Alibaba Looks West

Before Alibaba’s blockbuster debut on the New York Stock Exchange in September 2014, many people outside of China had never heard of the company. Last September, Alibaba grabbed international headlines with the world’s largest IPO, raising a sum of USD 25 billion, dwarfing even the records set by Facebook, which had raised USD 16 billion in 2012. Jack Ma, Alibaba’s founder, is currently China’s richest man. The Alibaba brand was catapulted into the limelight in a way that not many had anticipated. In 2013, The Economist newspaper predicted that Alibaba could reach a value of between USD 55 and 120 billion after its IPO. But immediately after the company’s listing, Alibaba was valued at over USD 230 billion, and its market capitalisation currently sits at around the same level. 

However, in the months since Alibaba’s IPO, which brought the company international brand recognition, Alibaba continues to conduct minimal operations outside of China. Currently, less than 10 percent of the company’s revenues originate from overseas. Furthermore, Alibaba has established just one office in the US, which is one of only two corporate offices it runs outside of East Asia. 

One reason may be the sheer size of China’s domestic e-commerce market. Why bother selling anywhere else? According to the Wall Street Journal, transactions on Alibaba’s main sites – Tmall, Taobao and Alibaba.com – totalled USD 248 billion in 2014, which is more than those of eBay and Amazon combined. Annually, the online platforms belonging to the Alibaba Group attract around 350 million customers. That’s more than the entire US population. And that figure will continue to grow, as China boasts the world’s fastest growing e-commerce market, and as Alibaba expands to offer more varied services. In 2004, Alibaba launched its version of PayPal, called AliPay, which currently has the largest share of the online payment market in China. Since 2013, AliPay users can also opt to invest in Alibaba’s money market fund, Yu’ebao. 

Another reason for Alibaba’s reticence to enter the US market may be because it never planned to be there in the first place. Jack Ma had originally intended to list Alibaba in Hong Kong, but these plans fell through on the grounds that Ma and his associates wished to maintain a firm hold over the company’s strategy. Whilst companies listing on the Hong Kong stock exchange must cede a substantial amount of control to the company’s shareholders, many publicly-owned US companies are permitted to preserve special decision-making powers for the company’s managers. Since the listing, Ma has even said that he wishes his company had never gone public, due to the increased international and government scrutiny. 

However, recent events suggest that Ma is coming round to the idea of doing business in the West. Ma reportedly wants to increase the company’s overseas revenue to an ambitious 50 percent of the total. In June 2015, Ma visited New York and Chicago to encourage more American SMEs to set up online stores on its platforms to connect with consumers in China. This is in line with the company’s core values, which sees itself as a “champion of small businesses”. So far, retail giants such as Costco, Macy’s and Nike have had the most success establishing themselves on Alibaba’s platforms. For example, in 2014, Costco sold USD 3.5 million worth of goods in 24 hours via Alibaba’s Tmall e-commerce site, a feat which reportedly surprised even the company’s management. However, the potential for SMEs is enormous, as Alibaba’s platforms offer a promotional reach within China which is more than any small Western business could afford. Furthermore, cross-border e-commerce is gaining traction in China: the value of overseas purchases made in China increased tenfold between 2010 and 2014, according to market research company EMarketer. There is a strong thirst for imported products among the Chinese middle classes, which are often seen as safer than and more reliable than those that can be sourced domestically. In China, food safety standards are poorly implemented and counterfeit goods are prolific. According to Bloomberg, sales of food products from small suppliers, such as seafood from Alaska and cherries from Washington State, have shown encouraging results. Media reporting relating to Ma’s June 2015 trip to the US speculated that Alibaba “could be the largest opportunity for enterprising Americans since the gold rush”.  

Alibaba is exploring US markets in a way that it hasn’t done before. In the past, Alibaba has experimented with various approaches to the US market, not all of which have been a success. In the run-up to its IPO, Alibaba launched an online retail site in the US called 11 Main, selling locally manufactured goods and crafts. The site was a flop, and Alibaba ended its operations. However, the company has recently announced a deal with Equinix, the US–based global data centre provider, to develop Aliyun, Alibaba’s cloud computing business, and expand its operations in the US. If all goes to plan, this will surely be in competition with Amazon’s cloud computing arm, as well as other US-based peers. 

Alibaba is also trying to improve its public image in the US as part of its efforts to persuade US companies that it is a trustworthy business partner. Counterfeit goods have always been the company’s Achilles Heel. In 2011, the US Trade Representative (USTR) added Taobao to the notorious markets list, due to the fact that fake products were widely available on the platform. In the run-up to its IPO, Alibaba hired two influential US-based lobbying firms on lucrative contracts to push its case, to good effect: USTR removed Taobao from the notorious markets list in 2012.  

Alibaba now seems to be taking a more long-term approach to reputation management. It has recently announced that it is in the process of establishing an ‘international government affairs division’ in Washington DC, which will be led by a former staff member of the George W. Bush administration. In January 2015, Alibaba also hosted seminars on the protection of intellectual property rights at a US association of manufacturers, showcasing its commitment to anti-counterfeiting measures.  Unusually, the company has also been showing its support for the LGBT community, by promoting the rights of gay people to marry in China and abroad. Such liberal leanings are a far cry from the values espoused by China’s one-party state. Homosexuality was decriminalised in China in 1997, but gay marriage remains illegal. Nevertheless, in June 2015, Alibaba hosted a competition for same-sex couples in China, in which the winners were sent to be wed in a mass ceremony in West Hollywood. Why would Alibaba be so eager to promote gay rights in China, where despite the presence of a growing gay rights movement, talk of marriage equality is still controversial? Whether a genuinely liberal-minded move or a publicity stunt, the event undoubtedly helped raise international brand recognition. 

One thing is certain. No matter the risk of competition from services such as Aliyun and Alipay, Alibaba has the size and the clout to connect smaller Western businesses to one of the largest e-commerce markets in the world. Western companies should be concentrating their efforts on how they can exploit Alibaba’s services to their own advantage.