Only two years after its debut on the public market, Facebook has lost its claim to the Initial Public Offering of the decade to the Chinese rising star Alibaba, the internet shopping site. On September 19, 2014, Alibaba Group Holding Limited made IPO history when it raised a record $25.2 billion dollars in capital, easily surpassing Facebook’s and General Motor’s figures. It was the perfect capstone to months of fanfare predicting Alibaba’s success in the American market.
An IPO, or initial public offering, signifies that for the first time, the firm is selling its stocks to the public on an exchange, and in Alibaba’s case the IPO was more of a financial mass undertaking than a routine bureaucratic chore. First the firm needs to hire an investment bank: Alibaba hired six—Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Citigroup, who then filed a registration statement with the Security and Exchanges Commision. Once the firm received the approval from the SEC, they embarked on a roadshow to generate interest from investors. Days before the official IPO, the firm released a stock price calculated by the investment banks through various financial metrics. This process often takes over a year to complete and is rarely a smooth ride.
Now, the ride is over, and the question on everyone’s mind is what’s next for Alibaba. It has no genuine counterpart in the United States. The e-commerce firm Amazon comes closest, but no firm commands the influence and success to the same degree that Alibaba does in China. It influences every Chinese industry. Over the course of its history, it has built Taobao, best described as an online department store, which turned 10 this year; developed Alipay, an online payment system; established post offices in China, Singapore, and Malaysia; and acquired numerous ancillary firms since July. Looking at the extent of this expansion, some have wondered what Alibaba’s plan is. Others, however, view it as a normal course of action. Qing Wang, Professor of Marketing and Innovation at Warwick Business School told The Politic that the aggressive expanding of Alibaba is certainly the perception of the West. “That is only because Alibaba is a bit of a black horse and nobody really noticed it that much in the West until its IPO. All of this is very sudden and there is a lot about Alibaba that people do not know,” she said. “Having observed Alibaba from its conception, I think it is natural for Alibaba to grow this way.”
Whereas the numerous acquisitions and expansions serve as illustrations of the scope of Alibaba in China, the firm’s key products—Taobao and Alipay—are the true source of its profitability. Taobao allows a small group or an individual to set an business in as little as ten minutes. With almost one billion products listed, Taobao has monopolized online transactions in China, Taiwan, Hong Kong, and Macau. Unlike Amazon, Alibaba grows small business and provides the disadvantaged and uneducated with an opportunity to succeed through sales. According to Wang the true mission behind Alibaba was to help small businesses develop in an environment where they are usually suffocated. When asked whether Alibaba is paving the way for other businesses, Puneet Manchanda, professor of marketing at Ross School of Business at the University of Michigan, said: “It is always good to have an example to look up to. It creates optimism positive attitude [among Chinese entrepreneurs].”
Alipay further stresses Alibaba’s online presence. The online currency serves not only as one of the most common methods of payment on Taobao, but also as a method of payment for goods and services not necessarily offered by Alibaba like movie tickets and groceries. The currency makes paying incredibly simple—businesses can collect payment by scanning a Quick Response code on a smartphone. And consumers don’t need to worry about business taking advantage of them through this system. Alipay uses an escrow service to bypass China’s weak consumer protectionist laws and requires the consumer’s verification to release the funds to the business.
In many ways, Alibaba is an epitome of the current economic transition in China. As China tries to switch its economy to more service-oriented and consumer-based, companies like Alibaba are leading that transition. Even though many economists still attribute China’s progress to the Chinese government’s intervention in its economy, others like Stephen Roach, senior fellow at Yale University’s Jackson Institute of Global Affairs, senior lecturer at the School of Management and former chairman of Morgan Stanley Asia, argue that “China [has been] increasingly dominated by private-sector companies.” Alibaba not only helps to stimulate consumership in China but also helps private businesses to spring up. Alibaba is an “aggregator of small business activity instead of a driver of its own autonomous model,” Roach said. “It is the greatest consumption story we have ever seen”
The drive behind Alibaba’s success is personified by its founder Jack Ma, an English teacher. Ma, a rural villager who taught himself English while biking for 45 minutes to Hangzhou and giving English-speaking foreigners tours, displayed this same determination when he subsequently went to college and finally led the successful development of Alibaba. Without a supportive culture of the tech start-up and the Chinese government’s apprehensive attitude toward private corporations at the time, the early success of Alibaba is even more impressive. Since its founding, Alibaba has had a larger sales volume that Amazon and eBay combined, exceeding one trillion yuan ($162.9 billion USD) in 2013. It has become the pride of the Chinese middle class, which, in part through the success of Alibaba, has grown in terms of income and consumption levels significantly over the past two decades. Jack Ma is now dubbed a visionary and according to Manchanda, the CEO of Alibaba is “the symbol of modern China.”
