This is the last of a four-part series breaking down Alibaba’s plan to shake up logistics in China: Cainiao Network. PART 1, PART 2, PART 3

Cainiao’s Platform Model Versus Jingdong’s Direct Model

By analyzing the aforementioned five pillars of Cainiao Network, we find that the implementation of its strategies cannot be achieved without collaboration with other partners such as warehouse storage operations. This reveals Cainiao Network’s business model implementation approach: a data-driven “platform model” (i.e. decentralized, horizontally integrated, asset-light).

Clearly, the platform model advocated by Cainiao Network is very different from the “direct model” (i.e. centralized, vertically integrated, asset-heavy) represented by Jingdong and SF Express and represents a different logistics development approach.

But it’s not a simple comparison – whichever fits a company’s own needs at any given stage is the most appropriate approach.

The advantage of the direct model of Jingdong lies in the high degree of control and better experience it can bring. As long as ecommerce logistics has massive demand reflected in warehousing and distribution, Cainiao’s platform model can achieve rapid growth.

In Cainiao Network’s view, the platform model is the inevitable future of logistics. Cainiao’s president Tong Wenhong believes that the direct model has no future and “Jingdong will eventually use Alibaba’s model in the future” on the grounds that Jingdong needs seventy to eighty thousand logistics personnel to process a daily parcel volume of one million and SF Express needs close to 400,000 logistics staff to handle a daily capacity of 4 million parcels.

When the number of China’s packages reaches 200 million, how many logistics staff will be needed to deliver them? The director of strategic cooperation at Cainiao Network, Li Wei, has said that “in the pyramid-shaped management structure of the direct model, each layer added will result in additional management costs of about 30% being passed along.”

The direct model ensures better service and timeliness, but it cannot solve the problem of scale. Cainiao hopes to help logistics companies through a platform approach with the goal of improving service and timeliness through technical means rather than brute (human) force.

Cainiao’s Platform Model Has its Skeptics—SF Express

Although Cainiao is very confident about its own platform model, its partners are not and some are even rejecting it. When Cainiao Network was established, it claimed bring innovation to the express delivery industry using a cloud system and warehousing storage system.

Two years later, these original strategies became the previously highlighted five key strategies: the express delivery strategy, the warehousing and distribution strategy, the pickup stations strategy, the cross-border logistics strategy and the rural logistics strategy.

The first three strategies almost closely control the operating lifeline of courier companies: that is, they intervene in terms of data, control delivery routes, and seize the last-mile. Needless to say, it will cause resistance by courier companies.

Take SF Express as an example. Even though SF Express and the “Three TOs and One Da” were all 1% stakeholders when Cainiao was established in 2013, they have expressed disagreements regarding their position with respect to Cainiao.

During the “Cainiao Jianghu Assembly”, more than 10 representative courier companies led by the “Three TOs and One Da” appeared to support Alibaba; only SF Express was absent. When facing the matter of business alliances, the strategies of the “Three TOs and One Da” are completely different from that of SF Express.

“The Three TOs and One Da” have difficulty coming to a resolution, while SF Express wants to get rid of the control of Cainiao Network platform and its ambition to be independent is abundantly clear. To show you why, let’s look at a simple comparison of SF Express and Cainiao Network.

cainiao business-model

Through the above comparative analysis, SF has been keeping an alert and sober eye on Cainiao for some time, and it has even tried to “challenge” Alibaba. The “Three TOs and One Da”, on the other hand, have been strategically ambiguous.

At present, it is hard to say who will win and who will lose—this is a long-distance race, and at this moment, the competition is more about who has made the best preparations for the future.


This three part series aimed to systematically review and analyze the commercial trajectory and development of Cainiao Network over the past two years since its establishment in 2013.

It also focuses on Cainiao Network’s strategic positioning to complete Alibaba’s own business ecosystem, and points out the five current strategic directions and implementation approaches of Cainiao Network. The main conclusions are as follows:

  1. Consumers have long complained about poor logistics in China. With the growth of the direct logistics approach of Jingdong, Alibaba’s logistics business has been at a greater and greater competitive disadvantage. This is the real reason why Cainiao has doubled-down building its own warehouses.
  1. Compared with the ecommerce and financial services business that Alibaba has successfully launched before, Cainiao’s current efforts involve many offline courier and logistics issues.

The complexity involved in completing the full integration of online and offline is beyond imagination – no precedent outside of China can be referred to. Also, Cainiao’s partners are cautious and alert and have their own contingency plans. Therefore, it is difficult to say whether Cainiao’s platform approach will be successful in the future.

