ICT infrastructures, e-commerce and rural China’s Taobao villages

The development of information and communications technology (ICT) infrastructures such as internet, smartphones and online social networks has contributed to the rapid growth of e-commerce, which has gradually changed people’s lifestyles and begun to play an essential role in socioeconomic development. Though ICT infrastructures and e-commerce emerged first in urban areas, they are increasingly becoming a profound influencing factor for the development of rural society in addressing their conventional deprivations such as geographical isolation and information asymmetry. With appropriate human capital conditions, ICT infrastructures and e-commerce are facilitating new forms of economic activity and providing alternative development approaches in some rural communities. From this narrative, rural development has entered into a digital era, and the rural communities in the Global South, which used to be deprived and marginalised in terms of geographical locations and institutional settings, are more rapidly influenced by the emerging forces of ICT infrastructures and e-commerce.

While rural communities indeed sit in a vulnerable position in terms of upscaling services and digitalisation, paradoxically, the problem of physical remoteness and inadequate service provision could to a large extent be solved by promoting digital connectivity as a substitute for many of those services. However, a deadlocked situation is that remote rural areas especially lack the required digital connectivity, which has increased the risk of these areas falling even further behind in terms of service accessibility amid the digital transformation. In particular, the population sparsity of those remote rural communities leads to a higher unit cost for ICT services and infrastructures delivery. For this, government support and investment towards narrowing the “digital divide” between rural and urban areas (or informationally disadvantaged and advanced areas) are essential.

China is therefore a typical case in navigating the roles that ICT infrastructures and e-commerce play in reshaping rural society, where state investments into linking rural communities to digital services are significant. Since 2006, the Chinese central government has implemented a series of national initiatives for “village informatisation” and “rural digital development”, aiming to “informatise” and “digitalise” the rural communities in China. The major actions underpinned in these programs include the two aspects of “access” and “application”, namely, 1) to improve rural society’s access to internet and communication infrastructures (including telephone, television, and the internet), and 2) to provide various applications of internet and communication infrastructures (such as government websites, information services stations, agriculture-related websites and e-commerce portals). With the efforts devoted by the central and local government, the gap of internet coverage between urban and rural areas in China has been narrowed effectively. By June 2021, internet coverage in rural China reached 59.2% (the figure is 78.3% for urban China) and broadband speed has achieved urban-rural equality (CNNIC, 2021).

In line with linking ICT services to both urban and rural sectors, China has also made remarkable progress in e-commerce development. By June 2021, the number of internet users in China reached 1011 million, and the number of online e-commerce users reached 812 million, indicating that 80.3% of the country’s internet users have been engaging in e-commerce activities (CNNIC, 2021). Mobile Taobao, established by Alibaba Group, has become the world’s largest online e-commerce platform where customers can buy products, interact with e-traders, and share their content with friends and other users.

Amid the wave of ICT development, digital transformation and e-commerce growth, a new form of regional development based on online platforms has recently emerged in rural China, and some of the rural villages developing e-commerce activities by Taobao platforms are defined as a Taobao village if certain criteria are met: 1) the basic unit of trading venue is an administrative village; 2) the scale of annual e-commerce sales is above 10 million RMB (c.US$1.5m); 3) the number of active online stores is over 100 or the number of active online stores is more than 10% of the total number of local households. The first three Taobao villages emerged in Zhejiang, Jiangsu and Hebei provinces respectively in the year 2009, and by September 2020 there were in total 5,425 Taobao villages (appropriately 1% of the total number of villages in China) distributed in 28 provinces in China (see Figure 1 below, showing most to be located in the East and especially coastal regions of the country) (AliResearch, 2020). The booming of Taobao villages and townships has contributed to socioeconomic development in rural China, evidenced by the fact that for the single year of 2020, the development of Taobao villages and townships is assessed to have created more than 8.28 million job opportunities and achieved more than 1,000 billion RMB (c.US$150bn) sales, which is 50% of the overall online retail sales in rural China (AliResearch, 2020).

Figure 1: Spatial distribution of Taobao villages in China (aggregated in East region) (AliResearch, 2020)

The Taobao villages and rural China’s digital development in a broader sense have been at the forefront of the digital revolution that is taking place around the world today. E-commerce-engaged development patterns in rural China more generally, illustrate how the internet promotes inclusion, efficiency, and innovation for development (World Bank, 2016). Compared with the prosperous development of rural China’s e-commerce development, though existing research has made some initial attempts to unravel the development phenomenon of Taobao villages, more interdisciplinary research efforts are called for in order to explore how ICT infrastructures and e-commerce are embedded into the rural territories, and what insightful implications can be drawn from rural China’s e-commerce activities to help catalyse breakthrough development of rural areas in the wider context of the Global South.

