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Could The Alibaba Model Undo The Wal-Mart Model?

Tyler Durden's picture




 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

These are questions that arise as a consequence of the digitization of the global/local supply chain in the peer-to-peer model.

Longtime correspondent Bill M. reckoned I missed the longer-term story in my piece on the Alibaba IPO: namely, that the Alibaba Model of makers selling directly to buyers could undo the Wal-Mart Model of super-stores dependent on massive inventory. My essay The China Boom Story: Alibaba and the 40 Thieves addressed the China Boom rather than the Alibaba model, so let's compare and contrast the Alibaba model and the Wal-Mart model.

We all know the Wal-Mart Model: squeeze suppliers until they're gasping for air ("sure, you're losing money on every unit you sell us, but you'll make it up on volume") and then transport all this stuff across the Pacific to a vast warehousing and shipping operation that must keep hundreds of sprawling (and costly) superstores stocked with hundreds of different items.
 
This model gained supremacy because it lowered costs to consumers by outsourcing the production of most of the inventory. Generally built outside of towns, the superstores thrived in an era of low gasoline costs and cheap credit, i.e. the past few decades.
 
Competition was held at bay by the sheer size of the superstores' purchasing might: nobody ordering small lots could buy stuff at the same price as someone ordering a million units.
 
The Alibaba Model is a peer-to-peer system that enables makers/suppliers and buyers to link up supply and demand in real time. Let's say I want 100 bicycle wheels of various sizes for my bicycle repair shop, to replace all the wheels stolen from unsecured bikes with quick-release hubs.
 
In the peer-to-peer market (the Alibaba Model), my bid for the 100 bicycle wheels is visible to a universe of makers/suppliers. Maybe some supplier has an overstock, or a manufacturer has piled up some extras or has a slack day to fill on the production line. There are any number of reasons why a maker/supplier might be able to get close to Wal-Mart's price for a small batch order.
 
Depending on my own distribution network, the 100 wheels might not even be inventoried in a warehouse: the day they arrive, I might ship them to others who already ordered wheels from me--from individuals to institutions to other repair shops.
 
The digital overhead of the transaction is near-zero, and managing the logistical supply chain is low-cost as well. There is very little overhead compared to the vast hierarchy of corporate controls and management of the superstore model.
 
This enables both the maker and the buyer to offer better prices with higher margins than either could get in the Superstore Model. In essence, the profit and overhead skimmed by the Superstore Corporation can be split between buyer and seller.
 
The Alibaba Model is not limited to China. After reading Shenzhen trip report - visiting the world's manufacturing ecosystem, Correspondent Mark G. observed: The injection mold making they discuss as a strength in Shenzhen is precisely what Phil Kerner teaches at hisThe Tool And Die Guy website. Resurrecting that supporting skill community ecology is why I regard such teaching materials from Kerner and Tubal Cain on Youtube as so vital: Index of Tubal Cain "Machine Shop Tips" videos on YouTube.
 
Toss in the ongoing revolution in affordable desktop 3-D fabrication machines, and it's not too hard to discern the price advantages of the Superstore Model eroding fast, especially if consumers wise up that "low prices" are not low if the quality is so poor the product must soon be replaced.
 
How much would I pay to avoid the weeks-long shipping delay from Asia? Does that premium enable local shops to compete with Asian workshops, despite the lower wages paid in China, Vietnam, and other emerging economies?
 
How much would I pay to have the item I want delivered to me rather than have to drive miles to the Superstore? if I add up the maintenance costs, fuel and other expenses of operating my car, and the time wasted in traffic, standing in line, etc., how much cheaper is the Superstore price?
 
How much would I pay to direct my money went to a local worker/shop owner I know and trust rather than to some supplier in a distant city?
 

These are questions that arise as a consequence of the digitization of the global/local supply chain in the peer-to-peer model. Just as we have reached Peak Central Planning and Peak Central Banking, we may have reached Peak Centralization not just in government and finance but in the corporate-cartel model of "low quality at high margins."

 

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Tue, 09/09/2014 - 10:56 | 5197465 IronShield
IronShield's picture

Uh, nope.  But they are trying to undo (or rather, outdo) the Amazon model.  Hmmm...

Tue, 09/09/2014 - 11:14 | 5197555 CrazyCooter
CrazyCooter's picture

I always like to remind people that technology is a *tool*. A tool is used to solve specific problems more efficiently, safer, more effectively, etc.

This is just another variation of supply chain/logistics. Wal-mart applied the tools available to solve the problem. So did Amazon. How is this different than the changes that happened way back when travel agents were the goto for travel arrangements? In those days, they had access to inventory and it was very difficult to shop around. Now a days hotels, airlines, etc all have their inventory online.

Did the world stop? Travel agents disappear? Prices really change that much?

The fact that Alibaba is doing this isn't particularly Earth shattering. If they do a really good job, they will get some market share as they will be the optimum solution for some folks, but this is just a big fat "meh" as far as I am concerned.

Also, on that note, many folks don't differentiate the "old" Walmart from the "new" Walmart. Sam Walton was a very exceptional businessman whom I do not believe would have taken his company in the direction chosen by his progeny.

