If I asked you what the largest e-commerce company in the world was...
I bet most of you would answer Amazon without even hesitating.
However, folks…
That may not be the case.
Listen up.
With
a market value of more than 400 billion dollars and more than 600 million customers worldwide,
Alibaba, an incredible success story, is also the most valuable Chinese company in the world.
We could say that this company has become the best representative of the new Chinese
capitalism.
Let's go back for a second to the question that we asked at the beginning of this video.
Is Amazon the largest e-commerce company in the world?
Well... it depends.
If, for example, we take a look at the market value, that is, how much investors value the
company... then undoubtedly, Amazon is the largest company.
But if instead we focus on the volume of sales made through the company every year, that
is, where more goods are bought and sold… then Alibaba wins by a landslide.
Yes, Alibaba may not be as popular and as well-known as Amazon… after all, it mostly
works in the Asian market... but although it may seem far away, products worth a total
of more than 750 billion dollars are sold each year through Alibaba’s different platforms.
Now... those of you who usually follow VisualPolitik, surely won’t be surprised by what I’m
saying.
Asia is undergoing a revolution... a takeoff, an unprecedented economic growth process.
Every year, around 160 million people leave poverty behind and manage to become part of
the middle class...
160 million people in Asia alone.
In just a few years, countries like the Philippines and Thailand will have middle classes as large
as those in the United Kingdom, France or Italy.
And then there's China...
whose middle class is... exploding, taking off almost vertically.
So, what happens when a person leaves poverty behind and becomes part of the middle class?
Well... among other things, it means they now have much more money to spend.
That explains why the Chinese retail market has multiplied by 4 in the last 5 years and
why forecasts indicate that the growth of Chinese consumption in the next 3 to 4 years
will be greater than everything that the British or Germans consume today.
And... do you know who holds more than 70% of the market share in China's e-commerce
sector and is very well positioned in the other fastest growing Asian countries?
Exactly, Alibaba.
I’m sure by now you’re beginning to see this company under a different light.
But before we take a look at Alibaba’s characteristics, its light and dark side... let's see where
and how it all began.
Let's see, its history.
(JACK MA’S MIRACLE)
He was never the best student, but thanks to the foreign tourists who visited his hometown
and especially to the relationship he developed with an Australian family, Jack Ma, a child
born in a humble family just 2 years before Mao’s cultural revolution, managed to learn
English and acquired all the advantages offered by the modern world.
And as is often the in life, it wasn’t his formal studies but the small experiences--the
kind we often don’t even pay attention to--that fed the success of the person who is, today,
the richest man in all of China.
(“I’m 100% ‘made in China.’
I learned English myself, and I know nothing about technology.
[...] One of the reasons why Alibaba survived is because I know nothing about computers.
I’m like a blind man riding on the back of a blind tiger.”
Jack Ma.)
Jack Ma, one of the heroes of the new modern China, didn’t have the opportunity to attend
a good university.
However, since he learned English, he managed to graduate with a teaching degree, got a
job as a language teacher and a few years later launched a translation company.
And it was on a trip to the United States to perform a translation service... that some
friends from Seattle showed him what was then an incipient technology called the Internet.
At that moment, an idea hit Jack right in the face.
(“I was afraid of touching the computer because it seemed very expensive, but they
said: ‘Come on, Jack, go ahead.
It's not a bomb!’
Then I typed the word beer: B-E-E-R, and I could see German and Japanese beer, but not
Chinese beer.
Then I typed the word China and the answer was ‘No results’.
Then I thought: How interesting, if we could group all the companies in China and create
a page for them, maybe we would achieve something big.)”
And that’s precisely what he did.
After returning to China...
Jack set up a company, China Pages, to list, classify and thus find Chinese companies...
something like the yellow pages.
This company didn’t have the expected success, but Jack learned enough to be ready for his
next adventure.
After a lot of work in his small apartment, both he and a team he’d managed to train
without virtually any resources, created Alibaba in 1999, and it is now one of the largest
companies on the planet.
(THE GREAT MARKET)
More than wondering what Alibaba does, we should ask ourselves what it doesn’t do.
Because… see…
Alibaba isn’t a simple e-commerce portal, but rather a kind of technological intermediary.
In other words, unlike Amazon, Alibaba doesn’t sell anything directly, but basically functions
as a large market where thousands and thousands of brands, producers and distribution companies
sell their products to millions of customers.
That is, Alibaba is the owner company, the company that manages this huge market... and
supplies everything that brands, producers and distributors need to be able to carry
out their business... from payment platforms to metadata.
In fact, this may be its biggest difference with Amazon.
For example, think about the huge amount of data that these companies handle: consumer
trends, budgets, types of customers, purchase timing, etcetera, etcetera.
Well, while Amazon uses all that data to develop its own product lines....
Alibaba shares them with the companies that operate through their markets... so that they
can launch new products or... know their consumers’ preferences better and thus sell more, making
the market grow, which makes Alibaba grow.
Thus, over time, Alibaba has developed several different markets...
So if you’d like, to better understand what Alibaba is exactly, let's take a look at what
these markets are and how they differ.
First of all, we have Alibaba.com a huge wholesale market, perhaps the largest online wholesale
market on the planet.
That is to say, this market isn’t aimed at consumers.
Through this space, producers, manufacturers sell their products in bulk to other companies
so they can distribute them in their countries.
For example, say you have a store and want to order 5,000 red shirts with a specific
logo.
This is the place for you.
(“Unless we use Alibaba, it's extremely difficult, expensive, and frustrating to find
a supplier.
Alibaba cut out the middleman.
They make it extremely easy to find, communicate, and negotiate with suppliers directly through
their website.”
