Alibaba - Strategic Trade Policy in International E-Commerce - Research Paper Example

Acknowledgement

I would like to express sincere thanks to my tutor Lee for immense guidance and support throughout the entire research. I am grateful to my tutor for giving me an opportunity to embark on a research in such an interesting area of business. Without the constant supervision and assistance of my tutor, it would not have been possible for me to explore the valuable areas of the research and complete it within time. Besides my tutor, I would also like to thank all other lecturers of my institution for their valuable ideas and encouragement, which further helped me to widen the research outcomes.

I would like to thank my friends and batch mates for engaging with me in thought provoking discussions, which precisely helped in data analysis part of the research. Lastly, I am thankful to my family members for their patience and support to my work and helping me out in every way throughout the writing of the research.

Abstract

The purpose of this research is to investigate the impact of governmental restrictions on the e-commerce sector of China with emphasis on business performance of Alibaba, which is the largest e-commerce retailer in China.

The research uses secondary sources for collecting quantitative data on the Gross Merchandise Volume, revenue, growth and profitability of e-commerce industry and Alibaba over the recent years to analyse the effect of trade restrictions on the sector.

The e-commerce regulations in China raised serious apprehension for retailers across the world that traded with China through its online platforms. The cross-border e-commerce of China with rest of the world stimulated growth of major e-retailers like Alibaba. Thus, the regulatory policies introduced by trade authorities for managing country’s e-commerce trade are expected to have high impact on the China’s e-commerce. It will have significant impact on the market leader Alibaba as it largely relies on B2B trade with other countries for generating its revenues. The research evaluates the data on growth, GMV and revenue of e-commerce industry and Alibaba to determine the effect of governmental restrictions on the sector.

The research studies the impact of governmental restrictions on largest Chinese retailer, Alibaba besides studying the overall impact on the e-commerce industry of China. However, the restrictions will equally affect the businesses of foreign retailers engaged in trade with Chinese retailers, which is not studied in the research.

Considering the inadequate studies regarding governmental interventions and its influence on the e-commerce in China, this research is of immense value in examining the impact of governmental restrictions on its cross-border e-commerce.

Table of Contents

Chapter One: Introduction7

1.1 Introduction to the Research7

1.2 Background of the Research Topic8

1.3 Rationale of the Research10

1.4 Research Questions10

1.5 Aims and Objectives of the Research11

1.6 Structure of the Paper11

Chapter Two: Literature Review13

2.1 Introduction13

2.2 Growth of China’s E-Commerce in International Trade13

2.3 Role of Government in domestic and international E-commerce Trade16

2.4 Overview of Alibaba Group in the e-commerce market18

2.5 E-commerce in China and its Comparison with Rest of the World20

2.6 Consumers and their potential to influence the Government Policies23

2.7 Comparison of Alibaba and Amazon in international e-commerce market23

2.8 Research Gap25

Chapter Three: Methodology26

3.1 Introduction26

3.2 Research Philosophy27

3.3 Research Approach28

3.4 Research Methods30

3.5 Data collection31

3.6 Data analysis32

3.7 Ethical Considerations32

3.8 Research Limitation33

3.9 Time horizon33

Chapter Four: Data presentation, Evidence, Analysis and Discussion35

4.1 Data Presentation and Evidences on E-commerce sector of China35

4.1.1 Governmental Restrictions imposed on Cross Border E-commerce in China35

4.1.2 Growth Trend of cross border E-commerce sector in China38

4.1.3 Alibaba’s financial performance in recent years42

4.1.4 Comparison of Alibaba and Amazon45

4.2 Analysis and discussion of the effect of Governmental Restrictions on E-commerce Sector in China47

4.3 Conclusion51

Chapter Five: Summary and Conclusions52

5.1 Conclusion52

5.2 Limitations of the Study54

5.3 Recommendations and Future Scope of Study54

Reference List56

Chapter One: Introduction

1.1 Introduction to the Research

The e-commerce market of China has shown remarkable growth in the recent years and boasts to be the largest e-commerce market in the world. The size of China’s e-commerce market is vast with around 600 million internet users (SGE, 2014). China has more number of online consumers than any other country and provides enormous opportunities for the business enterprises within and outside China. The dramatic growth of China’s e-commerce market has been primarily due to the increase in the domestic consumption and created new engine for economic growth in China (McKinsey & Company, 2016). However, the structure and functioning of the e-commerce market in China is far different from the e-commerce of the rest of the world due to the special types of regulations and laws imposed by the government on the e-commerce traders (Lawrence and Tar, 2010). Restrictions imposed on the e-commerce are likely to affect the big retailers like Alibaba, which operates the largest e-commerce platform in China.

The research attempts to investigate the strategic trade policy in the international e-commerce in China and study its impact on the giant e-commerce retailer of China, Alibaba. The authorities in China wanted to facilitate cross-border e-commerce in China and hence, made regulatory changes including taxation regulations (HopgoodGanim, 2014). However, these restrictions imposed through e-commerce trade policies by the Chinese government when implemented have raised concerns over the future growth of its e-commerce sector, especially on the growth of large retailers like Alibaba. In addition to studying the effect of governmental regulations on e-retailers in China, this research also tries to compare the business of Alibaba with Amazon in the international e-commerce market.

1.2 Background of the Research Topic

The dramatic boom of China’s e-commerce sector in the recent years has resulted in strong rise in the share price growth of the retail companies that are particularly favored by the domestic consumers. The online shopping segment in China grew exponentially with revenue rising from $ 3 billion in 2009 to above $ 60 billion in 2012 (SGE, 2014). Being the world’s largest online market and the B2C (Business to Consumer) subsector of e-commerce anticipated to grow at average rate of above 30% annually in the next years, the government was looking ahead to regulate the e-commerce industry and its cross-border trade. The country surpassed the US in online sales in 2013 and racked up nearly $ 300 billion, much higher than US $ 255 billion (SGE, 2014). China’s e-commerce currently accounted for 35% of global e-commerce market and Robert Lin, Greater China e-commerce and retail analyst was reported saying ‘As the country’s consumers embrace the channel and incomes rise, we expect China’s share to expand further” (Morgan Stanley, 2016).

Such a high market growth of e-commerce in China promises further momentum to the established online retailers in China, while providing opportunities to other large and niche retailers, both domestic and international (Song, 2014). Thus, it was apparent that Chinese government authorities would seek for better regulating international e-commerce. However, recent regulations with strong implementation have created major concerns for the highly flourishing e-commerce sector in China and raised questions whether the extraordinary growth will be sustained even after the trade restrictions (HopgoodGanim, 2014).

