Economic Geography Study on the Formation of Taobao Village: Taking

Economic Geography Vol. 35, No. 12, 90–97 Dec. 2015

Study on the formation of Taobao Village: taking Dongfeng Village and Junpu Village as examples

ZENG Yiwu1, QIU Dongmao1, SHEN Yiting2, GUO Hongdong1 1. The Center for Agriculture and Rural Development, Zhejiang University, Hangzhou 310058, Zhejiang, China; 2. Information Center, Zhejiang Radio & Television University, Hangzhou 310030, Zhejiang, China

Abstract: Based on typical cases of Dongfeng Village and Junpu Village, this paper analyzed the formation of Taobao Village. It is found that the formation of Taobao Village includes five processes: introduction of Taobao projects, primary diffusion, accelerated diffusion, collective cooperation and vertical agglomeration. They can be reduced into two stages. In the first stage, the germination and initial development of Taobao Village only rely on the folk spontaneous forces; secondly, the government begins to intervene, the e-commerce association is set up, and all kinds of service providers are stationed in the village. To speed up the formation of those embryonic Taobao Villages, the government’s support is necessary, and the key point is intensifying scientific guidance and service ability, and improving supply level of public goods timely. To cultivate more new Taobao Villages, some incubation measures can be taken, such as reinforcing infrastructure construction, enhancing the cost advantage of rural entrepreneurship, excavating the potential of local traditional industries, and encouraging some migrant workers of the new generation and university graduates to return. Keywords: E-commerce, farmer entrepreneurship, Taobao Village, Internet plus CLC number: F320, F724.6

As the typical product of “Internet + rural economy,” and Donggao Village of Qinghe County of Hebei Province. professional e-commerce village is drawing more and more Since then, the development pace of Taobao Villages has attention. Professional e-commerce village refers to a gradually accelerated. According to statistics, the number of village in which a large number of farmers engage in online Taobao Villages in China has grown to 212 by December selling activities through e-commerce platform and the 2014.These Taobao Villages are mainly found in ten Internet-based business makes up the main economic provinces, including Guangdong, Fujian, Zhejiang, Jiangsu activity of the village. With the advantages of low entry and Tianjin.[2] barriers, less technical difficulties and initial capital The rise of Taobao Villages is significant to promoting requirement, and so on, Taobao owned by Alibaba has entrepreneurship, employment and income growth of become the main platform for farmers to participate in farmers, as well as rural economic transformation and e-commerce.[1] It is because that current rural e-commerce upgrading, social harmony and stability. According to business mainly uses Taobao as the trading platform, statistics, there are more than 70,000 active sellers in those depending on the e-commerce ecosystem of Taobao, people 212 Taobao Villages. According to the operating features of name these professional e-commerce villages “Taobao rural e-commerce, the direct employment created by Taobao Villages.” To count the amount of Taobao Villages in China, Villages is as much as 280,000 and even more, calculated in AliResearch has developed two quantitative criteria: one is a way that about four practitioners in each online store.[2] that the number of active online stores of the village is over Besides, it leads to the occurrence of a large number of 100 or more than 10% of local households; the other is the full-time relevant positions, such as logistics and total e-commerce transactions of the whole village reach warehousing, packaging design, graphic model, advertising CNY 10 million annually. According to these standards, the design, technical training and management consulting. The earliest Taobao Villages appeared in 2009, including great development of Taobao Villages benefits from the Qingyanliu Village of Yiwu City of Zhejiang Province, organic combination between Taobao and local traditional Dongfeng Village of Suining County of Jiangsu Province industries, which has injected new vitality into local ______Received: June 15, 2015 About the authors: ZENG Yiwu (1988– ), male, born in Jieyang, Guangdong, China; Doctoral Candidate, majoring in rural industrial cluster and rural e-commerce; E-mail: [email protected]. GUO Hongdong (1968– ), male, born in Pujiang, Zhejiang; Professor, Doctoral Supervisor, Zhejiang University; majoring in agricultural industrial organization, farmer entrepreneurship and rural e-commerce; E-mail: [email protected]. Supported by: National Natural Science Foundation of China (71473218, 71333011); “Alibaba Young Scholar Support Program” the fifth project topic.

