Alibaba is banking on AI to attract customers outside China

Alibaba’s family of generative AI models and new teams focused on AI applications are starting to support the company’s efforts to expand outside of China, including by helping small sellers overcome language barriers and take on more complex tasks such as negotiating returns, said Zhang Kaifu, head of AI development at Alibaba’s international e-commerce unit.

In an interview, he said that for Chinese sellers who have never sold overseas before and can only speak Chinese, “it might make the most sense to switch to our platform because we have AI and other services” to promote both.

He added that the technology “can play a particularly important role in cross-border e-commerce” for smaller businesses.

Hangzhou-based Alibaba has been struggling with slowing growth amid fierce domestic competition, a weakening Chinese economy and changing consumer appetites. International e-commerce, while a smaller component of the company’s total revenue compared with its core retail business in China, has been its fastest-growing business for five straight quarters, rising 45% from the year-ago period, compared with Alibaba’s overall 7% gain in the quarter ended in March.

A few months after OpenAI launched ChatGPT in late 2022, Zhang, who is an engineer by training, was tasked with leading a team of more than 100 engineers and others to develop generative AI tools for the overseas e-commerce sector.

“My main job in the first year was identifying AI use cases,” Zhang said. Internal tests showed that some were able to help sellers increase orders by as much as 30%, including helping sellers communicate in foreign languages, he said.

Zhang said that about half a million merchants currently use Alibaba’s AI tools to create marketing materials, select merchandise and interact with customers. Merchants also use tools built on Alibaba’s Tongyi Qianwen model to negotiate returns and claims for defective products or to handle customer disputes over bank fees.

He added that most sellers on Alibaba’s global e-commerce platforms are small merchants who lack the staff and expertise to handle complex services.

Alibaba’s overseas e-commerce business growth was helped by the move by online shopping site AliExpress last year to launch a new service that lets sellers ship products to Alibaba and leave the selling in the company’s hands, similar to Temu’s model and Amazon.com’s “Sold by Amazon” program. The service, known as Choice, has since become AliExpress’s main engine, accounting for more than 70% of orders.

The unit still faces a number of challenges. Higher marketing spending on international expansion was partly to blame for Alibaba’s profit decline in the quarter ended in March, said Zerlina Zeng, an analyst at CreditSights. The company will likely continue to spend more on artificial intelligence and marketing to regain market share, which will weigh on profit margins in coming quarters, she added.

On e-commerce, Zeng said, “we don’t expect material (AI) monetization in the next six to 12 months.”

Regardless of whether AI is used, Alibaba’s overseas e-commerce arm still faces competition from companies like Temu and other fast-growing rivals that are already popular in the U.S. and other overseas markets.

Xing Guangzhi, a merchant from the southern Chinese city of Liuzhou, said he has been using Alibaba’s AI tools for three months to create descriptions for food containers he sells on AliExpress.

The technology appears to have made his products more visible to shoppers, and sales have increased slightly, although he still gets twice as many orders from selling on Temu, he added.

“I’m not sure what role AI can play,” Xing said. “The number of sales is still the most important factor we consider.”

Alibaba’s Zhang said the question of when new AI technologies will become truly productive remains one of the biggest concerns for industries looking to leverage AI to grow their businesses.

“In our case, the cost-effectiveness gains have convinced me that AI is really useful,” he said. “And I think the investment will be justified in the future.”

Write to Raffaele Huang at [email protected] and Kimberley Kao at [email protected]