Prominent regulatory changes in the cross border e-commerce were strongly implemented recently by the authorities, which are projected to have significant impact on the big retailer’s businesses in China (The Economist, 2013). The trade restrictions and rules were also supposed to lower the rate of foreign participation in China’s e-commerce and likely to degrade the size and robust growth of the sector (Chemical Inspection & Regulation Service, 2016). The cross border e-commerce in China was projected to reach 6.5 trillion Chinese Yuan or US$1.02 trillion, with 30% rise in the growth and accounting 20% of total import-export trade of the country (Incitez Pte. Ltd, 2016). The trade regulations imposed by the Chinese authorities targeted the goods sold by the e-retailers like Alibaba and placed higher import duties on some range of goods. Governmental departments like Chinese Ministry of Finance issued circulars regarding the new trade policy implementation in the e-commerce (Grig and Lynch, 2016). The circulars included regulations for changing the import duties payable on the products that are imported into the country through online retailers like Alibaba, Taobao, Tmall, etc (HopgoodGanim, 2014).

Critics predicted that such regulations will be affecting the business of these e-retailers as import duties on the products will raise the prices of those products which will eventually led to decline in demand for those products (HopgoodGanim, 2014). In addition, under the regulations, goods that are bought from other countries through various e-commerce platforms are under taxes payments. The tax changes on the imported goods were intended to close the loopholes in the Chinese e-commerce market and ensure better regulation in the industry (Grig and Lynch, 2016). However, there are big concerns whether the regulations will favour the growth of e-commerce market and will bring fruitful results for large e-retailers like Alibaba or will affect them.

1.3 Rationale of the Research

The recently introduced e-commerce regulations in China raised serious apprehension for businesses across the world that traded with China through its online shopping platforms. The e-commerce laws were initiated not as crackdown but for closing any loopholes in e-commerce trades through application of import duties to the goods that are shipped into the country through its free-trade areas (Schaub, Bing and Huckerby, 2016). As a result, many Chinese e-commerce firms that experience duty-free services were doubtful of the regulations and their effect on their business. The cross border e-commerce of China with rest of the world stimulated the growth of major e-retailers like Alibaba in China, which accumulated US$ 1 billion revenue in 2014 in B2B e-commerce comprising only 34% of the contribution from domestic market (Viser, 2016). Alibaba is known for its high B2B e-commerce, collaborating with large number of lending startups in the UK for facilitating its B2B trade with the other countries in the world (Li and Xie, 2012). Alibaba forms the largest B2B e-commerce platform in the world for small businesses, handling sales between China’s domestic retailers and wholesale buyers across 240 countries in the world (Viser, 2016).

Hence, the recent regulatory policies introduced by Chinese authorities for regulating country’s e-commerce trade is anticipated to have large impact on the China’s e-commerce market leader Alibaba who largely relies mainly on B2B trade with other countries for generating revenues. Looking at this above scenario, this research attempts to find out how recent governmental regulations in China’s e-commerce sector will affect the business of its largest e-retailer Alibaba.

1.4 Research Questions

The following questions will be addressed through this research study.

• What are the trade restrictions introduced by government authorities in China for its e-commerce sector?
• What is the impact of trade restrictions on the cross border e-commerce in China?
• How the e-commerce in China is different from the rest of the world?
• What is the impact of trade regulations on the China’s largest e-retailer, Alibaba?

1.5 Aims and Objectives of the Research

The purpose of the research is to investigate the impact of new trade policies of Chinese government on the largest e-retailer in China, Alibaba, besides evaluating the differences in the e-commerce business of China with the rest of the world.

The objectives of the research are as follows:

• To evaluate the governmental restrictions imposed on e-commerce trade in China
• To identify the impact of trade restrictions on the cross border e-commerce in China
• To critically compare China’s e-commerce business with the rest of the world
• To examine the impact of trade regulations on China’s largest e-retailer, Alibaba Group

Variables of the research:

The explanatory variable identified in the research is governmental trade restrictions, while dependent variables are the growth of e-commerce market of China and the performance of Alibaba.

1.6 Structure of the Paper

The research study starts with the introduction chapter, which provides a brief overview of the topic, background of the research area, rationale for conducting the research, research questions and aims and objectives of the research. Chapter two presents a critical review of the existing literature on the research topic, policies or business implications derived out of them and identifies the gaps in knowledge that can be addressed through the research. The third chapter discusses the research methodology and explains the choice of the research methods used for the research study. On chapter four, the findings of the data and their interpretations are presented to relate to the research questions and hypothesis and in chapter five, a brief summary of the research findings are presented.

Chapter Two: Literature Review

2.1 Introduction

The introduction of new cross border regulations over China’s e-commerce is of major concern for the large retailers in the e-commerce. Even though the regulations and trade policies introduced by Chinese authorities was for facilitating country’s cross border e-commerce trade and mend the loopholes in the e-commerce market, it is anticipated by many critics that it will affect the large e-retailers like Alibaba (China-Britain Business Council, 2016). This is because the prices of the goods sold online will rise due to taxes imposed on them. There were also blockages to the entry some category of goods from foreign retailers as import quotas were imposed in the form of ‘Positive List’ (HopgoodGanim, 2014). The literature review section will critically evaluate the present scenario of China’s e-commerce market and compares it with the rest of the world. The research gaps identified in the literature will be used for framing the research hypotheses at the end.

2.2 Growth of China’s E-Commerce in International Trade

E-commerce in China is growing at the fastest speed along with the rising demand from its vast population. Internet technology has been now an inseparable part of business and trade in China (SGE, 2014). Qing (2007) stated that though it has been a late start for e-commerce in China, it is now speeding up with great momentum and has been successful in influencing most of the business sectors in China. E-commerce is becoming more and more popular among the consumers because it provides a wide variety of choices and options (Safa and Ismail, 2013). It is also trustworthy as buyers anytime and anywhere can have access to all merchandise information from internet only before final purchase (Morgan Stanley, 2016).

Figure 1: China Annual E-Commerce Retail Sales (excluding autos, fuel, and foodservice)

(Source: SGE, 2014)

The above figure reflects how the e-commerce market of China has grown with cumulative speed since 2006. This was due to technological development in the country along with shift in consumers’ buying behaviour (SGE, 2014). The outstanding growth trend in e-commerce of China will make the sector face fierce competition in future with big players like Alibaba, Tmall, Taobao trying hard to sustain their position in the industry (Morgan Stanley, 2016).

In the context of international trade through e-commerce, sources revealed that more than 315 million Chinese shop in the internet and the number of digital shoppers who make cross border transactions are much higher than other developed countries (Morgan Stanley, 2016). The two most important cross border sales in China consisted of baby and beauty products. After these two, comes apparel and health products. Live trade on various C2C platforms like Taobao and Paipai is one of the new channels through which Chinese consumers can have access to various foreign products (McKinsey & Company, 2016). In these platforms, import taxes are not required to pay by the purchasing agents. Another popular channel for buying overseas products is the official B2C channel like Tmall, Amazon CN and Suning (Qing, 2007). These channels are either from China’s bonded warehousing or it is mailed from abroad directly (Consulate General Guangzhou, 2015). According to reports of Morgan Stanley (2016), a total value of USD 35 million products was bought online on Chinese international trade markets online. Thus, it is very clear that cross border online markets are growing equally along with Chinese domestic e-commerce.