Implications For Logistics in Southeast Asia

As Alibaba may have noticed, Southeast Asia shares a lot of similarities with China a decade ago, especially in terms of a nascent and fragmented logistics ecosystem.

Because of the pain points in logistics, plenty of investor funding has gone into this space. Companies like Ninja Van, Deliveree and the now-defunct Zyllem have raised millions to tackle the last-mile challenge in SEA – even Lazada invested in its own delivery fleet as part of Lazada Express (LEX).

In this kind of environment, introducing a platform like Cainiao would make a lot of sense. A central platform with large address database and route optimization would improve the efficiency of logistics in the region.

On the other hand, it could also spell bad news for last-mile delivery companies in the region because Cainiao would end up controlling the supply of packages, the data, the rules, and potentially turn last-mile logistics into a price-driven, commodity play.

Alibaba was able to get Cainiao off the ground due to the massive order volume from Tmall and Taobao combined. In SEA, there’s no single dominant player who commands the bulk of all orders making Alibaba’s acquisition of Lazada a likely first step towards introducing Cainiao. As we’ve seen with Alipay and Ant Finance, Cainiao in Southeast Asia may not be a matter of “if” but rather “when”.

The original first appeared in Chinese on Yunbao88. Concluding excerpt by Sheji Ho, editing by ecommerceIQ team.

This is the third of a four-piece series breaking down Alibaba’s plan to shake up China’s logistics: Cainiao Network. Part 1, Part 2Part 4

Based on the information available on Cainiao Network, the business model can be divided into two levels:

1. In its strategic positioning, Cainiao Network is an important part of Alibaba’s business portfolio and ecosystem, complementing its weakness in logistics.

2. From a business operations point of view, Cainiao Network is an expansion of the Taobao model onto the field of logistics.

Strategic Positioning

Alibaba and Jingdong are the two giants in the field of ecommerce in China. Since the early days of its business, Jingdong has always emphasized logistics and built out its own warehouses and fulfillment centers as well as last-mile delivery fleet. This is exactly the opposite of what Jack Ma has done, with Alibaba’s focus on maintaining an asset-light business model. Alibaba’s intention for Cainiao Network is to enter the field of logistics and make up for its weaknesses in this area.

From the existing business segments of Alibaba, through Taobao/Tmall, Alipay/Yu’E Bao, and Ant Financial, the company has had full control of the business flow, information flow and capital flow in ecommerce, but it doesn’t have any control over the physical logistics part. The establishment of Cainiao Network allows Alibaba to fully control the entire ecommerce value chain, all the way from businesses to consumers. Because of Cainiao, Alibaba’s ecommerce ecosystem can now be considered complete. 

Below is an illustration of Alibaba’s ecommerce ecosystem.

cainiao southeast asia

Focusing on the logistics link in the chart, Alibaba has achieved control of courier companies through Cainiao Network and courier companies have been relegated to being just a “transportation tool” in Alibaba’s ecommerce system.

Through the construction of an ecommerce logistics platform ecosystem, Cainiao Network has become a rule-maker in the logistics industry to take the lead in the development of industry guidelines. This will undoubtedly contribute to the standardization of China’s courier industry.

However, for courier and logistics companies, they can’t help but feel uneasy that control will be by someone else rather than themselves. This sense of unhappiness is, to a large extent, reasonable, but they don’t really have the leverage to reject it.

A tremendous 70% of the business of the “Three TOs and One Da” and other courier giants comes from ecommerce. In April last year, Cainiao Network launched an e-shipping label system that now accounts for 40% of the entire volume of the courier delivery system and is expected to reach 100% by the end of 2016. As a result, Cainiao has an increasingly tighter grip on flow of goods and information resulting from ecommerce transactions in China.

At this point and in light of everything discussed, we need to think twice about Jack Ma’s commitment not to have Cainiao provide courier services, buy trucks or recruit any delivery staff. Jack Ma’s words are very tactful and subtle.

Although Cainiao Network isn’t going into the courier business, incumbent courier companies are increasingly dependent on Alibaba to receive courier business. Its impact on the existing courier industry is not a possibility but an inevitability.

Through the construction of Alibaba’s ecommerce ecosystem, Cainiao Network controls the vast majority of Alibaba’s logistics resources and will have the full right to speak. All the courier companies and line-haul logistics operations companies have to use Cainiao Network to access orders, uphold their ethical standards and follow the logistics hardware and software standards and the corresponding logistics rules developed by Cainiao Network.

