Alibaba's Jack Ma: Rise of the New Chinese Entrepreneur

Ricky Lai prepared this case under the supervision of Professor Ali Farhoomand for class discussion. This case is not intended to
show effective or ineffective handling of decision or business processes.
© 2010 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be reproduced or
transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise (including the
internet)—without the permission of The University of Hong Kong.
Ref. 09/415C
1
ALI FARHOOMAND
ALIBABA’S JACK MA: RISE OF THE NEW
CHINESE ENTREPRENEUR
Tuesday, 6 November 2007, was a crowning moment for Jack Ma: the company he had
founded back in 1998 finally debuted on the Hong Kong Stock Exchange. The stock price had
almost tripled by the end of the first trading day, valuing Alibaba.com as the world’s fifth-
largest and South-East Asia’s largest internet company.1 Likened in his native China to a rock
star of entrepreneurship,2 Ma had risen from humble beginnings to the pinnacle of modern
Chinese business in less than 20 years. How did a former English teacher who had not even
been exposed to the internet until the end of the 1990s3 become iconic among internet
multimillionaires? Was there something special about Ma that helped him stand out among an
increasingly well educated class of Chinese entrepreneurs?4 What would Ma need to do to
steer the the Alibaba group during the tough economic times following the listing of its
flagship Alibaba.com?
Personal Background
Ma was a native of Hangzhou, a city located about 100 miles south-west of Shanghai.
Growing up during China’s Cultural Revolution, Ma became interested in learning English at
the age of 12. For eight years, he rode 40 minutes every morning on his bicycle to a hotel near
the tourist attraction of West Lake and practiced his English by guiding free tours for
foreigners. In 1979, he met an Australian family, which after a few years of correspondence
invited him to a month-long stay in Australia that “changed [his] life”. Ever since childhood,
he had been taught that China was the richest and happiest nation in the world. His trip to
Australia shattered everything he had been told, and Ma said that he “started to think
differently”.5
1 Kwong, R. and Mitchell, T. (7 November 2007) “Alibaba Shares Soar on First Day of Trading”, Financial Times (Asia Edition).
2 Watts, J. (11 September 2006) “Changing China, the Hero of the E-Commerce Boom”, The Guardian (London).
3 Macartney, J. (7 November 2007) “Workaholic’s Road to Fortune ‘Like Riding on a Blind Tiger’”, The Times (London).
4 Fannin, R. (2008) Silicon Dragon, McGraw-Hill: New York, p. xii.
5 Fannin, R. (January 2008) “How I Did It: Jack Ma Alibaba.com”, Inc., p. 105.
HKU913
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09/415C Alibaba’s Jack Ma: Rise of the New Chinese Entrepreneur
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Ma’s new perspective, however, helped little in his endeavours back home. He failed his
university entrance examinations twice before being accepted to a teachers’ university with a
very modest reputation. 6 A self-professed teaching enthusiast, Ma decided to leave the low-
paying teaching job he had held for five years to enrich his commercial experience, and in
1995 he found himself employed by the Chinese government to settle a dispute between a
Chinese firm and its US partner. Purportedly, Ma was held captive by the US partner at
gunpoint for two days before he negotiated his way to freedom by agreeing to become a
partner in an internet start-up in China. Ironically, he had no concept of the internet at the
time.7 Ma never carried out his end of the deal, but eventually did come into contact with the
internet in the US city of Seattle, and was surprised to draw a blank when searching for “beer”
and “China”. He then returned to China, borrowed US$2,000, and started up a company and
website called China Pages. With scarcely any computing experience under his belt, Ma
described his experience of starting the website as a “blind man riding on the back of a blind
tiger”.8 The website shared a strikingly similar ideology to that of Alibaba.com: to help
Chinese companies list on the internet and to help foreigners find these Chinese companies’
websites. Eventually, state-owned giant China Telecom would buy out Ma’s stake, which led
him to return to the government’s service promoting e-commerce.
Always on the lookout to fulfil his dream of running his own e-commerce company, Ma set
out on his own again in 1998 and resumed work on his vision of connecting Chinese
companies to the world through the internet, thus leading to the formation of Alibaba.com.9
The Road to Success
Alibaba.com started in Ma’s home, where he gathered 18 people and spoke for two hours
about his vision. Although none present had any significant financial means, Ma’s two-hour
discourse somehow convinced them to offer up their life savings, and in the end they
managed to scrape together US$60,000. Ma wanted a “global” name that suited his global
vision for the company, and thought that “Alibaba” was both easy to spell and catchy because
of its association with “open sesame” from One Thousand and One Nights.10
Times of Trial
Despite prudent spending during its infancy, Alibaba.com went through periods of uncertainty.
It did not achieve any quantifiable growth until 2000, and even then it was mainly expansion
of the free user base, which made no contribution to Alibaba.com’s revenue. Up until this
point, Alibaba.com had remained heavily reliant on funding from private investors and
strategic partners such as Yahoo and Softbank. In 2001, the company was burning through
US$2 million per month with less than US$10 million in the bank. 11 As Tina Ju, a Chinese
venture capitalist and four-time investor in Alibaba, recalled:
I saw the sentiment change at the company from Jack Ma’s vision of
conquering the world in B2B to nearly going bankrupt … It couldn’t have
been done without the visionary and spiritual leadership of Jack Ma …
Everyone in Alibaba believed in him.