Alibaba Group is the biggest player in China’s E-commerce industry and is responsible for creating online market platforms for B2B, B2C and even C2C sectors (Xiao and Jing, 2016). Though there has been continuous influence of China’s e-commerce globally, still it has much more steps to go. According to Hoffmann, Lannes and Dai (2012), one disappointing fact is that Chinese online firms operating outside face some major obstacles like lack of mutual understanding between foreign brands and Chinese retailers regarding cross border trade policies. However, this problem is only for supply side because contrasting to this fact, on the demand side we see Chinese consumers have been longing to shop online various goods from foreign countries (Malviya and Sawant, 2014). Despite such hurdles faced by Chinese e-commerce firms, international trade between China and the world is definitely set to grow in the following years (China-United States Exchange Foundation, 2014). The Government of China is also making efforts to develop this market and motivate the private e-commerce investors by implementing various trade policies to stimulate its consumption domestically and encourage sellers abroad to sell their products in China (King & Wood Mallesons, 2016).

2.3 Role of Government in domestic and international E-commerce Trade

As e-commerce is reshaping the ways businesses are done in many developed and developing countries, the interference of governments at domestic and international levels has become essential (Gangeshwer, 2013). According to Viser (2016), development of e-commerce requires the creation of right domestic and international atmosphere. E-retailers by cooperating with their governments can define their partnerships with cross border retailers and develop their B2B e-commerce trade (Zhao, Wang and Huang, 2008). Lawrence and Tar (2010) opined that the world of e-commerce is sometimes looked upon as a threat by the countries because of its inevitable association with the technology. The e-retailers need to honor the role and intervention of government agencies to enhance security in the online transaction (Zhang, Bian and Zhu, 2013).

China is currently one of the fastest growing economies in the world and it is supposed that its e-commerce market would continue to grow. Stylianou, Robbins and Jackson (2011) mentioned that the pace at which Chinese economy is growing and the way it is affecting the Chinese e-commerce has come as a great surprise to many. This fast development provides huge possibilities to foreign retailers and companies (Hoffmann, Lannes and Dai, 2012). However, the most challenging question is how to thrive successfully in the vast Chinese e-Commerce platform where governmental regulations are playing a significant role.

The government of China are planning to work towards increasing the importance of domestic consumption and investment in the growth of the PRC economy (Kunyu, 2013). The state agencies decided to enhance the role of e-commerce as one effective way for promoting consumer spending and private investments. It was decided that the government would play a lead role in developing the modern e-commerce industry of China despite of the fact that all the big and small players in the sectors are private. Yao (2016) opined that the prime intention of government to intervene in the privatised e-commerce industry was to resolve the barriers in path of development of e-commerce industry. The state agencies in PRC proposed to reduce the high minimum capital requirements and licensing requirements, which kept many small SMEs out of the e-commerce market (Purib and Bansal, 2013). Schaub, Bing and Huckerby (2016) stated the government also tried to relax the taxations, social benefits and registration requirements that prevented low income individuals from using the platform e-commerce as an additional source of income. Furthermore, the e-commerce players were aware of the issues related to online payment transactions and hence, government’s intervention in the sector is essential for ensuring security regarding the same (Shih, Lin and Ke, 2013).

On the other hand, Yao (2016) stated that the government’s role was necessary for smoothing out China’s cross border e-commerce as there was absence of coordination in the international e-commerce, in its both exports and imports. Thus, governmental intervention in China was directed towards reinforcement of international cooperation in the e-commerce. The government’s role in e-commerce came into limelight when it introduced a circular on tax policies for international e-commerce retail imports in 2016 (Kunyu, 2013). The circular changed the existing tax policies applied to cross border transactions in e-commerce. Another form of government intervention in China’s cross boarder e-commerce during the same period was the execution of “Positive List” (Schaub, Bing and Huckerby, 2016). Many PRC departments related to food, trade, customs, tax, etc together introduced a retail list of imported goods for cross-border e-commerce (King & Wood Mallesons. 2016). The major implications of the Positive List were absolute prohibition of e-commerce sales of some categories of products (Grig and Lynch, 2016). Hence, according to e-commerce retailers in China, this second regulatory change imposed by government has much potential to have negative effect on China’s cross border e-commerce trades than the e-commerce Tax Circular.

2.4 Overview of Alibaba Group in the e-commerce market

Alibaba Group Holding Limited, popularly called as Alibaba is the largest publicly traded e-commerce business in China that operates B2B online website portals, online retail portals as well as payment services (Zhao, Wang and Huang, 2008). Alibaba.com and 1688.com are its B2B website portals while Taobao, Tmall are its online retailers for B2C business. Started in 1999, the group entered the e-commerce market with the website Alibaba.com to connect the manufacturers in China with the overseas buyers (Alibaba Group, 2016a). According to reports of Xiao and Jing (2016), two online portals of Alibaba handled nearly 1.1 trillion Yuan of sales in 2012 and it was always on the path of becoming the world’s first e-commerce company to have $ 1 trillion of transactions in one year. The success story of Alibaba is led by its step towards innovation and large focus on winning competitive advantages in China. Alibaba provides B2B, B2C, and C2C sales services through online portals and it is this diversified business structure, which contributed to its success (The Economist, 2013). Furthermore, it has also started providing e-payment services through Alipay and a search engine service exclusively for online shopping through eTao.com (Xiao and Jing, 2016).

Alibaba Group, success was marked in 2014 when it raised about $ 21 million on NYSE (New York Stock Exchange) from initial public offering (The Economist, 2013). Before achieving such dramatic success in the share market, the group made many strategic acquisitions and investments in both the domestic and abroad markets (Incitez Pte. Ltd, 2016). The substantial growth in the financial statements and GMV of Alibaba Group over the past years is shown in the figures below:

Figure 2: Alibaba Income Statement (millions, CNY)

(Source: Incitez Pte. Ltd, 2016)

Figure 3: Alibaba GMV (Total, Tmall, Taobao) from 2011-14

(Source: Incitez Pte. Ltd, 2016)

China’s B2B break out in the e-commerce market was only due to Alibaba, which brought in 2014 about US $1 billion e-commerce revenue and comprised of approximately 34 percent of the China’s market revenue (Xiao and Jing, 2016). Alibaba has achieved such successes in B2B businesses in the international markets by partnering with lending startups and launched a new cross border web portal 1668.com for facilitating foreign imports for the Chinese manufacturing firms (Incitez Pte. Ltd, 2016). Thus, Alibaba has immense potential to be the world’s most valuable e-retail company and in the process can contribute to the economic growth of China.

2.5 E-commerce in China and its Comparison with Rest of the World

The e-commerce market for China is highly driven by businesses rather than consumers, which differentiates it from the rest of the e-commerce markets in the world. B2B transactions through large and small sized enterprises accounted for nearly 70% of total e-commerce transaction in China (Zhao, Wang and Huang, 2008). While, the trade of large retailers accounted for 23% of the total e-commerce, SMEs and others constituted three-fourths of the e-commerce business on the mainland (Viser, 2016). The rest of the e-commerce business is driven by B2C (business to consumers) trade.