Regards,

Cooter

Tue, 09/09/2014 - 11:30 | 5197634 IronShield
IronShield's picture

Someone else noted, in a post further down, the primitive nature of this site (and I'm being kind).  It is typical of most Chinese sites that display limited/outdated technical skills and has the further wrinkle of being dubious in nature (not so much the site but certainly the suppliers).  Perhaps that will change in due time, but for now, as an IPO it is purely meant to benefit the few in favor of fleecing (deservedly so) the masses.

Tue, 09/09/2014 - 11:53 | 5197745 Dave Thomas
Dave Thomas's picture

Sometimes "primitive" means getting to the meat of the matter I.E. content. The Chinese are utilitarian when it comes to web design and don't go for the flashing SEX SEX SEX lights that seem to pollute more "modern" western web designs.

Tue, 09/09/2014 - 12:01 | 5197795 IronShield
IronShield's picture

You mean like this:  http://www.sina.com.cn/  (one of THE most popular sites in China)

You sir are either Chinese or an ignorant tool.

Tue, 09/09/2014 - 12:20 | 5197874 Dave Thomas
Dave Thomas's picture

Can't open it, is sina.com an aggregator or a B2B marketplace website? Because if you want to know of a really SLICK website, I've got a health plan I can sell ya.

Tue, 09/09/2014 - 12:26 | 5197919 IronShield
IronShield's picture

My bad, I thought you were an expert on Chinese web site design (or the lack thereof).  Since you've never heard of Sina, well, nuff said.

Try:  http://www.sina.com and then click the Beijing icon and report back on your wondrous experience.  I won't be holding my breath.

Tue, 09/09/2014 - 13:00 | 5198062 Dave Thomas
Dave Thomas's picture

It looks complicated, so are you saying the more sparse and unkrufted the website is the more dubious in nature it will be? I think that's what you were getting at in your original post.

Tue, 09/09/2014 - 13:09 | 5198118 IronShield
IronShield's picture

You stated...  The Chinese are utilitarian when it comes to web design and don't go for the flashing SEX SEX SEX lights that seem to pollute more "modern" western web designs.

So where was Sina 'utilitarian' or not flashing the "SEX SEX SEX" lights?  Hmmm...  So you're Chinese and you fantasize about Dave Thomas?  I'll go for the adult Wendy (Chinese version), cute little dress, pig tails, 5 inch boots...  Yeah...  Sorry, what were we talking about again?

Tue, 09/09/2014 - 12:31 | 5197925 ParkAveFlasher
ParkAveFlasher's picture

To Iron's point, does anyone know if Ali Baba has the same kind of deep peer review system that Amazon has?  That is the validating mechanism of both Amazon's and EBay's business models.  Ali Baba somewhat resembles a angler fish.  You don't want to be buying critical hardware ona one-off basis.  For low-price, cheap replacements, you wouldn't mind the risk however that's not how Ali Baba positions itself.  The front page of the site shows machine hardware and so forth.  You would want a face to face relationship with your supplier of those kinds of goods.

Tue, 09/09/2014 - 11:32 | 5197643 remain calm
remain calm's picture

The wal mart model is for poor dumb people, their competion are the dollar stores of the world. Alibabababa competition is Amazon and Bezo's is way ahead and the market has given him the benefit of the doubt so he doesn't have to make a profit, so he will keep building out.

 

Tue, 09/09/2014 - 13:41 | 5198269 InvalidID
InvalidID's picture

 

 Chinese Ebay....

Tue, 09/09/2014 - 11:21 | 5197600 Hephaestus
Hephaestus's picture

I think they are cutting out the middle men. I have been buying through these sevices on a business level. Its brilliant. Its working too. Chinese quality has come very far. I dont waste my time with McMaster Carr or the Big book anymore. I look first to see if I can get it alibaba or aliexpress. Never had a bad ship yet and it ten times cheaper than domestic. The Chinese have also figured out way to make the supply chain quick and flexible. I think its really just a national effort by the collective Chinese companies to put the profits of Wal-Mart, Grainger etc. in Chinese pockets.

Tue, 09/09/2014 - 11:58 | 5197781 IronShield
IronShield's picture

I have worked with this site as well and am not just shooting from the hip.  The greatest difficulty, aside from a technically inferior interface and workflow, is the inability to easily communicate with the suppliers.  Until they start to employ native english speakers, optimize their site, provide mechanisms for recourse, and a sundry of other tasks, they are still in a very early stage (and consequently risk-reward is tilted towards risk). 

However, you are correct of the goal to transfer money to Chinese pockets.  As usual, from a Chinese perspective, they aren't willing to expend the resources to develop anything of substance (i.e. they are cheap; no surprise there).  ;-)

Tue, 09/09/2014 - 13:26 | 5198194 Hephaestus
Hephaestus's picture

I deal with the same guys over and over and I send prints. At first it was kinda scary but now not so much. I do admit that if they ever want to truly knock Wal-Mart for a loop native speakers will be needed!

PS I recieved a discount once for correcting a bad advert and sending it back to them!

Wed, 09/10/2014 - 15:43 | 5203240 malek
malek's picture

Or maybe you and me need to learn Mandarin...

