ON ITS way to becoming the world’s
biggest economy, China is passing another landmark. Its e-commerce market is
overtaking America’s. And one giant firm dominates the market: Alibaba, by some
measures already the world’s largest e-commerce company. Last year two of
Alibaba’s portals together handled 1.1 trillion yuan ($170 billion) in sales,
more than eBay and Amazon combined. Alibaba is on track to become the world’s
first e-commerce firm to handle $1 trillion a year in transactions (see article). Yet despite such extraordinary success,
many people outside China have barely noticed the rise of this privately held
behemoth.
That is about to change. The firm’s
founder, a former English teacher called Jack Ma, has just announced that he
will hand over the chief-executive job to a trusted insider, Jonathan Lu, in
May. Soon afterwards, the firm is expected to announce details of its initial
public offering (IPO), sure to be the most trumpeted since Facebook’s listing
last year—and possibly even bigger, too. Facebook’s IPO valued the company at
$104 billion (its market capitalisation has since slipped back to $63 billion).
Estimates of the likely valuation of Alibaba range from $55 billion to more
than $120 billion.
The IPO will turn global attention
to Alibaba’s remarkable rise. And there are other reasons to watch the company
closely. One is its future growth potential: if it avoids a Facebook-like
fumble, in a few years’ time it could be among the world’s most valuable
companies (the current global leader, Apple, now worth around $420 billion, was
only valued at $90 billion in 2009). Another is that, as Alibaba expands and
moves into new markets, it has the capacity to change China.
Alibaba’s story so far has been one
of canny innovation and a clear focus on how to win competitive advantage in
China. “EBay may be a shark in the ocean,” Mr Ma once said, “but I am a
crocodile in the Yangzi river. If we fight in the ocean, we lose; but if we
fight in the river, we win.” The crocodile of the Yangzi, as he became known,
started the company in 1999 with Alibaba.com, a business-to-business portal
connecting small Chinese manufacturers with buyers overseas. Its next
invention, Taobao, a consumer-to-consumer portal not unlike eBay, features
nearly a billion products and is one of the 20 most-visited websites globally.
Tmall, a newish business-to-consumer portal that is a bit like Amazon, helps
global brands such as Disney and Levi’s reach China’s middle classes.
Alibaba could grow even faster. By
2020 China’s e-commerce market is forecast to be bigger than the existing
markets in America, Britain, Japan, Germany and France combined. And although
it is not about to challenge Amazon in America, Alibaba is expanding globally
by capturing the spending of Chinese overseas and by moving into emerging
economies. In this the firm is helped by Alipay, its novel online-payments
system that relies on escrow (releasing money to sellers only once their buyers
are happy with the goods received). This builds trust in societies where the
rule of law is weak.
Perhaps Alibaba’s greatest untapped
resource is its customer data. Its sites account for over 60% of the parcels
delivered in China. It knows more than anyone about the spending habits and
creditworthiness of the Chinese middle class, plus millions of Chinese
merchants. Alifinance is already a big microlender to small firms; it now plans
to expand lending to ordinary consumers. In effect, it is helping liberalise
Chinese finance. China’s big state banks, which channel cheap capital to
state-owned enterprises, have long neglected everyone else. The firm is using
its online platforms to deliver insurance products too, and more such
innovations are on the way.
Alibaba thus sits at the heart of
“bamboo capitalism”—the sprawling tangle of private-sector firms that are more
efficient than China’s state-owned enterprises. Some 6m vendors are listed with
its sites. The firm’s efforts are boosting productivity in China’s woefully
inefficient retail and logistics sectors. And, more than any other company, it
is speeding up the country’s much-needed shift away from an investment-heavy
model of growth towards one that is driven by consumption.
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