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As IPO Approaches, Alibaba Still A Mystery To Many Outside China

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Shares of Alibaba, the Chinese e-commerce giant, under the ticker symbol “BABA,” are expected to go on sale to the public in August. It has the potential to be the largest tech IPO in history and perhaps one of the largest IPOs in history, period. Yet Alibaba remains a mystery and an unknown quantity to most investors, business people and consumers located outside of China.
For those of us who work in China, engage in China related business, who are trying to reach Chinese consumers and work in e-commerce in the U.S. and China, we all know the name Alibaba, but it is easy to forget that almost no one else does. Even those involved with the intersection of China, e-commerce and consumption don’t have a full understanding of what Alibaba is, what it does and what it is planning on doing.
It’s helpful to start with this: Alibaba is the largest e-commerce company on Earth. Alibaba processed more than $248 billion of online transactions in 2013, and handled 70% of all packages delivered in that time, all in China. To put that in perspective, the number two e-commerce company in the world, Amazon processed $100 billion and number three, eBay EBAY +2.3% $76 billion in online transactions. On the Chinese “Singles Day” holiday, Nov. 11, the company processed $5.75 billion in online purchases, in one day. More than that year’s Black Friday and Cyber Monday sales combined in the U.S.
Growth potential? It is expected that almost 360 million Chinese consumers will engage in e-commerce purchasing in 2014 and that number will increase to 600 million by 2018/2020. That said, Alibaba has its sights set on global e-commerce, not just the China market.
Alibaba’s two largest and best known platforms are T-Mall and Tao Bao. T-Mall is the platform through which brands and retailers set up stores and sell their products directly to Chinese consumers. There are about 70,000 brands and retailers selling on T-Mall today including everyone from Coach COH +0.44% to NIKE NKE -0.27%, The NFL, LVMH an Zara Zara. Tao Bao is Alibaba’s consumer to consumer platform that allows Chinese sellers and buyers to connect much in the way they do on eBay, Etsy, and other C-2-C platforms in the U.S. and Europe.

 

Having said all that, Alibaba’s rise has not been without controversy, though. Four years ago, Jack Ma transferred ownership of Alipay from Alibaba to another company he controlled without informing shareholders. The dispute was eventually settled after Alibaba agreed to compensate its largest shareholders Yahoo and SoftBank. At about the same time, Chief Executive David Wei and Chief Operating Officer Elvis Lee both resigned after an investigation discovered that some of Alibaba’s sales staff had been helping fraudsters to evade its internal controls. Meanwhile, the company’s use of variable interest entity (VIE) structure, offshore holding companies created to circumvent China’s ban on foreign ownership, is seen by many investors as a “major risk.”
Alibaba has been investing heavily (in China and globally) in supply chain and transportation, technology, cloud computing, e-commerce expansion (it is launching the e-commerce site 11Main.com in the U.S. this summer) and much more. And, get this, they are among the rarest of Internet companies in that they are profitable. Alibaba could, by 2020, or sooner, be the world’s largest and most dominant technology and e-commerce company.

Grand opening of Alibaba Group Taiwan branch. (Photo credit: Wikipedia)

Therefore I think it’s crucial that you get familiar with Alibaba and think deeply about what its dominance, growth and IPO mean to you. Whether you are a consumer product company, a B-2-B company, or a retailer – if you are in supply chain and logistics, operations, or e-commerce – of you are charged with international operations or branding for your company -if you are an entrepreneur or start-up -Alibaba matters to you, even if you don’t know it yet.
There are five questions you need answered in the short term -

 

• Who and what is Alibaba, and why is its IPO expected to be so massive?
• What does Alibaba do and where do they do it?
• Who is Jack Ma, and how did he surprise the world and what has surprised him?
• Where is Alibaba going?
• What actions should you take as Alibaba continues to dominate e-commerce in China and increasingly the world over?

Jim Tompkins, CEO of Tompkins International, a Raleigh, N.C., supply chain, operations and market strategy consulting firm, with a presence in China (and full disclosure: my employer) has produced a video called “The Alibaba Effect.” In it, he addresses the answers to all of the above questions and much, much more.
Alibaba is changing the face of e-commerce, retail, logistics and digital marketing on a global basis. Are you ready?
Correction: An earlier version of this post stated that Alibaba’s shares would begin trading on August 8, but the company still has yet to announce the date.