The Chinese edition of Fortune magazine recently released their annual Fortune China 500 List for the year 2020. Based on the revenues from the previous fiscal year of all publicly listed Chinese companies, JD.com came in 13th place, up four positions from the previous year. Thanks to high-quality growth in the retail business and rapid growth in the business of providing services, JD.com reached a net income of $83 billion, a growth of 24.9% year-over-year and considerably higher than the average 11% growth rate of the 500 companies.
In particular, net income for their service business increased by 44.1% year-over year as CEO and founder Richard Liu continues to ensure that the company is always on the cutting edge of technology and well positioned for not only the markets today, but also for the future. In 2020, the company not only updated their mission statement to be “powered by technology for a more productive and sustainable world,” but also updated their strategic positioning to identify that they are more than just an ecommerce business, but “a supply chain-based technology and service company.”
For Richard Liu and by extension JD.com, their belief is that as technologies such as cloud computing, artificial intelligence, and 5G are the beginnings of a new “intelligence era” which will bring about reductions in cost for business to operate, a higher level of efficiency, and new opportunities on the supply side. For Liu, boldly facing and adapting to the changes of the world has always been a part of not only his business strategy, but also how he has moved throughout his life. Below, we explore the history of JD.com’s illustrious founder, how the company has advanced in 17 short years, and where they intend to go next.
The History of Richard Liu
Liu is descended from wealthy Chinese merchants who transported goods along the Yangtze river in the early 1900s, but when communism took a hold of the country they lost everything and were forcibly resettled twice before settling in Chang’an, a small village in the northern Jiangsu province. By the time Liu was born in 1973, his parents were rice farmers and he was raised in poverty in the village that had neither running water, roads, nor electricity. They subsisted on corn-based meals such as porridge, corn pancakes and cornbread in the summer and sweet potatoes boiled, mashed into pancakes, and dried in the winter. Liu has said with all of the corn and sweet potato he ate growing up, he hopes to never eat either again.
Liu’s parents would leave him with his maternal grandmother while they tended their rice fields, and he would help her around the house and accompany her wherever she would go. Once or twice a year on very special occasions such as Chinese New Year she and Liu would travel to the farmer’s co-op to purchase pork, and he would watch and learn as she bribed the vendor with peanuts to provide her with one of the fattier cuts of meat. Once home, she would carefully save the fat as she cooked so it could be stored and used to flavor and cook food for the rest of the year. In one of his first instances of innovation, the young child Liu suggested that they also fill their pots with hot water and saved the liquid along with the fat that floated to the surface for use in soups. Aspirational since youth, Liu would see the many racks of pork hanging from the village head’s house and dreamed of one day holding the position, not so he could have as much pork as he wanted, but so he could ensure everybody in the village could have their own.
As Liu aged and learned more about the world around him, his aspirations grew past the small village where he resided. He was constantly searching to find out more about the bigger world out there, starting in primary school when he heard that a government building in the nearby town of Lailong had started being powered by electricity. He organized for him and his classmates to travel after school to the building, and they all stared in wonder at a lightbulb for the first time. Again, in middle school during a school holiday Liu took his seven dollars in savings and traveled first by car to Xuzhou and then by train to Nanjing, the largest city he had ever visited. Prior to this visit, it had not even occurred to Liu that cities and buildings this large could exist, and looking at his first skyscraper he knew he wanted to live and visit cities even larger than that one.
Learning came naturally to Liu, who excelled in school and earned high marks on the National College Entrance Examination (NCEE). Hoping to further expand his horizons, he only applied to universities in Shanghai and Beijing and was accepted to Renmin University, also known as the People’s University of China. Although his family could not come up with the $75 needed for the train ticket to Beijing, the village that he grew up in knew he was destined for more, and the members came together to come up with the money. For those who couldn’t contribute monetary funds, they gave him eggs to eat, and Liu thankfully remembers that he did not need to purchase food for over a week once he arrived at the university.
