China’s Jack Ma hits gold with Alibaba

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November 12, 2016 6:15 AM

Ma is widely regarded as a global “game changer”. He is the second richest in China, the eighth richest among technology stars and is ensconced amongst 33 billionaires in the world (Forbes, 2016).

On one hand, if compromises be the name of the game, rumours suggest that Ma is no exception. That Ma had the tenacity to climb out of his serial misfortunes—makes for an endearing bottom-line for our times (Reuters)On one hand, if compromises be the name of the game, rumours suggest that Ma is no exception. That Ma had the tenacity to climb out of his serial misfortunes—makes for an endearing bottom-line for our times (Reuters)

If there is one city in China that reeks of tourists, it is Hangzhou in Zhejiang (province)—China’s quintessential jewel in the tourist crown, the stuff of Chinese calligraphy that you and I know of. Hangzhou’s pristine beauty survived the blight of communist gentrification so did its legendary entrepreneurial esprit de corps. Nobody embodies the Hangzhou spirit better in modern times than entrepreneur Jack Ma—Hangzhou’s own son-of-the soil, whose Alibaba (e-commerce giant based in Hangzhou) is the quintessential rags-to-riches story, which holds China and the world in thrall.

Ma is widely regarded as a global “game changer”. He is the second richest in China, the eighth richest among technology stars and is ensconced amongst 33 billionaires in the world (Forbes, 2016). What makes Ma shine in the sea of China’s billionaires is attributed to his ability to reverse his misfortunes. Once, Ma was rejected by Ivy-league Harvard. He failed to get a job at Kentucky Fried Chicken (KFC), failed to get Silicon Valley back Alibaba, and then are failed investments such as Momo and Ding Talk.

In other words, Ma does not fit the conventional “success model”—he neither attended plush Ivy-league institutions in the West (or for that matter at home), rose to success without an iota of hereditary wealth and sans ties with China’s “red” elite.

Ma’s story (or Ma Yun as he is known in China) reflects not only the dramatic transition of China from closed communist to coveted global player but also the tenacity of a small-town boy who sans mentors, Communist Party-backing (at least during the initial years) and despite a string of failures, finally, struck gold. And how.

Ma’s story goes back to the 1970s when he was just another gangly English-speaking guide in the touristy city where he worked for free (to hone his English-speaking skills). Later, Ma, armed with a degree from Hangzhou Teacher’s Training Institute, set up a business to create websites for clients. The time, post-reform era (post-1978) could not have been more opportune, coinciding with the emergence of industrial clusters—the resurgence of traditional manufacturing firms in the Jiangnan area (Jiangnan is the area south of the Yangtze river) e.g. Zhejiang province. This area is known for its entrepreneurial and manufacturing prowess—indeed this area is the heart of China’s manufacturing.

Among others, Peking University scholar Wang Jici noted that industrial clusters in this area largely penetrated the light industry, filling the vacuum left by the structural defects of the command economy. The spread of these clusters can be gauged by the sheer numbers in the past decades. Zhejiang province has hundreds of industrial clusters in various light industries since 1985 (e.g. textiles, garments, furniture, pens, socks, undergarments etc).

What made these industrial clusters thrive was that whole villages, towns and counties (the levels of local government) not only lay in close geographic proximity but also exhibited an “unusual level of social embeddedness and integration” often specialising in just one product: e.g. village A made fabric, Town B made buttons and County C put it together by tailoring shirts.

Tapping into the potential of such a large manufacturing base, in 1999, Ma founded an e-commerce company Alibaba envisaged as an “online marketplace company” that would function as a one-stop shop connecting manufacturers in the region with wholesale dealers, a move in sync with the internet boom. Since then, Ma hit bulls-eye and has not looked back. Today, there are approximately 1,300 “ Taobao villages” where more than 10% of the residents run virtual shops.

The impact of the virtual shops can be seen in any Chinese city—big or small where the buzz of delivery boys on the run delivering anything from furniture to crates of beer, from clothes to umbrellas is to be seen to be believed.

China has 690 million netizens and 1.3 billion mobile users. Alibaba was among the first ones to tap into changing consumer behaviour where netizens and mobile phone users use the net/mobile phone to shop, play and pay.

Alibaba’s popular arm Taobao, started in 2003 to enable individual businesses to sell to consumers (C2C) and Tmall, started in 2008 to help businesses sell to consumers (B2C). In the bargain, Alibaba has created millions of jobs down the chain: from godowns to warehousing personnel; from forwarding agents to delivery boys.

