Table of ContentsWill Alibaba and Amazon further disrupt the distribution game?2Alibaba vs. JD.com: Executives Weigh In5

Will Alibaba and Amazon further disrupt the distribution game?

In case you havent already heard, Amazon and Alibaba are adding distribution to their arsenal of offerings. So what does this mean for you as an independent seller?ecommerce delivery across the globe is usually handled by a combination of national postal services and logistics firms such as DHL and FedEx. The former is cheap but slow, the latter fast but costly. ecommerce giants Amazon and Alibaba are always striving to be faster, cheaper, and easier and now theyre developing their own distribution arms. As of now, these are country-specific: Amazon Logistics in the UK and China Smart Logistic Network.These distribution arms have big dreams. Amazon Logistics in the UK is designed to compete with the likes of UPS and DHL. Meanwhile, Alibaba has already spent close to $16 billion in developing China Smart Logistic Network that currently delivers 25 million parcels a day, and estimates to reach 200 million parcels a day in 10 years.So what does this mean for you if youre an independent seller?In a best-case scenario, the economics of supply-and-demand offer the hope of faster and cheaper shipping on the horizon all around.At worst, the benefits of faster delivery and cheaper shipping will remain country specific, limited to the UK and China.

China Smart Logistic Network

On Singles Day in China, Alibaba processes about 278 million orders, surpassing $9 billion in sales over the course of a day. With so many orders and Chinas comparatively underdeveloped logistics infrastructure, there is the need for better shipping and logistics to fill that gap. Alibaba CEO Jack Ma mentions in an interview with CNBC that he worries about delivering all the packages on time, especially since Chinas existing courier service network is overwhelmed by the popularity of ecommerce in China.This inspired Alibaba to form a joint venture with five major express delivery companies in May 2013 to create China Smart Logistic Network, in which Alibaba has a 48% stake. Their goal is to be able to deliver a package anywhere in China within 24 hours of an order being placed.The flip side of this increased efficiency lies in the creation of a possible monopoly by China Smart Logistic Network. At risk are the state-owned China Post and smaller courier servicing companies, which may soon be squeezed out of the market. Honestly though, unless China Smart Logistic Network sets exorbitant delivery charges, the onus is on these smaller courier services to innovate and stay competitive. After all, they had years to do so before the Alibaba group came along.

Amazon Logistics

This is still in the early stages, but it looks promising. So far, Amazon has been relying on third-party services when it comes to package delivery: UPS and their counterparts for expensive items, and the U.S. Postal Service or similar couriers for everything else. The biggest advantage for Amazon to operate its own delivery service is that it has full control over when items are delivered, and that Amazon manages an item from the moment it is ordered to the moment it is delivered. Especially during peak shopping season, when shipping companies tend to face delays due to the amount of packages ordered.Amazon has begun using a fleet of freelance drivers who deliver under the Amazon brand instead of using third-party services for delivery. Reviews are mixed: one customer in San Francisco cites his Amazon delivery as the most polite hes ever received; another in the UK says that the service has become less efficient and orders cannot be tracked since they need not be signed for.

So how does all this affect you?

At the moment, it is too early to guess at the impact of Amazon Logistics. Unlike Chinas lack of a strong logistics infrastructure, the U.S. and U.K. have way more efficient systems. Of course, all these are subject to change, especially since the U.S. Postal Service is attempting to impose cost-cutting measures like closing post offices and eliminating weekend delivery. However, Amazon continues to broaden its product range (just look at the new Amazon Launchpad: a marketplace for startups), suggesting that the ecommerce industry is only going to keep growing, and the demand for courier services is likely to rise.If you are selling on Amazon, and using the Fulfillment by Amazon option to save you the hassle of shipping out individual packages, Amazon Logistics could potentially result in lower shipping costs since everything will be done in-house.And well let you know the latest developments on this as we hear it.

