Lessons from a Chinese Bootstrapper (Part II)
Jumia is an e-commerce platform connecting sellers and buyers of various products and services across the continent.
Despite its quick and stunning rise to fame Jumia’s stock suffered a spectacular decline reflecting a lackluster financial performance.
We outline in our latest market research report five lessons that can be learnt from Alibaba’s early years of development and growth in China – lessons we believe may be useful for the “Amazon of Africa” and to all businesses out there – business lessons that can be, and should be, learnt from one Chinese bootstrapper – Alibaba.
In a previous post we focused on the first two lessons that we learnt; in this post we will focus on the third.
LESSON III: SHAPING YOUR MARKET
When Alibaba set forth on setting up the world’s largest online marketplace it was doing so in a country without — what most people thought then — the most basic infrastructure required for such an endeavour.
Although, the first Chinese credit card was issued back in 1986 by the Bank of China. Adoption was virtually non-existent over the following two decades due to a lack of consumer demand, a dearth of merchants which accepted card payment, and the lack of a unified appraisal system in the banking sector. It was not until the founding of China UnionPay in 2002 that bankcards in China were finally unified under a nationwide network and began to slowly be used.
Without a widespread credit card network to leverage, online (and mobile) payment models in China were based on a mix of business models pieced together from banks, mobile operators, online payment providers, and international payment processors.
Until a decade ago all forms of non-cash payment were still relatively immature in China, including online payment, credit cards, prepaid cash cards, mobile payment, and others. As it is in Africa today, and in many developing countries, cash remained the most widely used form of payment.
For convenience, for perceived safety, for a lack of other payment options, and even for no better reason that it being a lifetime of ingrained habit, cash was king.
The players in China’s online payment market, albeit growing at an astounding rate, had to overcome these inherent obstacles in order to reach consumers. This resulted in an online payment sector quite different from its European, American, ad Japanese counterparts. According to a survey of online merchants conducted by GroupMAV in 2009, over three quarters of respondents still offered some form of cash-based purchasing option, most often cash-on-delivery and cash-on-pickup.
Only in 2013 China began showing signs of market maturity – as the use of debit and credit cards finally started to rank above cash options for many consumers – but even then, cash was still not poised to make a quick exit as a popular online payment option.
The success of Alibaba’s Taobao (and consequently that of Alipay, its payment processor) was in large part due it addressing the two main challenges or obstacles in the Chinese market – lack of non-cash payment options and lack of user trust.
Alipay came up with several non-bank cash-based payment solutions in order to attract more users. While this may seem like a step backwards in terms of technology, the added convenience of a cash-based payment channel was fitting for the state of payments in China.
In addition to the stop-gap solutions, Alipay’s innovative escrow service, which provided users with an extra layer of security, proved to be particularly important in China, given the relative immaturity of the e-commerce market and a lack of consumer trust in buying online. The escrow service allowed a buyer to withhold payment until they have received the product from the seller.
On the flip side, it took a government watchdog to compel Jumia to protect the consumers on its platform in February 2023.
The watchdog found that Jumia had excluded itself from being party to the contract for sale or purchase between customers and its agents, effectively shielding the e-commerce firm from any liability arising from the transactions.
About 90 percent of the items sold on the Jumia platform in 2021 were offered by third-party sellers.
Jumia had to be strongarmed into providing security for its consumers after a decade of shirking the responsibility. A responsibility Alibaba understood to take unto itself since its launch.
Download a complimentary issue of our latest Maverick Analysis Report which outlines five key lessons that can be learnt from Alibaba’s early years of development and growth in China – lessons we believe may be useful for the “Amazon of Africa” and to all businesses out there – business lessons that can be, and should be, learnt from one Chinese bootstrapper – Alibaba.