How did Jack Ma overcome his humble origins to establish Alibaba, and what significance does his company have for the UK? We interviewed Duncan Clark, entrepreneur, tech investor and author of a recent book on Jack Ma, to find out.
What is Alibaba and why is it such a dominant company in China today?
Alibaba is one of China’s largest and most high-profile companies. Its stated mission is to ‘make it easy to do business anywhere’. Alibaba started out as one of the millions of small and medium-sized enterprises (SMEs) to emerge from its home province of Zhejiang. It was founded by Jack Ma, his wife and 16 others in a humble apartment in the provincial capital city of Hangzhou in 1999. But Alibaba didn’t stay an SME for long. Today, Alibaba is perhaps China’s most high-profile company, with a market capitalisation of over a quarter of a trillion dollars. The company’s initial public offering (IPO) on the New York Stock Exchange in 2014 raised $25 billion, more than any other in history.
Despite its size, Alibaba’s dominance is explained by its consistent focus on meeting the needs of small companies. Early to recognise the power of the internet, Alibaba’s initial business model was as a ‘business-to-business’ (B2B) e-commerce platform. It helped SMEs in Zhejiang and across China sell to other companies, including to export markets that these smaller, local companies had struggled previously to reach. From 2003, when it launched its Taobao.com shopping website, Alibaba helped these companies market their wares to individual consumers too. Today, over nine million merchants generate much of their revenues on Taobao.com. Alibaba’s Tmall.com, where brands and large stores can sell to customers, has also become an important site for the company, opening up a market of middle-class consumers in the wake of the 2008/9 global financial crisis, when the country’s traditional export markets hit the skids.
Taobao is a place for small merchants or individuals to set up a virtual store front. It's free to do so. And Alibaba charges no commission on sales. But, of course, to promote your store, you will likely have to spend money on advertising. That's how Alibaba makes money.
Tmall is for brands or larger retailers. They pay a set-up fee and have to be of a certain scale. Alibaba charges a commission on sales, but helps them with promotion, for example the Tmall 11.11 Singles' Day event.
Who is Jack Ma, the man behind Alibaba? How did he come to establish ‘the world’s largest retailer’?
Jack Ma is an unlikely corporate tech titan. He struggled in school, especially at maths, and lacked the connections or elite education that many assumed were essential for a successful business leader. But Jack is a gifted communicator. He honed his skills in that area through his parents’ love for a form of traditional performance art called ping tan, in his childhood as a self-appointed tour guide, and at work through his experience as an English teacher. This, combined with his vision and irrepressible ambition, allowed him to form and lead a team that today has swelled to more than 40,000 employees.
What can the business world learn from Jack Ma? What makes him different or unique?
As I looked back over his career at Alibaba, including from the time in 1999 when I first met him in the small apartment in Hangzhou, where he had recently founded the company, I was struck by the remarkable consistency of his vision. Always ambitious, Jack has also demonstrated a stubbornness to succeed – never wavering in his faith in the internet and the private sector to transform the Chinese economy. He positioned his venture to benefit from both, more so than any other company. Now he is training his eyes on new areas of opportunity, from China’s inefficient financial services and media sectors, to the need for reform in areas from healthcare to environmental protection.
What significance does Alibaba have outside of China? What impact will the business have on other countries?
Alibaba is an icon for the power of entrepreneurship, at home and increasingly overseas. As the company extends its presence overseas, Alibaba is putting a more human face on the growth of a Chinese economy previously dominated by state-owned enterprises. As we witnessed at the recent G-20 summit in Hangzhou, China is keen to impress the world with its achievements and ambition. While state-run stagecraft has its role to play, it is private-sector entrepreneurs like Jack Ma who are best-placed to open the eyes of people outside China to the opportunities presented by the country’s rise.
How can the UK benefit from the growth and success of Alibaba?
Alibaba has set up offices in London and in other European offices to help established brands access China’s burgeoning consumer markets, via its websites like Tmall.com. Alibaba also presents opportunities to UK entrepreneurs. The company is actively investing in pioneering technology and enterprises that will give it an edge in China’s fiercely competitive markets, from financial technology to cloud-computing to entertainment, sports and healthcare.
How can UK talent help Alibaba, and other companies in China, grow internationally?
Perhaps the biggest challenge for Alibaba as it grows into new sectors at home and new markets overseas is human resources. The company has recently launched the Alibaba Global Leadership Academy to offer young international professionals 18 months of training at its headquarters in Hangzhou, before serving the company overseas. This is a great opportunity for young British graduates, who don’t need to be fluent in Chinese to apply.
Beyond recruitment, as China goes global, there will be growing demand from companies like Alibaba, Tencent, JD.com and others for professional services in areas such as finance, legal advice, strategy consulting, advertising, and public relations – sectors where UK companies excel. Mergers and acquisitions (M&A) is also a major opportunity. UK companies in areas such as deep technology, cloud-computing, financial technology and online media could find their ‘exits’ in China (i.e., the sale of their company to another company or through an IPO).
What is it about China’s current economic landscape that provides so many opportunities?
In two words: middle classes. Urbanisation and the dividends from decades of uninterrupted economic growth have created a huge middle-class consumer base numbering several hundred million people already – a number set to grow even further in the coming years. Yes, China’s economy is slowing, but this too creates new opportunities for companies to sell their products and services to an aspirational culture that increasingly values high quality over low prices.
Chinese consumers are becoming more interested in high-quality products, especially things like infant formula, milk or other imported foodstuffs where product safety concerns have tarnished local brands. As they have already acquired many items already at home (or even multiple homes), higher-end consumers are increasingly looking to spend money on non-tangible items like services or media and entertainment.
What advice can you give UK nationals hoping to set up business or make entrepreneurial connections with China?
Arriving fresh into China and trying to set up a business today is not the same proposition as it was two decades ago (when I set up my business). China is an increasingly sophisticated market, in which local players rival and even outperform global players in product quality and their understanding of local market demands. Being realistic about what you offer to China is the answer. So too is not underestimating your capability – perhaps to assist Chinese firms as they expand in the UK and in other markets where their lack of familiarity with local cultures and languages might be an opportunity for worldly UK executives.
How important is it for UK nationals to seek experience of China, learn the language, and form a China network?
Experience of China is of course always helpful, even if it is simply visiting the country to gain insights into the perspectives of counterparts there. Some UK political leaders have little or no experience of China. This is hard to understand. For those in business or cultural circles too, ignorance will be costly.
Duncan Clark is the author of Alibaba: The House that Jack Ma built. He will be speaking on 27 September 2016 at the European Chamber of Commerce in Shanghai. Visit his website for more details of his speaking events.
If you're a UK citizen with experience of China, join the Generation UK: China Network – a British Council initiative that aims to deepen the relationships of UK students and professionals with China.
Find out more about Generation UK – China.