The Crocodile in the Yangtze River, Kuhn and a New Lexicon (Part 1 of 3)

 By: Siyanda Pali

Hangzhou is a wonderful city situated on the east coast of China’s Zhejiang province. It’s the province’s capital city, with a vibrant population of no less than 10 million people and boasts numerous reasons as its claim to fame. Not only is it the home of the world-renown Grand Canal, a world heritage site which stretches all the way to Beijing, China's capital, the picturesque West Lake and Leifeng’s Pegoda, it is also the home of the mightiest crocodile in the Yangtze river: Alibaba.

Jiuxi, Hangzhou (Siyanda Pali)

Hangzhou is fantastic for several reasons as I have mentioned above. Perhaps one of the most noteworthy of these is because of its disposition to be an incredible hybrid between natural beauty and the city or urban life. One has the serenity and lush Jiuxi forest to explore as well as the Binjiang district, which has the stunning Qianjiang New Town, a modern metropolis. Equipped with a very good public transportation network, which encompasses, the Hangzhou Metro, busses and designated bicycle lanes, the city will also be the host of the 2022 Asia Games, which all bode well for the city’s future prospects.

Binjiang District, Hangzhou (Siyanda Pali)

It was in this city that in 1999, Jack Ma, a former teacher, and 18 co-founders started  Alibaba in his apartment. They were spurred on by the belief in the massive potential which technology and innovation, the electrifying force of the internet, had in playing a role to better enable small and micro-enterprises to connect producers with customers and markets both domestically and globally. From those humble beginnings, the Alibaba group has grown in leaps and bounds to become one of the world’s most significant players in the mobile and e-commerce space. In 2014, it debuted on the New York Stock Exchange and became the world’s largest IPO, raising $25 billion US. In 2020, the company and its subsidiaries also boast a presence in digital media, cloud computing and entertainment, amongst others. It is also listed on the Hong Kong Stock Exchange, with revenues of up to RMB 509.7 billion or $72 billion US for the year ended March 2020. 

I was finally able to visit the company in August this year, adjacent to the Hangzhou Normal University CangQian campus. It was great to be at the headquarters of this brand which is now adored and admired by many across the globe. 

Perhaps it is apt for one to ask: What is it about Alibaba that has such an allure for many? What is it that induces such a great affinity for the company by so many? Depending upon who is being asked, one is likely to encounter different answers for different reasons. Among the main reasons for the above, besides its profitability of course, is the inspirational life story of Jack Ma himself. He befriended foreign tourists regularly over a 9-year period at the Hangzhou Hotel, which also gave him an opportunity to not only practice his English, but to also engage with different ideas. That single act, following his intellectual curiosity to learn English, has been one of the building blocks of not only his success, but also that of many others. Having struggled to find his footing for years in various pursuits throughout his life prior to starting Alibaba, he faced numerous setbacks. However, in his own words," I never gave up." The rest is history. 

Alibaba, Hangzhou (Siyanda Pali)

Having been fortunate enough to engage an Alibaba employee and friend of mine about what it is he enjoys or likes about the company, I was able to discover that not only was the compensation very good to excellent, the company culture was one that is appealing. Employees have a sense of freedom at the compay. Jack Ma has always maintained that at Alibaba, customers are first, employees are second, and shareholders are third. This flies in the face of conventional wisdom, propagated by one US Economist Milton Friedman, that the shareholder is the be all and end all of a company. Nevertheless, this orientation to ensuring that customers and employees are treated exceptionally well has paid dividends over the years. It's 6 new values are a succinct and powerful driving force:

1.  Customers first, employees second, shareholders third.
2. Trust makes everything simple.
3. Change is the only constant.
4. Today's best performance is tomorrow's baseline.
5. If not now, when? If not me, who?
6. Live seriously, work happily. 

Alibaba Values (Siyanda Pali)

Global GDP as projected by the IMF's World Economic Outlook will be around -4.9% in 2020. China's GDP figure has been affected by the above, shrinking by some 6.8% in the first quarter of 2020 in comparison to the same period in 2019. In a year which will very well be an annus horribillis for millions across the globe, mainly propagated by the Covid-19 global pandemic, Alibaba has managed, as have some technology companies, to increase revenues by a fair margin, 35.2% for the year ended March 2020. These annualised earnings are higher than those of other firms which are peers, similar to the USA's FANG (Facebook, Amazon, Netflix, Google) shares, BAT (Baidu, Alibaba, Tencent), with Baidu having reported a 7% decrease in annualised earnings in Q1 of 2020, and Tencent having reported a net gain of approximately 30%.

The Alibaba group has several strengths in its arsenal. Among these are its dominant market position within China. Alipay, for example, has a ubiquitous presence throughout China. You can expect businesses from as small as a street vendor to a large multinational to have either a WeChat Pay (competitor) or an Alipay QR code as an acceptable means of payment for goods and services. China, as a result, is incredibly close to being a cashless society. Alibaba also has a well-diversified product portfolio. Some of the other companies which form part of the Alibaba group include Taobao, which is China's largest C2C sales medium, as well as TMall, China's largest B2C online retail marketplace. It has also made strategic partnerships through mergers and acquisitions which have created synergies for its service offering. This is also coupled with an expanding wholesale and retail market in China. 

Some of the risks and challenges the company must navigate include strong competiton both domestically and globally from the likes of Baidu, Pinduoduo, Jingdong, Tencent, Google, Amazon etc, as well as not only operating in an era of protectionism, but also being able to grow revenues.

Other internal risk factors which the company needs to circumnavigate to maintain trust in the market, as stated in their 2020 annual report include:

• The quality and attractiveness of content available through their digital economy together with the value, quality and functionality of products and services
• The integrity of not only the company, but also its software providers, merchants, logistics providers, service providers and other participants in their digital economy
• An earnest endeavour to maintain high levels of service
• The safety and integrity of data on company platforms
• The fairness and effectiveness of rules governing company marketplaces and platforms
• The ability to protect intellectual property rights and consumers
• The company's ability to enable reliable payment and escrow via Alipay

There is no question that as a city, Hangzhou offers the best of both worlds: natural beauty which few cities can compare with. On the other end of the continuum, it boasts a buzzing metropolis, further fueled by a tech giant such as Alibaba, possessing a rich history in the world of start-ups and organic, technology companies. Alibaba, as have all companies in 2020, have had to negotiate a devastating period for humanity. In spite of the above, as well as other risks and challenges it faces, it has done fairly well in 2020, and continues to tread with caution in its currently tumultous environment.