© 2015 China Academic Journals (CD Edition) Electronic Publishing House Co., Ltd. Economic Geography 2015: 35(12) traditional industries and effectively promoted the growth of network traders of Taobao Village through transformation and upgrading of traditional industries in empirical analysis.[1] rural areas. In addition, the development of Taobao Villages Existing literature has provided materials and references has also changed the ideas, knowledge structure, for this study. Regarding the formation mechanism of commercial thinking and consumer behavior of farmers. Taobao Village, the present research is conducted from the However, compared with the huge totality of villages in perspective of influential factors, while only briefly China, the current number of Taobao Villages is rather small describes the dynamic process of the formation. This paper and their geographical distribution is uneven. In some attempts to reveal the formation laws of Taobao Villages provinces there are many Taobao Villages, while in others from the perspective of process, simplifies and refines the there are just a few or even none. To cultivate more Taobao formation process of Taobao Villages on the basis of typical Villages, it is necessary to study the specific formation of cases, and analyzes the mechanism in each process of the Taobao Villages. Since Taobao Village is new, relevant formation, which may lead to a clearer perspective of the academic research has just started, and papers analyzing the phenomenon of Taobao Village. formation of Taobao Village are still very rare. Therefore, it’s full of positive literature value and practical significance 1.2 Research upon the formation mechanism of to study the mechanism and laws from the formation professional village process of Taobao Villages, which is “from nothing to Taobao Village is a kind of professional e-commerce something and from point to surface.” Based on the review village which uses Taobao as a major trading platform. of relevant literature, this paper will analyze the formation Essentially, it has the general features of professional process of Taobao Villages and draw some enlightenment e-commerce village. Those existing research achievements on the basis of two typical cases, Dongfeng Village and about the formation mechanism of professional village can Junpu Village. provide enlightenment for the analysis of formation of Taobao Villages. Professional village began with the “One 1 Literature review Village, One Product” mode of production in Japan, which was later introduced into China, South Korea, Thailand, Nepal and other countries in succession,[7-8] because it 1.1 Direct literature relevant to Taobao Village played a special role in promoting farmers’ income and The existing research regarding Taobao Village is mainly accelerating structural adjustment in rural areas and other organized and carried out by AliResearch. In December aspects.[6] Existing research on the formation mechanism of 2014, AliResearch released the Report of China’s Taobao professional village mainly focuses on three parts: the first Village (2014). The report summarized and analyzed the is the factors that influence the formation of professional development status of China’s Taobao Villages in 2014 and village. Studies have proved that professional village is the predicted the developmental trend of Taobao Villages in the product of interaction of many factors, mainly including future.[2] In February 2015, the book China’s Taobao Village local resource endowments and potential, geographical by AliResearch was published. It introduces vividly the location, entrepreneurial genius, economic base, traditional development stories of 14 typical Taobao Villages in culture and customs, and policy support.[9-12] The second detail.[3] Wang Xiangdong, from Center for Informatization consideration is about the spatial diffusion during the Study in Chinese Academy of Social Sciences, has formation of professional village. The formation of researched into several typical cases of Taobao Villages in professional village is a process where a new project collaboration with AliResearch. They focus on summarizing spreads in space from the limited source region through the characteristics, significance and evolutionary trend of susceptible crowd. Spatial diffusion has the characteristics Shaji pattern.[4] Wu Xiaobo, from School of Management in of proximity effect, hierarchical effect and distance Zhejiang University, has a collaborative research with decay.[13] Moreover, the speed of spatial diffusion is also AliResearch about inclusive innovation and growth influenced by geographical environment, diffusion mechanism behind the development of Taobao Village, efficiency, the role of government and some other factors.[14] summarizing the prerequisite for the development of Taobao On the process of spatial diffusion, the proportion of famers Village.[5] Besides, there are a number of relevant research participating in new project usually grows along the reports, news reports and brief commentaries in media and S-shaped trajectory.[15] The third question is about farmers’ common journals, while papers published in high level behavior and the formation of professional village. The journals are still very rare. For example, based on the survey formation of professional e-commerce village is inseparable data of network traders of Taobao Village in Lishui, from most farmers’ ongoing participation in the village, and Zhejiang, Cui Lili et al. have found that social innovative farmers’ behavior has a profound impact on the formation factors and their interactions, such as neighbor rate and economic benefits of professional village.[16] demonstrations, social demonstrations and e-commerce Hereinto, the establishment and evolution of interaction associations, play a significant role in promoting the sales among farmers is worthy of attention and study.[17]