Despite of the lower contribution of individual households to total e-commerce volume, the e-commerce sector is growing fast and shows huge future prospects of growth (Manju, 2014). According to McKinsey (2013), the spur in online shopping in Chinese consumers is a major catalyst for growth in e-tail revolution. As per the view of Hoffmann, Lannes and Dai (2012), China’s e-commerce sector fuels the global e-commerce. As the new regulations and policies initiated by the Government, seek to raise the private investment in e-commerce, it is also creating new opportunities for growth of the economy. Lawrence and Tar (2010) opined that the timing of the governmental regulations is favourable for China’s e-commerce market as the level of penetration are still low in the e-commerce segment and there exists much potential for its growth. Many predicted that the momentum of global e-commerce would probably shift towards China because of its outward oriented e-commerce market.

The market researchers stated that e-commerce sector and its transactions is different from the rest of the world. Hoffmann, Lannes and Dai (2012) reported that majority of the online buyers in the advanced economies like the US, rely on computers and laptops for accessing the internet; while in China, the entry point to the use of internet is through mobile phones. The number of mobile phone users in China is nearly 1.3 billion in China and mobile shopping is expanding fast driving the overall growth of its e-commerce market (Morgan Stanley, 2016). However, what differentiates China’s e-commerce market from other countries’ market is its high volume of B2B business, which also facilitated the integration of China’s e-commerce in the international markets (Tan, Tyler and Manica, 2007). While e-commerce sector of majority of developing economies are dominated by B2C business, this feature of China’s e-commerce market resulted in higher concerns of PRC departments to intervene in the market with policies and regulations.

he figure below shows the e-Commerce Market Share in 2013 by GMV (Gross Merchandise Volume).

Figure 4: China e-Commerce Market Share by GMV in 2013

(Source: SGE, 2014)

According to Viser (2016), B2B operators have started expanding their businesses to online financial services or online transactions since 2013 and such trend will continue to influence the B2B e-commerce sector in China. Apart from this aspect, the recent policies by the government in China to regulate cross border e-commerce in China differentiated it from the rest of the world. In the US, government’s role in e-commerce involved protecting of customers privacy, securing online transactions and maintaining digital copyrights (Shih, Lin and Ke, 2013). In China, government agencies are playing a major role in controlling its e-commerce grade through implementation of tax circulars and positive list which will directly influence the prices of the goods sold and the types of goods that can be traded through online e-commerce platforms.

2.6 Consumers and their potential to influence the Government Policies

The consumers in China are enthusiastically involved in e-commerce transactions, and the shoppers are highly sceptical of the claims that are made by the retailers (Winnie, 2014). Because of this reason, the third-party customer reviews in the internet, blogs and social media plays an important role in promoting online retail brands in China (Song, 2014). According to Stylianou, Robbins and Jackson (2011), the Chinese legal system has been exercising tight regulations over many aspects of e-commerce, which makes it unique from the rest of the world. One key difference is how Chinese government agencies deals with international retailers who are willing to sell their products in China. They were referred as the Wholly Foreign-Owned Entities (WFOEs) and it is crucial for them to have an in-country legal counsel who will navigate them through the various stages of bureaucracy in the Chinese government (Hybris, 2014).

On the other hand, Tan, Tyler and Manica (2007) opined that the dominance of large companies as well as SMEs in e-commerce because of more B2B transactions has allowed the government to use country’s e-commerce market as their policy tool. By providing support to these businesses, the government of the country are not only promoting the e-commerce sector but also leading a shift in China’s growth factor from exports and manufacturing to innovation, private consumption and investment.

2.7 Comparison of Alibaba and Amazon in international e-commerce market

Amazon was the first company that successfully explored online market place before Alibaba. Nearly three-fourths of Amazon’s revenue is generated from electronics, general retail and merchandise, while only one-thirds of its revenue comes from its digital media content services (Wells, 2016). A minimum portion of revenue of the company also comes from the third-party sales through Amazon’s website as it provides some amount of commission. Alibaba on the other hand, operates an online site for providing sales facilities to sellers and manufacturers across the world (Singh, 2014).

The most prominent difference between both the companies is their business structure. Amazon simply focuses on B2C business and it operates a pre-specified market place that is somewhat similar to traditional retailing (Forbes, 2014). On the other hand, Alibaba pioneered in B2B business and helps small businesses to grow by allowing them to list retail and merchandise for sale. The most important aspect of Alibaba’s e-commerce platforms is to facilitate their transactions between the sellers across the world, i.e. it manage online marketplace instead of selling merchandises to the customers itself (Walsh, 2010). In contrast, Amazon plays in both types of markets.

Wells (2016) stated that similarities between both the companies is that, both of them offers a wide range of products through online market place and both have large customer base and technology infrastructure and that helped them to become leading e-commerce retailers in their home countries. Alibaba is not a traditional retail company and have an open market place that connects buyers and sellers, helping small businesses and branded manufacturers to reach the consumers. It does not sell directly and hence, do not have own warehouses (Walsh, 2010). On the other hand, Amazon being a traditional retailer, have its own distribution centres, sells all its products directly and owns brand of smart phones and tablets (Mulpuru, Harteveldt and Roberge, 2011). However, both the companies are great success stories in their respective markets. While Alibaba concentrated on the market of China, Amazon emerged as the undisputed leader in the US market (Wells, 2016).

2.8 Research Gap

The literature review on the e-commerce sector of China with special emphasis on Alibaba, critically presented the existing scenario and recent developments occurred in these areas. Adequate literature is presented regarding the importance of the role of government in China in the e-commerce sector and in its cross border trade for B2B transactions. The recent development in this field discovered that government are turning the regulations into restrictions which may significantly affect the cross border trade of e-commerce retailers like Alibaba. However, there is no such concrete proof or evidences in stating the same. Thus, the research tries to investigate further into the role of governmental regulations to find out whether it is actually affecting the performance or business of e-commerce retailers in their cross border trade or facilitating it.

Chapter Three: Methodology

3.1 Introduction

The chapter of research methodology is concerned about how the researcher collects data for answering the research questions. The thoughts of the researcher regarding which method to consider or which approach to take for conducting the research study belongs to the centre of a ‘research onion’ (Kumar and Phrommathed, 2005) (refer to the figure below). Each layer of research onion implies the stages that are involved in research process and shows the progressive path through which the research strategy can be designed (Saunders, Lewis and Thornhill, 2011).

Figure 5: Research Onion

(Source: Saunders, Lewis and Thornhill, 2011)

3.2 Research Philosophy

Research philosophy is related to development of knowledge while embarking a research in a particular area (Welman, Kruger and Mitchell, 2005). The knowledge developed while embarking on the research can be used for developing a new theory or for solving specific issues identified in the research area (Marczyk, DeMatteo and Festinger, 2005). According to Matthews and Ross (2014), the research philosophy adopted for a research contains the specific assumptions about how the researcher views the world and those assumptions will underpin the research strategy and appropriate methods chosen. According to Mackenzie and Knipe (2006), there are three main types of research philosophy which are positivism, interpretivism and realism.

