Jack Ma, the man who turned Alibaba into China’s dominant e-commerce platform, now has his sights set on global domination.
Over the past year, Ma has spent more than 800 hours flying to dozens of countries, meeting business leaders and head of states to introduce his grand vision: small businesses from all corners of the world trading freely and securely on Alibaba’s platform. His goals are equally ambitious: Ma wants Alibaba to hit $1 trillion in gross merchandise value by 2020. By 2036, the company sees itself serving two billion customers, effectively becoming the world’s fifth largest economy, with sales eclipsed only by the GDP of the U.S., China, Japan and the EU.
But to sustain the near continuous 40% growth rate of Ma’s $300 billion empire, which centers on a marketplace connecting brands with buyers, globalization is seen as key . At home it faces heightened competition with the country’s second-largest shopping site, JD.com, which just posted record sales of $17.6 billion for its 6.18 shopping festival – an 18-day sales bonanza at the start of June to celebrate its June 18 anniversary. Alibaba’s e-commerce dominance isn’t under threat but it nonetheless sees a “growth bottleneck” and feels “globalization is better done now than later,” said Teng Bingsheng, a professor of strategic management at the Cheung Kong Graduate School of Business in Beijing.
To achieve his goals, Ma visited Detroit last week. In front of more than 3,000 U.S. small business owners, he made it clear that Alibaba isn’t here to compete with Amazon to sell to U.S. customers. Instead, the company portrayed itself as a gateway for them to reach hundreds of millions of affluent Chinese consumers, offering help on logistics, marketing and online payment.
“We are very different from Amazon,” Alibaba President Michael Evans told FORBES in a recent interview. “We create the infrastructure of commerce, the platforms, the technology and the partnerships to make it possible for millions of small businesses to participate successfully in global trade. We are doing our business on a far greater scale and in an inclusive manner.”
|Amazon and Alibaba- By the numbers|
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The strategy also helps to fulfil a promise Ma made to U.S. President Donald Trump earlier this year. He pledged to create one million jobs in the country by adding an equal number of U.S. sellers onto Alibaba’s shopping platforms over the next five years, estimating that they will each hire a new person as the result of increased transactions.
Elsewhere in the world, Alibaba’s global footprint has grown through investments in local partners. As part of a $21 billion-acquisition spree over the past two years, the company has stakes in India-based marketplaces Paytm and Snapdeal, as well as Southeast Asia’s top shopping site, Lazada, which it now holds a 83% stake after investing another $1 billion. Its financial affiliate Ant Financial has investments in payment platforms in Thailand, South Korea and the Philippines, and is expanding in further afield in South Africa.
Despite the increased publicity and investments, Alibaba’s overseas success is by no means guaranteed. In today’s ever more complex business and political environment, Ma has more to do to transform Alibaba for its global future, analysts say.
One issue is unauthorized products being sold on the company’s Taobao online bazaar, which has already led many brands to lose confidence in Alibaba. Last year, the U.S. Trade Representatives’ Office relisted Taobao on its “notorious” marketplaces list, citing a high volume of fake products found there. Alibaba has fired back by suggesting that politics, not actual facts, are at play. In Detroit, Ma called counterfeit goods the cancer of Alibaba and company executives have pledged to get rid of them by working with law enforcement and with technologies such as big data tracking.
Read More: Is Alibaba Doing Enough To Fight Fakes?
Not everyone is reassured. Even to brands that are already selling on the better policed Tmall, Taobao remains a concern. Ric Kostick, founder of Silicon Valley-based cosmetics firm 100% PURE, found out some Taobao vendors are selling his eye creams at a discount, possibly hurting his business on Tmall.
“They will lower the price,” Kostick said. “They could be buying wholesale in the U.S. and diverting products into China.”
Selling the dream
Some analysts also question whether Ma might be painting an overly rosy picture for small business owners. While it is true that China has a growing appetite for niche brands from cosmetics to baby food, competition on Alibaba’s shopping sites is cutthroat.
Already thousands of brands are selling on Tmall and the number of foreign brands on Tmall Global grew 169% last year — while total sales only grew 30%, according to Mark Tanner, founder of Shanghai-based consultancy China Skinny.
“Alibaba has done a great job of selling the dream to foreign businesses,” Tanner said. “But if you look at Tmall Global, the number of brands grew disproportionately to the opportunity.”
This means another part of Alibaba’s strategy has brighter prospects. Outside the U.S., through the likes of Lazada, and its own cross-border commerce platform AliExpress, Alibaba wants to find fresh customers for Chinese manufacturers. On Lazada, for example, Taobao has opened a shop, offering a curated selection of Chinese-made clothes, gadgets and toys to tap Southeast Asia’s $22 billion e-commerce market.
Compared with facilitating exports to China, this strategy may ultimately take on more importance. Southeast Asia, for example, is an ideal market for Chinese products, whose price advantages can win over more customers, CKGSB’s Teng said.
What’s more, Alibaba will not only create more revenue streams by selling globally but fit itself nicely into Beijing’s vision. Through grandiose projects such as the One Belt, One Road initiative, Beijing wants to restore demand for Chinese goods along the ancient Silk Road trading route, which stretches all the way from its middle west provinces to Europe.
“In Alibaba’s strategy, selling globally is more important,” said Wang Xiaoyan, an analyst at Shanghai-based research firm 86 Research. “Chinese manufacturers are taking a hit from the slowing economy. Through Alibaba, they can find fresh consumers overseas.”
But it isn’t a smooth ride either. The Electronic World Trade Platform (eWTP), Ma’s version of the World Trade Organization and a web-based approach to lowering trade barriers for small businesses in the region, is moving slowly. One year after its announcement, only Malaysia joined the initiative, establishing in March a trading hub near Kuala Lumpur International Airport — a reflection of how stalling trade talks worldwide might be affecting Alibaba.
“Look at how difficult it is for powerful governments to launch the Trans-Pacific Partnership,” said Chen Weiru, associate professor of strategy at the China Europe International Business School in Shanghai. “It takes a lot of time for a company to start something similar.”
That means, for now, international business remains a small part of Alibaba — contributing less than 10% of the group’s revenues in the last year. Evans said the company is on track to reaching its goal, eventually generating 40% of its revenues from international businesses over the next decade.
The company has identified its chance of success. Aside from e-commerce, Alibaba’s payment, entertainment and cloud computing units are also expanding globally. AliCloud, for example, is wooing international customers with a price 85% cheaper than Amazon Web Services, according to CSLA analyst Elinor Leung. And Ant Financial, despite recent hurdles such as opposition to its acquisition of U.S. payment company Moneygram, has installed its service at millions of retailers in the U.S. through a partnership with payment processor First Data.
“For Alibaba to achieve its goal, depending solely on e-commerce is a bit difficult,” Chen said. “But if the company combines it with clouding computing and payment, it surely has a bigger chance.”
By Paul Armstrong and Yue Wang