Specific Business Model

Regarding its specific business model, Cainiao Network is an extension of Alibaba’s Taobao model, both commercially as well as conceptually. Taobao was developed as a third-party ecommerce platform between sellers and buyers, and gradually became a sound ecommerce ecosystem through the introduction of Alipay.

Cainiao Network applies this business model to the logistics field through the construction of a “China Smart Logistic Network (CSN)”.

It aims to create a virtual platform for an intelligent logistics ecosystem.

To build this “China Smart Logistic Network (CSN)”, Cainiao Network relies on five strategic pillars: express delivery, warehousing, cross-border logistics, rural area logistics and pickup stations. It strives to soon achieve the goal of 24-hour delivery within the country and 72-hour delivery across the world.


Strategy 1: The Express Delivery Strategy—bring an end to price wars among courier companies

With regards to express delivery, Cainiao Network’s next focus is to use the internet and big data to help courier companies become more data-driven to drive product and service expansion. This will enhance the overall speed and service level of the logistics industry and at the same time maintain order in the market and prevent courier companies from entering price wars.

Skeptics, however, would say that Cainiao’s success will actually drive last-mile players into a commodity service as they compete for orders drip-fed to them through the Cainiao Network. Cainiao aggregates Alibaba’s massive ecommerce demand and leverages it to drive down prices among last-mile suppliers. As a result, logistics becomes cheaper and more people will use ecommerce, driving up GMV, with Alibaba being the ultimate winner.

It is reported that Cainiao has launched a number of big data products. For example, the level 4 address database generated by Cainiao along with AutoNavi Map and big data algorithms can match a consumer’s delivery address to a specific township.

And the popularization of Cainiao’s e-shipping label system is expected to become the basis of digitization of courier companies to further enhance the overall efficiency of the industry.

Strategy 2: The Warehousing and Distribution Strategy

Through a social collaborative approach, Cainiao has formed a nationwide network to help businesses improve warehouse operations efficiency and experience. Having distribution hubs in five locations will reduce logistics costs and achieve next-day delivery in 50 cities within this year – a smart network.

Strategy 3: The Cross-border Logistics Strategy

In order to align with Alibaba Group’s globalization and rural strategy, Cainiao aims to establish a global network to reduce cross-border ecommerce logistics thresholds.

At present, Cainiao Network already has overseas warehouses in seven countries and cities and achieved a direct connection with national postal information to better serve the global market.

In terms of imports, Cainiao Network will enable consolidated imports and direct mail routes to allow consumers to have the same logistics experience as they do with domestic online shopping.

It is reported that Cainiao has partnered with YTO, DHL and the Russian Post and opened a number of import channels between the United States and China, Australia and China, and South Korea and China.

The company is also piloting a bonded warehouse model with several cross-border ecommerce businesses in Hangzhou, Guangzhou and Ningbo and in addition, established data integrations and business partnerships with dozens of overseas logistics partners to achieve synchronization of logistics information.

Strategy 4: The Rural Areas Logistics Strategy

Regarding its rural strategy, Cainiao has rapidly built the capability to cover second-tier logistics in counties and villages country-wide by relying on Alibaba Group’s Rural Taobao initiative. This was done in collaboration with Shanghai Winshine Logistics and dozens of other cash-on-delivery logistics companies as well as China Post.

Since the launch of Alibaba’s “1,000 Counties and 100,000 Villages” program in the second half of last year, Cainiao has in a few months used existing social logistics systems and its technical advantages to achieve quick delivery of goods from county to village.

Currently, Cainiao Network has achieved delivery of goods from Rural Taobao to villages in Ningxia, Guizhou, Jilin, Jiangxi, Fujian, Jiangsu, Zhejiang and Guangdong.

Cainiao Network’s data from May show that about 20% of the orders in areas covered by Rural Taobao of Alibaba can be delivered with same-day or next day service.

Strategy 5: The Pickup Stations Strategy

Cainiao has jointly built Cainiao pickup stations across the country with its partners. Through student entrepreneurs at colleges and universities, residential property management companies Greentown and Vanke in neighborhoods, and convenience stores such as C-Store, it has formed a “crowd-sourced” last-mile delivery network covering major cities across China.

At present, Cainiao Network is operating more than 20,000 pickup stations that provide integrated logistics and lifestyle services. In the future, this will be a last-mile logistics and express delivery network across the country.

Cainiao has also launched an app called “Guoguo” that consolidates all functions of courier companies, allowing users to check shipping status and to drop off and pick up orders.

