alibaba.gifB2B e-commerce is back in fashion. Alibaba, the Chinese B2B trading site, would probably argue that it has never really gone away and to prove it, the firm hopes to raise at least $1bn through a stock market listing, probably in HK.

According to this Daily Telegraph story, Goldman Sachs and Morgan Stanley have been enlisted to underwrite the Alibaba share sale while NM Rothschild is the lead adviser. Clearly, they are hoping that investors will have forgotten the huge sums lost in the original B2B e-commerce boom of five or six years ago.

Back then, a confusion of B2B websites promised to revolutionised the way paper, chemicals, auto parts and almost every other industrial product or service was traded. But the B2B boom dissipated as rapidly as it had arisen. Users realised the B2B sites offered no obvious benefit over tried-and-tested methods of doing business, while investors tired of the mounting losses.

Alibaba has its roots in that original B2B boom and under its flamboyant chairman Jack Ma, it raised $25m from Softbank, Goldman Sachs, Fidelity and other institutions in 1999. The fact that Alibaba has not just survived but thrived during the past eight years shows that in among the ruins of a hundred failed B2B portals and trading exchanges, there was a viable business model struggling to get out.

Unlike its now-forgotten rivals, Alibaba didn't try to substitute existing commercial relationships but rather to create new ones. That's because Alibaba provided something new: a cost-effective way for Chinese suppliers to advertise their goods and services to a worldwide market.

Cheap goods are what keeps China's economy powering along and there are few industries in the west where the “China price” has not had a big effect on sourcing strategies. Even if a western company does not plan to switch from its tried-and-trusted local supplier, the threat that it may do so can work wonders when it comes to renegotiating contracts.

But how do you find out what the China price is? And how do you find suitable Chinese suppliers if you are only used to dealing with local suppliers who speak the same language?

The discovery phase — when buyers search for sellers — is the most time consuming and costly phase of the sourcing cycle. Online marketplaces like Alibaba.com can reduce the time required for the discovery phase significantly as all you have to do is type what your want into Alibaba's search box and you get back a ready-made list of potential suppliers in China.

Because of the obvious diffidence that business may have dealing with little-known suppliers on the other side of the world, Alibaba was quick to develop qualifications scheme for suppliers, which “endeavour to provide transparency on the identity and legitimacy of your trading partner.” However, Alibaba does not vouch for the suppliers and does not guarantee the quality of products or services offered.

Alibaba says its international marketplace has more than 3m registered users in over 200 countries and regions, while there is also a version for the domestic Chinese market, Alibaba.cn, which was more than 16m registered users. We will have to await the listing documents to find out how successful Alibaba is financially.

Two years ago, Yahoo! invested $1bn for a 40% stake in Alibaba and also folded its struggling Yahoo! China properties into the venture. More on Jack Ma and Yahoo! China in these stories.


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