Tue, 09/09/2014 - 12:32 | 5197938 TruthHunter
TruthHunter's picture

 Hephaestus   "ten times cheaper than domestic."

+1 for truthiness

You, sir, are a traitor...  

I am amazed you have a domestic source left for comparison. 

Tue, 09/09/2014 - 13:23 | 5198186 BlindMonkey
BlindMonkey's picture

Don't hate the player. Hate the game.

Figure out a sane way to implement a tariff system that protects domestic suppliers I will be all in with you. Until then, supplier outsourcing in the US is what it is.

Tue, 09/09/2014 - 13:43 | 5198276 Hephaestus
Hephaestus's picture

Cheaper but same quality. If Thomson linear rail didnt have to deal with all the bullshit in the US. (Taxes regulations Obummercare etc) I would buy from them absolutely.  The only other purchased part is an electronic controller and it is Ti based and made in the US - California I think. Servos made in house. I/O boards made in house.  Frame made in house. Machining done in house. We make all of it from raw materials except for a few items. As soon as we can afford to open up a new line I will be moving the linear rail in house too. Getting kinda iffy what with WWIII and all that stuff! I like your spirit though if you take up smokin weed to calm down I might just hire a guy like you.

 

Tue, 09/09/2014 - 12:05 | 5197805 KnuckleDragger-X
KnuckleDragger-X's picture

It's going to be Amazon vs Alibaba plus anybody who decides to jump in the game. Amazon has the advantage since they have developed the assets and experience while Alibaba is much closer to the production end plus they likely have the Chinese government giving them a hand, then we've got several potential players with deep pockets who might jump in if there's money to be made. Of course this is predicated on the world economy not imploding in some large fashion.

Tue, 09/09/2014 - 10:57 | 5197476 Sudden Debt
Sudden Debt's picture

Today I was reading a interesting thing about the iPhone.

Does anybody know why the iPhone is made in China?

No?

Well, the reason is because America and Europe don't have the technology to make them.

nice...

 

Tue, 09/09/2014 - 11:06 | 5197521 BruntFCA
BruntFCA's picture

Capital is very mobile these days. 10-15 years ago China did not have the "technology" to make them. Setting up a flexible manufacturing cell these days can be quite fast.

Tue, 09/09/2014 - 11:15 | 5197564 messymerry
messymerry's picture

Hey Domo,

Probably more correctly, we no longer have the infrastructure to manufacture these kinds of devices at any sort of sane cost...lots of people and institutions to blame for this failure.

Tue, 09/09/2014 - 11:37 | 5197660 Sudden Debt
Sudden Debt's picture

Well momo
you also need the people with the right kind of skills to operate these machines
Unless you expect it to be a homer machine where you only need to press one button and in that case, you just proven my words.

Tue, 09/09/2014 - 11:57 | 5197774 messymerry
messymerry's picture

Yes, our superb (in their own minds) public education system has certainly heped us stay conpetitive...

OBTW, you are the one that turned me on to Domo.  Got a dvd on Netflix and watched some episodes.  Verry charming...  ;-)

Tue, 09/09/2014 - 18:13 | 5199489 Dealyer Turdin
Dealyer Turdin's picture

I know a plumber who worked for Intel.  He won't complain but his dad sure would, hated seeing his kid getting splashed with chemical X crawling under clean-rooms.  There were problems as a result of that, of course, and  Intel wouldn't come clean on what was on the floor, iit would reveal too much about the manufacturing process.  My understanding is that China is polluted to the gills from dominating this phase of the industrial revolution. Personally, I don't want another damn thing from this disease ridden crusty whore of cutting edge technology.  Cutting, bleeding, antibiotic disaster...

If it can't integrate with the miracle of life, it's just an inexcusable hazard.

Tue, 09/09/2014 - 11:19 | 5197589 CrazyCooter
CrazyCooter's picture

Understand that "assembly and testing" of complex electronics requires highly specific supply chains (think parts, supplies, chemicals, etc) and complicated assembly processes (equipment, etc).

You just don't "buy" one of those and get it delivered next week. As pointed out, this capital has been flowing to the cheapest labor for years (decades). That process can reverse, but if it does it will be at a rate similar to which it flowed before.

I think manufacturing will eventually come back to the US, but only after wages/living standards here have "mean reverted" to those of the rest of the world. As long as we live high on the hog, the flow rate of capital to cheaper shores will be sustained. We are seeing this to some degree in chemicals as companies look to tap into cheap US nat gas feedstocks. Lots of big projects being planned/funded down in TX and LA.

Regards,

Cooter

Tue, 09/09/2014 - 11:35 | 5197657 Wild Theories
Wild Theories's picture

The entire consumer electronic industry supply chain is in Asia, from ICs, LCDs, and all the bits and pieces that goes into all your electronics.

Most of that chain is in China, Korea, Taiwan, and some in Malaysia.

Tue, 09/09/2014 - 10:59 | 5197479 starman
starman's picture

Have you test drove Alibaba? It sucks balls! Good luck with this IPO cause you sure going to need it!