2 ZENG Yiwu: Study on the formation of Taobao Village: taking Dongfeng Village and Junpu Village as examples

Existing literature reveals that the formation of when imitative enterprises reach a certain number, professional village is a result of the joint participation and agglomeration benefits will begin to emerge, attracting promotion of these main bodies, including entrepreneurial related supportive industries to enter as well as promoting talents, most farmers, local government and others. Also, the division of the industrial chain.[21] Wu Linna divided the it’s a process where a new program is introduced and then formation process of the characteristic agricultural industrial continues to spread. The formation of Taobao Village is district into four stages: introduction of professional project, surely the same. However, for Taobao Village, the study of farmers to participate, the formation stage of agricultural its formation process cannot just rest on the introduction production base and the molding stage of agricultural and spatial diffusion of Taobao projects, collective action of industrial district, and she also analyzed the evolution net traders occurred during diffusion and vertical deepen of mechanisms of each stage.[22] industrial agglomeration also need to be incorporated into The important enlightenment brought by the literature the analytical framework. above is that to simplify the formation process of Taobao Village into an evolution model from the perspective of

1.3 Research upon the development process of stage can make it much clearer at a glance, which helps to industrial clusters quickly grasp the key link and primary information. Taobao Village is a kind of agglomeration of rural Furthermore, what the existing literature focuses on is e-commerce, and it can be also regarded as a phenomenon industrial clusters larger than village-region scale, while of industrial cluster. Existing research upon the Taobao Village is just the range of a village, which may lead development process of industrial cluster can also provide to some differences. references for analyzing the formation of Taobao Village. Some foreign scholars have studied the development process of industrial cluster from the perspective of stage, 2 Case description and summarized the growth model of industrial cluster. For example, Bruso put forward a “two-stage” growth model, Based on two typical cases of Dongfeng Village in indicating that the appearance of clusters mostly formed Xuzhou City, Jiangsu Province and Junpu Village in Jieyang spontaneously in accordance with his research of Italian City, Guangdong Province, ① the paper analyzes the clusters, and he called the spontaneous growth phase formation process and mechanism of Taobao Villages. In without government intervention the first stage. When terms of time for development, Dongfeng Village is the clusters expanded to a certain extent, government or representative of the first batch of Taobao Villages in China industry associations would begin to intervene and offer a while Junpu Village as a representative of a new batch; as variety of social services to the clusters, which was the for development degree, Dongfeng Village and Junpu second stage;[18] Van Dijk put forward the “five-stage” Village are both relatively mature Taobao Villages, having growth model based on evolutionary theory after his field received much attention and praise. These case materials are research on some of the enterprise clusters in India, Peru mainly from field research and the book China’s Taobao and African countries, namely “geographical location Village by AliResearch, as well as relevant reports on the cluster - trade center cluster - the division of labor based network. cluster - innovative cluster - fully functional industrial district”;[19] Otsuka et al. investigated the growth of 19 2.1 Dongfeng Village, Xuzhou City, Jiangsu industrial clusters in Asia and Africa, and summed up the Province “two-stage” evolution law of industrial clusters. They Dongfeng Village is affiliated with Shaji Town, Xuzhou thought that the development of industrial clusters first went City, Jiangsu Province. It covers an area of 6 km2, and has a through quantitative expansion phase in Smith’s growth population of 4849 people, and the number of existing mainly, and then followed by a quality improvement phase households is 1180. Before 2008, the main industries were [20] mainly in Schumpeterian growth. Some domestic farming and traditional cultivation, recycling and processing scholars discussed the formation process of rural industrial of waste plastics and vermicelli process, with an average clusters and characteristic agricultural industrial districts. annual income of CNY 2000 per capita. Most of the young Huang Hanquan built a dynamic model of the formation of people worked outside, so the “hollow village” phenomenon rural industrial clusters, which describes that the starting was very prominent. point of the model is the occurrence of the initial In May 2006, a young man named Sun Han opened the enterprises, and their success has a demonstration effect, first Taobao store in Dongfeng Village, selling home which can drive the emergence of imitative enterprises; accessories and pendants, but the net profit was only CNY

① The typicality of the two cases lies in that the most common mechanism of the formation process of China’s Taobao Village can be summed up from them. But it should be noted that, any typical case cannot completely cover all Taobao Villages. The formation mechanism of some Taobao Villages has particularity, which are not within the scope of this article.

