Republic of the Philippines

CAMARINES NORTE STATE COLLEGE

F. Pimentel Avenue Brgy. 2 Daet, Camarines Norte–4600, Philippines

COLLEGE OF BUSINESS AND PUBLIC ADMINISTRATION

SUSTAINABLE COMPETITIVE ADVANTAGE: TAOBAO RISE AS THE NUMBER

ONE E-COMMERCE PLATFORM IN CHINA

BA 105 International Business and Trade

MATEO DIANA ROSE G.

BSOA 2B
 Republic of the Philippines
CAMARINES NORTE STATE COLLEGE
F. Pimentel Avenue Brgy. 2 Daet, Camarines Norte–4600, Philippines

COLLEGE OF BUSINESS AND PUBLIC ADMINISTRATION

A. Y. 2020--2021

I. INTRODUCTION

Online shopping becomes more and more prominent in this era. The

functionality it provides and the abundance of products and services that can be

found online make most people want to check it out. There are a lot of shopping sites

on the Internet, but we can't claim that they are all qualified to retain their competitive

advantages. However, in china there’s a popular shopping site, which is also known

for being one of the largest online shopping sites in the world – Taobao.com. Taobao

is a Chinese e-commerce platform offers a wide array of quality products and

millions of product specification very reasonable and affordable prices for goods. It

has a unique competitive advantages and strategies the reason why Taobao

continuously grow and considered the biggest e-commerce website in the world, and

one of the most-visited sites out there. On the other side, maintaining a competitive

advantage in today's ever-changing market environment is not an easy thing, and

gaining competitive advantage in technology in China is very difficult. In order to

retain a competitive advantage for any corporation, the advantage must be

established in such a way that it is "rare, costly to imitate, no substitutable, and

nontransferable" (Snyman, J.H., 2006). Taobao’s competitive advantage is linked to

the Dunning’s Eclectic Theory. In the same way, in Elective Paradigm of Dunning’s

Theory it also known as the Ownership, Location, Internalization (OLI) Model or OLI
 Republic of the Philippines
CAMARINES NORTE STATE COLLEGE
F. Pimentel Avenue Brgy. 2 Daet, Camarines Norte–4600, Philippines

COLLEGE OF BUSINESS AND PUBLIC ADMINISTRATION

Paradigm. It offers a comprehensive approach to analyzing the whole relationship

and interaction of the different components of the company. Its objective is to

determine whether such a particular strategy offers greater overall value than other

national or foreign alternatives available for the development of products or services.

The reason behind Taobao’s success is that they have a unique competitive

advantage that is hard to mimic by the other busines firms such as, its location-

China, the economies of scope, the two retail sites, their networking’s, and having a

good relationship with government. But the question is, can Taobao sustain its

competitive advantages regarding of having all of those good strategies? However,

this case study is an additional analysis on how Taobao can sustain its competitive

advantages in different ways by proposing alternatives solutions and

recommendations for the stated problem.

 Republic of the Philippines
CAMARINES NORTE STATE COLLEGE
F. Pimentel Avenue Brgy. 2 Daet, Camarines Norte–4600, Philippines

COLLEGE OF BUSINESS AND PUBLIC ADMINISTRATION

II. BACKGROUND

Taobao is a leading online shopping website founded by Jack Ma’s Alibaba

Group in 2003 and it is one of the largest online marketplaces where anyone

including businesses and individuals can sell to China. Taobao in Chinese actually

means “searching for treasure network.” It is a platform that was designed primarily

for consumer-to-consumer retail. It encourages young entrepreneurs and small

businesses to connect with consumers from the Greater China Region, which

includes Mainland China, Hong Kong, Macau and Taiwan which is made payable by

online cellphone accounts. Its stores usually offer an express delivery-service to

their clientele. With over 1 billion product listings as of 2016, the

combined transaction volume of Taobao Marketplace and Tmall.com reached 3

trillion yuan in 2017, more than that of all US e-commerce sites combined. The

Economist calls it "the country's biggest online marketplace". Sellers are able to post