Taobao has been charming domestic consumers with an array of goods at competitive prices, mixing e-commerce with social media and entertainment. Shanghai-based entrepreneur Xing Zhao of Young Chinese Blood (YCB) design label says “brands actually almost build their Taobao stores as their official websites because the Chinese customers are looking more at Taobao than individual websites”. Amazon recognized the reach of Taobao as it opened a store on the Taobao platform last year.

Ma has also created a shift with Alipay (2004, online payment platform, later separated from Alibaba rebranding as Ant Financial Services) as the Chinese consumers are starting to prefer payments via mobile phones over credit/debit cards (which culturally are less favoured). According to The Wall Street Journal (WSJ, Hong Kong) Alipay has 450 million users and processes (on an average) 153 million transactions a day, this (in the first quarter) being almost 10-times more than PayPal Holdings Inc, making China one of the world’s largest mobile payment market.

This is partly because paying via Alipay is simple. The process from beginning to end takes only a few minutes from scanning the QR code of the receipt to opening the Alipay app to punching the passcode. Alipay has recently partnered with Commonwealth Bank of Australia (CBA) enabling Chinese tourists and students to use Alipay in Australia, is partnering with Charoen Pokphand in Thailand and Ingenico Group SA in France—helping Chinese tourists/students/ businesses use Alipay.

Today, Ma is a celebrity whose empire is growing—from accompanying president Xi Jinping to America (2015) to tete-a-tete with American president Barack Obama (2016); from being the second biggest shareholder of a football club (Guangzhou Evergrande football club, 2014) to the presenting partner of FIFA World Cup (2015); from owner of Youku Tudou (China’s Youtube, 2015) to investing in Hollywood (films such “Star Trek Beyond” 2016), from web browser UCWeb to social media platforms Weibo and Snapchat. Alibaba is now the largest retailer in the world ahead of Walmart (in April 2016).

Ma is making forays in ASEAN committing to participate in the development of “local, small and medium-sized enterprises and young people” at the 13th China-ASEAN Expo in September 2016. Recently, Alibaba has invested $1 billion into Lazada, Southeast Asia’s largest e-commerce company. Ma has been appointed as the advisor to the Malaysian government on digital economy, and what’s more, Indonesia has a proposal to have him as an advisor on e-commerce development too.

The spread of Ma’s empire from football to entertainment to media raises questions whether it has all been a happy accident—in other words, what does it take to do business in China?

Like it or not, critics say that Alibaba has been on the right side of the Communist Party. Infamously, Alibaba cooperated with the Party in the journalist Shi Tao case (who had used his Yahoo! e-mail in 2004 to write to a pro-democracy website in America). Shi Tao’s details were released by Yahoo! which had invested in Alibaba.

Whether Alibaba stokes “guanxi” (networks) is another matter. For sure, it employs many “princelings” (related to the top party/cadre hierarchy). This includes controversial ex-PM Wen Jiabao’s son Wen Yunsong, ex-President Jiang Zemin’s grandson Jiang Zhicheng to Politburo Standing Committee member Liu Yunshan’s son Liu Le Fei.

Many complain that returning defective goods is often long-drawn and cumbersome. But with goods on the cheap and at par with those in the malls, most are not complaining.

How does Alibaba handle competition? It turns out that competition is home-grown—many prefer the operational smoothness of Alibaba’s competitor which owns logistics and which has bought popular on-line grocery Yihaodian (Number 1 Store) from Walmart last year.

Written into Ma’s success is Alibaba’s rising media empire—paying a whopping $266 million acquiring the 113 year old daily South China Morning Post (SCMP) and all other media assets owned by the SCMP group in Hong Kong. According to Singapore’s Strait Times, the SCMP gets 4 million website visitors per month, majority of them from outside Hong Kong. Naturally, the implications of media-control in Hong Kong, already on the boil, may be bigger than it seems.

Alibaba has invested millions in financial media too—from 21st century media, Harvard Business Review (China), and well-known Caixin Media Company.

Together with Baidu (China’s Google) and Tencent (QQ messenger and WeChat) the three are now referred to as “ BAT”—they belong to the “$100 billion club” all with growing media empires.

On one hand, if compromises be the name of the game, rumours suggest that Ma is no exception. That Ma had the tenacity to climb out of his serial misfortunes—makes for an endearing bottom-line for our times.

On the downside, the Chinese—on the mainland and in Hong Kong are themselves seeking an answer to Alibaba—going from strength to strength. That non-state media is rising is one thing, but the impact on the control and flow of information is another, that which may have wider and darker ramifications in the future.

The author is a Singapore-based Sinologist and adjunct fellow at the Institute of Chinese Studies, Delhi. She is the author of Finding India in China

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