3 Economic Geography 2015: 35(12)

2000 per month. Later, inspired by IKEA and South Korean these have played a positive role in promoting the dramas, Sun Han and his good friend Chen Lei firstly development of e-commerce of Dongfeng Village. looked for carpenters all over the county, and then they produced assembled furniture of IKEA style and South 2.2 Junpu Village, Jieyang City, Guangdong Korean furniture by imitation. With the advantages of Province simplicity, fashion and low price, their furniture was soon a Junpu Village is located in Xichang Town, Jiedong big seller. The sales volume of the first month reached CNY District, Jieyang City, Guangdong Province, with a total 20,000 and the first year they earned more than CNY area of 0.53 km2, and it has 490 households and a 300,000. In May 2007, Sun Han and Chen Lei set up their population of 2695 currently. Junpu Village, known for its own furniture factories respectively. By 2008, Sun Han had business tradition, possesses traditional food processing have earned millions. He lived in the building and bought a industry. A few years ago, due to problems such as car. increasing competition inside the industry, backward Affected by Sun Han and Chen Lei, a number of management, small scale and low quality, food processing villagers familiar with them started to follow and learn from industry of Junpu Village went to decline. them in succession, and opened their own stores. By rounds In July 2012, 12 young men of Junpu Village who were of relatives with relatives, friends with friends, the amount engaged in the sale or distribution of Taobao clothing in of online stores in Dongfeng Village quickly achieved an Guangzhou came back to the village successively to open explosive growth. At the end of 2008, there were nearly 100 online stores, and soon they ran the Taobao shops well and network trader families in Dongfeng Village in total; in achieved great success. Their relatives and friends came to 2010, the number grew to more than 400, with over 1000 learn experience one after another. These initiators taught online stores; in 2013, it grew to more than 600, accounting personally and opened up entity wholesale shops, supplying for about 60% of the number of households in the village, goods to relatives and friends. At the end of the year, the with more than 3000 online stores; in 2014, the number of number of network traders in Junpu Village increased to network traders began to stabilize, and annual turnover was over 50. Since then, with the experience of running Taobao over CNY 1.2 billion. shop passed on one by one, Junpu Village has come into the In 2012, network traders set up e-commerce association fast lane of e-commerce development, and many migrant under the leadership of Sun Han. They took advantage of workers of the new generation who used to work outside the association to conduct resources integration and human and college graduates have returned to the village to open a resources training, as well as regulating network marketing Taobao shop. Even the outsiders working in Jieyang also practices and promoting their brand, while externally entered Junpu Village to open online shop by renting. At the forming a strong “voice platform” to negotiate with end of 2013, the whole village had a total of 300 network logistics, telecommunications, and raw material suppliers so traders. By the end of 2014, there were 358 households, as to get a lower price. The association also invited experts with nearly 2000 people engaged in online sales activities. and professors to conduct training, held investment They opened more than 3000 Taobao shops and over 300 attraction seminars, organized members of the association to entity wholesale shops, with the annual turnover reaching go out for exchanges, participated in various e-commerce CNY 1.68 billion, and net profit reaching CNY 15 million. seminars, consulted teachers in universities, and even The vended varieties of products including clothing, plastic attended MBA and other professional courses. household items, leather goods, electronic appliances, With the rapid growth of online stores in Dongfeng hardware, toys and so on. Village, varieties of service providers entered Dongfeng In July 2013, e-commerce association of Xichang Town Village continuously. The most obvious development laid in was established. 12 young network traders who first logistics. The number of logistics service providers entering returned home and started a business acted as directors, and “Network Trader Street” of Dongfeng Village increased now there are more than 200 members in the association. from 1 in the year of 2006 to 43 in August 2014. Also, there Directors of the association lead all members to sign an were a variety of professional service providers ranging agreement on respective innovation but no copy. They’re from financing services, photography and image processing, allowed to supply each other and share the profits, with the shop decoration and operation agent, brand promotion and violation fine of CNY 20,000. The association establishes management consulting, legal services, network integrity fund, and takes the approach of “Decuple Penalty businessman training and so on. When e-businesses came for Fake” to prompt members to guarantee quality of the across problems about land and capital, government wouldl product initiatively, and safeguard the image of Taobao provide support and assistance. For example, they Village as well. Besides, it also takes the lead to organize all established e-commerce industry development office to kinds of sales promotion activities such as “Moonlight guide the expansion of productive land, set up e-commerce Festival,” “Pretty November 11, Surprise in Junpu,” “Junpu industrial park, and organize entrepreneurship training Spring Festival Shopping Gala,” and so on. programs for college graduates as village officials; all of Today, Junpu Village has fiber connected to every house