Tue, 09/09/2014 - 10:59 | 5197485 JRobby
JRobby's picture

AAhhhhh! iPhone! Must have! Sell the children! Sell the car! Quit all the cam sites.......

Tue, 09/09/2014 - 11:01 | 5197495 lordbyroniv
lordbyroniv's picture

Seems more a threat to Amazon than WalMart.

Tue, 09/09/2014 - 11:56 | 5197764 Bell's 2 hearted
Bell's 2 hearted's picture

Exactly.

 

And manufacturers already dump stuff via ebay.

 

For targeted purchases ... Yes

 

but this is Amerika ... where shopping is a national pastime ... and you need the walmarts of the world for instant delivery ... and not to mention impulse purchases ... without them retail sales would crater.

Tue, 09/09/2014 - 11:01 | 5197496 Keltner Channel Surf
Keltner Channel Surf's picture

It depends on the 'alibaba model' -- is she attractive ?

Tue, 09/09/2014 - 11:01 | 5197498 Muppet
Muppet's picture

I've used Alibaba and Walmart.   Both offer low prices.   Alibaba is difficult due to language problems, quantity requirements and shippingy.    I'm no fan of Walmart but their easier and competitive.

Tue, 09/09/2014 - 11:41 | 5197682 duo
duo's picture

Visitng WalMart, one has to take into account the relatively high probability of having your car hit by an uninsured driver.  It's the scariest place to go on a motorcycle.  The back way around the loading dock is safer and faster (no 400 lb people on scooters).

Tue, 09/09/2014 - 11:54 | 5197756 Bad Attitude
Bad Attitude's picture

Walmart is relatively safe if you only go during daylight hours, don't park close, and carrying a concealed firearm.
Forward (over the cliff)!

Tue, 09/09/2014 - 13:27 | 5198199 BlindMonkey
BlindMonkey's picture

"The back way around the loading dock is safer and faster (no 400 lb people on scooters)."

Ironic, right? You would think that would be where you would have the bulk material handling equipment to safely handle large items including bovine shoppers on scooters.

Tue, 09/09/2014 - 11:02 | 5197504 pods
pods's picture

The problem with Alibaba is that you are just guessing about quality or even if the product is what they say it is.  So many fakes and scams.

At least Amazon has a great return policy and crowdsourced reviews.  

Walmart you can at least see the product.  Although most walmart products that have motors or gears have been cheapened and given a similar name as to the real product.  

Sorry, but Alibaba is a gamble.  Some like gambling as you can win big, but most will probably lose.  Until you can actually have some reassurances of your transaction it will always be second tier.

pods 

Tue, 09/09/2014 - 11:04 | 5197510 MeBizarro
MeBizarro's picture

Undue Wal-Mart's model?  No especially since Wal-Mart has and is heavily expanding into areas including groceries (now has roughly 20% of the US market and growing) and is repositioning in terms of its smaller footprint stores to better suit wealthier suburbs and urban areas.  It will just put more pressure on Wal-Mart though and will continue to press the smaller and 2nd-tier box-store competitors out of business. 

Tue, 09/09/2014 - 11:20 | 5197597 Spastica Rex
Spastica Rex's picture

We all know the Wal-Mart Model: squeeze suppliers until they're gasping for air ("sure, you're losing money on every unit you sell us, but you'll make it up on volume") and then transport all this stuff across the Pacific to a vast warehousing and shipping operation that must keep hundreds of sprawling (and costly) superstores stocked with hundreds of different items.

That's the model that the article references.

And it's already collapsing under its own weight.

We are at a point in history where centralization and monopolies/duopolies will grow, or they won't.

Tue, 09/09/2014 - 11:45 | 5197673 Sophist Economicus
Sophist Economicus's picture

Nope.    CHS and his 'friends' are clueless to most business models, the strategies behind them and what the economic rational may be.    Here is the next line after the one you quoted:

"This model gained supremacy because it lowered costs to consumers by outsourcing the production of most of the inventory"

This is idiotic.    What retailer manufactures 'MOST OF ITS INVENTORY"?     Retailers, for the most part, retail.    And, ask Chuck-The-Navel-Gazer what Walmart's gross and net margins were.     Mass retail is not a high margin business.    It is a low margin business predicated on volume.

Also, the 'squeezing' of suppliers is a myth.   Sure, there are dumb suppliers that fall for the volume lure that Walmart can provide and make awful deals for themselves, only to find themselves with over-committing to a deal structure they could not support.   BUT, these are business people.    If you don't know how to do basic math, understand your business capabilities and commit to silly terms, you deserve to go under.     There is no safety net for stupidity.      Just look at the building trades to see many examples of small companies going under by not understanding their cost structure.

This is a classic CHS research-from-the-internet, low credibility, low insight article

Tue, 09/09/2014 - 11:46 | 5197703 Spastica Rex
Spastica Rex's picture

We are at a point in history where centralization and monopolies/duopolies will grow, or they won't.

That's my only real point, other than pointing out what the author was pointing out - right, or wrong. I'm likely as tired of Mr. H-S as you are, and I couldn't care any less about Alibaba.

Tue, 09/09/2014 - 11:06 | 5197519 PaperWillBurn
PaperWillBurn's picture

Commerce will become decentralized. Alibaba is smart to IPO before then.

