Alibaba's China-Japan Portal: Is This The Way To Cross Borders?

Think about the effort you put into dealing with the problems of doing business between countries in North America—the U.S., Canada and Mexico. What if all those challenges could be addressed by something besides your own IT shop?

This week, China's Alibaba Group opened up a two-way e-tail portal between mainland China and Japan. Alibaba's goal is to make cross-border sales to consumers easy enough for tiny retailers who can't afford all that cost and effort. But the China-Japan portal may also be a model for big retailers to do the same thing.

Face it: All cross-border operations are a pain. Differences in language and currency are just the start. Beyond that are import/export paperwork, tax laws, privacy regulations, other legal requirements, logistics, customer service, merchandise returns and a host of smaller problems. And IT has to support all those variations from standard operating procedure.

Many companies find it easier to set up a subsidiary across the border just to handle the paperwork and logistics. Lots of companies avoid cross-border commerce completely.

Alibaba may have found a way to avoid much of that pain. Its new venture consists of a pair of consumer shopping Web sites: Yahoo! Japan China Mall, which allows Japanese consumers to buy directly from Chinese online merchants, and TaoJapan, which lets Chinese consumers buy directly from Japanese online merchants. Alibaba provides the online marketplaces but also handles payments and currency conversion, export paperwork and logistics, and even local-language customer service for the merchants on each side.

The retailers—many of whom are far too small to handle the details of cross-border retailing by themselves—set pricing, do their online marketing and then send their fulfilled orders locally to Alibaba, which makes the deliveries on the other side of the water. From the retailers' point of view, they might as well be selling and shipping to local customers. Meanwhile, customers order and receive merchandise as if they're buying from a local company.

"Previously, small merchants had to sell through a trading company," said John Spelich, Alibaba Group's VP of international corporate affairs. "That meant they lost control of pricing and the customer relationship. But with this new paradigm, they can open a storefront and do business around the world."

How much does that paradigm carve away from the cross-border problem? Not everything, but enough that it's practical for very small e-tailers to get into a foreign market. Those small fry don't have a choice; with no real IT departments of their own, they're glad to hand that work over to Alibaba.For IT shops at bigger retailers, that handoff might sound like an indignity. Too much loss of control. Not enough competitive advantage through technology. Cross-border e-tailing is too important to farm out. It's the job of IT to support online sales in other countries in the same way the department has always had to support retailing: with systems running everything from the Web site to fulfillment and logistics.

But here's the problem with that kind of thinking: E-tailing itself, just presenting products on a Web site, is relatively inexpensive. The trouble is, the cost of doing all the rest of the IT tasks required for cross-border selling is high—so high that it requires a major initiative to open up a new country.

In practice, the cost is usually too high. As a result, tiny companies can now do what bigger, prouder organizations can't.

And how much competitive advantage can come from that garden-variety logistics IT, anyway? This isn't rocket science, just a healthy dose of solid IT combined with a huge amount of grunt work. Transactions have to be logged. Currency has to be converted. Packages have to be shipped. Yes, IT has to support all that. But anybody's IT can do it.

Besides, the big advantage for a retailer comes from being in a market where its competition isn't. Offloading much of the misery of opening a new territory, so a retailer can get there first, fast, cheaply and with a smaller financial risk, just makes sense—at least in the beginning. There's plenty of time later to squeeze out every last bit of efficiency. If Wal-Mart can take back its supply chain, any retailer can bring a cross-border sales operation back in-house once it's a success.

Of course, there are lots of cross-border challenges that go far beyond IT: taxes, permits, intellectual property laws, banking and privacy, among others. Like the IT problems, these issues are perfect candidates to farm out to a local expert.

Which leaves one more problem for big retailers: Right now, Alibaba—which controls an 80 percent share of online retail in China—only caters to small and midsize businesses.

Still, if Alibaba makes this approach work for small retailers—and it probably will—it may be time for big retailers to look hard at this model, too. Once the kinks are worked out of the link between China and Japan, Alibaba will be extending its reach.

"Once we prove this model out, we can take it anywhere," Spelich said. Mainly that means anywhere-to-China. At least for now.