Business Unusual

The Alibaba Group does not see itself as a company but an economy

It does appear that, if you want to be a modern successful multi-national company, you should choose a name for your company that begins with an “A”. Apple, Amazon, Alphabet and, the focus of this piece, Alibaba.

The Alibaba Group has very humble beginnings, but its growth and potential could see it become the largest company in the world. To do so it would first need to overtake Apple’s $784 billion net worth; it is currently on $393 billion.

But, unlike Apple, which will need something as revolutionary as the iPhone to keep it on the top of its game, Alibaba does not need to create anything new. It just needs to make its current services available to more people.

Amazon is worth $494 billion and still has lots of room to grow, but it actually does produce and stock products. Scaling that is more difficult than Alibaba which effectively runs markets rather than sell things in them.

Facebook at $469 billion is more like Alibaba in that they do not create anything but rather manage an economy for people to connect and for business to connect with them. With two billion users, this is the potential that Alibaba is chasing.

It currently has a half a billion active users. Considering there are 7 billion people on the planet, the prospect of Alibaba becoming a trillion dollar company might not be a pipe dream. Alibaba hopes to achieve that in 2020.

Only a few companies have ever achieved that size. The listed arm of China’s state petroleum company is worth $1.3 trillion while another oil company, Saudi Aramco, is also valued at over a trillion dollars with some estimates as high as $10 trillion.

The Motley Fool calculated in 2012 that the Dutch East India Company, when adjusted for inflation, was the most valuable country in history at $7 trillion.

Early Days

Founding such a large company would have been a crazy belief in 1995 when Jack Ma visited the US for the first time. He was a university lecturer who had spent his childhood learning to speak English by offering free tours to in his hometown of Hangzhou, China.

It was a tourist that he kept in contact with that gave him the name Jack, his actual name is Yun. But his connection with the US in creating Alibaba has seen him best known as Jack Ma.

He saw the web for the first time when visiting and was disappointed that while the first word he searched for “beer” had multiple entries, none listed Chinese beer, there was not even a single entry for China itself.

Ma believed the web and the internet would be the future and he would put China on the digital map.

His first venture was to create a Chinese online listing of companies. When he pitched the idea to his gathered potential 24 investors, 23 declined. The company did well enough though.

He invited journalists to see the web in action by being possibly the first in China to connect to the World Wide Web, it took over three hours to load a single page.

In 1999 with 17 fellow investors he founded Alibaba to allow people to sell products online. The name was chosen because it was easy to say and understood in most languages for the story of a shrewd merchant that outwitted a band of thieves.

It was not an overnight success. Ma says they had no-one offering any goods, so the investors posted their own goods, there were no buyers, so they bought each others'. When some real sellers did join the investors bought everything on offer. The gamble paid off and the company began to grow.

Alibaba focused on business to business e-commerce. In 2003 the Taobao Marketplace was founded for consumer to consumer sales and means searching for treasure. It is one of the most visited sites in China and offers users commission free buying and selling. It makes its revenue from advertisers who hope to reach those looking for treasure online.

In just 24 hours last year during the sales holiday in China called singles day, the Alibaba platforms saw $17.8 billion in sales. Almost 10 times the US Black Friday and Cyber Monday US sales volumes. At one point their systems were processing 175 000 orders per second.

Handling the orders and the payments is thanks to another part of the Alibaba platform, Alipay, created in 2004. It offers no transactions fees and even allows funds to be held by Alibaba in order for the buyer to receive the goods and confirm they are what was advertised. A great way to safeguard users and quickly spot frauds and counterfeiters.

There are almost 20 sections to the system which Ma calls an economy, not a company, and includes media assets and communication tools. In effect creating the possibility that you could live your life comfortably using only Alibaba Group products.

Despite it being the most successful IPO in US history, selling $25 billion when it listed on the NYSE in September 2014, Ma rates shareholders as his third most important priority. He lists customers first and employees second. This attitude is not the norm and may be a way to address the growing global income inequality if large corporations first look after customers and employees who in turn will look after the investors. A large chunk of Alibaba stock is used for employee share schemes.

His views on management don’t only differ there. He does not focus on current competitors believing that the real competition is the future and that success does not come from congratulating yourself for being in front after 100 metres in a 10 000 metre race.

He is also not looking to work forever. He founded the group in his 30s and stepped down as CEO as he entered his 50s. He plans to step aside as Chairperson, possibly before he is 60. He believes the younger staff than him will do a better job and that the company can’t grow unless he steps aside for them. It remains to be seen if he will, but there certainly are more founders that say things like that, than actually do them.

Given the size of the company, its gross merchandise value in 2016 would make it larger than Belgium, and Ma’s view that it is an economy, not a company, raises issues for the countries it operates. Global companies are more flexible, with more influence and often make more revenue than actual countries which may see them challenge our views of how countries regulate them, see the piece on Google fine in the EU.

His goals is one that should encourage us here in Africa though. He invites the parts of the world looking for a new market for their products to gain access first to Asian markets and then as they expand to Europe, the US and the globe.

Jack Ma’s story would not be out of place in Africa or India. An unlikely champion who knew failure better than success, who wanted not to get rich, but solve entrepreneurs' biggest problem - getting their products to market effectively and efficiently. Jack Ma has given new meaning the the phrase "Open Sesame".

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