 

One example is https://openbazaar.org/

Tue, 09/09/2014 - 12:50 | 5198007 Steal Your Face
Steal Your Face's picture

Thanks for the link.

Tue, 09/09/2014 - 11:09 | 5197537 Bear
Bear's picture

The whole thing becomes moot when nobody has money for 'things'

Tue, 09/09/2014 - 11:30 | 5197637 TheMerryPrankster
TheMerryPrankster's picture

or the cost to ship exceeds the cost to purchase. we are on the oil plateau ..

guess what lies at the end of a plateau? a big drop

Tue, 09/09/2014 - 11:09 | 5197539 RaceToTheBottom
RaceToTheBottom's picture

It is also much more than bicycle wheels.  Careers are being managed via Pier to Pier.

 

Tue, 09/09/2014 - 11:17 | 5197543 himaroid
himaroid's picture

Last time I shorted Commercial Real Estate was just before the collapse in 2008. Was a sure bet until shorting "financials" was banned. 

Felt like a Rhino and two Bull Elephants broke it off in my ass at the same time.

Think I'll stick with Tbonds this time.

Tue, 09/09/2014 - 11:11 | 5197550 messymerry
messymerry's picture

Also, you have to remember that Walmart is heavily subsidized by taxpayer dollars via the FSA and their EBT cards.  The Asshat in Chief and his minions will work to insure the continued hegemony of Walmart to keep the FSA from Fergusonning all over the place. 

Tue, 09/09/2014 - 11:16 | 5197575 Kaiser Sousa
Kaiser Sousa's picture

yet another v shaped rocket ramp in the markets going into the last hour of trading in London...
how bout that for a shocker....

Tue, 09/09/2014 - 11:18 | 5197586 p00k1e
p00k1e's picture

I like Alibaba.   Where else can you order sex toys or a tanker ship?

Need some “prefabricated luxury hotel room container,prefabricated luxury villa,hospital construction standards container building”?

Alibaba is the place.

Needing an Ammo production setup for the garage -

Alibaba is the place.

http://www.alibaba.com/product-detail/Ammo-Machinery-Line-Ammo-Making-Ma...

Tue, 09/09/2014 - 11:34 | 5197648 LawsofPhysics
LawsofPhysics's picture

That is awesome...

Tue, 09/09/2014 - 11:44 | 5197692 p00k1e
p00k1e's picture

I liked this part for the Ammo setup.

 

"The End User must not be rebels."

Tue, 09/09/2014 - 11:30 | 5197607 FrankieGoesToHo...
FrankieGoesToHollywood's picture

Selling direct to customers is a pain in the @ss.  there will be a balance between the added cost of selling to customers vs wholesale model.

Knowing Walmart's customer base, walmart managers sleep well at night.   Online does not accept EBT (I dont think).

Tue, 09/09/2014 - 11:28 | 5197623 Metal Minded
Metal Minded's picture

Please, could someone do a compare and contrast of alibaba.com and openbazaar.org?

Tue, 09/09/2014 - 11:32 | 5197640 Chuck Knoblauch
Chuck Knoblauch's picture

Does Walmart even have an internet model? That's news to me.

Tue, 09/09/2014 - 11:34 | 5197654 the grateful un...
the grateful unemployed's picture

they have a website and you can order products. not all stores have the same inventory as their online site, the stores might have something the website does not. thats my experience. i use their website to see if WMT has what i want and then i go to their store.

Tue, 09/09/2014 - 11:42 | 5197679 Chuck Knoblauch
Chuck Knoblauch's picture

I don't think families with a household income of under $50k per year do much online ordering/shipping to home.

For the price of shipping, they'd rather put it in the fuel tank of their car(s).

Walmart's always the lowest price will not work.

Amazon rules this space.

I doubt China is the solution, unless they sell the business to China.

Tue, 09/09/2014 - 12:22 | 5197896 BurningFuld
BurningFuld's picture

There is no cost for the shipping usually. You can order 6 wall chargers for 1.49/ea. on ebay with FREE shipping. (How do they do that?)

Tue, 09/09/2014 - 11:33 | 5197646 the grateful un...
the grateful unemployed's picture

what happened to walmarts just in time inventory system, or rfid tagging, are we trashing all that for peer to peer? is peer to peer the old B2B? remember that bubble?  Business-To-Business. A transaction that occurs between two companies, as opposed to a transaction involving a consumer. The term may also describe a company that provides goods or services for another company. walmart is getting a bit of a lift from AMAZON, amazon is no longer delivering the goods, and they are pricing many common items above store retail. it took a month to get all of my last order, and people are complaining that the prices are higher than brick and mortar retail. sometimes the older technology wins the day, the horse can go places no automobile can go, and analog phones accurately repeat the sound of letters correctly every time. the turning point in any technological society is when new technology cannot grow fast enough to implement the previous technologies advances. the depression happened at the beginning of a huge technological era, the dawn of electricity, but the economic means to implement those changes came too slowly, or not all. they built the TVA, but no one could afford the appliances. meanwhile watch AMZN, theyre in trouble

Tue, 09/09/2014 - 12:20 | 5197888 Peak Finance
Peak Finance's picture

Yes I was about to post the same thing until I read your comment.

