap local demand directly.

Alibaba’s app, Taobao Deals, is a business-to-consumer platform mainly for Chinese manufacturers that went online in March. By June, it had 40 million monthly active users, according to a company earnings call. Besides analyzing demand trends, Alibaba’s logistics arm Cainiao handles centralized shipping and customer services for the factories.

Survival Pivot

Still, only about 10%-20% of Chinese exporters have taken action to extend their domestic reach, according to Bai Ming, deputy director of the Ministry of Commerce’s International Market Research Institute, based on a small survey. Challenges include switching standards, marketing unfamiliar brands amid local competition and the longer periods of credit payment allowed in China.

Domestic demand is also not yet big enough to prop up China’s $2.5 trillion export sector which employs close to 200 million people. And without the premium commanded by global brand names attached to their goods, Chinese factories will be forced into a race to the bottom on price.

“Most consumers will probably make their choices based on price or how the product functions are demonstrated, if there’s no brand identification,” said Jason Yu, managing director at Kantar Worldpanel Greater China. “So this won’t be a sustainable business model for most of those factories.”

Bruce Zhu, manager of a high-end luggage manufacturer in Zhejiang province that focuses on exports, initially tried to crack the domestic market as the outlook for his sector has soured. However, the factory couldn’t withstand slashing its prices to compete with other local makers. “The domestic market is too fierce,” he said.

For companies that can endure the price war, consumer data supplied by Alibaba and others help steer an adjustment to Chinese preferences. Informed by search data, a Zhejiang-based cushion maker pivoted to red, embroidered cushions, and started making a product that can be converted into a blanket.

The revamp helped his firm’s sale hold steady amid a plunge in overseas orders, said Chief Executive Jin Zehua.

Glass Bottles

Experts say if China’s exports continue to demonstrate strength as seen in recent months, the inward push could help local makers become more diversified and resilient.

“Turning to the domestic market adds one more option for Chinese exporters,” said Bai, the commerce ministry researcher. “In the future, exporters can sell to the market that’s most favorable, which reduces risks.”

Some Chinese exporters are learning how to develop both inward and outward channels. In February, Alibaba contacted Guangdong Haoshun Odis Technology Co., an exporter of automobile cleansers and lubricants, to design an alcohol disinfectant after analyzing tens of millions of searches for such a product.

Alibaba found that most alcohol disinfectants in China were sold in glass bottles, which were too fragile and dispensed too much liquid at a time. Haoshun Odis hence started making disinfectant spray in metal bottles, said director Qu Weihao.

Sales have climbed 66% between January and July, Qu said, both from domestic demand and overseas markets like Japan. “Without big data, this could have been very difficult to achieve,” Qu said.

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