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Small vendors' wrath

By Ding Yining (Shanghai Daily)

08:16, October 18, 2011

Thousands of small vendors vented their anger at higher fees on China's largest online shopping site Taobao last week by buying reams of products from bigger sellers and immediately asking for refunds.

Dozens of the bigger sellers were forced to suspend transactions when their service systems got jammed by refund requests. Taobao's rules guarantee refunds to customers within seven days, no matter what grounds they give for wanting their money back.

Small businesses that run shops on Taobao Mall formed online communities to carry on their refund onslaught, which also included issuing bad scores that affect reliability ratings on the site. They were protesting a proposal to charge them up to 10 times more for selling on Taobao.

The refund assault lasted four days. Most normal operations resumed by Saturday.

Taobao is an eBay-style arm of Alibaba Group, China's biggest e-commerce company.

Big, established vendors found themselves caught in the crossfire of a dispute that doesn't really involve them.

An official at HStyle, a Korean-style clothing vendor, told the media that some customer sales assistants were vilified with insults and curses via Taobao's instant messaging tool Wangwang.

The online warfare received a lot of public attention and has raised official concern.

The Ministry of Commerce said in a brief statement over the weekend that Taobao's management should listen to the complaints of the small vendors and engage in dialogue to resolve their differences.

The ministry also urged the dissident vendors to pursue their grievances through legal channels instead of gumming up the works with refund claims.

All vendors on Taobao Mall have been asked to sign a new contract by December that will require them to pay as much as 10 times the existing annual technology service fee of 60,000 yuan (US$9,450), beginning next year.

The deposits required as collateral against rule violations will rise to as much as 150,000 yuan from 10,000 yuan.

Small vendors claim the new fees will drive them offline. They also say that their presence on the platform has helped Taobao enjoy the prosperity.

Taobao said in a statement over the weekend that the vendors who launched the attack did not contact the website operator about their grievances.

"We are willing to accept any suggestions and advice about our rules, but we will not tolerate vicious activities against innocent businesses because of divergent views," Taobao Mall said in the statement.

Taobao claims the new rules were designed to ensure users get better service and higher quality products.

At first sight, Taobao's fee hikes may seem unreasonable. But a closer look at the dispute may shed some light on Taobao's rationale.

The change of rules follows a restructuring at Alibaba three months ago, when the group carved Taobao up into three pieces: the Mall, Taobao Marketplace, a site that hosts trade between individual buyers and sellers, and eTao, its online shopping search engine business.

The three arms had been operating separately but weren't given individual names until after the restructuring.

Clear distinction

Taobao Mall hosts only virtual shops run by companies that have business licenses, whereas Taobao Marketplace is open to individual sellers with a valid identification.

Taobao Mall wants to convince users they are getting genuine merchandise and good service. It provides strict rules for customer refund programs and requires vendors to answer all complaints. Those who don't face poor consumer ratings.

Taobao Marketplace, despite strict guidelines and assurances about adherence to intellectual property rights protection, is still considered a hot spot for fake luxury products and consumer electronics.

Taobao Mall wants to make a clear distinction in its business model.

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