Positivism philosophy adopts the philosophical standpoints of a natural observer (Matthews and Ross, 2014). According to Kumar and Phrommathed (2005), under such philosophy, the researcher at first reveals the social reality and valid facts related to the research area independent of what studied in literatures and eventually develop a research strategy for collecting data to test and validate those existing theories and facts (Saunders and Lewis, 2014). Under interpretivism philosophy, the researcher investigates the present situations and happenings in the research area by studying a selected sample and then providing psychological interpretations behind those situations through analysis of the data (Patten and Bruce, 2007). On the other hand, the philosophy of realism is concerned in stating the current state of affairs in the area of research through investigation. This philosophy underpins the data collection and providing understanding of those data.

This particular research will be using positivism philosophy, as it will study the reality and present situation in the e-commerce sector of China to examine the role of government restrictions in cross border trade. The research attempts to investigate the impact of recent regulations imposed by government of China in the form of import taxes and quotas on category of products. These restrictions will be affecting the e-commerce sector in China and Alibaba being the largest e-retailer with about two-third market share and engaged in B2B trade with overseas retailers, is likely to be most affected by such regulations of government. Hence, positive philosophy will help in evaluating the actual impact of such restrictions on Alibaba and e-commerce of China.

3.3 Research Approach

The most common research approaches used in researches in academic spheres are deductive and inductive approaches (Burney, 2008). The approach that is used in the research depends entirely on the nature and purpose of the research study (Saunders, 2011). Deductive research approaches are used when theories or conceptual frameworks relevant to the subject matter are stated and the existing issues in the research area are highlighted (Patten and Bruce, 2007). Based on those existing study, the hypotheses of the research are formed which is to be confirmed or rejected at the end of the research. On the other hand, in case of inductive approach, the researcher undertakes thorough investigation in the research area for identifying the major issues in the research area and collects data (Bryman, 2015). Based on the interpretation of the data, the researcher designs new theories or concepts in the area of research (Mackenzie and Knipe, 2006).

Figure 6: Deductive Vs Inductive

(Source: Burney, 2008)

This particular research uses inductive method for the study as e-commerce sector of China emphasising on its cross border trade. Until recently, e-commerce over cross borders did not come under the frame of governmental regulations like any other industry whose international trade activities comes under direct supervision and regulation of government. Thus, the research initially studies the role of government in the e-commerce sector and its cross border activities and then attempts to investigate the effect of current regulations in the cross border performance of e-commerce retailers like Alibaba by collecting relevant data on the same. Thus, the research aims at deducting a new theory to study whether the recent regulations imposed by the Chinese government agencies on the e-commerce trade will affect the e-retailers or benefit their businesses.

3.4 Research Methods

The methods of the research are simply the processes used by the researcher to collect data and analyse them in order to reach the purpose of the research. There are broadly three types of research methods, i.e. qualitative and quantitative methods or mixed-methods for researches (Dörnyei, 2007). The research method that is suitable for the research depends on the nature and objective of the research study (H. Bernard and H. Bernard, 2012). For instance, quantitative method is used in case of empirical study whereas numeric data are collected for investigating the concerned issues and then data are analysed using statistical and mathematical tools (Bryman and Bell, 2015). On the other hand, in case of descriptive researches where the research tries to explain some ongoing issues and phenomenon in the research area, qualitative methods are used (Zikmund et al., 2013). In simple words, qualitative researches is required when researcher takes exploratory approach for investigating in detail the situations of the research topic and provide proper interpretation to them through analysis of the collected data (Taylor, Bogdan and DeVault, 2015).

In the opinion of Bernard (2011), quantitative data are the one that are collected and presented in numeric value and can be collected from either primary or secondary sources. Primary sources includes data from a sample of the population related to the research area and through questionnaire surveys either face-to-face or through online, through observations i.e. by counting the number of occurrences of a phenomenon (Punch, 2013). On the other hand, Davies and Hughes (2014) stated that secondary sources for quantitative data means collecting data from published sources such as journals, website articles, government publications, company’s annual report etc. Qualitative data are used for the purpose of exploratory research and are collected from primary sources, specified segment or audience who are involved in the subject area in the research (Polkinghorne, 2005; Smith, 2015). The primary data are collected mainly from the targeted audience through face-to-face interviews, focus groups, observations, while secondary data for qualitative data are collected through written accounts, records of past events, company reports, government publications etc (Patton, 2005).

This particular research uses quantitative method of research and will be using secondary data for the same. As the research attempts to investigate the impact of the governmental regulations on the e-commerce sector of China in its cross border activities in recent times and its implications on the business performance of largest retailer, Alibaba who is primarily engaged in B2B trade with large international businesses. The data on the restrictive trade policies, revenue and growth of e-commerce sector and Alibaba’s income and profits over the years are used for qualitative analysis.

3.5 Data collection

The secondary data for the purpose of quantitative researches are collected from published materials, such information and relevant articles from governmental websites, trade journals, technical reports, publications of departmental agencies, online journals and articles (O'Leary, 2013). This research on studying the impact of governmental restrictions over cross border e-commerce trade in China is conducted by gathering information and data from online publications of two multinational agencies: McKinsey & Company, a US based management consultancy firm and King & Wood Mallesons, a multinational law firm based in Hong Kong. Also, the data on the cross border export and import trend in e-commerce sector of China is also reviewed from official statistics provided by International Trade Administration, Department of Commerce, USA. The data on the business performance of Alibaba is collected from quarterly publications issued by Alibaba in their official website. Thus, for this research, online databases from authentic sources are used to present and analyse the implications of the recent governmental regulations on the e-commerce sector of China and on Alibaba’s performance. The data of governmental restrictions included the taxes or duties imposed on products traded through e-commerce, while the data on the e-commerce sector of China and Alibaba is collected on the variables of active buyers, GMV, total revenue and profits.

3.6 Data analysis

The analysis of secondary data for this study involves using of the existing quantitative data collected for purpose of research. The quantitative data collected from the different sources will be presented in systematic manner and the researcher will interpret the observations from the data (Sapsford and Jupp, 2006). The interpretation will be based on the figures and providing logical understanding behind the observable trends in the data. The quantitative data on the China’s e-commerce sector, Alibaba’s financial performance, are represented in the form of figures and charts to study the trend, while import regulations and tax circulars on the products traded through e-commerce is represented through summary tables. The data analysis section of the research is the crucial most segment of the research study, as it will relate the imposition of governmental restrictions on the cross border financial and business performance of e-commerce sector in China by examining the financial metrics of Alibaba, its largest e-commerce retailer.

3.7 Ethical Considerations

The researcher has ensured that the research study has compiled with the code of ethics of the university and followed the academic rules at every stage of the research. It is assured by the researcher that the data collected for the research will be only used for academic purposes. All the data are collected from authentic databases and hence, the data are reliable for the research. Moreover, the analysis of the chosen company’s performances are purely for the research purpose and are not intended to create any kind of negative impact of the company on the readers.

