Alibaba eyes recovery following fraud scandal

E-commerce site Alibaba.com has sought to draw a line under its hugely damaging fraud scandal, claiming a 73% increase in the number of Australian businesses using the site.

According to the company, more than 497,000 Australian users have signed up to the site in the past year, despite recent reports of massive internal fraud, which led several senior executives to step down.

In February this year, Alibaba’s chief executive and operations officers resigned from the company after it was revealed more than 100 employees had assisted fraudsters bypass verification measures.

The company said in a statement that an internal investigation found 2,300 sellers on the site committed fraud, and in some cases were aided by the company’s staff.

Those businesses committed fraud against Alibaba customers, sometimes failing to deliver products that were paid for. The company has said it will work with police to hunt down the fraudsters.

Alibaba.com had more than 61 million registered users globally as of the end of 2010. China is the biggest supplier to Australian users of Alibaba.com, accounting for nearly 70% of sourcing enquiries, followed by Hong Kong and India. 

Founded in China in 1999, Alibaba.com works as a platform for businesses by connecting them with potential customers and suppliers from around the world for a range of goods. Annual revenue hit approximately US$834 million in 2010, a 43% increase from 2009.

Brian Walker, managing director of The Retail Doctor, says small businesses can suffer from a scandal if they don’t handle it properly.

“If it’s in the public domain, it’s common knowledge and it has a direct link to a consumer’s perception of your brand, I don’t think you have any other choice [than to acknowledge it],” he says.

“The challenge is not to overstate it, but it definitely needs to be on the agenda. You would typically engage a good public relations company to help you with this.”

“So you go through a period of acknowledgment of the issue, some degree of damage control, a rectification strategy, a measurement of the effectiveness of that strategy and communication as to the resolution, and then you move on.”

KPMG fraud expert Gary Gill says the Alibaba.com fraud scandal serves as a warning for businesses conducting transactions online.

Gill says businesses should conduct regular security audits to eliminate any type of fraud as such scandals can be damaging.

“With online business, it’s always susceptible to fraud. If you look at the surveys we’ve completed, most fraud in organisations happens internally,” he says.

“From an Australian perspective, there are lots of people buying goods online now, and with the dollar being at parity, it’s a good time to think about the risks.”