What Alibaba's future looks like according to CEO Daniel Zhang

"As one of the largest Internet companies in China, it is not an option to abandon the globalization strategy for short-term reasons."

The last one and half year is a particularly challenging time for Alibaba, China’s largest e-commerce and cloud service group. Regulatory whirlwinds, intense competition from newcomers such as Pinduoduo and ByteDance, economic downturn and COVID lockdowns all came together in a perfect storm. Today, Alibaba’s stock price barely stays above its 2014 IPO price. One can almost say a decade is lost.

People often say that Alibaba’s breakout, the rite-of-passage moment happened in 2003, during another epidemic. When an employee contracted SARS in May 2003, the whole company was forced to work at home, precisely around the time when Taobao was scheduled to be launched. Despite the dire situation, Alibaba still managed to launch Taobao on May 10, 2003, at a pre-mobile internet stage when “remote working” was not yet a word. Then, in the crisis lay a golden opportunity. Locked at home, many Chinese consumers flooded to newly born Taobao to make their first e-commerce purchase, making Taobao a huge success. To commemorate this dramatic period, May 10 was chosen as “AliDay”, a special event on Alibaba’s corporate calendar.

Now, almost two decades later, on another AliDay, Alibaba has entered another watershed moment. Can Alibaba turn crisis into opportunity again? Ginger River believes in times like this, the market should especially pay attention to what CEO Daniel Zhang has to say.

The following article is a discussion of Zhang’s AliDay speech by 裴培 Pei Pei, a tech KOL and ex-chief TMT analyst of Sinolink Securities, on his WeChat blog 互联网怪盗团 Internet Phantom Thief Legion.

The original title is

逍遥子在阿里亲友日上的分享值得重视

What Daniel Zhang shared on AliDay deserves to be noted

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Every 10th of May is "AliDay", a day when Alibaba opens up to employees' families. There would also be a grand mass wedding. Senior executives, including the chairman and CEO would attend and officiate the wedding himself. Forums would be held where employees' questions get answered. In the past, though the day was important for the company itself, not much attention was drawn by external investors and media. The reason is affluent exchanges Alibaba had with the outside, Investor Day and Yunqi conference in every Fall, the quarterly performance online meeting etc..However, this year remains an exception. Everyone has too many crucial and timely questions for Alibaba's executives to answer.

• In 2021, 逍遥子 Daniel Zhang put forward three major strategies: domestic consumption, cloud computing and globalization. A year has gone by, and the macro environment has undergone drastic changes. So are there any adjustments concerning the three major strategies?

• The ongoing pandemic cast a shadow over e-commerce. How does Alibaba view the changes brought by Covid-19? Are there any new demands for the e-commerce platform in the context of the pandemic?

• At the end of 2021, Alibaba has reorganized, setting up the China Digital Commerce division and International Digital Commerce division. And there are shifts in division leaders. So, what is the underlying logic behind it? What is management's opinion on Alibaba's current corporate culture?

• Voices like "Alibaba's organization has already aged and its efficiency is dropping" keep turning up. Some believe that Alibaba cannot keep up with the new trend and new business model. Is that true? How should Alibaba prepare itself for the increasingly intense market competition？

It is praiseworthy that on this year's AliDay, Daniel Zhang had a candid conversation with the participants. He has not shunned away from challenges facing Alibaba at present, and logical solutions have been offered. Therefore, his words deserve attention and would be a useful guide for investors, e-commerce people, and for people whose work is related to the internet industry.

First, when it came to COVID-19, Daniel Zhang believed that much of the business Alibaba had done this year was “保供” "supply assurance", which can be seen as "atypical work", but it is a social responsibility that a company must shoulder.

I think that the logistics pressure caused by the pandemic is perfect proof that Alibaba did the right thing as we have invested heavily in logistics contract performance over the recent years. From 菜鸟 Cainiao, 蜂鸟 Fengniao to 丹鸟 Danniao, from 盒马 Freshippo to 淘鲜达 Tao Xian Da, even the acquisition of RT-Mart, all complied to the basic concept of "building high fulfillment capabilities". In Zhang's own words, "with the backdrop of the pandemic, any consumer service without adequate fulfillment, is kind of rogue. If we merely find suppliers orders, but cannot deliver them, that would be a tricky problem."

So the recent pandemic is a major test of Alibaba's e-commerce fulfillment capability. Some parts are commendable, but problems are also exposed. For example, in Shanghai, Freshippo has managed to achieve high delivery efficiency, while other e-commerce sub-branches in the Alibaba family have pale in comparison. It's not a big deal that problems surface. The key lies in improvements. Back in 2020, Amazon also experienced a significant drop in delivery capacity, which prompted it to further strengthen its logistics investment and local retail capacity. I believe that Alibaba will be more committed to improving fulfillment capability for products of all sorts in the future. And an efficient and complete delivery system will be built, covering one-hour, half-day, next-day and multi-day delivery services. This is what Daniel Zhang has always attached great importance to, ever since he took office as Alibaba's CEO in 2015.