3.8 Research Limitation

The research has some primary limitations due to time constraint, limited monetary assistance, which reduced the scope for conducting vast secondary research. Due to time limit of the research, some sources of data are not considered for the research i.e. the primary sources, which can be collected from the consumers and managers of e-retailers to study the impact the governmental restrictions on the prices of goods and on the profitability of the retailers. Furthermore, doing primary research, not only requires more time, but also involves conducting surveys or interviews face-to face or through online surveys which requires financial sources. Even through authentic databases are used as sources of secondary data, the researcher faced limitations in collecting recent data from such sources.

3.9 Time horizon

The Gantt Chart given below shows the time scheduled for completing the entire research with specifications of time allocated for each of the activities.

Table 1: Gantt Chart

(Source: Author’s creation)

Chapter Four: Data presentation, Evidence, Analysis and Discussion

4.1 Data Presentation and Evidences on E-commerce sector of China

4.1.1 Governmental Restrictions imposed on Cross Border E-commerce in China

The CGAC (China General Administration of Customs) made recent adjustments to the ‘classification table and tax tariff list of imported goods’ that was issued in 2012 (China-Britain Business Council, 2016). However, due to large increase in the volume of cross-border transactions in recent years, the agency issued new policy for cancelling the parcel tax for cross-border e-commerce. Previously, China imposed a parcel tax on the imported products worth less than RMB 1000, at the rate of nearly 10%, but with new restrictions, the prices of goods imported by more than 10% (Hong Kong Trade Development Council, 2016).

The following tables show the new tax schemes before and after the imposition of tax policy in 2016.

Table 1: Tax scheme before new policy

Level

Product Items

Tax Rate

1

Books, magazines, educational movies, furniture, computers, games and toys

10%

2

Textile and clothing garments, video cameras and other devices, electronic home appliances, bicycles, watches and clocks

20%

3

Golf and golf appliances, luxury watches

30%

4

Cigarette, cosmetics and alcohol

50%

5

Others

10%

(Source: China-Britain Business Council, 2016)

Table 2: Tax scheme before new policy

Level

Product Items

Tax Rate

1

Food and beverages, Books, Newspapers, computers, digital music and video players, household appliances, furniture, games and toys, gold and silver, entertainment items

15%

2

Sports items, textile and clothing, bicycles, television recorders and such devices

30%

3

Alcohol, tobacco, golf equipment, cosmetics, perfumes, jewelry and watches

60%

4

Others

30%

(Source: China-Britain Business Council, 2016)

With levy of this new tax scheme, the goods imported through trade in e-commerce by the e-retailers are now treated as the general imports of the country, which are subjected to VAT (Value Added Tax) as well as consumption tax and that differs with the product category (KPMG, 2016a). Even though the online consumers will continue to enjoy 70% rebate on the import taxes for a single cross border transaction through e-commerce retailer under RMB 2000 (a limit of RMB 20000 annually), there will be overall rise in burden on the e-retailers in China with more than 10% rise in taxes (Chemical Inspection & Regulation Service, 2016).

Apart from the tax circular, another regulation by government is the introduction of ‘Positive List’, which is a retail list for cross border e-commerce (Dezan Shira & Associates, 2016). The list included eight categories of products that are commonly bought by online consumers in China through e-commerce platforms (KPMG, 2016b). The Positive List restricted the category of products than can be purchased through online and hence, prohibited the sales of some of category of products by the e-commerce retailers (Wells, 2016). The table below shows the category of products included in Positive List. The Positive List consisted of total 1142 products under eight categories (KPMG, 2016b).

Positive List of Imported Goods

• Food and beverages
• Clothing
• Footwear and Headgear
• Home electronic appliances
• Cosmetics
• Children’s items like toys and games
• Baby Products
• Home & Kitchen Appliances (Yining, 2016)

The Positive-list known as ‘List of Cross-Border E-Commerce Retail Imports’ is formed by 11 governmental departments of China including Ministry of Finance, National Development and Reform Commission (KPMG, 2016a). After the list was issued, only the goods bearing HS codes provided under the list to each product can be imported with application of the new tax system through e-commerce platforms (Dezan Shira & Associates, 2016). Therefore, all the goods that does not come under the list needs to be imported by the retailers under General Trade system of the country.

4.1.2 Growth Trend of cross border E-commerce sector in China

The following section presents the trend of growth of cross border e-commerce in China over the years (2010-2107).

Figure 7: Foreign Trade Volume and Cross-border E-commerce GMV (2010-2017) in China

(Source: iResearch, 2014)

The Gross Merchandise Volume (GMV) of cross border e-commerce trade in China was estimated 3.1 trillion Yuan at the end of 2013 which is 11.9% of the country’s international trade volume and rose by 31.3% from the previous year (Dezan Shira & Associates, 2016). With introduction of many favourable policies by the trade agencies for facilitating cross border investments in e-commerce, many domestic small retailers actively improved their trade volume (Wang, 2012). It was expected that the GMV of sector will continue to grow in the coming years too. However, there has been consistent decline in the growth rate or percentage growth in the GMV over the year, even though contribution to foreign trade has increased (iResearch, 2014).

Figure 8: Share of Import and Export in Cross-border E-commerce GMV (2010 -2017) in China

(Source: iResearch, 2014)

The above figure reveals that the exports accounted nearly 90% of the total China’s cross border trade in e-commerce, while the imports are still in the early phase experiencing insignificant proportion of total trade over the years (Dezan Shira & Associates, 2016). However, the scenario changed to some extent in the later years (after 2014) as export-import businesses are highly sensitive to governmental policies or regulatory framework and hence, the growth will be slow and consistent in the following years.

Figure 9: Share of B2B and B2C in Cross-border E-commerce GMV (2010 -2017) in China

(Source: iResearch, 2014)

The above figure shows that B2B constituted nearly 94% of e-commerce transactions in China with only insignificant proportion of B2C mode of transaction. However, B2C trade is showing consistent rise in its percentage of contribution of B2C trade due to fragmentation of the cross border e-commerce while the contribution of B2B trade is declining.

Figure 10: China’s Retail Marketplace in recent years (2014-2016)

(Source: Alibaba Group, 2016d)

The above figure on quarterly growth in GMV and Mobile Penetration shows that GMV has grown consistently in each quarter of 2014 and rate of mobile penetration i.e. online purchases by the Chinese consumers through mobile phone apps has grown considerably in the last three years. However, GMV declined significantly in the beginning of 2015, but that was recovered from the next quarter and last quarter of 2015 experienced a dramatic rise in GMV. A substantial fall in the GMV of e-commerce trade again saw a major fall in the first quarter of 2016 (Alibaba Group, 2016d).

4.1.3 Alibaba’s financial performance in recent years

The GMV, Total Revenue and Active Buyers of Alibaba for the years 2014-2016 are shown in the figures below.

Figure 11: Total GMV of Alibaba (RMB billion)

(Source: Alibaba Group, 2016b)

Figure 12: Total Active Buyers of Alibaba (Million)

(Source: Alibaba Group, 2016b)

Figure 13: Total Revenue of Alibaba (RMB Billion)

(Source: Alibaba Group, 2016b)

Figure 14: Net Income (RMB billion)

(Source: Alibaba Group, 2016b)

The above figures show that total GMV, Active number of buyers and Total revenue of Alibaba has grown in the recent years due to rise in internet penetration, GDP of the country and other such factors. However, the quarterly growth of Alibaba’s total GMV, Total Revenue and Net Income in 2016 is upsetting (refer to figures below).