Attending Renmin University, Liu found that even with his classes, studying, and job at a small business handwriting copies of letters and documents he still had a considerable amount of free time that he desired to put to good use. In one of his first instances recognizing and monetizing a technological trend, he began to teach himself computer programming, a skill that was increasingly becoming in high demand during the early 1990’s. With the capitalist reforms that were occurring in the Chinese economy at the time, there were many new businesses being opened at the time that required his expertise, and Liu was quickly able to not only purchase a computer and cell phone for himself, but even build a new house for his parents.
Wishing to feed the spark of entrepreneurial spirit computer programming had given him, Liu used some of his savings to open a restaurant near the entrance of his school while still attending university. However, he counts it as one of his first and most important learning experiences, as his lack of management skills and naivete saw his employees take advantage of him. They stole money from the till and also forged reimbursement receipts, causing the restaurant to go out of business in less than a year. However, this was a blessing in disguise, as a few years later he rented a small booth in an electronics bazaar in Zhongguancun, selling magneto-optical drives and calling it JD Multimedia.
JD.com’s Pioneering Business Model
On June 18th, 1998 (the namesake for JD.com’s annual “618” promotional blitz) Liu opened his stall in “China’s Silicon Valley” , the technological hub of Beijing. His first business tenet he implemented — guaranteeing the authenticity and quality of his products — is one that is still at the company’s core to this day. In addition to this, Liu bucked the trend of the booths around him and refused to haggle, believing in his valuation of all of his products. Rather than deter shoppers, this business model allowed him to expand his business, first to a full-size retail store and then to a chain of 12 retail locations across Beijing, Shanghai, and Shenyang in five short years. Expanding his inventory beyond magneto-optical drives, Liu made plans to continue growing his in-store retail business and could very well have still been a large retail chain company to this day were it not for the SARS epidemic of 2003.
Mirroring the events of this year, the epidemic spread throughout China and businesses like Liu’s suffered as people remained in their homes to prevent the further spread of the virus. Unable to generate enough business to keep his stores open, he was forced to temporarily close all 12 of his locations, and was left without a steady stream of revenue for an indeterminate amount of time. Never one to take an unfortunate situation lying down, Liu began posting his electronic goods to online bulletin boards in an attempt to continue earning revenue and moving products. He soon found that his businesses’ reputation preceded him even online and was able to keep his business afloat due to his high quality goods and price point to match it.
With the end of the epidemic, Liu re-opened his retail locations, but decided to dedicate one full-time employee to continue selling their products online. After a year selling both in-store and online, he compared the numbers and it was clear that moving to the internet was the direction his company needed to take. He made the decision to move the company exclusively online, and in 2004 started jdlaser.com and closed all of his retail locations. Writing the code for the website himself, Liu was dedicated to learning as much as he could about the wants and needs of his customers, and in the first four years was the sole customer service representative for the business.
In 2005, Liu received an offer to purchase his company for $2.5 million, but he had bigger plans for the company that he wished to see come for fruition and rejected it. By 2007, the company had grown considerably and was operating successfully in the e-commerce electronics business, but Liu’s desire for a more tightly managed company saw him begin plans to broaden its logistical network, taking aspects of the business such as warehouse storage, shipping, and even customer service exclusively in-house. By managing every step of the supply chain from warehouse to the customer’s doorstep, JD.com was not only able to greatly improve their customer experience, but also broaden its reach into third and fourth tier cities such as the ones Liu grew up in.
JD.com benefited greatly from these innovations, becoming a trustworthy online source for consumers as they expanded beyond electronics into all aspects of retail. In March 2013 the company officially became JD.com and in May 2014 the company debuted on the United States stock market with stock prices rising 15% on the day of their IPO. In addition to Liu’s business tenets of quality products and a solid logistical foundation, the company has heavily invested in technology such as drones and AI, adding innovative solutions to its core tenets.
