Alibaba’s e-commerce arm Taobao has launched a new initiative dubbed consumer-to-manufacturer (C2M) that aims to strengthen its foothold in low-tier cities and rural regions that was raveled by Pinduoduo, the low price e-commerce upstart that went public last year.

Using its newly launched mobile app Taobao Special Offer Edition, the new initiative helps driving the digital transformation of manufacturing businesses in rural China while providing low price products to consumers. Taobao said that it would bring 10 billion new orders to manufacturers across China over the next three years through the initiative, and will eventually transform thousands of manufacturers into "super factories" that can each reach 100 million RMB in merchandise annually.

Taobao said in a statement that it is using data like actual consumer demand, preferences and behavior, to enable factories to better use raw material as well as manage inventories.

In China’s e-commerce sector, the competition between JD and Alibaba’s Tmall is mostly focused on customers in higher-tier cities. In lower-tier cities and rural regions, the young Pinduoduo was able to achieve exponential growth, threatening the market dominance of Taobao—Alibaba's foundation.

The two platforms, once verbally refused to copy each other's business models, are now in each other's backyard. 

Taobao's Special Offer Edition, which started testing in 2018 and commenced operation on March 26 this year, is largely a direct replica of Pinduoduo's business model, which sells merchandise with extremely low prices in group buy-ish large quantities as well as billions of RMB in subsidies.

Daniel Zhang, CEO of Alibaba, once said that the development of Pinduoduo is not in line with relevant rules because of the low-quality and counterfeit products, and that Taobao and Pinduoduo would not affect each other since the latter targets customers in rural areas. That changed in June 2018, when Alibaba formally announced to ramp up its effort to strengthen logistics capabilities in rural regions, opening as many as 1,000 fulfillment centers across China.

Similarly, Pinduoduo’s founder Huang Zheng said that his company will not be engaged in the higher-end B2C market like Alibaba's Tmall. but signed on top brands like Nike and Omega in July, 2018. Analysts also speculated that Pinduoduo will spin off its "flash sale" channel and modify it to compete with Tmall for premium consumers, in mega cities like Beijing and Shanghai.

Although the concept of C2M has been around since the 1980s, only in recent years the e-commerce platform and technology have made it scalable, allowing manufacturers to better identify market demands and implement a more precise and cost-efficient production. C2M or the so called "made-to-order" model has been a growing trend in China, especially in lower-tier cities. When competition between Alibaba and Pinduduo intensified, both of them have focused more on integration of supply chain.  

"Our initiative will help manufacturers lagging in the digital race to catch up. Data allows them to understand consumer needs and preferences, enabling the right products to be developed in a much shorter time," said Wang Hai, general manager of Taobao’s new C2M business unit.

Pinduoduo launched its C2M initiative in late 2018 when the company partnered with 1,000 contract manufacturers to produce merchandise that fits the preference of Pinduduo’s consumer. One of them is MTC, a contract manufacturer that produces more than 10 million TV sets annually for consumer brands like Xiaomi and Philips. "MTC was able to communicate effectively in areas such as user profile, pricing strategy, supply chain optimization through partnership with Pinduduo," said Chen Xu, a company representative.

Through the C2M model, manufacturers like MTC and tissue paper maker Sipiao, who aren't household names, can now promote their products and brands through Pinduoduo and reach hundreds of millions of consumers directly.

Apart from the newly-launched Taobao Special Offer Edition, Alibaba also has other channels like Juhuasuan and Daily Deals that help factories to streamline supply chain process and provide customers with cheaper products.