Figure 15: Total GMV (RMB billion)

(Source: Alibaba Group, 2016c)

Figure 16: Total Revenue (RMB billion)

(Source: Alibaba Group, 2016c)

Figure 17: Net Income (RMB billion)

(Source: Alibaba Group, 2016c)

The quarterly financial metrics of Alibaba shows the declining business performance of the largest e-retailer of China. While total GMV and Total Revenue declined moderately in the first quarter of 2016, which is after the announcement of tax regulations, net income or profits of the company fell dramatically in first quarter of 2016, reduced by more than half of what it was in 2015 (Alibaba Group, 2016c).

4.1.4 Comparison of Alibaba and Amazon

Alibaba and Amazon have substantial differences in the total revenue and profits (shown in the figure below).

Figure 18: Amazon and Alibaba’s last year financial performance

Annual Revenue (Billion USD)

(Source: Incitez Pte. Ltd., 2016b)

Annual Net Profit (Billion USD)

(Source: Incitez Pte. Ltd., 2016b)

The above data shows that Amazon net sales significantly in 2013 by nearly 23% from 2012, while Alibaba’s revenue was much lower than Amazon over all these years. However, Alibaba’s net profit seems to be more promising than that of Amazon. Amazon has even experienced losses in 2012 while Alibaba’s net profits increased dramatically in the coming years.

4.2 Analysis and discussion of the effect of Governmental Restrictions on E-commerce Sector in China

The data represented in the preceding section showed the recent form of regulations or restrictions imposed by the Chinese authorities on the e-commerce trade; the growth trend of the sector over the past years and financial performance of Alibaba.

China became the second largest e-commerce market in 2012 when it estimated annual revenue of $ 210 billion with compounded growth rate of 120% annually since 2003 (TUSIAD, 2015). The substantial rise in e-commerce sales volume was due to increase in large e-commerce platforms where small and large retailers as well as individual sellers offer products and services to customers within and outside the country (Asia Briefing, 2013). There is a large network of third party service providers, which offer the sellers or business enterprises various services like marketing, payment or receipts fulfillment, IT support, site-designing, delivery and logistics etc (Asia Briefing, 2013). This is contrast to the e-commerce structure in the US, Japan or Europe where pure play online retailers dominate the market who handles their own sites, delivery, logistics, payment etc. such as Amazon. This caused a rapid sprawl in the number of retailers in China to engage in e-commerce sales and engage in international trade (Kanchanopast, 2014).

Further, the rise in number of online shoppers in China who spend a significant portion of their income in online purchases also contributed towards rise in total GMV in domestic and international e-commerce trade (Safa and Ismail, 2013). However, there was slowdown in the growth rate of GMV according to the data since 2014. This is due to rising concerns of the Chinese authorities and trade departments for the expanding e-commerce sector of China and its integration with large number of foreign retailers and hence, responded with number of policies (Li, Lai and Wang, 2010).

The data also reflected that exports of goods through e-commerce platforms have been decreasing while that of imports is increasing. This is because of rise in the preferences of the Chinese consumers for the foreign products when they observed that domestic retail platforms like Alibaba are offering large range of products from foreign brands at prices at much lower prices than what have been if purchased through general trade (McKinsey & Company, 2016). On the other hand, the highly dominance of B2B mode of transactions which accounted 94% in the overall international e-commerce of China, showed the structural difference of China’s e-commerce with other countries where B2C mode is primary segment of e-commerce in the US and European countries (iResearch, 2014). Thus, this major structural difference in e-commerce sector of China differentiates Alibaba from retailers of US, UK or Europe such as Amazon, eBay, Ottto, Shop Direct etc (E-commerce News, 2016).

The huge difference in total revenue of Alibaba and Amazon is due to diverging pattern of e-commerce businesses in China and USA. Amazon emphasises on the B2C sales through its websites and offers Amazon Web Services, while revenue of Alibaba that is primarily engaged in B2B trade largely relies on advertisements and add-on services from its own vendors (Incitez Pte. Ltd., 2016a). However, the profitability of Alibaba is more than Amazon, because it is engaged in both B2B and B2C transactions (Incitez Pte. Ltd., 2016b). While the company does its B2C businesses through its own sites like AliExpress, Taobao, Tmall and Juhusu, its B2B space is managed through the sites Alibaba.com and 1688.com. Its sites for B2B transactions manage sales between the Chinese local suppliers and wholesale buyers in across 240 countries in the world (Walsh, 2010). Thus, taken together, the profitability of the company is far more than Amazon because two types of platforms are available to Alibaba, which open up vast number of potential individual and wholesale buyers across the world to the Chinese retailers or businesses.

However, at present, what concerns e-commerce sector of China and its main player, Alibaba is the regulations imposed by Chinese authorities in the form of tax impositions and import quotas on categories of products that consumers in China purchase or import. Hence, these regulations are bound to have negative effect on the e-commerce retailers like Alibaba which are largely occupied in B2B transactions (The Wall Street Journal, 2016).

GMV (Gross Merchandise Volume) is the most effective parameter for measuring the growth in the e-commerce sector of China. The data shows the GMV of China’s e-commerce market have increased considerably over the past years with increasing rate of mobile penetration. However, there was decline in GMV value in 2016, in the first quarter, which is primarily due to the governmental restrictions imposed on international trade in e-commerce. With imposition of restrictive trade policies, the products entering the country via cross border e-commerce channels were subjected to import tariffs, VAT and consumption taxes (KPMG, 2016b). Furthermore, the significant decline in the GMV in the first quarter of 2016 was mainly due to the introduction of “Positive List” that restricted the categories of goods that can be imported into China.

E-Retailers like Alibaba import a large range of items from wholesale businesses across overseas and sell them to the Chinese consumers or to domestic businesses (Pinsent Masons LLP, 2015). With restrictive Positive List, trade was limited to only 1142 commodities and the non-listed products are held in bonded warehouse and the country trade them through its traditional domestic channels of international trade. Baby products, such as nappies and health supplementary contributed a major proportion of China’s e-commerce imports because of the low prices and high demand of such products from the Chinese consumers (KPMG, 2016a). These categories were restricted and as they are imported in bulk from wholesale retailers and hence the removal of these categories resulted in fall of the GMV substantially even before actual implementation of the Positive List; because, with announcement of the Positive List, many foreign retailers of the items excluded in the list, stopped selling their products (Kommerskollegium, 2014). For instance, selling of Murray Goulbourn’s popular long-preserving milk products that was sold through Alibaba’s B2C platform Tmall was stopped.

