SHANGHAI — E-commerce giant Alibaba has been hit twice in one week by scathing reports from Chinese regulators.
On Wednesday, the State Administration for Industry & Commerce released the “Alibaba White Paper” on its Web site.
The latest release accuses Alibaba’s consumer-to-consumer platform Taobao of turning a blind eye to piracy and counterfeit products as well as knowingly allowing merchants to sell without legitimate business licenses, not doing enough to enforce the real-name registration requirement of sellers and encouraging misleading promotional activities.
According to the SAIC, Taobao employees accepted bribes and went so far as to warn store holders of confidential reports before regulators released them, in order to get fake products removed prior to government crackdowns.
The report includes memos from a meeting between Alibaba and the SAIC in July 2014, the details of which the authority said it decided not to disclose at the time to avoid derailing Alibaba’s record breaking initial public offering on the New York Stock Exchange later that year.
This is the latest salvo in an escalating war of words between the SAIC and Alibaba, following the release of another SAIC report only days ago, which showed Taobao to have the worst record among China’s major e-tailers for selling counterfeit products, with only 37.25 percent of products purchased on the site and tested by the regulator proving genuine.
This finding came as no surprise to China watchers, who point out that consumer-to-consumer platforms around the world have struggled to contain counterfeit goods, with Taobao proving no exception.
“Those who care about genuine product wouldn’t shop on Taobao, and those that do are gambling they might get lucky and buy something authentic on Taobao, or more likely, that they will get something that looks close enough to an authentic product for a bargain price,” said Smith Street Solutions analyst Jasmine Sun.
Forrester Research eBusiness analyst Vanessa Zeng said the SAIC’s “Alibaba White Paper” should be a wake-up call for the company.
“SAIC’s report on Alibaba proves the counterfeits issue won’t be tolerated anymore, and Alibaba has to take actions to curb counterfeits and illegal business practices on its platform. There are absolutely ways for Alibaba to do more to police counterfeits, such as strengthening product examinations, enhancing operation supervision and building vendor credits and elimination systems,” Zeng said.
Even Alibaba agrees that more needs to be done in order to clean up the substantial number of counterfeits polluting e-commerce in China.
“Taobao has done a tremendous amount of work toward fighting counterfeits, but it is far from complete,” Alibaba said Wednesday to WWD.
“We will continue to improve on our technology, our team, our procedures and mechanisms. We will humbly continue to solicit input from partners and stakeholders, and improve our own standards for fighting counterfeits. At the same time, we realize that we cannot work alone if we want to truly solve the counterfeit problem that proliferates both online and offline. We need more law enforcement agencies to join us in the fight and eradicate the cancer at the roots,” the company added.
Despite these admissions, Alibaba was obviously irate with the methodology of SAIC’s study, which tested 92 batches of products anonymously purchased in the second half of 2014.
An employee from Alibaba responded to the report by blasting the SAIC’s director for market development, Liu Hongliang, in an open letter posted to the company’s Weibo account.
Though the post was later removed, Alibaba has continued to claim it is being treated unfairly, on Wednesday revealing plans to make an official complaint to the SAIC.
“We welcome fair and just supervision and oppose selective omissions and malicious actions,” Alibaba said.
“We believe director Liu Hongliang’s procedural misconduct during the supervision process; irrational enforcement of the law; and obtaining a biased conclusion using the wrong methodology has inflicted irreparable and serious damage to Taobao and Chinese online businesses,” the online giant said.
In comparison to Taobao’s poor showing in the SAIC’s e-commerce authenticity study, Alibaba’s business-to-consumer platform, Tmall, fared much better, with an authenticity rate of 85.71 percent, while other leading B2C players — JD.com and the Wal-Mart backed Yihaodian — managed respective rates of 90 percent and 80 percent.
Overall, only 58.7 percent of goods purchased online and tested by SAIC proved to be authentic.