How JD, Alibaba will empower China’s SME recovery
Small and medium enterprises (SMEs) represent the business strata facing the most significant financial fallout from the COVID-19 pandemic. SMEs in APAC contribute significantly to economic growth, accounting for over 97% of all business and employing more than half the working population in the region.
A similar picture is the case in China, Asia’s largest and most profitable economy. Like most of its neighbors, China’s SMEs have been hit hard by the coronavirus crisis and its subsequent restrictions, which have hampered the local economy, revealing that half of Chinese SMEs do not have the cash flow to last longer than three months.
This was revealed in the Enterprise Survey for Innovation and Entrepreneurship in China by the Center for Enterprise Research of Peking University, which also found that 14% percent of the 2,349 SMEs surveyed only had cash flow to last a month at most.
The situation is even direr if one considers that smaller to mid-range businesses account for a staggering 90% of Chinese employment and produce around 80% of its export-ready output, as per the International Food Policy Research Institute. Their February 2020 numbers, when the mainland was in the throes of its pandemic response, show that losing these smaller enterprises could devastate as much as 70% of China’s gross domestic product (GDP).
Recognizing the crippling effect losing these SMEs could have on the local market, Chinese e-commerce titans Alibaba and JD.com appear to have stepped up to provide relief assistance for these smaller players.
After all, Alibaba at least owes its initial breakout success to its prolific B2B marketplace, and the company has always valued its relationship with underdog companies. Back in April, the company had already revealed its 2020 Spring Thunder Initiative, committing to help export-focused SMEs expand into new markets through its e-commerce ecosystem including popular platforms AliExpress, Lazada, and Tmall World.
Besides its online selling platforms, the internet giant is pushing digital transformation efforts for SMEs via its various subsidiaries — it is helping up to 1,000 manufacturing factories to improve the digitization of their supply chains and equipment, is creating 1,000 Alibaba digitized agricultural centers across the country, and its Ant Financial fintech is extending refinancing facilities to cash strapped SMEs, as well as offering contact-free loans via its virtual merchant bank to “tens of millions” of small and micro-businesses.
In addition, its cloud services affiliate Alibaba Cloud is committing hundreds of millions of dollars to assisting partner businesses and hiring more talent.
“We must band together with the SMEs that need the most help, and convert Alibaba’s resources into strength for the SMEs,” Alibaba Group Chairman and CEO, Daniel Zhang said in a staff memo at the time. “We must turn the ‘danger’ brought about by the pandemic into ‘opportunity’ for SMEs to prepare for the future through digital transformation. Now is the time for Alibaba to give back to our community and to give back to our SMEs.”
This is not the first time Alibaba has pitched in to help stricken local SMEs, having collectively assisted 40 million SMEs during the 2008 Asian financial crisis through three major relief initiatives.
Like Alibaba, e-retailer JD.com is aware that it would be a daunting challenge to stabilize and reinvigorate the economy without the backbone of SMEs and micro-businesses. Two months back the sportswear website revealed its Spark economic incentive plan for SMEs, stall operators, and shopkeepers.
The program is expected to service millions of convenience stores and stalls, providing supply chain and service support for the employment of more than 5 million people. Some of the plan benefits include giving approximately 50 billion quality goods and an RMB100,000 (approx. US$14,370) interest-free credit loan to ensure that supply chain and operational efficiencies of smaller operators are being met.
“JD has both the ability and the responsibility to use digitization to support and make the economy of small stalls and shops more dynamic, helping to further invigorate the overall economy and stabilize employment,” said Lei Xu, CEO of JD Retail.
JD will also assist offline retailers by providing end-to-end support to digitize their businesses as well as providing them easy access to low-cost supplies worth over RMB50 billion (approx. US$7 billion), sourced from nearly 10,000 brand manufacturers and more than 4,000 joint warehouses.
The SME recovery plans from the Chinese e-commerce big boys mirror the smaller-scale efforts to digitize small businesses in Southeast Asia, where only a third (34%) of SMEs had an online presence pre-pandemic.
It is encouraging to observe the more successful online platforms extending support for small businesses, providing digital alternatives to help sustain them as offline channels have suffered immensely in the short term, and appear poised for a long road to recovery.