Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Opinion / A brave new Alibaba world
BackBack

A brave new Alibaba world

Alibaba's rise in 15 years to a position of profitable global dominance should serve as inspiration to India's entrepreneurs

Alibaba Group founder Jack Ma at the New York Stock Exchange. Photo: Lucas Jackson/ReutersPremium
Alibaba Group founder Jack Ma at the New York Stock Exchange. Photo: Lucas Jackson/Reuters

Hangzhou, on the banks of West Lake, is one of China’s most beautiful cities. It is an hour southwest of Shanghai by the Hu-Hang bullet train. Tourists take in the picturesque botanical and zoological gardens and its many pagodas and mansions. A major new attraction is the ultra-modern 150,000 sq. m campus-office complex of the Alibaba Group, designed by architectural firm Hassell.

Alibaba is no ordinary group. It is the world’s largest e-commerce platform and it listed shares on the New York Stock Exchange (NYSE) last week. This listing will mark the largest US initial public offering (IPO) of all time and very likely the largest in the world when the green-shoe option is exercised (a 15% buffer held to balance the offering). A total of $25 billion would have been raised. The stock opened up 38% on the first day and closed at nearly $230 billion in market capitalization.

The word “giant" seems quaintly understated.

In stock markets, big is not necessarily beautiful. Alibaba is not only mammoth but also profitable and growing. Its revenue growth is over 50%, net margin nearly 50% and return on invested capital over 20%. The group’s businesses span e-commerce for business-to-business transactions, retail e-commerce and payments platforms and cloud computing services. In many ways it is an Amazon, eBay, and PayPal rolled into one. In response to competitive pressures in China, it recently bought a stake in micro-blogging company Weibo and mobile browser UCWeb. These purchases add about 100 million potential new users to Alibaba’s existing 280 million users.

Alibaba was founded by Jack Ma a mere 15 years ago. Ma, who will turn 50 next month, was born and brought up in Hangzhou. Ma turned his love for English and his early career as an English teacher to his advantage and became a serial Internet entrepreneur beginning in 1995. Ma’s partner, and only other large individual shareholder in Alibaba is the reclusive Simon Xie. The firm is run by a unique, non-western style, 30-member steering committee. Alibaba says that this allows managers to think for the long-term and collaborate better. The company believes this is a better alternative to the dual-class share structure common to many technology giants. Nearly 30% of the steering committee is made up of women, higher than the leadership team at Google and Twitter but similar to that of Apple. This management structure is remarkably unusual, particularly for a company that is already about half the size of Google in profits.

The story of Alibaba’s rise has so many implications for the world that it is worth a moment of reflection. Like most companies, Alibaba is not without its challenges. At a time when China is slowing, Alibaba’s profitability has attracted many competitors. The company’s position in mobile commerce may not be unassailable. As a pure “marketplace" it needs to police its platforms carefully. And its opaque holding structure leaves much to be desired. So the important thing to focus on is not Alibaba itself but its implications and lessons for us all.

The first implication is that online transactions are here to stay and will continue to grow rapidly. Alibaba alone accounts for 8% of China’s retail sales, while all of the US transacts only 6% online. India currently conducts less than 1% of retail sales online. About 70% of US shoppers and 50% of Chinese shoppers shop online, while less than 10% of India’s do so. Online sales are likely to increase to about 20% of worldwide retail sales in the next decade. Most people know this, but the gargantuan impact has not fully sunk in yet.

A second implication is that China is big. And particularly a China that speaks English and plays by currently accepted global rules (read NYSE listing). Again, this is no surprise, but most have not registered the outsized impact of this.

Ma adapted things he learnt in Silicon Valley and set up a company that serves China’s markets very well. He says, “learn from your competitor, but never copy. Copy and you die". Sage advice.

As large companies in China, South Korea and India make their impact in the world, currently accepted global rules will themselves evolve.

Alibaba’s management structure and style, its unique version of the separation of management and shareholders and its shareholders rank third philosophy (behind customers and employees) will impact management theory and practice in future years. Ma wrote to more than 5,000 employee-shareholders selling in the IPO saying, “we have worked so hard, but not to turn into a bunch of uncouth new rich". Many of Alibaba’s former employees have become entrepreneurs. Will a Confucian ethic replace a Calvinist one as the global standard? Confucian thought believes that human beings are teachable and improvable through self-creation and self-cultivation. Worthy thought that.

For those outside, the biggest lesson is to dream big, really big. Alibaba’s rise in 15 years to a position of profitable global dominance should serve as inspiration to India’s many entrepreneurs. Open sesame.

P.S. “If you want a great company, think about what social problem you could solve", says Jack Ma.

Narayan Ramachandran is chairman, InKlude Labs. Comments are welcome at narayan@livemint.com. To read Narayan Ramachandran’s previous columns, go to www.livemint.com/avisiblehand

Follow Mint Opinion on Twitter at https://twitter.com/Mint_Opinion

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 21 Sep 2014, 06:03 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App