4 ZENG Yiwu: Study on the formation of Taobao Village: taking Dongfeng Village and Junpu Village as examples and a complete coverage of wireless network. It has become the formation of Taobao Village is also similar to the rural the village with the fastest network speed in Chaoshan industrial cluster dynamic model of Huang Hanquan as well region and the lowest Internet access charges in Guangdong as the specialized agricultural industry area formation Province. Major communication carriers have entered Junpu framework of Wu Nalin. However, both the model and the Village in succession to build new base stations, set up framework are more applicable to areas which are larger self-service terminals and offer convenient services. 15 than villages in scale. Also, they lack consideration for courier companies have set up offices in Junpu Village. collective cooperation and thus can’t explain the whole Rongcheng Footwear Association has established an formation process properly. In this paper, based on Bruso’s e-commerce service platform which covers an area of over “two-stage” evolution model, we have built a “two-stage 800 m2 in Junpu Village to supply goods and provide and five-process” model to describe such phenomenon (see after-sales service for local network traders. Puning Fig. 1). Five processes include introduction of Taobao International Garment City has invested in building a “ First project, primary diffusion, accelerated diffusion, collective Network Wholesale City of Huaermei,” Lots of third-party cooperation and vertical agglomeration. The watershed of e-commerce service enterprises, such as Yiku E-commerce two stages occurs during the accelerated diffusion stage, Supply Chain, Yunti E-commerce, Bangxiang E-commerce which is followed by collective cooperation and vertical and E-commerce Port, entered Junpu Village one after agglomeration, while there is no clear sequence between another. these two processes. E-commerce service center is founded under the promotion of government, which provides comprehensive services like industrial and commercial registration of enterprises, network installation, and enterprise settlement. Also, it has issued Interim Measures for E-commerce Loan Risk Compensation for E-commerce Enterprises in Junpu Village and Interim Measures for Loan with Discounted Interest for E-commerce Enterprises in Junpu Village, to Fig. 1 The formation of Taobao Village: a two-stage and provide deductions and exemptions of network and loan fee five-process evolution model for qualified network traders. In April 2014, the first inclusive financial service center of Guangdong Province 3.1 First stage of Bruso’s model was founded, which offered financial, investment and 3.1.1 Talents introduce Taobao projects into villages financing services for network traders in Junpu Village. In Every Taobao Village begins with the introduction of September 2014, Jiedong Junpu Branch of Shenzhen Taobao projects, when some talents initiate and achieve Gongxinying Financial Information Service Co. Ltd went promising results. In the case of Dongfeng Village, the into operation, which is the first Internet financial enterprise talents who were the first to introduce Taobao projects were in Junpu Village. In order to broaden the channels for Sun Han and Chen Lei. They, together with Xia Kai, who private investment, the government also encourages social introduced news media to promote Dongfeng Village later, forces to apply for the establishments of village banks, were called the “Three Musketeers of Shaji.” In the case of microcredit companies, third-party payment companies and Junpu Village, 12 young men including Huang Haijin, Xu so on. With the diversification and gradual improvement of Shidong and Huang Shijia, who initiated venture on Taobao ecological elements, Junpu Village is growing in the first, were praised as the “Twelve Arhats of E-commerce.” direction of brand development and quality enhancement. Why these initiators would consider starting Taobao projects at home may be related to their skills, sense of 3 Case analyses business and personal experiences, which is somehow accidental. However, their success also relies on other objective factors, which forms the initiative prerequisite and In general, the formation of Taobao Villages in Dongfeng basic logic for most Chinese Taobao Villages at the same and Junpu corresponds with the “two-stage” evolution time. The first factor is infrastructure and services, such as model put forward by Bruso, which can also be observed Internet, transportation and logistics. Recently, matching from other Taobao Village cases. The germination and industries, such as transportation, computer, Internet and initial development of Taobao Village only relies on the folk logistics expand rapidly in counties and towns, and spontaneous forces, which is described as the first stage of gradually eradiate to villages, laying a hardware foundation Bruso’s model. When the Taobao project expands to a for Taobao Villages. For instance, Junpu Village is next to certain extent, local government begins to intervene, the national highway No. 206 and also close to the Xichang e-commerce association is set up, and all kinds of service Exit of Shantou-Kunming Expressway. The convenience of providers are stationed in the village, which makes the transportation and broadband network becomes the second stage of Bruso’s model. From another perspective, indispensable prerequisite for the twelve young men