goods for sale either through a fixed price or auction. Auctions make up a small

percentage of transactions. The majority of the products are new merchandise sold

at fixed prices. Buyers can assess seller backgrounds by information available on

the site, including ratings, comments and complaints. By 2010 Taobao was able to

dominate around 80% of the Chinese online shopping market. Apart from fixed

priced products, auctions contributed to a small part of the transactions. The

 Republic of the Philippines
CAMARINES NORTE STATE COLLEGE
F. Pimentel Avenue Brgy. 2 Daet, Camarines Norte–4600, Philippines

COLLEGE OF BUSINESS AND PUBLIC ADMINISTRATION

websites also help consumers cross-research products to help them make their

shopping decisions as it has the seller’s information, comments, complaints and

ratings. Although this is convenient from a consumer’s perspective, as a retailer it

may not be the most effective. It is relatively easy to set up, businesses must

compete with thousands of small businesses in addition to the large brand name

corporations. The Services and features of Taobao, Taobao's mascot is a dialogue

bubble, which represents their corporate culture. Ma introduced Taobao to the

outside world by stating, "We are the ant army." Ma once organized more than 2,000

employees at a gymnasium to celebrate the 5th anniversary of the founding

ceremony. At the party, Taobao employees waved the Taobao mascot — the flag of

"ants." At the end of the celebration that lasted for four hours, all the employees

stood hand-in-hand, singing "If you do not experience wind and rain, you cannot see

the rainbow. The ants that be organized together can beat the elephant. Taobao’s

Shop feedback, to thoroughly investigate a Taobao shop, a good way is to view its

feedback by clicking the shop's rating icon. For Tmall.com shops, people click the

stars to view their ratings. Taobao users usually spend time to read feedback and

compare items of one shop with those of others. Feedback put up by the user can be

genuine or made-up which users have to thoroughly read through to conclude. If the

feedback style and tone are the same, likely, it's made up. Some of the feedback can

also be posted by competitors. Users have to look at the majority of the feedback to

deduce whether the feedback is genuine. The best way to conclude whether the item

is truly worth buying is to look at the available feedback that is posted by users after

they've used the item for some time. For every trade deal on Taobao, there must be
 Republic of the Philippines
CAMARINES NORTE STATE COLLEGE
F. Pimentel Avenue Brgy. 2 Daet, Camarines Norte–4600, Philippines

COLLEGE OF BUSINESS AND PUBLIC ADMINISTRATION

a section of customer feedback, which is a determining factor of the sale volume for

the shop. Therefore, the shop owners often put effort to maximize positive comments

and eliminate the negative ones. Even profitable negotiations happen between

sellers and the consumers for rating their satisfaction toward the commodity and

their shopping experiences. To collect public perspectives towards Taobao services,

search tools and other functions are used to determine and learn the users’

demands, which could help Taobao make more improvements; There are also

surveys handed out to Taobao consumers including the following parts: The

obstacles that you encounter while using the product., your advises and reviews of

the product, the frequencies of your uses on the product, or the importance of that

particular product to the users themselves, the satisfaction level towards the specific

aspects, including visual and typographic layout, procedure and instruction guide,

the overall satisfaction level towards the product. Taobao Marketplace introduced

various features and services to create a better user experience for online shoppers

and retailers. For instance, in January 2010, it launched the Taobao app, created by

independent developers through the Taobao Open Platform, to be downloaded by

consumers in Taobao App Store. In March 2010, it introduced the Taobao Data

Cube platform, which gives small businesses access to its aggregate consumer

transactions data for insight into industry trends. In June 2010, it partnered with

Wasu Media Internet Limited to launch Taohua, a digital entertainment products

platform, and interactive digital television shopping, that are operated by a joint-

venture formed by the two companies However, Taobao has various strategies that

brings them to the top and become one of the largest e-commerce sites in China,
 Republic of the Philippines
CAMARINES NORTE STATE COLLEGE
F. Pimentel Avenue Brgy. 2 Daet, Camarines Norte–4600, Philippines

