Despite a market cap of more than $200 billion and leadership positions across a variety of high-growth business platforms in China, Alibaba and founder Jack Ma seem to be viewed by as an e-commerce novelty led by a somewhat “quirky” CEO who found success in the limited confines of a single emerging market (China). Media coverage generally obscures the profound strategic implications for the Western companies and policy makers of Alibaba’s success. Much more important than the scale of the offering or its initial 30% ascent above the offer price, Alibaba’s origins, innovative bias and corporate culture all presage a fundamental shift in the shape of global competition.
Until recently, it has been easy to dismiss the global significance of “leading” Chinese companies. With good reason: at their current stage of development, the likes of China Mobile or China Agricultural Bank were typical examples of massive state-owned institutions with little hope of competing effectively on a global stage.
What makes Alibaba different?
Three characteristics – shared by Alibaba and hundreds of other fast-growing Chinese private sector entrepreneur-led firms – illuminate how the rules of competition are beginning to change at a global level. Future posts will explore each in more detail, but here are the headlines:
Leadership Across Multiple High Growth Platforms. Alibaba’s 75% share across multiple components of the world’s largest and fastest growing e-commerce market provide distinct advantages in terms of scale and resources. Tomes have described numerous state-owned enterprises (SOEs) that gained similar positions via government-directed industry consolidation or regulatory favoritism, debating and ultimately dismissing the SOEs’ global relevance. Some observers (mis)use similar logic to discount the global success of firms like Lenovo and Huawei.
The reality of a private sector firm building a leading market position across an industrial and consumer customer base that will soon be larger than the US and EU combined is indeed game changing. The result: Alibaba is larger than Amazon and Ebay combined, growing faster with higher margins and profitability.
It is difficult to avoid the obvious comparison with leading American firms of the 1950s and 60s when the US was clearly the world’s largest market. Despite their lack of global sophistication, limited cultural understanding, aggressive business tactics and frequent stumbles (remember Servan-Schreiber’s Défi américain in 1967), firms like GM, GE, IBM, Pfizer, DuPont succeed globally using strong home-market positions to subsidize their learning curve in complex international markets. In the process, US multinationals, often supported US government policy, changed the shape of the global economy and the nature of global competition.
It should not be surprising that Chinese firms moving offshore have focused first on other fast growing national markets – mainly in Asia (see Rick Payne’s post on Opportunities Through an Asian Lens). Why prioritize sclerotic North American and European markets when a focus on your back yard will more effectively enhance the competitive advantages derived from scale and rapid growth with lower investment cost and less risk?
Genetically Innovative. Excitement also surrounds Alibaba’s rapid moves (outside of the listed vehicle) into related businesses ranging from social media and e-gaming to innovative on-line financial services. But such smart business moves underplay the true depth of innovation built into Alibaba’s DNA. Over the decade and a half since Alibaba was launched, Western firms have bemoaned China’s lack of transport infrastructure, credit and supplier data, national retail distribution and a host of other barriers inhibiting the application of Western business models to the Chinese environment.
Unshackled from fixed ideas about what “should be”, Jack Ma and his team approach such barriers as opportunities. While local managers of MNCs in China can often be equally innovative in their thinking, few have been able to alter the mindset at headquarters sufficient to produce truly radical change in products, pricing or business models. Increasingly many of the most innovative China-based executives are migrating to local firms that “get it”, bringing with them a level of international sophistication and selected business disciplines that further enhance the competitiveness of Chinese companies.
Fast Adaptable Risk Takers. The salient feature of Alibaba’s organizational structure monopolizing Western interest is concern surrounding “opaque” decision rights concentrated in the hands of the management board. This is understandable from the perspective of institutional shareholders who have been mistreated by publicly listed firms of all nationalities. But it misses a key point. Alibaba and other entrepreneur-led Chinese firms are likely to differentiate themselves around three organizational characteristics that are critical to competing in 21st Century:
- Speed of decision making
- Tolerance for risk
- Adaptability (fixing it when it goes wrong or dropping it and moving on)
None of these three traits could be construed as distinctly “Chinese” in ethnic or cultural terms. While it has long been a popular subject for academic debate, Chinese culture does not dictate corporate cultures that are fundamentally better or worse than attributes imposed by being “American” or “French”.
Instead, these keys to success are more closely aligned with a particular stage of corporate development – more like Google, Amazon or Apple, at least in their early days:
- Led by charismatic founders with a clear vision
- Founder/employee owned
- Personal trust outweighs corporate controls and org charts
- No perceived limits to using new technologies and/or business models
The best summary of the traits of this new competition comes from Bain’s Jimmy Allen who describes it as the Founders Mentalitysm.
21st Century Competition
Chinese private sector market leaders will – like Alibaba – begin to emerge in the frontlines of a new form of global competition. China – and Asia generally – provide a unique incubator, driving home grown firms to capture advantages of global scale over a relatively short period of time; bias their managers toward innovative action to overcome a myriad of operational challenges; relentlessly pursue fresh approaches to swift, cost-conscious customer-oriented decision making. Today’s emerging global leaders are weaving these threads into entirely new ways of winning. Can large, slow-moving Western corporate bureaucracies effectively respond?