China insight: Rural villages e-trade for themselves

E-commerce on Taobao brings social gains along with new income for neglected communities

E-commerce is helping to revitalise Chinese rural villages, home to half the population. The use of internet trading as a way of developing impoverished communities has come into the spotlight with the spectacular stock exchange float of Alibaba, the Chinese wholesale version of eBay. 

E-commerce in China is dominated by Alibaba since it drove eBay out of business through its own cheaper and safer version, Taobao. Three out of four online sales in China now occur on Taobao.

And Alibaba is encouraging underprivileged villagers into micro and small businesses on Taobao and has coined the phrase "Taobao villages" – where 10% of the population are involved in e-commerce, which grew in rural China by 25% last year.

Shan-Ling Pan, a professor at UNSW Business School, is interested in the socio-organisational processes that underlie the interaction between information technology and its human and organisational contexts. With colleagues Carmen Leong, Sue Newell and Lili Cui, Pan has been studying how e-commerce gained a foothold in two remote villages in Zhejiang Province.

Instead of top-down government aid driving change, Pan's team plots how bottom-up e-commerce ecosystems have boosted the local farm economies. They argue that government assistance can create dependence and that long-term social change requires the emergence of local leaders and grassroots movements as evidenced in these Taobao villages.

"This rural-empowerment study is part of our ongoing investigation of digital enablement in social innovation," Pan says. "In this project, we examine how information technologies provide new means of income generation for disadvantaged groups, improving their standard of living and creating a number of important social benefits."

The research team interviewed key leaders of e-commerce, government officials and locals in the villages of Suichang and Jinyun.

E-commerce in Suichang (population 50,000) is dominated by agricultural products, such as bamboo shoots, tea, sweet potatoes and wild herbs. Whereas Jinyun villagers sell outdoor gear, including backpacks, sleeping bags, walking shoes and barbeque pits, which leverages neither the natural resources nor the traditional skills of the villagers.

'A belief in self-sufficiency germinates, and weakens the learned helplessness'


Orchestrating an ecosystem

E-commerce in Suichang began in 2006 when local governments promoted it to farmers, hoping to improve the sales of agricultural products. Popularity came after the establishment of the grassroots Suichang Online Shop Association in 2010 to provide intermediary services.

One of the key promoters was Dongming Pan, the first chairman of the association, who returned to his hometown after working in Shanghai for more than 10 years.

He initially thought it would be difficult for his low-skilled neighbours to transform into e-tailers. Yet the association ultimately offered 3000 people free training in e-commerce, covering issues such as pricing, photo shooting and editing, and marketing strategies.

Within a year, the number of online stores in Suichang tripled to almost 1000. More importantly, the association served as a platform for consolidating and coordinating the demands of e-tailers and the supply of producers such as farmers and agricultural cooperatives.

In 2011, with the support of the municipal government, the association set up MyStore, an online shopfront offering supply-chain services for about 1000 local agricultural products.

With MyStore, e-tailers need not make any upfront investment in goods and storage. As and when an order is received, these sellers can send information to MyStore, which then delivers the items on their behalf. 

As of June 2013, the members of the association comprised 1268 e-tailers, 164 product suppliers, 45 third-party service providers – such as logistics companies, design shops and photographic studios – and e-commerce had generated annual sales of US$22 million for Suichang

The distributor-agent model

Zhenhong Lv was a baker in Jinyun in 2006 when he learned that a friend was operating an online business. With hard-earned savings of US$800 and a computer, Lv opened an online store with his younger brother. Initially, he obtained supplies of outdoor equipment from the wholesale market and made money from the price difference.

As Lv recalls: "In the beginning, we only managed to get one order a week. As the sales slowly picked up, we continued to explore how to manage the online store. Our relatives and neighbours were curious about what we were doing and asked us how to start an online store. We felt embarrassed to turn them away, so we showed them how to register."

Lv offered his fellow villagers the option of obtaining goods from him and this allowed them to obtain orders first and then to purchase items from Lv, who earned a marginal amount selling to these e-tailers.

Later, in 2008, Lv decided to establish his own brand, BSWolf, and manufacture his own products. From this point, the distributor-agent model began to take shape and was imitated by other villagers.

The entrepreneurial opportunities offered by Taobao e-commerce have propelled the development of Jinyun and also encouraged young people to return home from the cities to find local work in online enterprises. 

'Our relatives and neighbours were curious about what we were doing and asked us how to start an online store'


Learning by doing

Despite the poor education standard among villagers, e-commerce allows for quick experimentation and learning by doing. The low entry barrier allows them to explore ideas on website design, establish a brand and to easily substitute products they sell. Sales volume and customer feedback captured on the Taobao platform tells them how they are doing.

"This efficient learning process leads to a quick diffusion of knowledge in the ecosystem, bridging the capability gap in a rural community," say the research authors.

Long distances to market and poor infrastructure are overcome by e-commerce delivering a bigger market, with higher prices and direct access to consumers without layers of middlemen. As e-commerce grows, participants in the ecosystem can take up new or different roles, just as e-tailer Lv evolved into a grassroots leader and outdoor goods distributor and manufacturer when the number of e-tailers reached a critical mass. 

Impoverished rural villagers can be resistant to change, due to little exposure to the outside world, but presented with a new opportunity from e-commerce, they are encouraged by the transparent success of others to have a go.

"A belief in self-sufficiency germinates, and weakens the learned helplessness," note the research authors.

Sustainability issues

Yet there are some unexpected negative consequences. At least eight to 10 logistics companies have been set up in the villages. In Jinyun alone, the number of packages per day has hit 25,000. The sharp increase in road traffic poses a threat of air pollution.

There are other sustainability issues. For instance, practitioners have to consider solutions to rising competition among the villagers due to product similarity – such as by establishing a brand for the village.

The authors challenge the view that internet technology is a passive force, arguing it can act on other resources to create value. Also that leading players in the process are not only information coordinators, but also the source of motivation (such as, Lv's guiding hand) and "ecosystem orchestrators" (the Suichang Online Shop Association).

It demonstrates that e-commerce is not just a relatively fixed bridging device linking buyers and sellers, but provides a space for common actions that mobilise local village participation. 


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