Bil­lion

China Daily (Canada) - - ANALYSIS -

Jack Ma’s per­sonal wealth by the end of Oc­to­ber, ac­cord­ing to the Forbes

2015 rich list

di­ver­si­fi­ca­tion strat­egy. Ac­cord­ing to an­a­lysts BNP Paribas, the com­pany could even step on the ac­cel­er­a­tor.

It pre­dicts the com­pany has a po­ten­tial war chest for ac­qui­si­tions of some $38 bil­lion in 2016, two-anda-half times the $15 bil­lion it spent in 2015.

Tow­son, also co-au­thor of the best­selling The One Hour China Book, said Alibaba’s love of deal­mak­ing is partly driven by a need to gain greater scale.

“If your com­peti­tor be­comes twice your size, you are likely at risk, and just grow­ing or­gan­i­cally will not be enough. So Alibaba’s ac­tiv­ity is driven by a race to achieve size. This can of­ten lead to com­pet­i­tive panic.”

Qiu Lingyun, as­so­ciate pro­fes­sor of man­age­ment in­for­ma­tion sys­tems at Guanghua School of Man­age­ment, be­lieves many mis­un­der­stand the logic of Alibaba’s re­cent strat­egy.

“By th­ese ac­qui­si­tions they are ac­tu­ally in­vest­ing in their core busi­ness. Their core com­pe­tency is ac­tu­ally run­ning a huge plat­form, which has now ac­cu­mu­lated a huge amount of con­sumer data,” he said.

Wang Qing, pro­fes­sor of mar­ket­ing and in­no­va­tion at War­wick Busi­ness School in the UK, in­sists Alibaba is just tak­ing ad­van­tage de­rived from freer regulation in China than in the US and Europe.

“They see what Alibaba is do­ing as risk and not an op­por­tu­nity. What they of­ten fail to ap­pre­ci­ate is that an­titrust regulation is not as well es­tab­lished in China as it is in the United States and Europe,” she said.

“Ama­zon, for in­stance, would not be able to op­er­ate the way Alibaba has done be­cause it would come across leg­isla­tive bar­ri­ers when mak­ing ac­qui­si­tions.”

Wang be­lieves that is why it is wrong to com­pare China’s so-called BAT (Baidu, the Chi­nese search en­gine gi­ant, Alibaba and Ten­cent) com­pa­nies with the Sil­i­con Val­ley pi­o­neer­ing gi­ants that emerged in the 1990s.

“The likes of Face­book and Google might have been ground­break­ing in them­selves but they emerged in a Western busi­ness en­vi­ron­ment that was quite well es­tab­lished. The Chi­nese firms have de­vel­oped rapidly in an en­vi­ron­ment which in it­self was very fluid and dy­namic.”

Max von Zedtwitz, the San Fran­cisco-based man­ag­ing di­rec­tor of Glorad, a partly Shang­hai-based re­search cen­ter and think tank which spe­cial­izes in in­no­va­tion, said there are al­ways risks for a com­pany like Alibaba, which was some­thing of a first in­no­va­tor in China.

He said you have only got to look at Ya­hoo, which para­dox­i­cally still owns a 15 per­cent stake in Alibaba de­spite re­cent at­tempts to spin it off. The com­pany was the lead­ing search en­gine when the In­ter­net took off in the 1990s but was largely swept aside by Google af­ter it came on the scene in 1998.

“Per­haps the same thing might hap­pen to some of th­ese first wave Chi­nese com­pa­nies like Alibaba. It might not have a big fu­ture at all. How many com­pa­nies are able to main­tain their lead­er­ship po­si­tion over many decades? Cer­tainly, very few Western com­pa­nies have been able to do this,” he said.

But Tow­son thinks any dooms­day sce­nario for Alibaba is un­likely.

“I think it has such a pow­er­ful com­pet­i­tive ad­van­tage with its e-com­merce busi­ness. The eco­nom­ics of C2C (con­sumer-to-con­sumer) and B2C (busi­ness-to-con­sumer com­merce) tend to nat­u­rally lead to one or two dom­i­nant play­ers, like eBay and Ama­zon in the US. Ya­hoo never had such com­pet­i­tive pro­tec­tions in its busi­ness.”

Qui at Guanghua said many peo­ple who pass judg­ment on Alibaba mis­un­der­stand the chal­lenges it faces in what is a very unique China mar­ket. “The China mar­ket is way big­ger than that of the US and it is also very di­ver­si­fied. You have peo­ple from ru­ral ar­eas who are very price sen­si­tive and you also have those from the post-1990s gen­er­a­tion who are look­ing for cus­tom­ized prod­ucts,” he said.

“It would be a dif­fi­cult chal­lenge for any com­pany to serve so many needs.”

Con­tact the writer at an­drew­moody@chi­nadaily.com.cn

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