Alibaba vs. JD.com: Executives Weigh In

A worker at a JD.com Inc. warehouse in Shanghai, China. Photo: Tomohiro Ohsumi/Bloomberg News

The two largest players in Chinas online shopping market are locked in a fierce battle for more high-profile brands and Chinese consumers.Alibaba Group Holding Ltd. remains the giant, capturing nearly 59% of Chinas fast-growing business-to-consumer marketplace with sales of everything from apparel to seafood, according to iResearchlargely through its Tmall site for large brands. JD.com s share was 23% in the first quarter of 2015, the bulk of which comes from JD Mall, which buys products and sells them directly itself, as well as hosts third-party brands like Tmall.But JD.com, whose strength has historically been in electronics, has been gaining in areas like clothing that have typically been Alibabas bread and butter. JD.com has called apparel the most important growth engine for JD Mall.Heres an edited transcript of what Alibaba Executive Vice Chairman Joseph Tsai and JD Mall Chief Executive Haoyu Shen said, in separate interviews, about the challenges the companies face and whats at stake.

On competition:Mr. Shen: E-commerce is a very, very competitive channel in China. It has always been, and continues to be. Its a good thing for the market and for the consumer. Weve seen competition intensify in the general merchandising and apparel category. Thats the dynamics of the market and of competition.But I think that weve proved that we are a very meaningful player in the category. We are seeing tremendous growth and customers like buying apparel from us. We have about 25,000 merchants in the apparel category. We expect that to grow to about 30,000. That is a meaningful portion of the overall (80,000) merchants on the platform.Mr. Tsai: (Intense competition) is a reflection of China and the Chinese Internet. You see the same phenomenon in online video. This is just the nature of the business especially in China because the market is so big and the potential prize of winning is so attractive, you have a lot a lot of entrepreneurs as well as the capital backing them.When it comes to e-commerce...we want to increase the wallet share of consumers, whether its new customers or existing customers.

On competitive advantages:Mr. Shen: Brands are increasingly looking at JD as a strong channel to be able to connect with customers. I think our competitive strength is trust and product authenticity, customer experience, logistics, 24-7 customer call center and the easy returns.Mr. Tsai: If you look at Alibaba today, we are a technology company with massive scale. We are serving hundreds of millions of consumers, and have massive scale in terms of the data we see every day. That requires very sophisticated technology solutions to serve the business well and to analyze the growth.

On challenges:Mr. Shen: (Our challenge) is what weve been doing in the past 12 years: creating value for suppliers and merchants, and improving our offerings. We will talk with them, keep improving logistics and innovating....Growing logistics is not easy but once we do it well, its a very high competitive barrier. I have every confidence this will continue growing.Mr. Tsai: When you run a business of this scale, you have a responsibility to employees and shareholders. You always go to bed worried and wake up worried. We really dont care about the competitor but the common consumer. If the consumer or merchant within our ecosystem uses our services, it makes us happy.

On market share:Mr. Shen: Market share is not our (key performance indicator). Right now were growing faster than the industry. Were growing faster than most of our competitors.Mr. Tsai: We dont think about market share. We think about: How do we serve consumers in the best way we can? This year, (consumers) spent this much money, they bought in this category. Next year, are they going to spend more money?

On exclusive partnerships with brands:Mr. Shen: We dont have an exclusive strategy per se. Any partnership should be beneficial to both parties. We dont put pressure on merchants and brands to seek exclusivity.Mr. Tsai: The reason we enter into exclusivity is that it takes a lot of our resources to enter into partnership with a brand. The logistics to ship a refrigerator is different from shipping a shirt. We have a lot of partners that we have to line up to bring a merchant on board.Brands are willing to do (exclusives) because were the largest channel for them. For them, the opportunity cost of signing an exclusive is not that great. They know when they come onto Tmall, they can move their product.What were doing is to benefit consumers. They get better selection, better service and possibly better price when the brands know that they can move a lot of products on your platform.

On the future:Mr. Shen: (We want to) be characterized as a place you can go to find anything, (because) long-term it creates a lot of value in customer mind-set.Mr. Tsai: If you look at every individual consumer, we want them to come on our platform and shop. We want to offer more services to them in (areas such as) movie tickets, across their broad consumption profile. We believe we are very well positioned to do that.

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