Succession Planning at Alibaba: Leading with Legacy
The reforms and open-market policies of 1978 and 1997 had boosted economic growth and created a conducive environment for entrepreneurship in China that led to the emergence of highly successful technology, internet and e-commerce firms. But by 2017-2018, the Chinese business environment was souring with slowing growth, increased debt, escalating trade war with the US and government's tightening of the leash on internet firms.
Amidst such scenario, on September 10th 2018, Jack Ma (Ma), Alibaba Group Holdings Limited's (Alibaba) charismatic Co-founder and Executive Chairman, announced his retirement from the position giving way to his successor, Daniel Zhang Yong (Zhang), a year later. Ma co-founded Alibaba in 1999 and transformed it into a multinational internet and e-commerce giant that ousted eBay from China. It was one of the new-age private Chinese enterprises that was formed during the regime of reforms and privatization and grew to become a Fortune 500 company and was worth $420 billion as of 2018. Growing all along with the company, Ma became the face for Alibaba and the richest man of China. He was regarded as the most influential Chinese businessman, almost an icon for the Chinese corporate sector. Post-announcement of Alibaba's succession plan,sceptics expressed concerns over Zhang's abilities in continuing the company's vision and carrying forward the legacy.
CHINA’S GLOBALIZATION AND THE RISE OF NEW STARS
The globalization of China dates back to the history of trade with the Roman Empire along the Silk Road since the mid-1200s. However, during the 16th century, European missionaries’ attempts to bring Roman Catholicism and western education to China, and foreign ambassadors’ and merchants’ non-submission to superiority of the Chinese Emperors were the main factors that led to the denial of trade and foreign relations........
Reforms in China
Credit for the change in direction goes primarily to Deng and subsequent Chinese leaders who followed his footsteps and continued to develop and apply his approach. Deng was the architect of a new brand of thinking that combined socialist ideology with pragmatic market economy. Deng opened China to foreign investment and the global market, with policies that developed China into one of the fastest-growing economies in the world.
Deng’s first reforms began with the decollectivizing of agriculture land into private plots and emphasizing the household responsibility system. As a result, peasants were able to exercise complete control on their land and increase agricultural productivity. This bottom-up approach was considered an important factor in the success of China’s economic transition........
Birth of New-Age Private Companies
The Chinese economy, since late 1980s, had grown at an average annual rate of 9.8% largely because peasants, workers and bureaucrats made themselves into entrepreneurs and pushed their country forward, by building private businesses accounting for as much as half of the Chinese economy.
China’s private sector made an important contribution to economic growth, with a share of more than 60% of China’s GDP growth and bringing over half of China’s fiscal revenue in 2017-2018. It also played a strong role in job creation by providing 80% of jobs and innovation drive with 70% of technological innovations and new products in the country. More than 90% of new jobs in 2017 were created by the private sector. By the end of 2017, there were 65.79 million individually-owned businesses and 27.26 million private enterprises in the country that employed 340 million people. China’s private investment grew 6% YoY to 38.2 trillion Yuan ($6 trillion) in 2017..........
ALIBABA’S BACKGROUND
Alibaba the Chinese multinational conglomerate, was one of the most diverse and valuable corporations in the world, sprawling across many verticals. From its inception, in 1999, Alibaba witnessed record growth on its e-commerce platform. From e-commerce and payments systems to media and entertainment to cloud services and artificial intelligence, Alibaba established a strong presence. However, e-commerce being Alibaba’s core vertical, it accounted for 80% of the company’s business.
Alibaba’s business model primarily comprised of three major web portals: Alibaba.com (a global B2B wholesale platform), Taobao (online C2C auction site), and Tmall (an online marketplace for third-party branded products). All the three online platforms connected various types of buyers and sellers. There were six other important subsidiaries including AliExpress (a global marketplace for Chinese exporters), 1688 (Chinese B2B platform), Alimama (an online marketing platform), Alibaba Cloud (a cloud computing platform), Ant Financial (Online Payment platform), and Cainiao (logistics) Network. All these subsidiaries were well integrated to make the Alibaba group a big ecosystem...............
JACK MA’S LEGACY
While Ma started his career as an English teacher, his emergence as one of the world’s most renowned e-commerce leader gained more prominence given that he neither had a computing background nor understood technology. Though he grappled with many challenges on his journey, he always endeavored to convert them into opportunities.
Ma’s Early Life
Raised during China’s Cultural Revolution, Ma was born to a poor family in 1964 as Ma Yun in Hangzhou located in the south-eastern part of China. In 1972, after the former US President Richard Nixon visited Hangzhou, Ma’s home-town became a tourist destination. He made the most of this opportunity............
Ma’s Entrepreneurial Stints
Eventually, Ma became an English teacher in 1988, earning about $12 a month at a local university. In 1992, with a desire to achieve more and to capitalize on China’s export boom, he kick-started his entrepreneurial journey alongside by starting a translation service business. He soon built a good reputation for his language skills.
As a part of his first venture, he happened to visit the US in 1995 as a translator. Ma’s fate took a dramatic turn with this trip where he saw computer for the first ever time in his life at his friend’s place. He also understood the power of internet when his friend told him that just about everything can be found on internet........
Emergence of Alibaba Group
Although two of Ma’s entrepreneurial undertakings were not successful, they didn’t stop him from dreaming bigger. After Ma returned to Hangzhou, on February 21st 1999, he asked 17 of his friends, students and acquaintances from all walks of life, to gather in his second-floor apartment at the........
Impact of Alibaba on Chinese Business Landscape
It was widely believed that Alibaba played a major role in changing the face of business and internet in China and across the world. Rising consumer spending and internet usage greatly boosted Chinese e-commerce. China’s e-commerce spend as a percentage of retail sales was amongst the highest in the world at 20% in 2017 and was increasing sharply (Exhibit XII). Analysts opined this growth was largely contributed by Alibaba with its mission of ‘making it easier to do business across the world’..............
