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.”
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