FB Pixel no scriptAiling Alibaba tries to heal itself from within | KrASIA

Ailing Alibaba tries to heal itself from within

Written by Nikkei Asia Published on   4 mins read

Founding member Dai emerges as key to Chinese tech giant’s future.

Chinese tech giant Alibaba Group is struggling to find its feet after its growth strategy collapsed due to tougher competition and tighter government controls on internet companies.

Nearly four years after founder Jack Ma announced his retirement, Trudy Dai, one of the original members of the company, who took the helm of the main subsidiary, will be the key to the group’s future.

“Managers in charge of day-to-day operations are being replaced one after another,” said one Alibaba insider who spoke to Nikkei on condition of anonymity, expressing surprise at the pace of the reorganization.

An online media report this spring claimed that Alibaba plans to eliminate 80,000 jobs, or 30% of its payroll. Alibaba said the content of the report was exaggerated, but did not deny plans to restructure the company. Sources said Alibaba has been driven into a corner and has to undertake a massive reorganization.

Figures back this up. Alibaba’s published earnings in May for the first quarter in which it posted a net loss of RMB 16.2 billion (USD 2.5 billion), tripling the loss it reported in the same period in 2021. Its market value has fallen to around USD 250 billion from a peak of more than USD 800 billion in October 2020.

At the height of its success, Alibaba controlled over half of China’s online retail market and nearly half the market for smartphone payments. Its ecosystem expanded rapidly through acquisitions. But the company’s fortunes began to turn south when the government began reining in the internet sector.

Ma, who had stepped down as group chairman, said in a speech in October 2020 that “good innovation is not afraid of regulation but is afraid of outdated regulation.” His remark was taken as criticism of the government. “The phrase was not included in the text prepared in advance. It was intentional,” said a source close Ma.

President Xi Jinping’s leadership team apparently took issue with the remark. Disciplinary actions targeting Ma and Alibaba began immediately. The following month, Alibaba’s financial arm, Ant Group, had to postpone its planned IPO due to pressure from authorities.

Although the government announced in late April this year that it would ease up on tech giants, Alibaba sources say the group remains on the government blacklist and continues to be a target for tough scrutiny.

One problem threatened to put the brakes on Alibaba’s growth even before the crackdown: its effort to incorporate brick-and-mortar stores into its ecosystem.

Chairman and CEO Daniel Zhang began pushing a “new retail” strategy aimed at removing barriers between online and offline stores starting around 2016, before he became Ma’s heir apparent.

He went on an acquisition spree to implement the strategy. In 2015, Alibaba poured RMB 28.3 billion into Suning.com, a big retailer. It invested an additional HKD 19.8 billion (USD 2.5 billion) in a major department store two years later, followed by the 2018 acquisition of food delivery service Ele.me for more than USD 9.5 billion. According to research specialist IT Juzi, Alibaba spent more than RMB 300 billion on acquisitions between 2015 and 2018. That figure is just for disclosed deals.

However, most of its purchases have failed to produce synergies with online retail and continue to generate losses for the company. The job cuts mainly target these businesses.

Alibaba had hoped to create a new source of revenue to spread the company’s risk while the core e-commerce business was strong. But the government’s tighter controls and the rise of competitors are weighing on the company before it is able to reduce its dependence on online retail.

Senior management is not immune to the knife. Zhang was replaced by Dai as the head of the main e-commerce subsidiary in late April.

Zhang took over the job from Ma when he retired. The appointment of Dai has led to speculation that she has not only been put in charge of reviving Alibaba’s founding business but has also become Zhang’s likely successor.

Dai was one of Ma’s students in his English teaching days, before he became China’s best-known net entrepreneur. She is tough in the workplace but is said to favor dialogue, often going out for dinner and drinks with colleagues.

Factionalism is part of Alibaba’s culture because Ma wanted divisions to compete with each other. This worked well during the company’s rapid growth period, but has stifled internal communication and has become a source of conflict within the company.

Members of one online retail division were required to submit a 10,000-character report every Friday. “It was meaningless work imposed by our boss, who wanted to please senior managers,” one employee said. Such managers are being removed under Dai, who is tasked with revitalizing Alibaba’s business and organization.

This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.


Auto loading next article...