By analyzing the aforementioned five pillars of Cainiao Network, we find that the implementation of its strategies cannot be achieved without collaboration with other partners such as warehouse storage operations. This reveals Cainiao Network’s business model implementation approach: a data-driven “platform model” (i.e. decentralized, horizontally integrated, asset-light).

For the final part of this series, we compare the “platform model” against the more common “direct model” and what this all means ultimately for China’s future and its influence on Southeast Asia.

The original first appeared in Chinese on Yunbao88. Editing by ecommerceIQ team.

This is the first of a four-piece series breaking down Alibaba’s plan to shake up China’s logistics: Cainiao Network. Part 2, Part 3, Part 4

The Beginning

In May 2013, Alibaba, along with Yintai Group, FOSUN Group, FORCHN Logistics, SF Express and a group of leading Chinese last-mile logistics companies conveniently labeled “Three TOs and One DA” (YTO Express, STO Express, ZTO Express and Yun Da Express) established Cainiao Network Technology Co. Ltd.

This consortium led by Alibaba is committed to building a “China Smart Logistics Network (CSN)” to realize 24-hour delivery of any product to anywhere in China and a total of 300 billion RMB ($43 billion USD) was invested to kickstart the project.

Alibaba’s announcement of Cainiao and Jack Ma entering the logistics industry was like an atomic bomb dropping, with rippling effects across the entire value chain including the Internet, ecommerce and real estate industries. People soon started speculating that similar to how Taobao transformed an entire generation’s shopping behavior, Cainiao would disrupt and change the traditional logistics ecosystem.

But during the noise, Cainiao retreated into silence. There has been very little public information about the company except for leaked news that it had been gradually acquiring more land as part of a much bigger and soon to be revealed strategy.

All this changed two years later on May 28, 2015, when Alibaba held the “Cainiao Jianghu Assembly” to officially launch Cainiao, along with answers to a series of personnel changes and the strategic positioning of Cainiao Network’s future.

This four-part series intends to shed more light on the series of actions and arrangements made during the period of time between the establishment of Cainiao Network in 2013 and the May 2015 assembly.

We will learn more about Cainiao Network’s underlying business model, why Alibaba initiated it and what the implications are for industries inside China and beyond. With Alibaba’s march into Southeast Asia through the Lazada acquisition, there may be signs that Jack Ma’s Cainiao Network strategy may not only be limited to China.

Analysis of Cainiao’s Ownership Structure

To fully understand Alibaba’s Cainiao strategy, we need to dive deeper into the consortium’s ownership structure. Who are the key players and their intentions? Their backgrounds and roles within the consortium and their percentage share holdings reveal Jack Ma’s master plan.

As mentioned at the beginning of this article, Cainiao’s investors include Alibaba, Yintai Group, FOSUN Group, FORCHN Logistics, SF Express and “Three TOs and One Da”. The proportion of each investor’s investment is shown in the table below:
cainiao southeast asia

Brief introduction and analysis of each investor’s background:

First, FOSUN Group founded in 1992, is mainly engaged in real estate investment, pharmaceutical and steel industries, and its far-reaching professional experience ranges from land acquisition, construction, and warehouse real estate property management.

Second, Yintai Group has long been involved in department store chains, particularly in supply chain management. When Cainiao Network was first established, Shen Guojun from Yintai Group was appointed as its CEO. It was because of Yintai Group’s strengths in this area that Shen Guojun was appointed to take charge of Cainiao’s warehouse and logistics operations.

Third, Alibaba’s stake in Cainiao Network accounts for the largest chunk — a 43% of total investment. This is mainly based on the following:

  • Alibaba has a lot of capital
  • Alibaba is acting to unite different parties in order to address its own weaknesses with regards to warehousing and logistics
  • Alibaba has always favored an asset-light, platform approach (i.e. Taobao and Tmall) and doesn’t plan to become an asset-heavy organization. Let other players do the heavy lifting while Alibaba invests into and builds a platform for intelligent logistics it is able to unify and control the flow of information and finance.

Given that Cainiao could be considered a logistics play, then why have the “Three TOs and One Da” companies and SF Express each invested only 50 million RMB ($7.2 million USD) to account for 1% of total investment?

SF Express and the “Three TOs and One Da” are courier companies. Their participation reflects the resolution of Cainiao Network to become China’s logistics backbone, while also ensuring that risk can be properly dispersed. But why do they account for such a tiny stake?

