Alibaba and Global E-Commerce: Should Amazon Be Afraid?
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Alibaba and Global E-Commerce: Should Amazon Be Afraid?
From rural farmers to multimillionaires, millions of people in China are reaping economic opportunities from the growing e-commerce market. One entrepreneur earns $5 million in sales annually from his ladies’ handbag e-commerce business—a far cry from his humble origins. Although his success might be the exception to the norm, many Chinese consumers with similar backgrounds have found jobs working in e-commerce.
“We grew up in a rural area which left us few choices. I never thought about my future or had any belief in it,” the entrepreneur says.
At the center of this is Alibaba, an online marketplace founded by entrepreneur Jack Ma in 1999. Jack Ma conceived of an online portal that could connect Chinese manufacturers with buyers from other countries. He chose the name of Alibaba because it was globally recognized based on the famous character in the collection Arabian Nights. Today this multibillion dollar firm has 500 million registered users. Its sales surpass those of eBay and Amazon combined. Alibaba runs a number of businesses that handle approximately 80 percent of all online shopping in China. Unlike Amazon, it does not own is own merchandise but acts as a portal to bring buyers and sellers together.
This is just the beginning for Alibaba. In 2014 it was listed on the U.S. stock exchange with an initial offering of $25 billion, the largest IPO to date. To emphasize its global intentions, Alibaba opened offices in France, Germany, and Italy. It is also focused on selling more international brands such as Macy’s, Apple, and L’Oreal. In its quest to expand into media, Alibaba entered into licensing agreement with Disney to sell a streaming device that will broadcast movies, television shows, e-books, games, and more.
Although it is listed on the U.S. stock exchange, investing in Alibaba differs from the traditional model due to regulatory and legal barriers. The Chinese government restricts foreign investment in certain areas, meaning that global investors outside of China cannot own shares of Alibaba outright. In reality, investors purchased shares of a shell corporation in the Cayman Islands. Alibaba itself owns all of its non-Chinese assets. Jack Ma has the most power in the company, and some investors are concerned about his tendency to make large decisions or transfer ownership without consulting many other people.
Another issue that Alibaba is coming across as it expands involves counterfeit products. In China counterfeit goods have traditionally been more accepted than in other countries. Its international e-commerce site AliExpress has gained widespread popularity in Russia, the United States, and Brazil, but its rise in popularity has been accompanied by a rise in counterfeit goods sold through the site. Regulators are worried that the site is allowing counterfeits to go straight from Chinese manufacturers to consumers on a global scale. In fact, Kering SA—a French luxury group—filed a lawsuit against Alibaba accusing the firm of knowingly allowing the sale of counterfeit products. Alibaba denies the charges and is working with government bodies to improve counterfeiting controls.
Despite the risks of investing in a firm that they cannot actually own, investors were eager to purchase shares during Alibaba’s initial public offering. China is overtaking the United States as the largest e-commerce market, and the opportunities are too good for many investors to pass up. They believe Alibaba has the potential for massive global growth as it is less capital intensive and therefore more flexible than global rivals such as Amazon.com.
Questions
- What are some of the barriers Alibaba is facing as it expands globally?
- Why would the sale of counterfeit products through its sites be damaging to Alibaba?