The key distinction between Alibaba and other Chinese or American firms is the unique culture of the company. In contrast to the stereotypes of poor working conditions, Alibaba’s employees seem to be working and living in a cult of a company built around its well merited success. Every worker at Alibaba has a second name linked to a character from traditional Chinese Kung Fu novels; usually the chosen character reflects a specific attribute of the employee it represents. “It is an effort to tie the company to its Chinese roots” says Manchanda. Conference rooms are often named places from these novels, and one day every year, Jack Ma presides over a mass group wedding for employees at Alibaba’s headquarters in Hangzhou, a 17.2 acre campus similar to Google’s headquarters in California.
Alibaba also follows through on its promise to “richly reward” committed workers. Workers are not only paid competitive salaries, but they also receive stock options and salary increases every year. Most workers sold their stock amidst the IPO and now find themselves millionaires. “Jack Ma is an extremely passionate speaker, very good at motivating people,” Wang said. “It is a combination of giving people dreams and extra financial incentives.”
An example of what the Alibaba cult looks like was the Employee Rally organized in 2009. Thousands of employees filled the Hangzhou stadium, shouting “Ali Alibaba,” waving fluorescent sticks and lights as a red dragon-like structure ran through the crowd. Then Jack Ma slowly appeared on the stage to the main theme song of King Lion and started singing “Can You Feel the Love Tonight.” Dressed in a red leather, rock n’ roll outfit and wearing a mohawk on top of his long silver wig, Ma did not look like a CEO of the world’s largest Internet company, but rather like a leader of a nation that frantically supports him on his quest to achieve whatever he desires.
To be sure, Alibaba has its problems. With large expansions come problems of organization. A former Alibaba intern, who asked to remain anonymous, said the company has very weak training programs for employees and has a chaotic way of functioning. “They don’t value expertise, things change overnight,” she said. Alibaba also has an ambiguous relationship with the government, which also stood to gain from this IPO. Behind Alibaba and its public image of creativity and freedom is the voice of the Communist Party. The government controls the Internet and regulates many aspects that affect Alibaba’s profitability (industry subsidies, monetary policy), meaning that Alibaba, despite its anti-bribery goals, is required to stay in the government’s good graces. Both the Washington Post and the New York Times reported that at least four sons or grandsons of members of the Chinese Politburo’s Standing Committee serve as executives for companies with a stake in Alibaba. Each of those executives stand to make a large profit as Alibaba’s share price continues to rise.
Favor with the government does come with its perks. In 2013, Alibaba received government approval to start its banking branch, which means that Chinese citizens can deposit money in Alibaba’s money market fund, Yu’e Bao, and accrue between four and five percent interest annually. In only ten months, it raised over $80 billion dollars. To put these figures in perspective, most money market accounts in the United States offer at most less than one percent annual interest to its platinum members, and only three funds, all of which are more than several decades old, are larger.
The name “Alibaba” comes from an Arabic folk tale about a poor woodcutter who discovers a secret den filled with treasures. The Chinese company seems to have indeed taken advantage of the opportunities of the Chinese market to build a fortune. Today, Alibaba is a behemoth. It’s record-breaking IPO places it in a small of pool of Chinese companies that have gained the trust of Western investors. “China’s focus over the next decade is in really building out large, branded multi-nationals and expanding their presence globally,” Roach argued. Alibaba seems to be doing exactly that, but what will its next step be? It is hard to predict. Ma showed signs of possibly going into healthcare or entertainment, but nothing of this has been announced officially. In the folk tale, Ali Baba ends up being the only one to know the secret to acquiring the treasure.