In the late fall of 2020, Alibaba’s Ma Yun tried to list Ant Financial to become a leader in the Chinese fintech industry, but it was ruined by strong sanctions by the Chinese government. Last spring, he was then fined by the Chinese government for violating the anti-trust law, the largest-ever fine of more than $2 billion.
Ma Yun probably wanted this. Alibaba is China’s largest e-commerce company and has been actively cooperating with the Communist Party. He was also treated as the second most influential Chinese overseas after President Xi Jinping. However, the boss of the organization only demanded absolute obedience from his subordinates, and there was no negotiation with the second-in-command. Thus, a desperate crisis came to both Ma Yun and Alibaba.
Alibaba is said to be the most innovative company among many Chinese tech companies. In general, innovation of Chinese private companies was carried out in the empty space of the socialist system. New demands arise as the economy develops, but since it is the first space created, an optimal business environment without government regulations or interference is created. In this way, Alibaba exploded in Muju Gongsan’s online space.
Alibaba, founded in 1999, quickly dominated the Chinese e-commerce market by establishing Taobao Mall in 2003 and T-Mall in 2008. In 2015, Alibaba’s share of the Chinese e-commerce market reached 78%. However, this overwhelming No. 1 position did not last very long. Jingdong, which has been in a competitive relationship since the beginning of its foundation, has persistently pursued Alibaba based on its strength in selling home appliances, and recently, Pindu, which has proposed a joint purchase method, has been growing rapidly. As a result, Alibaba’s share fell to 51% in 2021. As soon as WeChat Pay instead of Alipay, Jingdong Dotcom instead of Taobao, and Chinese consumers find alternatives, Alibaba is exposed defenselessly to the blades of Chinese authorities. We need to find a way to live soon.
Recently, text mining analysis was conducted on Alibaba’s letter to shareholders for six years from 2016 to 2021. The shareholder letter mentions the future management direction and strategy along with the management performance for the year. Two keywords caught my eye between the common words. One is ‘cloud’, which has been mentioned steadily throughout six years, and the other is ‘global’, which appeared as a major word in 2021. Through this, Alibaba’s future business strategy is predicted as follows.
First, Alibaba is likely to expand its cloud business, which is currently the No. 1 in China. Alibaba’s cloud business revenue in 2021 increased by 50% compared to the previous year. Businesses that manage big data generated through e-commerce and provide it to customer companies have abundant growth potential. However, since the income generated from the current cloud business is only 10% of the e-commerce income, the power to drive the entire group is still weak. The bigger problem is that the Chinese government legislated last summer to prevent private companies from managing big data in the state-owned sector. The market is endless, but Alibaba is in a position to just watch.
Second, it is possible to enter the Southeast Asian market. If competition in the Chinese market intensifies and government interference continues, it can target e-commerce markets in developing countries such as Southeast Asia. Alibaba has already established an e-commerce platform called Lazada in Singapore in 2012. Alibaba Group’s overseas sales share of its total income is around 5% (as of the end of September 2021), which is not yet high. However, in order to enter overseas markets in earnest, it is essential to expand the local supply chain, whether online or offline, which means localization of investment. Entering the distribution market in other countries is by no means easy, as seen from the experience of Korean companies struggling in the Chinese and Vietnamese markets.
You can also think of cloud businesses for Southeast Asian companies. Southeast Asian companies lack the ability to manage big data, so Alibaba can access it. However, this business cannot escape from political issues either. Richard Moore, director of the British Secret Intelligence Service (MI6), recently noted that China’s access to Western data is more threatening than Russia’s military power (The Economist, Jan. 20). The United States and the United Kingdom may not allow transactions between Southeast Asian companies and their own companies that entrusted data to Alibaba. When he left home because he hated the Communist Party, outside, he said he would put a red label on his forehead. It is frustrating for Alibaba.
Finally, if it doesn’t work, it may seek a new business that is completely different from now. It is entering hardware technology industries such as semiconductors, artificial intelligence (AI), and quantum computers.
TED Park
ASIA JOURNAL
