How Would the New Chinese E-commerce Law Change Taobao?

Jack Ma, co-founder and executive chairman of Alibaba, China’s most significant e-commerce platform, has actually revealed his unforeseen retirement as ceo previously this month. The business’s core to-customer e-commerce platform Taobao, however, might be facing more hiccups.As new e-commerce laws were passed by the National People’s Congress this late August and will become effective in 2019, more stringent guideline might lead to a fading market supremacy of Taobao, now the largest business-to-customer e-commerce company. Thanks to the latest variation of the e-commerce law, the platform might be at threat of facing more claims, losing more sellers and, as a result, a decline of business.The brand-new Chinese e-commerce law, which was passed after 4 rounds of disputes, is believed to have actually consulted different stakeholders in the legislative procedure. Under the brand-new law, online buyers will be more secured from phony items and low-grade products on various online platforms. Chinese e-commerce law requires e-commerce platforms to shoulder more duties on the products that sellers put up on the platform.Furthermore, the new law focuses on issues about intellectual properties and asks online platforms to be accountable for guaranteeing that all the items sold on the platform ought to abide by related intellectual property laws and guidelines. The brand-new law likewise contends that platforms must take duties in the customer-seller disputes that occur on the platform, which would result in more legal risks.The new law is aimed to assist hold e-commerce platforms responsible. It makes it easier for customers to take legal action against both sellers and the platform for any unsolved conflicts. E-commerce platforms,

on the other hand, would be exposed to more legal challenges and as a result higher costs. Platforms like Taobao and PinDuoDuo would require to work with more personnel to verify and ensure the qualities and legitimacies of the items their sellers offer, which results in a greater personnel cost and lower earnings margin under the brand-new regulations.Unlike JD.com, a big e-commerce platform that greatly relies on developed brands that likewise have real physical stores, platforms like Taobao and PinDuoDuo both count on retail sellers and family services who keep the number of deals on the platform active in

completion. The most important effect that the new e-commerce law will give the platforms is the future tax on those retail sellers, however.In the previous decade, individual sellers are like concealing in a tax-free paradise on the Web. There was no law that requires specific sellers to pay income taxes on their online sales. It offers e-commerce platforms edges versus brick-and-mortar stores: without paying taxes, businesses might set the price lower to win market shares and therefore increase their sales. Physical stores, on the other hand, are strictly regulated by taxes and can not provide such a low cost to contend with online sellers.But for those online sellers, apart from paying taxes and getting lower earnings, more importantly, greater rates seem to be a matter of life and death on the platfrom. Numerous specific sellers on platforms such as Taobao and PinDuoDuo sell price-sensitive items. To some level, those products have low barriers of entry and hence is located in a

best competitive market, giving the sellers extremely little pricing power. Economic profits are for that reason squeezed to no and products might be quickly changed in a perfect competitive circumstance. Taxes that will be levied on these sellers can be fatal: the financial loss in the brief run can drive numerous sellers out of market.Online seller being edged out of e-commerce platforms, Taobao might discover a decline of active transactions as the retail sellers lose the pricing power and purchasers can buy the very same item with a similar rate somewhere else. Neither favor e-commerce platforms like Taobao. Regulations now use rewards for both buyers and sellers to get around the platform and try to reach an offer for lower costs and higher revenues. The loss of transactions, purchasers and sellers might injure the profitability and thus the future prospects of the platforms soon.There are likewise other elements that hurt Taobao’s company potential customers: courier deliveries.Timely and low-cost carrier services have long been the foundations for Taobao’s services, but in the near future this may not hold true. Thanks to the current tax reform, nevertheless, companies are now needed to pay the complete quantity of social insurance to their workers. Those that did not meet the requirements will be required to pay the missing amount in

a balloon payment. It suggests a greater personnel cost for business. Such expenses will soon manifest on China’s carrier services: cheap labors will be no longer readily available and high operating expense will lead to higher delivery fees.That said, carrier services that today depend on low-cost labors would need to deal with a problem. They need to either fire some deliverymen to cut costs however slow down the service or keep a sufficient variety of staff but bear more operating costs. As the courier business no longer take benefit from low-cost labor, they are entrusted to a hard option between its service quality and profitability. And they would constantly select the latter.The choice that courier services make will have a direct influence on Taobao.

To keep things work, delivery carriers may wind up charging more from online sellers for parcel deliveries. Sellers could no longer manage to exempt purchasers from paying the postage. Buyers, on the other hand, would not like to pay a courier charge that is even greater than the expense of the item itself. Online shopping might be no longer that competitive against brick-and-mortar shops where buyers don’t require to wait and pay shipment fees.That said, the new Chinese e-commerce law will turn Taobao into a platform comparable to a physical shopping center and it is just online. Despite having a massive size and massive number of sellers on board, Taobao will require to work very hard to keep up with business to preserve its users and merchants in order to secure its earnings. Alibaba’s future executives will need to come up with efficient solutions to manage greater legal threats, lower earnings margin, and increasing logistic costs to protect its competitiveness in the future world of businesses.Read: How Would the New Chinese E-commerce Law Change Taobao? on Pandaily.