Second, Alibaba makes it clear that the general direction of three strategies (domestic consumption, cloud computing and globalization) remains unchanged. At present, in the international situation's fickle climate, many people think this is a rough time for Chinese companies to go overseas. Such view is speculative and short-sighted. However the situation changes, two things are certain in my view: first, the world cannot do without China, and second, Chinese enterprises cannot survive without overseas markets either. Moreover, opening up and communication are the main themes of human development. Therefore, as one of the largest Internet companies in China, it is not an option to abandon the globalization strategy for short-term reasons.

According to Daniel Zhang, "Globalization boils down to two categories, namely globalization of consumption and that of cloud computing." Both of them rely on local ecosystems, so we need to think from a local perspective, and find an angle where Alibaba could make a difference. Instead of copying what we have done in China abroad." This might be the explanation for Alibaba's new International Digital Commerce division, and why it is placed at the same level as its China Digital Commerce counterpart.

By the way, I think that the market has underestimated AliCloud's global strength. According to data from Gartner, in 2021, the market share of AliCoud reached 25.5 percent in the Asia-Pacific region, ranking first, equivalent to the total share of Amazon and Microsoft. Last year, AliCloud has launched local data centers in Indonesia, the Philippines and South Korea, and the construction of local teams and ecosystems is underway. In the quarters to come, we may not see the impact of AliCloud's globalization on financial reports. But give it a dozen quarters, a pivotal effect could appear.

Next, regarding the competitive landscape of the Internet, Daniel Zhang gave an insightful speech to me, quote:

"At home or abroad, black horses easily grab our attention, and we follow them like playing a game of Whac-A-Mole. No matter how Alibaba analyzes its competitors, we are different after all ... The worst is that one product goes viral today, so we dive in immediately. Tomorrow another one takes off, then we would like a slice of the pie too. The market itself is big enough for you to pull off magic, and the key point is what product we want to present.

Over the past few years, China's Internet industry has been flooded with copycats. Some indeed have succeeded in following the trend. But generally speaking, the larger a company gets, the less likely it is to get an upper hand in following suit. The more mature a market segmentation is, the less room is left for imitators. People often ask: Why didn't Alibaba learn from Pinduoduo? Why not learn from Douyin, Kuaishou, Meituan and so on. In fact, the questions are problematic. Studying competitors is what all Internet companies would do, but Alibaba's products should not be led by the nose by its competitors. Just as the famous saying of 齐白石 Qi Baishi [Qi Baishi (1 January 1864 – 16 September 1957) was a Chinese painter, noted for the whimsical, often playful style of his works] in his later years: "Those who study me live, but those who copy me die."

One thing we must understand: From the perspective of customers, no one needs a second Pinduoduo, Douyin, or Meituan. Taking e-commerce as an example, users have different demands, including price, cost-effectiveness, authentic product rate, product abundance, fulfillment capability, social factors, etc. E-commerce platforms' job is to group these demands, to find a distinct and suitable place, rather than chasing the tide. Coping may be good enough for some small platforms that join the game late, but definitely not for platforms as big a scale as Alibaba.

In the bull cycle of the capital market from 2020 to 2021, some Internet companies (names that I will not point out here) have done too much useless business and inefficient investments just to fawn over the capital market. When the tide turned, all the efforts ended up a wild goose chase.

"She was still too young to know that life never gives anything for nothing and that a price is always exacted for what fate bestows. "― Stefan Zweig, Marie Antoinette: The Portrait of an Average Woman. Not blindly following the hot spots of the capital market spares companies, investors and employees of such unnecessary prices.

Finally, Daniel Zhang also talked a lot about corporate culture, which is quite relevant and raises much attention from the outside. Due to space reasons, I won't go over the details here. However, there is one sentence that left me with a deep impression: "I believe that Alibaba's corporate culture must be built from senior management. Do we make decisive choices and trade-offs on matters of principle? This trade-off trumps talking about culture 100 times. Practice as said, put ourselves in others' shoes, and start with ourselves first."

As a former financial practitioner who has served many large institutions and worked in an organization with a scale of tens of thousands or even hundreds of thousands (Daniel Zhang used to be a senior executive of PricewaterhouseCoopers’ Audit and Business Advisory Division in Shanghai earlier at his career), I can't agree more with these words ——In an excellent organization, senior management must take action first, which means the superiors have the courage to take responsibility and set an example for the subordinates. Only in this way can we talk about good corporate culture and drive employees to work hard for a common goal. With great power comes great responsibility, "senior peers" shoulder responsibility voluntarily rather than dodging, the organization is already halfway towards success. Of course, we can only wait and see if this kind of good philosophy can be implemented well.

All in all, from Daniel Zhang's speech on AliDay, we find it more about "keep the status quo" than "changing". That's the right thing to do! It has been proven correct to improve fulfillment, build local retail capacity, and continue to develop cloud computing. They should be carried out thoroughly in the long run, even though globalization has experienced some setbacks in the short term. The key is persistence, and not let short-term trends lead the company by nose. After all, tides ebb eventually, but those more fundamental, long-lasting things stand.

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