Digitalization with the Internet is one of the key drivers to China’s economic reform. While the tremendous growth of e-commerce with Alibaba and Taobao in the Double Eleven and the widespread use of Wechat payment have grabbed the global attention, the foundational dynamism driving the growth remains invisible. The tremendous growth of e-commerce in China would not have been possible without the grassroots dynamism of adoptions to leverage the tools and technologies of digitalization for economic development and prosperity.
This paper explores Shaji, the first discovered Taobao Village, on how Internet and e-commerce brought out the dynamism of farmers in rural China and how they leverage the tools and technologies of digitalization to prosper and flourish.
Shaji: Incredible Discovery
Shaji village, a small township of population 50,000 in the north Jiangsu Province next to the city of Xuzhou, came into focus in Alibaba Research as it used big data visualization to analyze the e-commerce market in China in 2010. Shaji sparkled on the map as a bright dot of great e-commerce activities in the middle of nowhere rural China. The staffs in Alibaba Research was puzzled, and their first reaction was to check the accuracy of the source data. The data was accurate, and the teams booked the earliest flights to travel to this village.
As they arrived in this rural farming village in the north Jiangsu, they met people young and old working in front of old computers in their humble houses to work on their e-commerce shops. They processed orders and handled customers services. In the backyard of their farmhouses, people worked in the makeshift factories producing flat pack furniture and packaged them to be shipped all over China. In the early evening, the villagers carried packaged goods made in their backyard factories on the back of their DIY rickshaw produced from motorcycles to the town's logistic center waiting to be picked up for distribution across China.
Shaji: the genesis
The origin story of Shaji had a humble beginning. Sun Han a Shaji native left the village for school and works in the coastal area like most of the rural youth of the time in early 2000. Sun returned to Shaji on the parents’ request to prepare for the marriage around 2005. While going through rounds of matchmakings, he opened up a small Taobao shop to resell mobile phone accessories sourced from friends he made in Guangzhou. Once married, Sun took the new bride for a honeymoon in Shanghai where he discovered Ikea and the flat pack furniture that was becoming popular to the emerging middle classes around China. He acquired a few simple Ikea pieces and brought them back to Shaji for study with two other friends. Working with local carpenters, they made the first version of the hacked furniture, photographed it and put it on their Taobao shop. They sold a few in the first week and continued to get more demand and business was booming. Very soon, they were fixing up their houses and getting new cars and the whole village was curious about how they made money. As business expanded, they recruit villagers to join their operations and the knowledge of the e-commerce and the business of flat pack furniture spread. Their employees and relatives started to open up their own e-commerce shops. With the low barrier of entry to e-commerce and simple furniture, the village flourished with rapid multiplications of shops and factories making flat pack furniture to be distributed all across China.
Inspired by what they see in Shaji, Alibaba Researcher worked with CASS (Chinese Academy of Social Science) on Shaji model that summarized critical drivers of their success.
- Bottom-up model: unlike the typical model of bringing e-commerce to the rural area in the top-down fashion, e-commerce was started from the bottom up by the rural residents themselves.
- Copy to scale: the low barriers of entry enabled others to copy the existing business and start their own. The paper called this a cell division copying with exponential growth.
- E-commerce market drove industrialization: unlike the traditional model of industrialization by offering a considerable amount of cheap labors to manufacture goods for others, the industrialization is driven by the market reality to decide what kind of tools, equipment, and technologies to adopt.
- The clear core group who compete and collaborate: the core group of Shaji e-commerce is the new entrepreneurs who are mostly related to each other through family ties. The multiple layers of relationship create a system of competing and collaboration that further expand the complexity of the business ecosystem that contributes to the growth of diversification and specialization.
- "presence and not interfering" governing: the government did not try to lead the development policy or direction and focus on building infrastructures such as roads, electricity, and telecommunication. Also, the government is responsible for solving problem arise from the community such as securing land usage for the factory. (e.g., Farmlands to industrial lands change is extremely hard in rural China).
- Proper vertical markets. The furniture markets with vast segmentations of the markets enable the cell division model of scaling to specialize in different segments. Thus, proper vertical market facilitates the cell division model of scaling of the Shaji model.
The researchers also came up with a definition of "Taobao Village" to study the phenomenon of e-commerce driven industrialization and modernization of rural areas. The "Taobao Village" is defined as an administrative area with more than 10% of the population involving in e-commerce activities including sales, customer services, production of goods and logistics and generates more than 10 million RMB annually in e-commerce sales. When the team discovered Shaji in 2010, 37 villages were discovered. As of 2018, there are 2,500 Taobao villages across China that generate hundreds of billions RMB in revenue. The Shaji village itself has grown from 1 e-commerce shop in 2007 to over 6,000 in 2018 and generated over 10 billion RMB.
While it’s easy to read into the story of Taobao village as poverty alleviation measure, it is, in fact, a “disruptive innovation” was coined by Clayton Christensen. The combination of Internet/E-commerce and use of digital fabrications changed the cost of the flat pack furniture verse the mass production and warehousing of Ikea and make them affordable and accessible to emerging middle classes in China. The open collaboration and sharing of the system further brought down the risk and cost of new product development.
Coined in the early 1990s by Harvard Business School professor Clayton Christensen, the term has become virtually ubiquitous from Wall Street to Silicon Valley. Consequently, it’s also one of the most misunderstood and misapplied terms in the business lexicon. Disruptive Innovations are NOT breakthrough technologies that make good products better; rather they are innovations that make products and services more accessible and affordable, thereby making them available to a larger population.
The technologies do not bring about change, they are mere tools to facilitate changes in the hands of the right people. The high dynamism of the people of Shaji and other Taobao village quickly adopt the new tools to capture the opportunities. While the number of Taobao villages has grown tremendously over the past decade, there is also a large number of failed attempts. While the technologies transfer could bring in some initial economic growth, the indigenous innovations enabled by high dynamism lead to real sustainable long term growth. Edmund Phelps presents this in his “Mass Flourishing.”
- Shaji model (in Chinese) “沙集模式”及其意义
- AN INTRODUCTION TO TAOBAO VILLAGES
- Once poverty-stricken, China’s “Taobao villages” have found a lifeline making trinkets for the internet
- In China’s Taobao villages, e-commerce is one way to bring new jobs and business opportunities to rural areas
- Disruptive Innovation
- The Dynamism of Nations: Toward a Theory of Indigenous Innovation