China's answer to Amazon
Brittany Mahboobani and Giulia Lina Callegarion 17 April, 2015 at 03:04
This article is part of the series ‘Chinese Shape Shifters’ which brings you 10 Chinese companies which are shaping global economy and global consumer behaviour through innovation.
China’s other eCommerce giant
What is Jingdong Mall?
JD.com (formally 360Buy.com) is a Chinese eCommerce company and one of the largest B2C retailers in China by transaction volume. The company has 46 million active users and an estimated $20 billion in revenue. It boasts 7 fulfillment centers and has 118 warehouses in 39 cities, with 1,045 smaller pickup centers in approximately 500 cities.
How did JD.com come to be?
In 2004, when online shopping was just beginning to take shape in China, led by startups Danddang, Joyo and Alibaba’s Taobao site, Richard Liu decided to take the jump and join the trend. Referred to as 360Buy.com at the time, the company started to thrive, particularly due to their low prices and fast delivery.
After a $10 million capital injection from a Hong Kong venture capital firm, JD expanded its product offering, going from an electronics based brand to one with new systems and softwares, luring in bigger investors who took notice of Mr Liu’s vision for a full-service online retailer. At that time, China’s package delivery services had the worst reputation; 70% of complaints were simply about deliveries. This insight led to Mr Liu’s realisation that logistics would heighten the customer experience greatly. Thus, in 2007, JD started building an integrated logistics network from scratch, holding the promise to cater to customers from click-to-buy all the way to drop-off.
What business can Jingdong Mall be compared to?
Morgan Stanley calls JD’s business model a combination of Amazon and UPS; it is not only a retailer, but also an online supply chain and finance company. Similar to the mighty Amazon, JD.com has invested more than 1.5 billion into infrastructure. However, JD has gone one step further in combining this strategy with its own fleet of trucks and the benefit of home delivery. They own more than 20,000 couriers in hopes of capturing the $1 trillian Chinese eCommerce market by 2020.
Who is their largest competitor?
JD.com has long been over shadowed by Alibaba. The difference? Alibaba simply serves to connect buyers to sellers. JD differentiates itself by buying goods from manufactureres and distributers, and holding the inventory in their very own warehouses. Add to this, their ability to promise customers quick delivery of virtually everything from television sets and microwaves to socks and shirts.
What does the Chairman and Chief Executive Richard Liu do differently?
Richard Liu is very hands on, always looking forward for ways to improve and grow. Every year, on the anniversary of the company’s founding (July 1998), Mr Liu rides around on a three wheeled electric bike, the very same make and model used by the JD delivery staff, and personally makes home deliveries on behalf of his eCommerce company. He intimately experiences his business model first hand and addresses technical and logistical challenges that may have cropped up. This proactivity endows him with the complete capability to conquer and grow.
What are the company’s notable strengths?
“If we wanted, we could be profitable right now,” said Shen Haoyu, chief executive of JD Mall. “But our immediate goal is to grow our customer base.”
Simply put, they have very strong customer service, reliable assurance of only shipping authentic products, speedy delivery, and a receipt – believe it or not, it is considered a valuable piece of paper in China that is surprisingly hard to come by as tax evasion is extensive.
What are the areas to improve?
Their costly approach and extensive business model, including the widespread of warehouses and the intertwining of a delivery service, has some worried. Many strongly believe that JD could be weighed down by its physical assets and mounting debt.
What is the greatest challenge?
The biggest challenge will be keeping up with the ever increasing volume of online orders which have doubled in China in just the last 3 years.
What are the futuristic opportunities?
Mr Liu is looking to push his business into online groceries and finance, as well as lending to his vendors the way Alibaba does. At this point in time, he is not interested in developing the film or entertainment divisions like his competitors Alibaba or Amazon.