Alibaba, the leading e-commerce company in China, has filed for a massive I.P.O. The choice of venue for the I.P.O. -- the United States -- has prompted questions about whether Alibaba will soon be battling for a share of the U.S. e-commerce market. Can Alibaba mount a credible challenge to the likes of Amazon? More generally, can it compete on a global stage? For years, I have watched Alibaba closely -- ever since co-founding a company to bring transparency, in the form of reliable data, to the business of global trade -- and I have my doubts that Alibaba will succeed beyond China.
Alibaba's Trust Problem
The world is littered with the carcasses of foreign companies that have tried and failed to enter China. But, similarly, how many Chinese companies have succeeded in making the leap beyond China's borders? The truth is, crossing borders is always hard. One might make the case that Alibaba is uniquely positioned to succeed in going global, where so many others have failed. After all, they got their start by trying to connect Chinese suppliers with the global market. But the results of these early efforts were discouraging. Though they got a lot of suppliers in China to build an online presence and pay for online real estate, Alibaba never really earned the trust of serious businesses outside of China.
And this gets at why going global will be particularly hard for Alibaba. The companies that will win in the global marketplace will be those that can earn the trust of investors, businesses, and consumers. In a global context, legal protections are limited -- so there's a premium put on trust. And Alibaba has a trust problem. Some examples, from the last few years:
- Alibaba burned investors with a transfer of a key asset to a separate company controlled by founder Jack Ma.
- Alibaba's salespeople were caught helping fraudsters evade controls designed to prevent them from gaining "gold" status in the Alibaba marketplace.
- The U.S. Trade Representative listed Alibaba's Taobao on the world's "notorious market" list for piracy and counterfeit offenders.
Not exactly confidence inspiring. Now, to be fair, it's not just Alibaba that has a trust problem. Chinese commerce has a trust problem. And global commerce has a trust problem. What if Alibaba could in fact solve its trust problem and the broader trust problems that hamper commerce in contexts where legal protections are weak? Clearly, it could unlock enormous value for market participants and, of course, for Alibaba's investors.
Can a company that has grappled with its own trust issues help solve the problem of trust that impedes commerce both with, and within, China? It's encouraging to note that Alibaba founder Jack Ma clearly understood the importance of solving this problem. And I suppose it's also worth recalling the Vulcan proverb: "Only Nixon could go to China."
Betting Against Jack Ma
If Alibaba decides to compete outside of China, it will face an uphill battle. It will certainly have enough cash to give it a go, but cash alone cannot buy success on the global stage. To succeed, Alibaba will have to articulate a global vision, build a global management team, successfully compete on a global playing field that is a bit more level than China's -- and, perhaps most importantly, solve the trust problem.
My bet is that years from now Alibaba will still be the dominant player in the domestic Chinese market, but only in the Chinese market. You might think I'm betting against Jack Ma. And maybe I am. But dominance of the world's largest consumer market is hardly a consolation prize. In fact, it may be the prize. And so perhaps the question of whether Alibaba can compete globally isn't that interesting after all. Perhaps the more interesting question is whether anyone can compete with Alibaba in China.