When and where Alibaba.com will launch its IPO has not been announced. But a larger question looms: Will it resemble another Facebook?
Ma Yun, founder and chief operating
officer of China’s Alibaba.com
Photo: Getty Images
The Chinese Internet sensation has built itself into a diversified e-commerce player in a protected market. Alibaba now works in various ways as an EBay, Amazon and PayPal. So, the question really is, will the underwriter link the company’s IPO share price to actual revenues or to the hyped potential of China’s Internet and economic growth?
That ultimately depends on how China’s new state leaders address systemic macro-economic challenges, specifically the state’s ongoing role in the economy and China’s commitment to globalization on the basis of reciprocity. The Alibaba IPO could be the litmus test for economic policymaking in China.
If the Chinese economy under Xi Jingping and Li Keqiang retains its strong support for state owned enterprises, then Alipay could face ramped-up competition from China’s UnionPay, a state-owned bankcard system that is expanding in the Internet payment market
On the flipside, if globalization is genuinely embraced by the new leadership, then Alibaba will face increased competition from other players of scale as a new wave of foreign investment comes to China’s Internet sector. Companies like EBay, Amazon.com and PayPal, or next-generation Panjiva, are waiting in the wings to move on alibaba.com’s traditional revenue base.
Meanwhile, Jack Ma, founder and chairman of Alibaba Group, is seeing continuing disruption to his domestic stronghold from a range of local competitors such as 360Buy or Baidu. Alibaba may have to fight a multi-front war against foreign competitors as well as local rivals. That involves heavy spending with the accompanying risks to earnings per share. And history proves that fighting on more than one front usually results in defeat.
There are other risks for Alibaba, such as the management challenges of running a complex e-commerce empire — a good breeding ground for conflicts of interests and corruption.
Alternatively, Ma, the self-proclaimed Vietcong Guerrilla of the Internet, may retain his hold and beat his competitors by being smarter and faster to adapt. If not, the Alibaba IPO could become the Ali-fail — and Ma the next Mark Zuckerberg.
John Gruetzner is the principal and founder of Intercedent, an advisory firm established in Toronto with offices in Beijing, Hong Kong, Singapore and Toronto. The firm executes cross-border trade and investment projects focused on Asia, provides planning and research, business development strategies and capital advisory services to its clients. Gruetzner has been based in Beijing for more than 20 years.