A Promising Future
Today, JD.com has annual revenues of $82.9 billion, over 360 million active customers annually, and over 700 warehouses across China. The company is continually evolving, and increasingly finding the technology and services they have developed in the field of AI and big data to be in demand. Branching out from an exclusively retail company to that of a supply-chain based technology and service enterprise, they have begun to open up their supply chain and logistics capabilities to third parties. By allowing merchants to utilize their services, they help them maximize efficiency by leveraging big data to do things such as accurately predict inventory needs or organize their warehouse layout. In expanding beyond retail, JD now consists of many subsets such as JD Health for pharmaceutical products and JD Fresh for fresh food. Joining the company’s retail platform (JD Retail), digital technology (JD Digits), and logistics (JD Logistics), JD Cloud and AI was officially designated one of JD.com’s four core businesses.
JD Digits is a tech company that covers big data, artificial intelligence, the Internet of Things, and blockchain to help financial and real economy sectors reduce costs, improve efficiency, optimize user experience, and advance business models. It serves 400 million users, more than 700 financial institutions, over 30 cities as well as several public service institutions. JD Logistics is focusing on building the Global Smart Supply Chain (GSSC) together with partners around the world. JD Cloud and AI saw the scale of its business increase by over 500% in 2019, and JD Retail remains the powerhouse that each of these other businesses serve. Technology remains at the core of JD’s growth, and by integrating advanced technologies into their retail platform, each branch pursues the common goal of reducing industry costs and increasing efficiency for the whole society.
During this year’s pandemic period, JD.com stepped up to support traditional industries, SMEs, and brand partners by shortening settlement cycles and offering a large number of advance payments, at the same time empowering their digital transformation with technology to overcome the challenging obstacles Covid-19 presented. Where other ecommerce giants within the industry such as Alibaba and Amazon struggled to adapt to the changed landscape during the pandemic, thanks to the technological advancements and infrastructure JD.com has invested in from the start, they were able to maintain their previous records of same-day delivery for over 90% of their orders.
Using their AI technology, JD.com also helped make sure pertinent information on the coronavirus was properly disseminated to the public. They worked with multiple cities including Beijing, Jiangxi, Anhui, Shandong, Jiangsu, Sichuan, and Wuhan to integrate their AI smart assistant technology into the WeChat account of the mayor’s office for each city, allowing citizens to receive coronavirus information and services via a highly intuitive and skilled chatbot. Through the account, they were able to quickly receive answers to questions such as how to properly wear and dispose of a facemask, how to proceed if they began to experience symptoms, as well as provide information on where the nearest fever clinic was located and how to identify if a recent flight or train ride the inquirer was on had an infected patient.
Another AI and big data service the company has recently introduced is “JD Lightning.” The program is based on their AI writing robot Li Bai and Shakespeare, and uses an algorithm to allow merchants and content marketers to automatically generate text and image content as well as videos. Using their ecommerce site as a massive resource for data in tandem with artificial intelligence to boost operational efficiency, the content created by JD Lightening has been shown to attract 6.6% more traffic and increase an average order size by 24.37% compared to manually created content.
This year, JD has allocated $2.6 billion towards research in development, an increase of 47.8% in comparison to the previous year. In order to ensure they are continuing to both invest in their country and society’s future, JD has launched a program to recruit research and development talent prior to graduation. Nearly 1,000 students majoring in technology for the class of 2021 have already received an offer from JD.com, joining the over 18,000 employees already working in research and development for the company. 80% of these employees hold a master’s degree or above, and several scientists have been selected as IEEE fellows.
As CEO of JD.com, Richard Liu has ensured that his company is never in the business of stagnation. From his humble beginnings as the child of rice farmers, to JD.com’s initial success as an electronics chain, through its evolution to one of the largest internet companies in the world and finally its newest iteration as a pioneer for the future in which AI and big data allow everybody’s lives to become more efficient and easier, Liu’s personal values of quality, innovation, and efficiency have propelled JD.com. With thousands of new technologies in the works and new talent constantly being brought in by the allure of the company’s prowess, Liu has positioned JD.com to be ready for wherever this new technological era takes us.