 

It seems that people have short memoris and don't remember the 100+ sites with Alibaba's exact business model failing miserably back in the 2000 Dot Com Crash.

 

Was called B2B then and was supposed to change everything! LOLZ! Everything old is new again!

 

My god for all of that Wall Street money AT LEAST they could do is come up with an ORIGINAL scam instead of a 90's rehash!  

Tue, 09/09/2014 - 11:40 | 5197677 buzzsaw99
buzzsaw99's picture

just another fraudcap imo

Tue, 09/09/2014 - 11:46 | 5197698 Chuck Knoblauch
Chuck Knoblauch's picture

When fuel costs go up again, and they will, Walmart's bottom line shrinks.

Post election, fuel prices are expected to move higher.

Tue, 09/09/2014 - 12:00 | 5197789 khakuda
khakuda's picture

I'm not following this argument.  If I needed 100 bike wheels, I would try alibaba, too.  But, most of the time, I need food and personal care items in much smaller quantities so I go to Walmart which is way easier.

Alibaba does well in China because there isn't the developed retail channel.  In the US, it is already in place and hard to beat.

Tue, 09/09/2014 - 12:07 | 5197824 Bell's 2 hearted
Bell's 2 hearted's picture

yep ... this isn't one of charles better posts

 

no clue on how retail works

 

 

Tue, 09/09/2014 - 12:34 | 5197817 robertocarlos
robertocarlos's picture

Why won't they ship just one wheel?

Tue, 09/09/2014 - 12:23 | 5197893 q99x2
q99x2's picture

Smith wrote an interesting article. I was an injection mold designer/maker and prototype machinist in my twenties. Fuck I even had a dream about working in a stinking machine shop last night. I'm going to watch the links in the article now.

Tue, 09/09/2014 - 13:22 | 5198137 Wild Theories
Wild Theories's picture

You have a valuable skill right there.

Just so you know, injection mold designer/maker are in high demand and can either get nice jobs or are able to run their own successful small businesses, in China.

Industrial design(molds etc) is one area where China is still behind the quality curve(even though they have quantity).

 

I've given this advice to anyone with older children coming of age in Asia, industrial design is a rock solid career path for someone from a working or middle class background, it is extremely needed with extremely few people competant enough in it(a look at all the shit design in generic goods should be able to tell you), pays well, has high job security, and given the technology nowadays it hardly involves any backbreaking sweaty work.

Tue, 09/09/2014 - 15:06 | 5198733 q99x2
q99x2's picture

As I remember the injection mold machines were $150,000 to over $1,000,000 and the molds were often $50,000 or more.

That's a lot of plastic pieces for somebody to order.

Tue, 09/09/2014 - 12:41 | 5197972 laomei
laomei's picture

lol, this is, yet again, demonstrating fundamental idiocy and a general failing of understanding what alibaba is.

The Alibaba model is exposing manufacturers directly to the market as well as wholesalers who can get better pricing.

The wholesalers sell generally to a reseller on taobao, amazon, whatever.

The sellers on taobao, amazon whatever then mark up the price to the desired margin and sell it.

What makes it work is that there is no such thing as exclusive products as the wholesalers and factories will sell to anyone that meets volume requirements.  That might be 1 unit or it might be 10,000 units.

 

In the end, it's the entire parasitic branding people who lose out.  That's the power of it.  All those applicances and consumer products in the US with their funny little brand names are not in any way owned by the brands anymore.  They own a sticker and a fancy box and that's it.  They handle returns and warranties.  Well, Are you happy paying $100 for a waffle maker that gets 1 year of warranty (which generally will never be needed), or $10 for the same exact thing minus the brand name?  That $90 gap is what's being cut out.  Replaced with a $5 or so margin to the seller.  The factory is happy because walmart would squeeze them to $3.

 

Amazon is doomed once taobao makes it to US shores, that's a simple fact.  The amazon markups are generally in the range of 10x.  US-based resellers have no idea what it's like over here in terms of competition.  I can look for a single product and instantly find 100 variations, each with their own take on some feature, build quality, warranties, factory of origin, model year, intended market destination, etc.  If I *really* want, I can even get the seller to put in an order to make something custom how I want it for minimal additional cost.  If the seller doesn't have what I want.. there are 50 others to try.  Maybe I like the seller but want it from a more local source... no problem, can do.  Bargain on the price in real time? No problem.  All those chat logs are stored to the server to help resolve any issues.  The web page is cached and saved for a few YEARS as reference, so modifications are meaningless.  And bad comments HURT, especially when there is so much competition. Why risk a seller on a product with 300 sales when 5 comments are bad?  I can go with one that has 100 sales and 0 bad comments.  No biggie.  I can choose from any number of courier services, kick in extra if I want premium delivery too. No problem there, and generally I will have it in my hands within 2~3 days, or even same day if it's from a local seller.  I can return it for any reason inside of 7 days, and not even pay the shipping.  Again, no problems.  Shopping for clothes? Buy 10 things, return 9 of them.  No one objects to it.  No complicated returns policies, no fine print, and if there's something fishy, taobao and alipay have your back.

