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China's internet godfather

Published: 24 Feb 2009 22:06:25 PST

18 January 2009
China's internet godfather

Every time a salesperson at online trading site Alibaba signs up an important new account, the entire sales department cheers in triumph. But today they have been asked to keep the noise down as Jack Ma, founder and chairman of the world's largest online trading platform for businesses, is being interviewed in the open-plan office.

If Mr Ma feels most comfortable next to his sales force, it is because their work comes closest to what the 44-year-old has been doing over the past 15 years: preaching the importance of the internet and convincing companies to pay for offering their products on Alibaba's website.

Today, Alibaba has 36m registered users worldwide and generated revenues of Rmb2.2bn ($322m, €245m, £220m) in the first nine months of 2008 – 43 per cent up from the previous year. The group employs 12,000 people and intends to hire another 4,500 this year. It also controls Yahoo China and Taobao, China's leading consumer e-commerce platform, which Mr Ma founded in 2003.

Jack Ma has been called China's internet godfather. But when the slight, gaunt man – birdlike in appearance – tried to sell online advertising space on China's nascent internet in 1994, people viewed him with scepticism and suspicion. "They would think I was crazy," he says, gesturing with his bony hands.

A gift for acting runs in the family. Mr Ma's parents made their living as performers of ping tan, a traditional art of storytelling that originated in Suzhou, a city close to his home town of Hangzhou.

He grew up in the shadow of the Cultural Revolution, a decade-long mass campaign launched by Mao Zedong in which millions were uprooted, families were destroyed and people lost their lives.

At the age of 12, just as Chinese society started emerging from this period of turmoil, Mr Ma, bad at maths but good at English, decided to learn the language to perfection. He worked for free as a guide for foreign tourists to improve his language and open a door to the outside world.

After failing the nationwide college entrance exam twice, he narrowly squeezed into Hangzhou Normal College to study English. He became a teacher, but soon gave up what was widely regarded as a safe and reputable profession to set up his own business, a translation agency, in 1994. The work brought him to the US later the same year, where he first encountered computers and the internet – and decided to build an internet business.

In 1995, he set up the China Yellow Pages, an online directory for Chinese businesses. But as there was no internet connection in his hometown of Hangzhou, very few of his customers were able to see if their advertisements were on the website or not. In the early days, he once put a group of prospective clients in a room with a computer and then uploaded their pages via a long-distance phone connection from Shanghai for them to see.

Four years later, Mr Ma again prompted an incredulous reaction when he founded Alibaba as an internet start-up focused on small businesses rather than consumers or multinationals.

The key to Alibaba's business model is the assumption that small- and medium-sized enterprises are those that can benefit most from the internet because it gives them access to buyers they would otherwise only meet at trade shows. With access to a wider pool of customers, it also reduces their dependency on market-dominant clients.
"Companies like Wal-Mart, these big-size buyers, killed a lot of SME buyers," says Mr Ma. "But now most of the SME buyers and sellers started to do business throughout the world because of the internet. So I think the world has moved. I strongly believe small is beautiful."

Alibaba has transformed that belief into a strong revenue stream by offering Chinese suppliers a presence on its website in exchange for fixed payments. But all that could be at risk if large numbers of SMEs were to fall victim to the global economic crisis.

"We still have more than US$2bn (€1.5bn, £1.3bn) in cash reserves for the group, and the internet is growing in China, everything is fine, so surviving ourselves is easy," says Mr Ma. "But if our customers die, if the SMEs who we are serving disappear, it will be a big disaster."

Although China's economy is so far faring better than others, domestic trade has slowed, affecting a large chunk of Alibaba's business – 28.7m of its registered users are in its home market. To soften the blow, Alibaba has facilitated loans in excess of Rmb1bn to SMEs that would otherwise have struggled to get money.

"We do the same thing as Muhammad Yunus," says Mr Ma, referring to the father of microcredit who won the 2006 Nobel Peace Prize. "Let's use the crisis to change the banks."

But a bigger change for Mr Ma's own company is the group's shifting geographic focus. "Before this financial crisis, we were helping China's products abroad. Now we are thinking about helping SMEs in the other parts of the world. Help them sell across the nations. Help them to sell to China," he says. "In the next 10 years, we are moving from a pure China exporting centre to a global platform for SMEs to exchange products."

In the past six months Alibaba has made a big push in this direction with a programme called Export to China, which offers non-Chinese sellers virtual Chinese-language storefronts.

Taobao, he announces, will also go global. Beyond Japan, where the platform already has a venture, he is targeting markets such as India or Mexico.

However, the company will not insist on applying its own business model to markets it does not know, says Mr Ma, in a dig at US rivals. "How to go global when we see [its effects on] Ebay, Amazon, Yahoo? They’re all facing trouble. We are not coming to India saying, we want 100 per cent all ourselves. This is not real globalisation, this is occupation."

This is one of Mr Ma's favourite topics – it was his company, after all, which overtook Ebay, and Yahoo came to him when its foray into China ran into difficulties.

Yahoo took a 40 per cent stake in Alibaba in 2006 and Alibaba took control of Yahoo China. Mr Ma argues that these companies failed in China because they tried to conquer the market with foreign managers and techniques.

After some discussion of this, Mr Ma's eyes begin darting about: he can hear mobile phones going off in the sales department. He offers a comment about the global economy: "The ship is moving into the most dangerous area now." And with that, he gets back to work.

Meet the self-appointed guard of Alibaba's vision and values

Before Alibaba listed, its business-to-business operation, in 2007, Jack Ma stepped down as chief executive of the unit and handed over to an outsider: David Wei, formerly head of B&Q China, the home improvement group.

Taking Mr Ma's reputed energetic and stubborn business style into account, it is hard to imagine that he would keep his hands entirely out of the business of running If one of the company presidents makes a decision he doesn't like, he says: "I will see whether I can tolerate it. And if it's wrong, well, I think it is stupid and change it again."

But Mr Ma says he has a comfortable power-sharing arrangement with the heads of the group's subsidiaries. "Jonathan [Lu, Taobao president] spends 90 per cent of his time focusing on Taobao, and I only spend 10 per cent. Why would I think I am smarter than him?"

He wants to be the "guard" of the company's values and vision. He spends most of his time trying to make sure these are deeply rooted in the minds of each employee. As Alibaba, started by 18 founders squeezed into an apartment, now has 12,000 employees, that is a huge job.

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