Note: This blog is based upon the PhD research of Yitian Ren at The University of Manchester.

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Distribution of Income from Ride-Hailing in Indonesia

When a customer takes a taxi journey from a ride-hailing platform, where does the money go?

Using data gathered by the Fairwork Indonesia team in Jakarta, we can now break this down using the generic model shown below:

a. Amount paid by customer: the fare for the ride plus a platform fee (sometimes called an order or service or transaction processing fee) plus – sometimes – a tip.

b. Amount paid to platform: platforms typically take a commission (a set percentage of the customer fare, usually between 10-25%) and often also charge a platform fee.

c. Amount paid to worker: all of the tip and the fare minus the platform’s commission.  In some instances – at the end of a shift or at the end of a week – the worker might also get a bonus payment from the platform e.g. for completing a certain number of rides or being available for work consistently and/or at particular times of peak demand.  There may also be other criteria that impact access to bonus payments such as low order cancellation rates or high customer feedback ratings.  Bonuses are paid to the worker from the platform’s share which is taken from the platform’s commission; sometimes also from the platform fee; and in some instances more than this (in other words, in these cases, the worker earns more than the amount paid by the customer due to an additional subsidy taken by the platform from investment or other sources of capital).

The two charts below show the distribution of customer payments for two car ride-hailing platforms (which were charging a 20% gross commission on the customer fare plus a fee).  Figure 1 presents data for drivers who own their own vehicles (the minority of car taxi drivers in our sample).  Figure 2 presents data for drivers who finance their vehicle through loan repayments or (less frequently) rental.

We can draw a number of conclusions:

i. Worker Share of the Pie: the worker’s true net income (i.e. after work-related costs have been taken into account) is a minority share – around one-third – of the total payment made by the customer.

ii. Large Business Share of the Pie: aside from the net income earned by the worker, the great majority of the customer payment is captured by large private businesses; typically multinationals – the platform, fuel companies, vehicle finance houses, telecom providers.  A significant chunk of vehicle servicing and maintenance costs even goes this way via parts, oil, tyres, etc.

iii. Fuel Costs: fuel makes up a very significant proportion of costs: around 90% of costs for vehicle owners, who spend more on fuel than they earn in net terms; about half of costs for those who finance their vehicle.  It is therefore not surprising that the price of fuel is always at the forefront of workers’ minds: a relatively small rise can cause quite a significant reduction in their net income.

iv. Financing vs. Owning: not surprisingly, the net income of those who finance their vehicle is a lower proportion of customer payment than that of vehicle owners.  In absolute terms, these two groups take home about the same net income.  It’s not completely clear how this happens but one contributing factor is that workers who finance their vehicles work longer hours in order to help towards earning the extra to cover their repayments: an average 70-hour week compared to a 65-hour week for those who owned their cars.

Notes:

– Although insurance is shown as 0%, there are small payments against this item by some workers; just that they are so negligible a component that they rounded down to zero percent.

– The average figures we have included are that 15% of driver income is made up from tips and bonuses, of which tips make up 1.5% (i.e. one tenth of the extra).  This must be seen as a very rough-and-ready average because platforms’ bonus payment schemes are continuously changing; their availability typically varies between workers (e.g. with tiered systems such that the highest bonus payments are only accessible by workers who meet particular criteria on workload, availability, cancellation rates, customer ratings, etc.); and workers’ ability to meet the targets necessary for bonus payment varies from day to day.  Bonuses are typically also only achievable for those working very long shifts: some of our sample were working 15- and in a couple of instances 18-hour days.

– The figures here do not take into account any customer-side promotions that platforms occasionally run; the assumption being that these may not alter the share of driver income.

– Fairwork data from South Africa showed a similar financial distribution, with ride-hailing taxi drivers’ net income being 32% of the total customer payment.  However, distribution of income will vary between platforms and locations so the figures above should be seen as illustrative rather than universal.

– Research work reported in this blogpost was supported by the German Federal Ministry for Economic Cooperation and Development (BMZ), under a commission by the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ).

Post by Richard Heeks, Treviliana Putri, Paska Darmawan, Amri Asmara, Nabiyla Risfa, Amelinda Kusumaningtyas & Ruth Simanjuntak.

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