5 Economic Geography 2015: 35(12) including Huang Haijin to start Taobao projects in their own follows a growing S-shaped trajectory, while the process hometown. The second factor is the cost advantage of rural can be further split into three stages: primary diffusion, entrepreneurship. The term “cost” here refers only to the accelerated diffusion and gradual saturation. For Dongfeng cash cost when initiating a business project. Compared with Village, the primary stage occurred in 2008 and during renting houses in the cities, running a Taobao shop in 2009–2013 the number of network traders increased from villages has lower costs and zero rentals, as well as help about 100 to more than 600, while reaching approximately from family members, which creates larger discount space saturation in 2014. For Junpu Village, primary diffusion for the same item. When business enlarges, lower storage started in the latter half of 2012. In 2013, the number of and labor costs in villages still prevails. Take customer network traders rose sharply from more than 50 to nearly service costs as an example. Among the Taobao shops in 300 and in 2014, after reaching a peak of 358, the growth Junpu Village, those with larger scales usually hire a certain trend ceased. quantity of customer service personnel, with an average During the stage of primary diffusion, projects spread salary of CNY 2000, while in Guangzhou it is even harder mostly through relatives, friends and neighbors. So the to hire someone with a salary of CNY 3000. The third factor imitative group is small and it spreads rather slowly. It is the is the support from local traditional industries. The term feature of rural social imitation mechanism, generalized by “local” refers to not only the village where the shops locate Hagerstrand as proximity effect, hierarchical effect and but also the county and even counties around. There are two distance decay. This article attempts to build a set of types of support. One is by product and the other is by labor. functions to reflect imitation behavior from an economic Some initiators exploit local resources and thus vend perspective, which will be the foundation to explain the products with high quality and low price, as well as local imitation mechanism in the rural society: features. Some may seek cooperation with local technicians and artisans to design new products. In Junpu Village, early network traders purchase from suppliers in Guangzhou but soon they switch to local suppliers because Shantou and Puning are centers of clothes production. Purchasing from local suppliers helps to lower the costs and strengthen the bond between traders and suppliers. In Dongfeng Village, In the equations, πe, Re and Ce stand separately for the Sun Han vended small accessories and ornamental parts at expected net revenue, revenue and cost of the imitation first and it did not go as expected. Then he decided to vend behavior. λ is the coefficient for information smoothness assembled and South Korean furniture. Because of the and R is the current revenue of the person being imitated. P traditional furniture factories and a bunch of artisans in is the probability of success by imitation. A is the capability local counties, Sun Han is able to cut the cost of seeking of imitators, D is the degree of difficulty in imitation, I is potential cooperators and testing on new products. Sun’s the degree of information smoothness and M is the market furniture is simple and fashionable and also inexpensive, opportunity. C , C , C and C refers respectively to the which makes his business thrive eventually. m l r o costs of material, learning, risk and opportunity. Equation 3.1.2 The diffusion of Taobao projects (1) describes that the expected net revenue is the difference Once a Taobao project is introduced into the village, of expected revenue and cost. Equation (2) calculates there are two prerequisites when it intends to diffuse and expected revenue. It is equal to the product of information finally dominate the entire economic activities. One is that smoothness coefficient, current revenue of initiators and the the results of these new projects are obvious enough to draw probability of success. In this equation, the product of attention from other villagers. The other is that the new information smoothness coefficient and current revenue projects require rather low techniques and funds. A majority describes the revenue condition of the initiators that the of Taobao Villages come into being, mostly because this imitators have known of. The probability is not restricted to Taobao pattern naturally suits villagers: Taobao is an online 0–1, and may be larger than 1, which means that imitators entrepreneurial platform designed mainly for small and expect to manage the project even better than initiators. medium-sized enterprises or individuals. It requires neither Equation (3) is the function expression to describe how the much funds or techniques, nor education or professionalism. probability is affected by the capability of imitators, the With its low threshold and low risk, it corresponds with difficulty of imitation, the intensity of information villagers, who have less funds and more spare time, receive smoothness as well as market opportunity. Equation (4) less education and tend to avoid risk. When initiators calculates expected costs, including costs of material, introduce Taobao projects successfully into the villages, learning, risk and opportunity. their promising results soon draw attention from others, Presuming the capability of imitators, market then lead to imitation, and gradually diffuse to most opportunity, costs of material and opportunity are families. Like other traditional professional villages, the approximately the same, acquaintances are more likely to quantity of villagers getting involved in new projects imitate than non-acquaintances basically because

