Texas Perspectives

Should U.S. Businesses Trust Alibaba to Connect Them With Chinese Customers?

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When Jack Ma, executive chairman of the Chinese e-commerce company Alibaba, met with President Donald Trump, he made a promise — the online sales platform would give 1 million U.S. small businesses entrée to the Chinese market.

Ma also said that this effort would create 1 million new U.S. jobs. He is even planning a conference in June to teach U.S. businesses how to sell to the company’s 443 million customers in China.

So is this a good idea, a public relations scam or worse?

America has a serious trade imbalance with China. In February, the U.S. imported $32.7 billion in goods from China while exporting only $9.7 billion of goods to China. So anything that tries to balance the ledger would be a good thing, right? Perhaps, but like most things, the devil is in the details.

The good news is that Alibaba is the largest Chinese “virtual mall,” and it gives Chinese and other businesses the ability to create online stores that sell products and services to 443 million Chinese consumers. It only has 7,000 U.S. businesses on its site. So on the surface, anything that helps American firms do a better job selling their wares to Chinese customers is a good thing.

Also, the timing couldn’t be better. According to USA Today, “Chinese consumers don't trust the safety and wholesomeness of Chinese-grown foods and Chinese-made beauty products, and they're especially worried about anything that touches their or their children's skin. American food and products have a very high reputation.”

I can tell you from personal experience that Chinese consumers have a strong preference for legitimate American products. But the word “legitimate” is crucial.

And that’s where we get into the bad news. It has been reported that Alibaba has been a haven for counterfeiters, including many American-made brands. The fake-goods business is a massive industry. The International Anti-Counterfeiting Coalition estimates that counterfeiters sold more than $1.7 trillion in fake goods in 2015 alone.

In fact, according to the Organization for Economic Cooperation and Development, U.S. companies suffer the most at the hand of brand pirates, with 1 in 5 knock-offs infringing on American products, and 63 percent of counterfeit goods come from China.

So trusting a Chinese company that has been “a haven for counterfeiters” to help American firms sell more products to a country that is responsible for two-thirds of all counterfeit goods feels like asking the fox to guard the henhouse.

So what needs to happen? Alibaba must prove to businesses and the American government that it has truly robust tools to protect the integrity of U.S. brands. For Alibaba to win the trust of sophisticated American firms, its plan must have the explicit approval of the Chinese government. Because there is only one law in China, and that is the law of the Communist Party of China.

Therein lies the second rub.

Some experts have suggested that more than 10 million Chinese work in firms that produce hundreds of billions of dollars of counterfeit goods. If the government of China wanted to stop counterfeiting in their country, they could stop it in little time.
 
But when I was last in China, the general consensus was that the Chinese government didn’t want to force the collapse of counterfeiting firms that employed millions of their citizens. Nothing suggests anything has changed.
                       
What should American firms that are intrigued by China’s large market do? Do your homework and don’t trust Alibaba to protect your interests.

Instead, businesses that wish to enter the Chinese market should track down the U.S. Commercial Service. The U.S. Commercial Service exists to help American firms export their products around the world. They have multiple offices in China and can help find reputable partners, assess the potential demand for products and help get legal assistance.

You can do business in China. But trust the U.S. Commercial Service before doing business with Alibaba, the firm known around the world as “a haven for counterfeiters.”

John Doggett is a senior lecturer of management at The University of Texas at Austin.

A version of this op-ed appeared in Fortune.

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Texas Perspectives is a wire-style service produced by The University of Texas at Austin that is intended to provide media outlets with meaningful and thoughtful opinion columns (op-eds) on a variety of topics and current events. Authors are faculty members and staffers at UT Austin who work with University Communications to craft columns that adhere to journalistic best practices and Associated Press style guidelines. The University of Texas at Austin offers these opinion articles for publication at no charge. Columns appearing on the service and this webpage represent the views of the authors, not of The University of Texas at Austin.