SUCCESSION PLANNING AT ALIBABA
Ma brings Zhang to Alibaba
In 2007, when Alibaba was a smaller private company, Ma hired Zhang, the CFO of Chinese gaming giant Shanda Interactive Entertainment Ltd. (Shanda), a NASDAQ listed company. Ma later apologized to Chen Tianqiao (Tianqiao), Shanda’s founder, Ma’s close friend and a well-known entrepreneur, for taking away Zhang.
Zhang, holding a bachelor’s degree in finance from Shanghai University of Finance and Economics, had earlier worked as a senior executive at PricewaterhouseCoopers. He was taken on board Alibaba as the CFO of Taobao Marketplace, which drove eBay out of China. However, at the time, TaoBao’s reputation was in jeopardy for selling fakes.............
Zhang Announced as Ma’s Successor
On September 10th 2018, on Ma’s 54th birthday, he announced that Zhang would be his successor at Alibaba. Zhang was already on Alibaba Group’s board of directors, was the Chairman of Cainiao Network, a founding member of the Alibaba Partnership, a member of Ant Financial’s investment committee, Chairman of Sun Art (a Hong Kong Stock Exchange listed company) and served on the board of Weibo (a NYSE-listed company) (Exhibit XVI)...........
Ma and Zhang: Different Personalities, Same Vision
The announcement of Zhang as Ma’s successor elevated the former to head China’s biggest e-commerce company. Zhang however had to step into the shoes of his charismatic predecessor.
Alibaba was considered to be Asia’s most valuable company and Ma, the best-known Chinese business man. Ma, who described himself as an accidental businessman, was known for dispensing wisdom on global platforms. He was a role model in China and many books had been written about him. Ma was also known for taking monthly classes for upcoming managers at Alibaba based on the type of person to be instructed. Inspired by his love for martial arts, he tried fostering a hierarchy-less culture at Alibaba. Within Alibaba, Ma was called as ‘Teacher Ma’ and employees called each other classmates. Talking about Ma’s fetish for honing people’s skills, George Huang, Executive Assistant to the CEO at Ant Financial said that, “He really values cultivating people.”........
WAY FORWARD FOR ALIBABA UNDER ZHANG
Zhang Stepping into Ma’s Shoes
Ma bringing Zhang to Alibaba highlighted the visionary attributes of both Ma and Zhang. While Ma managed to bring Zhang from his long-time friend’s company, Zhang was also a visionary as he chose to quit Shanda and join Alibaba. In Tianqiao’s words, “At the time, Alibaba was a small private company so it shows that Daniel is also a visionary.”
It was argued that Zhang’s elevation and Ma’s exit would not result in any major shifts within the company as the narrative around Ma’s retirement had been building up for quite some time. Moreover, Ma was handing over a successful company to a person he trusted and had trained over the years. However, upon the announcement of Zhang as Ma’s successor, Alibaba shares fell 3.7%, highlighting investors’ concerns whether Zhang could replace his visionary predecessor............
Challenges
Critics feared that the reins of Alibaba were being handed over to Zhang at a difficult time. The company’s margins were being beaten as the group tried to pivot itself around ‘new retail’. Alibaba was spending heavily in setting up its brick and mortar operations which required higher capital expenditure as compared to the online business. Also, Alibaba’s competition with Tencent on payments, food delivery, ecommerce, etc., had inflated Alibaba’s operating costs. The two companies had to roll out subsidies to attract merchants and consumers to their respective online shopping sites. Besides, Alibaba had also been confronting growing competition from emerging start-ups such as Pinduoduo (a social e-commerce platform), which witnessed meteoric rise in just three years of its inception (2015)..............
Assignment Questions
I. How easy or difficult was it for the Chinese private sector companies to thrive in the highly regulated Chinese economy?
a. What were the major reforms that were taken up under the leadership of Deng Xiaoping and what was the economic impact of these reforms in China and on its business environment?
b. Analyze the factors that led to the emergence and rise of private firms in China? What was the impact of the rise of private firms, especially the technology/internet firms on China and the world?
c. Why, even after four decades of reforms in China, only the SOEs could make it to the top of the Fortune 500 list and private firms could not?
II..........
Exhibits
Exhibit I: Top 10 Chinese Companies Among the Fortune 500 List
Exhibit II: Top 10 Private Companies in China (2016-2018) (Revenue in billion Yuan)
Exhibit III: Top 10 Internet Companies in China (2016-2018)
Exhibit IV: Annual Revenue of Alibaba Group from 2010 to 2018 (in million Yuan)
Exhibit V: World’s Top 10 Internet Companies by Market Capitalization
Exhibit VI: A Brief History of Alibaba Founders
Exhibit VII: Jack Ma at an Alibaba Meeting
Exhibit VIII: eBay EachNet and Taobao’s Market Shares
Exhibit IX: Chinese Technology Companies’ Accelerated Growth (2017)
Exhibit X: Alibaba Group’s Ecosystem
Exhibit XI: Ma’s Awards and Honors
Exhibit XII: China’s E-commerce Spend as a Percentage of Retail Sales
Exhibit XIII: China’s Rise in Venture Investments
Exhibit XIV-A: About Alibaba Partnership – as per the details shared at Alibaba’s ‘2018 Investor Day’
Exhibit XIV-B: About Alibaba Partnership
Exhibit XV: Alibaba’s HEMA Grocery Stores
Exhibit XVI: Zhang’s Executive Profile
Exhibit XVII: Excerpts of Ma’s Letter
Exhibit XVIII: Alibaba’s Quarterly Revenue (2014-2018)