6 ZENG Yiwu: Study on the formation of Taobao Village: taking Dongfeng Village and Junpu Village as examples acquaintances have higher expected net revenue, and are an example, the government of Jieyang City has published more motivated. To further explain, there are a few specific regulations, such as Interim Measures for E-commerce Loan reasons: one is that acquaintances have higher information Risk Compensation for E-commerce Enterprises in Junpu smoothness coefficient λ. They are more familiar with the Village, to provide loan for network traders. The second is revenue condition of initiators, so λR is closer to R. The the supplier of public products and services. In the case of other is that acquaintances are more likely to succeed with Dongfeng Village, the government of Shaji Town the help of initiators in that the difficulty of imitation abates established the office for e-commerce industry and the communication is smooth enough to solve potential development, providing guidance on the expansion of problems arising during imitation. The third reason is that productive land and setting up industry parks for acquaintances bear lower costs of learning and risk. e-commerce. The third one is organizer. In both Junpu Initiators may assume high costs of learning and risk. Village and Dongfeng Village, network traders carry out However, when they teach the experience to their conversation and operation with colleges and universities, acquaintances, it can be regarded as a scale economies as well as participate in technical training under the effect, abating the costs for imitators. organization of local government. After the primary diffusion, the Taobao Village will enter 3.2.2 Collective cooperation of net traders the stage of accelerated diffusion with snowball effect. The effect originates from two aspects: one is the increase of During the formation of Taobao Villages, network traders diffusion sources, and the other is the syphonage effect on tend to cooperate collectively. According to Schmitz’s outer resources. On the stage of accelerated diffusion, the model of collective efficiency, there are two sources for imitation mechanism remains the same while the imitator collective efficiency: one is external economy and the other [23] transits to a new diffusion source. The transmission expands is joint action. The external economy of network traders in scale and the number of imitators multiplies by exponent. agglomerate in the same village surely enhances collective [24] On the other hand, government, media, research institutes efficiency, but it is an unconscious and passive one. With and service providers start to pay attention and get involved. the competition becoming tenser, this homogeneity of At this time Taobao Village has entered the second stage of products gives rise to internal friction, which reduces Bruso’s model and thus their involvement has exerted collective efficiency. Meanwhile, network traders are positive effect on the acceleration. In addition, some Taobao confronted with same external competition, so conscious Villages （like Junpu Village) exploit their own advantages joint action becomes a necessity. From the experience of Dongfeng Village and Junpu Village, the main form of and service system, attracting people from the outside and collective cooperation is to establish e-commerce fostering the increase of quantity and scale of network association, which unites all the individual network traders traders. and, through proper management, can achieve the efficacy 3.2 Second stage of Bruso’s model of “1 + 1 > 2.” On the one hand, it can evade malignant competition 3.2.1 Intervention of local government from the inside and promote benign development. Since the Current Taobao Village experience has shown that when imitation process is mainly based on duplication, the a Taobao Village grows up to a certain extent, local homogeneity problem accumulates, causing the price and government begins to intervene. On the one hand, as village quality of the product to go down. In Junpu Village, over e-commerce grows rapidly, network traders require more 80% Taobao shops vend clothes, most of which vend public products and services. On the other hand, the products on commission while only a small portion of development of e-commerce is also of great significance to which designs on their own. The majority are concerned promoting entrepreneurship and employment, increasing about the sales condition of each other, as popular styles income and stimulating local economy. So the governments will soon be copied by others and sold at lower prices, choose to intervene, to pursue political achievement and to which may lead to the use of inferior material and serve the people. From the cases of both Dongfeng Village replacement of superior goods with low-quality ones. In and Junpu Village, the support from local government is Dongfeng Village, with the prosperity of Taobao shops, definitely essential to accelerate the formation of Taobao homogeneity has triggered a battle of price, and the profit Village and guarantee its sustainable development. The rate dropped sharply from 70%–80% to 30% in 2010, to government ought to uphold the concept that the power of 20% in 2011, and 8%–10% in 2014. Some villagers used local government should be “neither absent nor offside,” inferior material in production, affecting the reputation of leaving the market playing a dominate role while enhancing all the traders. Therefore, it is crucial to cultivate guiding and serving capability as well as the supply level of self-discipline, encourage innovation and eliminate fake and public products, to adapt to the need of Taobao Villages. In low-quality products through the establishment of summary, the role that local government plays consists of e-commerce associations and reinforce quality assurance three parts: the first is policymaker. Taking Junpu Village as and integrity construction, so as to build benign collective