COLLEGE OF BUSINESS AND PUBLIC ADMINISTRATION

this strategy serves as their competitive advantages and brings success to the

whole firm. One of these advantages is the location– the China itself, with 560

million Internet users spending 20 hours a week online, China is by far the largest

Internet market in the world. And notably, China is skipping traditional retailing in

favor of e-tailing. Second advantage is the savings in scope; the cost savings

associated with the offer to market various products through a single corporation;

The same distribution outlets. In any scenario, the sites. Alibaba's It has two retail

sites – Taobao, which has thousands of retail sites. Non-brand name goods offered

by lesser-known traders; And Tmall, for products with the brand name. Diversity of

goods Offered on each hand, Taobao in particular is excellent. Third advantage is

the scale, the cost savings associated with the greater sales volume. Alibaba, as

argued by Juro Osawa, Taobao and Tmall have more than controlled the accounts

half of the Chinese business. Also, in 2012, the overall amount Taobao and Tmall's

transactions amounted to more than one million yuan (163 billion US dollars). The

actual volume is higher than the volume it was transacted by Amazon and eBay. The

fourth advantage, and perhaps the most important, is networking, the benefits arising

from an expanding network of users of a product or service. The bigger the network,

the more profitable the product becomes for each customer. The fifth advantage is

that Alibaba has a great alliance with the Chinese government. To ensure that

Taobao has a good relationship with the Chinese Government, more markets need

to be built to improve its competitive advantage. And lastly in terms of Taobao

Shopping it has a lot advantages the reason why people of china keep on

patronizing this e-commerce platform. One of the reasons is that the products in
 Republic of the Philippines
CAMARINES NORTE STATE COLLEGE
F. Pimentel Avenue Brgy. 2 Daet, Camarines Norte–4600, Philippines

COLLEGE OF BUSINESS AND PUBLIC ADMINISTRATION

Taobao has extremely low prices, Taobao products are cheap mainly due to low

labor costs in China, low material costs, low online business costs in Taobao, and

high competition among retailers. Since there are a lot of sellers for a single product

quest, you can easily compare prices for the same or similar products. Taobao has

also a broad range of choice of products. It has a store of everything that you will find

almost everything you need on this shopping site. You can select from a range of

items from different suppliers. Taobao Shopping has a unique and crazy Items, the

shoppers will find a lot of creative, exclusive, mad stuff from Taobao. From cute pet

things, food-shaped pillows or socks to rent-a-date service, name it, and you'll be

shocked that Taobao has it. Ultimately, Taobao has super deals, sales and events. A

great way to save more money when shopping at Taobao is to watch out for Taobao

sales and events wherein countless shops offer huge discounts and vouchers! The

top sales and events in Taobao are like 11,11 (11th of November) and 12,12 (12th of

December)
 Republic of the Philippines
CAMARINES NORTE STATE COLLEGE
F. Pimentel Avenue Brgy. 2 Daet, Camarines Norte–4600, Philippines

COLLEGE OF BUSINESS AND PUBLIC ADMINISTRATION

III. ALTERNATIVES/ PROPOSED SOLUTIONS

Available possibilities are hereby made to help Taobao in sustaining its

competitive advantage:

1. Define the niches that are under-served. It's about the customers,

customer is the King, without it there is no business at all today. If you're

trying to gain a competitive edge, it can be easy to hunt for established

niches where consumers are easy to find. However, searching for niches

where consumers are under-served can give you a business advantage.

There are often few rivals, plus you can tap the market early and build

brand awareness.

2. Understand the ideal customer's DNA footprint. Customers aren't the

same thing. In reality, just because someone is willing to buy from you,

they're not the best customer. Targeting the right customer, being mindful

of the purchasing process, who is involved in the decision-making process,

what information is needed and at what time, and so on will help the sales

team (and after-sales support teams) attract business and keep customers
 Republic of the Philippines
CAMARINES NORTE STATE COLLEGE
F. Pimentel Avenue Brgy. 2 Daet, Camarines Norte–4600, Philippines

COLLEGE OF BUSINESS AND PUBLIC ADMINISTRATION

for life.   When customers feel that you understand them, truly are in tune

with their needs, serve them exactly what they need at the very time that

they need it, they will place you far above the competition.