Furthermore, the fall in the GMV in the recent years supported the anticipation of the market researchers in 2014, who predicted that the growth of international trade in e-commerce GMV is likely to fall after 2015 even though the contribution of cross-border e-commerce to total China’s trade will increase. This was because the rampant growth of the sector, especially due to increase in cross border transactions instigated the regulators or trade agencies to bring check and balances into the transactions in the sector (King & Wood Mallesons, 2016). The decline in growth of exports and simultaneous rise in the imports reflected that retailers and consumers of China since 2010 are because the e-commerce channel provided a free trade zones to the retailers or businesses with minimal tax payments (Gałuszka, 2013). Through it, they could enjoy the benefits of a loophole that bypassed all the regulations, labelling or licensing rules that are applied to the goods when traded through domestic channels (Gim, 2014). Hence, the consumers could access a large variety of products offered by the foreign retailers at cheaper rates. However, with the imposition of new tax policies, there was certainly a negative effect on the foreign retailers as the prices of their products increased because of import VAT, tariff rate and consumption tax which decreased the demand for these products substantially by the Chinese consumers.

The e-commerce sector of China is largely backed by Alibaba that has been heavily engaged in international trade and invested in cross border platforms like Tmall, 1688.com, etc (Alibaba Group, 2016a). The quarterly data of Alibaba’s GMV, total revenue and net income showed declining values in the first quarter of 2016, when the restrictions was fully introduced and was just in the prior stage of implementation. Thus, a further decline in these financial metrics of Alibaba is expected in the next quarters when the tax circular and positive list will be fully effective.

4.3 Conclusion

It can be concluded that with the restrictive impositions in cross border e-commerce trade in the form of import taxes and Positive List have significant impact on the growth and revenue of the e-commerce sector of China. Alibaba being the largest e-commerce player in the country with nearly 80% of the market share is likely to be affected the most, due to regulations of the trade agencies. This is already reflected by fall in the GMV, total revenue and net income of the company in the first quarter of 2016, as import taxes and restrictions on categories of products traded were announced. Many large scale and whole retailers of foreign countries stopped listing their products in Alibaba’s platforms because the overall tax burden on the retailers increased thereby reducing their profit marginal.

Hypothesis development:

The evaluation of findings from the secondary data leads to the development of the following hypotheses.

H1: Governmental restrictions in e-commerce sector of China will affect the growth of the sector.

H2: Governmental restrictions in e-commerce sector in China will have impact on the business performance of Alibaba.

Chapter Five: Summary and Conclusions

5.1 Conclusion

This research study investigated the impact of strategic trade policy in the international e-commerce in China and on largest e-commerce retailer of the country, Alibaba. The authorities in China made regulatory as they wanted to facilitate international e-commerce in China as the sector was experiencing extensive growth, with expansion of number of e-commerce channels for trade between Chinese and foreign retailers (HopgoodGanim, 2014). However, the regulatory changes came in the form of tax impositions and restrictions on category of goods imported which became a huge concerns for the retailers like Alibaba as it largely relied in cross border B2B and B2C transactions for generating revenues. Alibaba through its own e-commerce platforms like Tmall, Tabao and 1688.com eased B2B trade between China and other countries and helped the Chinese SMEs to get imports at lower prices and earn high profits from selling them in domestic markets.

The literature review on the e-commerce sector revealed that e-commerce sector of China has been experiencing growth since 2006 due to technological development in the country along with rise in preferences of the consumers towards online shopping. In the context of international trade in e-commerce, it was observed that there are 300 million above Chinese consumers who shop via internet platforms. Alibaba Group is the largest player in China’s e-commerce industry, which is responsible for creating popular online marketplaces for B2B, B2C and even C2C transactions (Xiao and Jing, 2016). The Government of China made efforts for developing the e-commerce market along with motivating the private e-commerce investors through implementation of various trade policies. This stimulated consumption of goods domestically sold via online and encouraged sellers from overseas countries to sell their products in China through its prospering online marketplaces.

Major changes came in recent years, when the government of China emphasised on domestic consumption and investment as growth drivers for the PRC economy (Kunyu, 2013). The state agencies decided to enhance the role of e-commerce as one of the effective way for promoting consumer spending and private investments. On the positive note, state agencies in PRC reduced the high minimum capital requirements or licensing requirements that previously kept small SMEs out of the e-commerce industry. They tried to provide taxation relaxations, social benefits and registration requirements to help low-income individuals to use the e-commerce platform as an additional source for their income.

With the expansion and robust growth of the e-commerce sector, governmental intervention was further needed for smoothing out China’s cross border e-commerce and for strengthening of international cooperation in the e-commerce. For this purpose, trade authorities in China introduced a circular on tax policies and Positive List as regulatory policies. However, the regulatory trade policies concerned the e-commerce retailers like Alibaba in China as the import taxes raised the prices of the goods and Positive List excluded a large number of items that can be imported. As a result of the restrictive policies, the financial performance of largest retailer in China i.e. Alibaba was highly affected with noticeable fall in its total revenue and net income along with fall in the total GMV in the first quarter of 2016. The likely impact of the tax circular and Positive List was the unexpected rise in the prices of imported products, discouraging the Chinese to purchase from online platforms. Thus, Alibaba will face greater issues in accessing its cross border B2B and B2C transactions and in sustaining its long-term profitability in the international e-commerce market after imposition of governmental restrictions.

5.2 Limitations of the Study

The study has some limitations, which may have narrowed the scope of the research. Firstly, it emphasized only on the impact of governmental regulations on the Chinese retailers. However, it was obvious that the foreign retailers who are engaged in B2B trade with the Chinese retailers are equally likely to be affected because of restrictive trade policies by the Chinese authorities. Secondly, the research was concentrated to study only one e-retailer in China as it occupies a majority of market share and is heavily engaged in B2B trade with cross border retailers. An additional study of the other small e-retailers of China like JD.com would have helped in evaluating the impact of restrictive trade policies on the e-commerce sector of the country on a broader perspective. Moreover, the strict trade restrictions are recent phenomenon in China’s e-commerce sector, which limited the scope for secondary research on the impact of restrictions on performance of Alibaba over a long period.

5.3 Recommendations and Future Scope of Study

The governmental restrictions on trade in e-commerce are likely to affect the large retailers like Alibaba, JD.com etc. in China as they rely largely on cross border transactions for their earnings. A primary research in this regard could have been useful for examining the impact of the restrictions on the retailers. Semi-structured interviews with the retail managers in the e-commerce sector of China are suggested to study in depth the impact of the restrictions on their business growth and prosperity.

Future researches in this particular area can be done to study the impact of declining e-commerce performances due to governmental restrictions on the consumers buying behaviour and their preferences towards online shopping. Moreover, there are two major regulatory changes enforced by the Chinese authorities recently in the form of a tax circular and Positive List. Both the form of restrictions are likely to affect prices of goods and trade volume in the e-commerce sector respectively. Thus, the impact of both forms of regulations can be evaluated separately on the performance of e-commerce players in China when they will become fully effective. Governmental restrictions when imposed can result in other major changes in e-commerce functioning in China, such as shifts from B2B trade by retailers to B2C trade, domestic sourcing of raw materials, increase in the preferences of Chinese consumers for domestic products etc. Thus, future research can be conducted in this research area to examine these aspects of e-commerce sector in China, after the implementation of governmental restrictions.

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