The result is an escalating turf fight that carries a chilling message for brands: Either you’re with us or against us. The Chinese have a name for this unwritten rule, “er xuan yi,” choose one of two.
“‘Choose one of two’ is a tacit understanding that has been reached by everyone, but you do not say it directly,” said Zhuo Saijun, who until 2015 was a general manager of e-commerce research at Analysys Ltd., a Beijing-based big data consultancy. “This is certainly a problem for the development of retail sales channels. It is a business ethics problem, and this is how monopolies develop.”
Some policymakers have raised concerns about monopolistic tendencies in Chinese e-commerce and called for more effective regulation and enforcement.
“Unfair competition still exists,” Wang Bingnan, a deputy director at China’s Ministry of Commerce, said in a June speech about China’s e-commerce market. “Behaviors like forced ‘choose one of two,’” he added, “are hard for regulators to define, prove or deal with accurately.”
It’s not clear whether Alibaba’s actions would be illegal, nor is it certain that the evidence of coercion that brands have managed to collect would hold up in court. Under China’s anti-monopoly laws, companies that dominate a market cannot demand exclusivity without justification. A 2015 regulation also specifically bars e-commerce platforms from restricting brands’ participation in promotions on other platforms.
The rules are designed to prevent dominant players from squeezing out the competition, which could ultimately hurt both brands and consumers by giving a single, monopolistic player absolute control over prices.
JD.com has complained about anticompetitive tactics before. In 2015, the company filed a complaint with the State Administration for Industry and Commerce, a corporate regulator, accusing Alibaba of pressuring brands into doing exclusive Singles Day sales promotions — a charge Alibaba denied. The complaint was kicked to a regional office in Zhejiang province, where Alibaba has its headquarters.
Nothing more was ever heard about it.
The regulators did not respond to requests for comment.
Alibaba said that while JD.com focuses “on groundless complaints to explain why they are losing brands, we at Alibaba are squarely focused on making our platform the best for our merchants.”
MR. MA GOES GLOBAL
The battles now being waged within China’s e-commerce sector could well impact the culture and norms of e-commerce globally — at least if Alibaba’s chairman, Jack Ma, has his way.
Alibaba aims to serve 2 billion consumers by 2036 — or about one in four people now on the planet. Already, the value of goods sold on Alibaba’s platforms in fiscal year 2017 was $547 billion, larger than the gross domestic product of Sweden.
In June, Ma told investors that his company will rank as the fifth largest economy in the world. “Just say USA, China, Europe, maybe Japan and us,” Ma said.
The company has been aggressively recruiting foreign brands to sell on its platforms, and they have come, in droves. Alibaba said it signed up 60,000 international brands for its massive Single’s Day sale in November, up from 5,000 in 2015.
Alibaba’s retail sales outside of China also are growing fast — they more than doubled last fiscal year to 7.3 billion yuan ($1.1 billion), or 5 percent of total revenue.
America remains at the heart of Ma’s ambition. He told president-elect Donald Trump in Jan. 2017 that he would create a million U.S. jobs by facilitating trade between businesses in the U.S and consumers in China — a pledge he now says is imperiled by the brewing trade war between the two countries.
Brands now caught in the great cat and dog war have adopted different strategies to avoid becoming collateral damage.
An e-commerce manager at a major European brand said she’d be happy to offer totally different products on Tmall and JD.com to stay out of trouble, but worries her bosses won’t go for it because it cuts off potential buyers.
Sometimes, she said, it feels “like we’re working for those platforms.”
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Associated Press reporter Anne D’Innocenzio contributed from Las Vegas. Associated Press researchers Si Chen and Fu Ting contributed from Shanghai.