3. Clarify your strengths, please. Your company, like any other, has the core

strengths and competencies. There may be systems, or technologies, or

knowledge/expertise/experience. Whatever they are, they bring value to

your customers, and they're what customers need to buy from you. Think

how you can use these strengths in innovative and creative ways to win

new revenue, tap new markets, etc. What's more, how can you use your

core competencies to build value for your customers?  These are key

factors you should explore to create a clear market advantage.

4. Establish Your Unique Value Proposition. Many businesses also use

common value proposals, such as pricing, service levels, efficiency, brand

awareness, etc to build a competitive advantage. Although this can and is

always a great start, keep asking the "so what" question until you have a

much more unique, special and competitive role than anyone in your

market.

Even in the face of strong competition, getting a competitive edge offers you greater

opportunities to close more companies. More significantly, the better your

competitive advantage, the greater the ability to retain a good position on the market,

regardless of its circumstances or level of competition.

 Republic of the Philippines
CAMARINES NORTE STATE COLLEGE
F. Pimentel Avenue Brgy. 2 Daet, Camarines Norte–4600, Philippines

COLLEGE OF BUSINESS AND PUBLIC ADMINISTRATION

IV. RECOMMENDATIONS

Therefore, on the basis of the analysis of this study, the following recommendations

are hereby made to help Taobao in sustaining its competitive advantage:

1. It is recommended using the English language as a communication tool for

Taobao site. The Language Barrier, for a foreign customer, Taobao can be a bit

complicated as the website is 100% Chinese. But online translation tools like Google

Translate will help you do that. But it's getting difficult when you talk to Chinese

vendors, because most of them don't speak and understand English. Communication

is very important when making deals prices or negotiating with a seller who is very

common on the Taobao market, and also when dealing with issues such as dealing

with items not described, defective products, returns, exchange, refunds, etc. And

sometimes, international buyers are taken advantage of by Chinese sellers because

of their perception that foreigners can pay more. I therefore recommend using the

English language as a communication tool for Taobao.

 Republic of the Philippines
CAMARINES NORTE STATE COLLEGE
F. Pimentel Avenue Brgy. 2 Daet, Camarines Norte–4600, Philippines

COLLEGE OF BUSINESS AND PUBLIC ADMINISTRATION

2. Many Taobao Sellers are inexperienced with International Shipping and don’t

support International payment methods. Taobao must find ways and develop some

strategies that are suited for this issue. For example, having a partnership with

courier management who ship the products internationally.

3. The risk posed by scams. There are a lot of scams reported within the platform. It

is very important before transacting with a seller that you check seller’s reliability. As

a buyer we must double check about the seller information, including seller’s

reputation, detailed ratings, customer feedback, and number of successful

transactions, so that we do not fall prey to deceitful sellers.

4. To avoid the potential pitfalls when shopping in Taobao by yourself from overseas,

it is recommended to use the services of Taobao Agents. Taobao Agents are ideal

for buyers outside of China, and also for expats residing within Mainland China. They

act as a middleman between a Taobao Buyer and Taobao Seller.  

 Republic of the Philippines
CAMARINES NORTE STATE COLLEGE
F. Pimentel Avenue Brgy. 2 Daet, Camarines Norte–4600, Philippines

COLLEGE OF BUSINESS AND PUBLIC ADMINISTRATION

REFERENCES:

https://daxueconsulting.com/success-of-taobao-on-chinese-internet/

https://www.dragonsocial.net/blog/why-is-taobao-so-competitive-in-the-industry/

https://www.123helpme.com/essay/Competitive-Advantage-59769

https://www.gavelintl.com/6-ways-to-gain-competitive-advantage/