 

It's not "Chinese amazon", or "chinese ebay", or any of that crap.  It's something that the US flat out does not have period.

 

And as for the companies.  Some of them are getting smart as well.  Direct sales.  If ya want a single unit of a thing, they'll charge you 3~4x cost and you get it directly.  There's your "sample".  Works brilliantly.  I score great stuff for cheap, the factory sees a higher margin, and we cut out all the parasitic middlemen in the process.

 

Here's why it is being kept out of the US: It will destroy the "service sector" jobs entirely.  Why pay extra for a brand and all those useless people involved?  That $90 gap?  It's gonna be coming out of their pockets and going right back into yours.

Tue, 09/09/2014 - 13:40 | 5198271 darteaus
darteaus's picture

EXCELLLENT explanation!  It's a totally new model, like cloud computing, etc.

Now I get it (I think)!

Tue, 09/09/2014 - 14:06 | 5198376 Hephaestus
Hephaestus's picture

Well said!

Tue, 09/09/2014 - 15:03 | 5198712 InvalidID
InvalidID's picture

 

 Which works great wehen you're in the country that makes the goods. It worked great in the US, Europe, everywhere over 100 years ago.

 But now you have to get the shit shipped across the ocean unless you're in China. The model doesn't scale globally.

 Can I buy 10 items of clothes and send 9 back? Round trip of 2 months? Pffft,

 Can I afford to spend 20k on a large ticket item and not see it and test it first? I can return it, it's a 2-3 month round trip? Pffft....

 

 This thing won't knock off Amazon in anyway. It's a great idea, in China. It means nothing to the US.

Tue, 09/09/2014 - 12:55 | 5198032 Wtfcity
Wtfcity's picture

I tried using sites like alibaba before and that site in particular was difficult. Communication was hard and then the payment system was to do wire transfers. It was difficult to weed out fraudsters and those that were legitimate were hard to get a hold of. This was more of a b2b website than the amazon model. I moved on to a better site so I do not really know what its like now but I have a hard time seeing this replace amazon.

Tue, 09/09/2014 - 13:02 | 5198081 notadouche
notadouche's picture

Perhaps instead of labeling all of these things as "Peak Centralization" "Peak Government" perhaps it would be more pertinent to understand that as with all things in life, we are experiencing the "Laws of Diminishing Returns".  The law that every Econ 101 student gets exposure to but is rarely mentioned afterwards.  Just as in production, which the law diminishing returns was originally intended for, it can in fact be used as a metric for most any human activity.  

Medication/drugs, food, water, government regulations/interventions...  You name it and applying the principles of the Law of Diminishing Returns can point to the time or event when too much of a "good" thing stops being effective and leads to the eventual demise when the law is ignored.   

Tue, 09/09/2014 - 13:10 | 5198114 Carl Spackler
Carl Spackler's picture

I would not let my money get anywhere near the Alibaba model.

 

Learned that lesson the hard way with the equity losses I took years agon on Ariba (cough, cough, ahem....scam).

Tue, 09/09/2014 - 13:17 | 5198155 adr
adr's picture

You can on Alibaba buy the exact same merchandise produced from the same factory, sans brand name logo, for 1/4 the cost. What Alibaba will disrupt is the insanity of retail markup.

Big retail destroyed domestic production for fat margins. It is time for the foreign manufacturers to destroy the idea that a US company logo is somehow worth 600% markup.

A $14.99 retail shirt sold at JC Penney was bought from Vietnam for $2.80. The Vietnamese factory can sell direct on Alibaba to American consumers and easily sell the shirt for $5, essentially doubling their own profit. I won't cry for JC Penney's $12 loss. Maybe if they weren't so greedy and sold the shirt for normal markup, say $7.99 they would have got the sale.

I paid $32 shipped for a Bridesmaid dress for my wife. The exact same dress sold in David's Bridal for $225. Does David's Bridal really think their showroom of Chinese manufactured dresses adds almost $200 value to a dress? Sadly too many American women are not told the true story of American retail and are conned by the $.05 designer label sewn on the $30 dress that somehow magically adds $200 to the cost.

Tue, 09/09/2014 - 14:19 | 5198458 NihilistZero
NihilistZero's picture

But if retail can't charge ridiculous markup how will they pay their exorbitant rents that cover commercial RE loans of financial institutions???

What I hope to see destroyed in someone's lifetime is the "Rentier" business model exemplified by the banks.  The ultimate in money for nothing.  I've made the Anarchy argument several times on this sight as .gov only real function is to protect the Rentier class from actual productive industry.  To hear them decry the little they pay in taxes while it funds the very system that provides there wealth is infuriating.

Tue, 09/09/2014 - 14:40 | 5198583 Sokhmate
Sokhmate's picture

+Pi^Chandrasekhar Limit

Tue, 09/09/2014 - 14:24 | 5198497 laomei
laomei's picture

Precisely.  It's the "added value" myth.  I've been seeing this happen over the past few years here as well.  So, a factory makes fake columbia shoes.  Very very very fake, obviously fake, but slap that logo on em like it means something.  Well, once upon a time you would buy that for cheap, it falls apart in a week and you don't care because it was 2 bucks and lasted about as long as you expected.  This is LOW value relying on a foreign logo to make a non-legal product in the hopes of people buying it to show off the brand they cannot afford.

