How Alibaba Gets Products to 350 Million Buyers -- Q&A With Cainiao President Judy Tong

NEW YORK (TheStreet) -- Last year on Singles Day, China's biggest shopping day of the year, Alibaba (BABA) processed the delivery of 278 million packages across the country. Making sure each package arrived securely was the responsibility of Alibaba's logistics affiliate Cainiao.

Cainiao was founded in May 2013 in an effort to improve Alibaba's delivery services. Alibaba doesn't handle logistics itself; instead, Cainiao works with 15 different logistics partners to help products from Alibaba's marketplaces reach Chinese consumers.

As Amazon (AMZN) continues its efforts to speed up delivery and expand its reach in the U.S., Alibaba's Cainiao is doing the same in China. Last month, Cainiao urged delivery partners to step up their efforts to deliver goods quickly and not take part in attempts to falsely boost sellers' ratings by sending empty packages. Two weeks prior to that, Alibaba announced a new investment in one of those logistics partners, YTO Express.

Those investments are growing increasingly important as Alibaba picks up its cross-border efforts. This week, Jack Ma, Alibaba's founder and executive chairman, is visiting the U.S. to try to get more American merchants on Alibaba's marketplaces. With more cross-border merchants comes heightened pressure for Cainiao to be on top of its logistics game.

To learn more about how one of the biggest e-commerce companies in the world handles logistics, TheStreet spoke to Cainiao's president, Judy Tong. Here is the lightly edited interview.

Rebecca Borison: Why does Cainiao partner with third-party logistics companies instead of operating logistics on its own?

Judy Tong: Cainiao is taking a platform approach to shipping and delivery by working with third-party logistics service providers, in order to provide high-quality delivery services to sellers and buyers on a large scale. The scalability of this network approach was proven successful on Nov. 11, 2014 where Cainiao processed 278 million packages during the Singles Day promotion.

The logistics network model makes it easy to scale rapidly to reach all markets across China including third- and fourth-tier regions and remote rural areas. In addition, by collaborating with logistics companies, Cainiao can focus on investing in its own data technology and building up logistics infrastructures to enhance delivery speed and better support the needs of our merchants.

We have to be open-minded and believe that our partners can do better than us in many aspects.

RB: How does the logistics ecosystem in China differ from that in the U.S.?

JT: China's logistics sector is poised for major growth as economic development continues; however, the industry as a whole remains at an early stage and fairly fragmented with multiple players but limited service offerings.

The exponential growth of e-commerce in China is testing the limits of logistics companies in China, and logistics has become one of the biggest hurdles for online retail in China.

RB: How are you working to speed up delivery?

JT: Cainiao operates a proprietary logistics information platform that links a network of logistics providers, warehouses and distribution centers, which allow participants to confidentially share information on orders, delivery status and user feedback. This information flow and related data analysis help logistics companies to achieve higher efficiency and quality service for both merchants and consumers.

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