Book Excerpt: Seeds Of Alibaba’s IPO Planted In 2004 Battle With eBay

In light of Alibaba’s upcoming IPO, I thought it would be appropriate to run a series of excerpts from my book The Chinese Dream, which documents Alibaba’s humble beginning, its triumph over eBay, and Jack Ma’s legendary story.

The first episode is set in 2004. eBay just entered China and planned to dominate China’s nascent online market. An unknown Chinese company, Alibaba, started a sister site called Taobao to compete with eBay. Everyone thought this was a crazy idea. However, Jack Ma, Alibaba’s founder and CEO, was undeterred. He asked his team to stand upside down so that they could look at the world from a totally new perspective.

He said, “EBay may be famous in the United States, but in China, if you ask one hundred people whether they’ve heard about eBay, I believe that less than 10 percent have heard of it. But if you ask one hundred people whether they’ve heard about Alibaba, 90 percent know about us…. I believe we have a chance.”

Read the full story on Forbes.com.

The Chinese Middle Class Approaches Half a Billion

And how American companies can seize the opportunities…

The Chinese middle class is expanding rapidly, reaching 474 million this year, according to my latest calculation.

Many people may challenge this number. But it’s just arithmetic. In a recent report “Consuming China,” McKinsey indicates that 83 % of households in China’s mega cities (cities with population of over 10 million: Beijing, Chongqing, Guangzhou, Shanghai, Shenzhen, and Tianjin) and 66 % in the rest of the cities are middle class families.

By the end of 2011, China’s urban population reached 691 million. Do the simple math, and you will get the same number I got: the population of the Chinese middle class was 474 million, with 88 million living in mega cities, and 386 million in smaller cities.

This means the Chinese middle class accounts for 68 percent of urban population, which is believable to me. Assuming two percent are super rich, still about 30 percent of the people in urban areas are poor.

Some would argue that there are different criteria to measure the size of the Chinese middle class. A simple and important rule of thumb, as stated in my book The Chinese Dream, is that of a household with a third of its income for discretionary spending. These people have passed the threshold of survival and have disposable income to spend on leisure items. As I travel around China, it’s very clear to me that the majority of people in urban areas have reached this stage.

Chinese Consumers Love “Made in USA” Products

The rising Chinese middle class is the biggest story of our time. However, many US companies are missing the opportunity. US exports to China account for only 6 percent of China’s total imports. The major categories of US exports to are in industrial sectors such as power generation equipment, aircraft, and medical equipment.

The biggest opportunity, however, is in the consumer sector. On November 11, China’s “Single Day” shopping festival, online retailers Tmall (B2C) and Taobao Marketplace (C2C) generated a record revenue of $3.1 billion, more than the total sales in the U. S. on Black Friday and Cyber Monday combined. Before long, China will become the world’s largest consumer market, and its consumption could reach $13 to $16 trillion by 2020.

Better yet, Chinese consumers love American goods and are willing to pay more for them. Continue reading