7 Economic Geography 2015: 35(12) reputation. On the other hand, collective cooperation can strengthen their status and draw public attention. First, through the e-commerce association, network traders can enhance their ability to negotiate. For example, in Dongfeng Village, the unity through association guarantees discourse right when negotiating with express companies, which leads to discount. Second, associations can reflect requirements of network traders to village organizations and local governments, making it easier to obtain support and resources. In Junpu Village, e-commerce association has acquired fund support from local government through appeal and established Funds for Integrity Development of Junpu Village. Additionally, e-commerce association has organized group activities (or participated in activities somewhere else), such as Spring Festival shopping, exhibitions, sales promotion and forums, which draws attention from the society and enlarges popularity. It helps online shops explore external need and gain more profit.

3.2.3 Vertical agglomeration: service providers Fig. 2 Diversified competition, service outsourcing and the station in the village upgrade of Taobao Village Service providers of Taobao Village include express being is to successfully build up a symbiotic evolutional companies, telecom operators, third-party e-commerce system that consists of network traders, material suppliers, servers, financial institutions, training institutions, and so manufacturers, network wholesalers, service providers, on. When a Taobao Village reaches a certain extent, the e-commerce association and social environment (including scale economies effect caused by agglomeration will attract factors like market, policy and humanity). The system is service providers to enter (or expedite the occurrence of open, ordered and normative, with the ability of local service providers). From the perspective of network self-reinforcement. If the quantity of network shops and traders, with growing business and competition, they are in annual trading volume have reached the standard, but absolute need for support from service providers. Take network traders do not cooperate with each other and even third-party e-commerce servers as an example. They can compete malignantly, or the village lacks the service system provide network traders with professional services such as provided by e-commerce servers, financial institutions and goods description, label design, advertisement design, training institutions, then it is not a real Taobao Village. visual packaging, new media promotion, smart mobile Meanwhile, though reaching quantitive standard, the village terminal development, and so on, which helps network depends highly on the support of local government, lacking traders save costs and enhance diversified competitive self-organization and self-development, then it is neither a ability. As shown in Figure 2, in the primary stage of real Taobao Village. The formation of a real Taobao Village Taobao Village, network traders mainly imitate with low requires the completion of e-commerce ecosystem, costs. With the increase of number, competition becomes diversification of system features and interaction among fiercer and network traders adapt a diversified strategy. features, eventually with the participation of diversified, Nevertheless, to improve the competitiveness in graph, complementary functional and closely collaborative market video, brand, advertisement and sale, they have to pay an subjects as well as with favorable market condition, expensive cost, which is why outsourcing becomes a wise supportive environment and cluster regulations for decision. Furthermore, professional service providers e-commerce development, which exerts an industrial stationing in Taobao Village can prompt the transformation agglomeration effect in both entity and network space. In of Taobao Village from an imitator to an innovator. this way, there are not so many Taobao Villages as AliResearch has counted. 3.3 Signs of Taobao Village coming into being The quantitive standard by AliResearch made for judging the formation of Taobao Village is actually not important. 4 Conclusion Instead, it is for the convenience of counting and will continue to adjust in the future. In this paper, from the Conclusions are drawn in this paper. First, the formation perspective of industrial cluster and niche, we draw the process of Taobao Villages can be generalized as a conclusion that the sign of a Taobao Village coming into “two-stage and five-process” evolution model. The first

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