 

Well, China's got money now and gasp, they wanted more quality.  The factories figured out that they could easily up the quality for a buck or so and charge $10 instead of $2.  Now the fake lasts pretty long.  The sad thing is that the fakes last longer than the "real" product now, which has had corners cut to increase profits.  I have done consulting work for several factories in this position.

 

End result: The "added value" of a pirated logo is worthless, in fact it even hurts them now.  Sure, 10 years ago they relied on the fakeness factor, but now... why not just drop it and invent their own brand?  They can charge even more, seeing more profit, and it's no longer "fake". They can still lay claim to the company history so they are not "new", but they can churn out high quality stuff, see a good margin, and they are now legit.  Sure, it's not a popular brand, but when people are sick of spending money on imported "legit" goods that are as shitty as a third rate fake, they discover that domestic ain't all that bad.

 

This is the end game for China manufacturing.  They ate the factory jobs first.  Now the local brands are branching out as a better value, and the factories are starting to discover that they do not need the US brands anymore at all really.  The US brands don't even design the shit anymore.  They handle the testing and certifications, but getting that done is relatively cheap anyways.  The Chinese brands are even starting to invade, as consumers are getting sick of paying for "made in china crap", which the importers (brands) then shrug off and blame the factories they have been squeezing.  That $100 you pay for a widget of which the factory sees $3? Let the factory see $5 or even $10 and you end up with amazing quality as a result.  Not a crazy concept.

 

Looking forward, China is where it's at.  As this model spreads, income levels will rise higher and domestic consumption will rise as well.  It's already happening in quite a few of the major verticals as disposable income is hitting levels which can support actual quality goods.  The low value crap is being offshored, but in a model that results in Chinese control of it rather than pure outsourcing.  Chinese exports only make up around 25% or so of the GDP, with no single market commanding it all.  The US market could shut off China tomorrow, and it would only be about a 1~2% hit.  No big deal really.  Imagine when exports fall to 15%.  Imagine when China starts eating the high level service sector jobs as well while keeping the manufacturing.  The US has a lot further to fall before this is over and there's honestly nothing the US can do to stop it.

 

What makes China successful in this regard is the sheer amount of manufacturing going on.  All the componants of the widgets can be sourced easily with minimal logistics required.  The infrastructure is top rate and cannot be matched by anyone really.  You can outsource low-value crap to nam or india if you want, but it's still a ratfuck. Savings are minimal.  The winds are not going to shift anytime soon, this is an ongoing process.  There will be a few sectors left in the US which are "untouchable", but those sectors are becoming fewer and fewer, and in the end they cannot support an entire economy.  Already starting to see this as what, half the population is now relying on government handouts?  1 in 6 cannot even afford to feed themselves.  Record numbers of people have no employment and no chance in hell of finding work anymore.  The cities are decaying, suburbia is rotting and becoming infested with drugs.  The situation is dire and the only solution the government can offer is to fake the stats and pretend all is well.

 

This is what alibaba is.  The end of US brands and the end of the high-level service sector.

Tue, 09/09/2014 - 17:07 | 5199270 NihilistZero
NihilistZero's picture

If your thesis is accurate this is actually in the US citizens best interests.  No more over paid service sector jobs that bleed consumers thgrough insane profit margins and perhaps a return of US manufacturing as the costs of imports rise.  No RE bubbles as hot money is venturing to greener pastures.  Sounds like a win for the 99.9% to me.

Wed, 09/10/2014 - 03:00 | 5200883 Wild Theories
Wild Theories's picture

His description is accurate, outsourcing was always about phat profits: by squeezing cheaper suppliers on the one end and fooling dumb consumers with big price markups on the other.

Outsourcing was never about improving product/service quality or anything else.

 

There's a difference between reasonable profits, in which everyone gets a share of the pie, from the workers to the owners, which is what we used to have.

and outsized profits, where profits are squeezed out of cheap workers and suppliers, and sold at overpriced markups to dumb consumers, and the only people who get to eat the pie are the corporate owners.

Tue, 09/09/2014 - 16:59 | 5199241 Super Hans
Super Hans's picture

I have found one decent supplier on Alibaba.  She responds fast, answers all of my questions, ships on time.  But, she is the exception not the rule. I've given up even looking on Alibaba anymore. They just don't show any urgency to inquiries, and most of the companies don't have anyone that understands enough English.  

Aliexpress, looks to be more geared to the consumer, but once again, they can't answer product questions for the most part because they just don't know English.  Will they compete with Amazon? Not until they get serious.

Can someone please fix the font or screen size issue with this site? I'm always having to readjust screen size to read and post. It's annoying.

Tue, 09/09/2014 - 19:05 | 5199686 zipit
zipit's picture

The problem with buying on Alibaba is you never really know the quality you are getting.  Asymetrical info.  yada, yada, yada.  I ordered some stuff off there.  Some was fine.  Some I had to throw away, literally.

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