Jae Jun, businessman and investor.)
Then in China… in addition to the local wholesale market, which in this case is known
as 1688.com, Alibaba has two of the largest retail electronic commerce markets in the
country: Taobao and Tmall.
See, Taobao is pretty much a combination between Amazon and eBay.
Here, practically anyone can sell their products... it’s a market with thousands and thousands
of suppliers and almost 600 million active consumers.
Tmall, on the other hand, is a large online shopping center oriented towards big brands.
Here the brands pay a fee to have their own store.
Basically like any shopping mall.
Then, one of the lesser-known crown jewels...
Alibaba owns more than 80% of Lazada, the most important e-commerce company in South
Asia.
A company that operates in countries like Indonesia, Vietnam, Malaysia, Singapore and
Thailand.
And watch out, because we aren’t talking about something small scale.
Only in the next 2 to 3 years... these countries will see their middle class multiply by 2...
to surpass 400 million people... 400 million people that Alibaba wants to turn into their
customers.
And finally, we have what is probably the best-known platform for most of us: Ali Express,
an international consumer-oriented platform.
Well, these, folks, are Alibaba’s main “markets”, but the company's activities don’t end here.
Alibaba is also one of the 5 most important Cloud Computing companies in the world and,
of course, it’s China’s undisputed leader.
And this division’s growth rate has surpassed 100% annually in recent years.
Companies such as KPMG, Nestle, Philips and SAP already use Alicloud’s services.
It also owns Youku, a streaming platform similar to Youtube, owned by Ele.me, China's largest
home delivery company, which, among many other companies, also holds a significant share
of Weibo, something like the Chinese Facebook.
But... just a second.
Have you ever heard of Alipay?
For those who don’t know what it is, Alipay is very similar to Paypal... it has more than
870 million active users and is the leader in the Chinese mobile payment market.
Because see, in China… credit cards aren’t common at all…
The Chinese have jumped directly to mobile payments.... so when they go to the supermarket,
instead of paying with Visa or Mastercard, they use Alipay or Wechat's payment services,
the two main payment services in the Chinese market.
Well...
Alibaba owns 33% of Ant Financial, the company that owns Alipay and also Paytm, the leading
mobile payment application in India... another strongly growing market.
To give you an idea of what this means…
Ant Financial’s estimated value surpasses 150 billion dollars.
But... just a moment, because if this entire online bet wasn’t enough…
Alibaba is also investing billions in supermarkets and other physical stores... where it has
its own brand, Hema, and is also the largest shareholder in the Sun Art Retail Group, the
largest supermarket and hypermarket operator in all of China.
So, as you can see, the Alibaba empire extends its tentacles to a lot of sectors.
To sum things up, Alibaba has services equivalent to those of Amazon, eBay, Just Eat, Visa,
YouTube, Facebook and even Carrefour... all in the same company...
Not bad, right?
Well, that’s precisely why this company is worth more than 400 billion dollars in
the stock market.
But...
I don’t think we can end this story without talking about the future…
(RISKS AND OPPORTUNITIES)
However we look at it, Alibaba's plans are very ambitious.
By 2020, sales made through Alibaba's different platforms will exceed one trillion dollars.
And in just 18 years the company aims to surpass 2 billion customers.
Yes... that’s the goal.
Will it achieve it?
Obviously we can’t know… but the truth is that it has many cards on the table.
See… despite the company’s huge growth since its foundation in 1999, it still has
great potential.
Not only because e-commerce is growing a lot around the world... but also because everything
indicates that growth will be explosive for many years, particularly in this region.
Let's take a look at, for example, China, Alibaba’s main market.
Here the Internet has only expanded by 55%, so there’s still a lot of work to do.
We’re talking about hundreds of millions of people who will sooner or later connect
to the internet and start making their first online purchases.
And not only that, given that Chinese purchasing power is growing stronger, year after year,
the same is happening with the average amounts of purchases...
See, since 2015, the average Alibaba customer’s spending has grown by 50% in China...
So if we combine more spending and more clients...
You can see how enormous the potential is here.
And then, in addition, there are the countries which belong to the Association of Southeast
Asian Nations and also India, etc..
We’re talking about an area of the world that isn’t only going to experience as a
huge economic entity but also, that is estimated to grow by more than 700 million people in
the next three decades.
All of this, in addition to the international market, of course.
Now... just a second, because everything isn’t so… rosy.
Like many Internet companies, who focus all their attention on growing and growing...
the company isn’t making much money...
In this case we’re talking about a 400 billion dollar company that has barely managed to
make a net profit of 8.4 billion dollars in the last 12 months.
Yes, that may sound like a lot of money, but the market value is 50 times the net profit...
and that's... a lot.
And of course... one might think, okay, okay... but so what?
It’ll make money in the future...
Well, maybe... or maybe not.
Because if a market grows so much, it usually entails a very strong incentive for new competitors,
new rivals… something that is already happening in a certain way.
Look, competitors like JD.com and especially Pinduoduo, are investing a lot of money to
compete with Alibaba... and even though they are very successful, they may never beat Alibaba
– or maybe they will – the truth is that, no matter what, it adds more pressure to the
market, which may reduce the margins in which these companies operate in the future.
And then, of course, there’s the Chinese government... which, as you know, isn’t
precisely the best guarantor in the world.
As you know, the Chinese government does and undoes as it pleases... and that can even
determine who survives in a market and who doesn’t.
That means that a botched delivery to a Communist Party leader could become Alibaba’s worst
nightmare...
In any case, it’s clear that Alibaba is the best example of the changes that our world
is experiencing.
Of how Asia is gaining power… and of how it’s beginning to acquire its own large
multinationals...
And we better get used to it.
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