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Alibaba allegedly 'punished' brands for refusing exclusivity

In a statement, Alibaba said pursuing exclusive deals is a common industry practice and called the charges of coercion 'completely false.'

  • Published: April 23, 2018 7:18 PM IST
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It was looking like a banner year for business in China. The US clothing company was expecting a 20 per cent jump in online sales on Alibaba’s Tmall, thanks to the e-commerce giant’s massive reach.

But executives soon learned that what Alibaba gives, it can also take away.

The company refused to sign an exclusive contract with Alibaba, and instead participated in a big sale promotion with its archrival, JD.com Inc.

Tmall punished them by taking steps to cut traffic to their storefront, two executives told The Associated Press.

They said advertising banners vanished from prominent spots in Tmall sales showrooms, the company was blocked from special sales and products stopped appearing in top search results.

The well-known American brand saw its Tmall sales plummet 10 to 20 per cent for the year.

“Based on our sales record, we should have been in a prominent position, but we were at the bottom of the page,” said the brand’s e-commerce director, who spoke only on condition of anonymity for fear of further retaliation.

“That’s a clear manipulation of traffic. That’s a clear punishment.” As the Trump administration pushes China to play by fair trade rules, companies are caught in a quieter but no less crucial struggle for rules-based access to a USD 610 billion online marketplace, an AP investigation has found.

Executives from five major consumer brands told the AP that after they refused to enter exclusive partnerships with Alibaba, traffic to their Tmall storefronts fell, hurting sales. Three are American companies with billions in annual sales that rely on China for growth.

Alibaba Group Holding Ltd. denied punishing the companies.

In a statement, Alibaba said pursuing exclusive deals is a common industry practice and called the charges of coercion “completely false.” “Alibaba and Tmall conduct business in full compliance with Chinese laws,” Alibaba said.

“Like many e-commerce platforms, we have exclusive partnerships with some of the merchants on Tmall. The merchant decides to choose such an arrangement because of the attractive services and value Tmall brings to them.” The executives spoke to the AP only on condition of anonymity for fear of reprisals, but their concerns were echoed by a US industry group, brand consultants and policy makers in China and JD.com itself.

In a speech about cyberspace last week, Chinese president Xi Jinping said ensuring free and fair competition online was a regulatory priority, citing the need “to cultivate a fair market environment, strengthen intellectual property protection, and oppose monopoly and unfair competition,” state media reported.

In its months-long investigation, the AP interviewed more than 30 people and reviewed two contracts from Alibaba that contained the previously unreported exclusivity clauses.

The AP found that the platforms that control access to Chinese consumers online wield such enormous power that even multi-billion dollar foreign companies can have trouble fighting back.

“We urge the authorities to quickly investigate and take steps to ensure such practices are eliminated from the growing Chinese marketplace,” said Stephen Lamar, executive vice-president of the American Apparel & Footwear Association, adding that members of his industry group had complained about unfair competitive practices by Alibaba.

JD.com is a member and sponsor of the trade group.

Imagine a company twice as profitable as Amazon that each year serves more people than live in all of North America. That’s Alibaba. It claims to be the marketplace for nearly $550 billion a year in sales – more than is sold online in the entire US economy.

The trials of the affected companies offer a rare window onto a bruising business culture forged in China that could spread as Alibaba takes its aggressive, innovative and hugely profitable model of e-commerce global. To the extent that their products are manufactured in the United States – and some are – constricting sales in China’s critical growth market can also deepen the imbalance of trade between China and the US, a gap that is a top concern for the Trump administration.

The competition between Alibaba and JD.com is so infamous in China – and so dirty – it’s been dubbed the “great cat-and-dog war,” after Tmall’s black-cat mascot and JD.com’s white dog. (AP) SMJ SMJ

This is published unedited from the PTI feed.

  • Published Date: April 23, 2018 7:18 PM IST