This may be due to Alibaba’s business arrangement considerations. Through analysis of the relevant investors, we can see that in the future business operations of Cainiao Network, FORCHN Logistics will be mainly responsible for line-haul logistics, and the “Three TOs and One Da” companies and SF Express are left to compete for last-mile delivery.

Through this shareholder structure: FOSUN builds warehouses, Yintai manages warehouse operations, FORCHN is responsible for line-haul logistics, the “Three TOs and One Da” companies take care of last-mile delivery, and Alibaba provides the platform and controls flow of information and financial reconciliation.

The stage is set for Cainiao Network to become the single biggest backbone for logistics in China.

Analysis of Cainiao’s Executive Team

Within the short two years after the founding of Cainiao Network, the company has been through several executive changes. All of which were strategic and diving deeper provides additional insight into Cainiao’s strategy.

When Cainiao Network was first established in 2013, Jack Ma himself served as chairman of the board and Shen Guojun served as CEO. One year later, Shen Guojun became executive Chairman of the Board of Cainiao Network while Zhang Yong, COO of Alibaba Group at the time, took over as CEO instead.

Finally, in 2015, it was disclosed at the “Cainiao Jianghu Assembly” that Tong Wenhong would serve as president of Cainiao Network, specifically responsible for Cainiao Network’s business operations. Who are these big shots?

Shen Guojun (Cainiao Network Founding CEO; former Chairman)

cainiao southeast asia

Shen Guojun founded China Yintai Investment Co., Ltd. in 1997 and served as Chairman of the Board. As the founder of Yintai Group, Shen Guojun led the company’s expansion into commercial retailing, real estate development and natural resources, eventually becoming the 97th richest person in China with an estimated net worth of $2.3 billion.

Shen has also established many well-known landmark projects such as Beijing Yintai Center, Hangzhou Lake Coast Yintai, Hangzhou Wulin Yintai Department Store, Hangzhou West Yintai City, Chengdu Yintai Center and Ningbo Yintai Universal City just to mention a few. As of 2015, Shen Guojun retired as chairman of Yintai Group Board of Directors and Zhang Yong from Alibaba took over.

Zhang Yong (former Cainiao Network CEO, current CEO Alibaba Group)

cainiao southeast asia

Zhang Yong is the current CEO of Alibaba Group, a member of the Alibaba Group Board of Directors as well as a founding partner of Alibaba. A Shanghai native, Zhang Yong started out his career in auditing and advisory at Arthur Anderson and PricewaterhouseCoopers in Shanghai.

In 2005, he joined Shanda Interactive Entertainment Limited, a leading online game developer in China, as CFO. During his two-year stint at Shanda, he led the company through a rapid growth period culminating in a public listing on NASDAQ.

In August 2007, Zhang Yong left Shanda to join Alibaba Group to serve as Taobao’s CFO and later COO of Taobao and General Manager of Taobao Mall. In 2011, as Taobao Mall spun off from Taobao to become Tmall, Zhang Yong served as its president. During his time heading up Tmall, Zhang Yong grew the platform into one of the world’s largest ecommerce marketplaces and is also credited for inventing the Singles’ Day 11.11 mega shopping event.

Since September 2013, Zhang Yong has served as the COO of Alibaba Group, responsible for both Alibaba Group’s domestic and international operations. He has led Alibaba Group in its continuing transition towards mobile, established an integrated global logistics network – Cainiao Network, and launched the Alibaba international platform where China’s consumers can buy global brands – Tmall International. Zhang Yong has also led a number of important strategic investments for Alibaba Group, including Ali Health, Haier Electric, Yintai Business Group, and Singapore Post.

On May 7, 2015, Alibaba Group announced that Zhang Yong would become the CEO of Alibaba Group and, at the same time, serve as Chairman of Yintai Group’s Board of Directors.

Tong Wenhong (current President and COO of Cainiao Network)

cainiao southeast asia

In a classic rags-to-riches story, Tong Wenhong joined Alibaba in 2000 and slowly worked her way up from front desk receptionist to Alibaba Group Senior Vice President. Today, she’s a partner at Alibaba and serves as COO of Cainiao Network as well as Alibaba Group SVP.

With a strong team spearheading this ambitious project by Alibaba, how will they structure a business model to be a strong contender against competitors like JD? The next article in this series will focus on the formation of Cainiao Network’s strategy and further glimpse into Jack Ma’s plans.

The original first appeared in Chinese on Yunbao88. Editing by ecommerceIQ team. Sign up for eIQ newsletter for updates.