- Tina Ju, Alibaba stakeholder12
6 Ibid., p. 106.
7 Chandler, C. (10 December 2007) “China’s Web King”, Fortune, p. 172.
8 Fannin, R. (January 2008) “How I Did It: Jack Ma Alibaba.com”, Inc., p. 106.
9 Ibid.
10 Ibid.
11 Fannin, R. (2008) Silicon Dragon, McGraw-Hill: New York, p. 28.
12 Ibid.
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09/415C Alibaba’s Jack Ma: Rise of the New Chinese Entrepreneur
3
Alibaba.com then developed a product enabling Chinese exporters to meet US buyers online.
The model helped turn the company around, producing a profit of US$1 in 2002.13 Ma
believed that success would only come through original business models, and so Alibaba
never copied a model from the US like most other Chinese internet companies. He felt that a
business model or product that was not immediately understandable, at least by him, was
“rubbish”.14
Rise to Prominence
Since 1999, the Alibaba group had developed an online shopping site (Taobao.com), an
online payment service (Alipay.com), a platform for classified ads (Koubei.com) and, most
recently, an online marketplace for publishers and advertisers (Alimama.com).
Ma first made headlines when he boasted that Taobao.com could take down US online
auction giant eBay after the latter had muscled into China in 2003. eBay had substantial
financial and technological resources, and it added to those advantages by acquiring EachNet,
China’s online auction leader at the time. Taobao.com countered with a slick site design that
catered to local sensibilities, providing better customer support, and offering some of its
services for free.15 According to technology research firm Analysys International, Taobao had
a market share of over 85%, while eBay China’s market share had shrunk to less than 7% by
the end of June 2008.16
In 2005, Ma joined forces with Yahoo. He had begun to recognise that search had critical
applications in e-commerce, but he also knew he lacked the resources to build a competitive
search engine from scratch. The deal with Yahoo—hatched during a ten-minute encounter
with Yahoo founder Jerry Yang at a retreat in Pebble Beach, California—solved problems for
Yahoo as well. Much like eBay, Yahoo had struggled to tailor its global model to China,
where it battled not only its US nemesis Google but also a sophisticated local upstart,
Baidu.com. The deal, which gave Ma full control over Yahoo China, involved Yahoo paying
US$1 billion in exchange for a 39% stake in Alibaba. Having added Yahoo China to his
portfolio, Ma boasted that the Alibaba group was China’s equivalent of Google, eBay,
Amazon, and Craigslist, all rolled into one.17
Ma rose to the pinnacle of entrepreneurship in China with Alibaba.com’s initial public
offering (“IPO”) in November 2007, in which the company’s shares were oversubscribed by
more than 240 times.18
Courting Controversy
On 12 May 2008, China’s Sichuan province was hit by a devastating earthquake. The official
death toll stood at 69,227, making it one of the country’s deadliest natural disasters on record.
By late September, government spending on disaster relief and reconstruction had topped
US$11.9 billion, while domestic and foreign donations had reached US$8.7 billion in cash
and goods.19
13 Fannin, R. (January 2008) “How I Did It: Jack Ma Alibaba.com”, Inc., p. 106.
14 Ibid.
15 Chandler, C. (10 December 2007) “China’s Web King”, Fortune.
16 Analysys International (August 2008) “China Online C2C Market Quarterly Tracker Q2 2008”.
17 Chandler, C. (10 December 2007) “China’s Web King”, Fortune.
18 Ibid.
19 Xinhua News Agency (25 September 2008) “Death Toll from China’s May Earthquake Remains Unchanged at 69,227”.
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09/415C Alibaba’s Jack Ma: Rise of the New Chinese Entrepreneur
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Ma sent shockwaves through the internet community when he was rumoured to have donated
only Rmb 1 (US$0.14 20). When the community criticised him for ignoring the plight of his
countrymen, he responded by saying:
The major social responsibility of entrepreneurs in China is not to donate
money, but to put their enterprises on the right track … Even if one is rich,
one should not be too keen to make a donation … One should always invest
more with more money, snowballing the enterprise into a much larger
corporation and creating a lot more employment opportunities … I am not
the sort of person who goes after fame. Money will do. Without money you
cannot assume your social responsibility, cannot pay taxes, cannot create,
and society will not progress.
- Jack Ma, founder of Alibaba21
Although the Alibaba group was quick to come to Ma’s defence, stating that he had in fact
personally donated well over US$100,000 and that he was also chairing a special committee
set up to co-ordinate the donations from employees and the company, his public image in
China—especially among internet users—suffered apparent damage.22
Standing His Ground
Ma was again cast in a negative light when he openly spoke out against public sentiment in
the months leading up to the Beijing Summer Olympics in August 2008. Sensing that the
global economy was bound to sink into “the most complex and difficult economic era since
the second world war”, he was a lone voice of caution against the intensifying anticipation of
a sustained economic boom in China associated with the Olympic games.23 At a lecture he
gave in Hong Kong, Ma explained his dissent, saying that “when 80% of the people focused
on one thing and had high expectation for it, something must be wrong”. Such belief,
ironically, had been formed during Alibaba’s IPO in late 2007. Prior to the actual IPO, when
Ma and his team travelled around the world to secure investment for the company, he was
taken aback by the lack of curiosity about the company among investors before committing
their money. Despite Ma’s repeated disclaimer that e-commerce would take longer than
commonly expected to become truly profitable in China, he felt that investors were instead far
more interested in making quick profits through speculative investment. The rapid rise in
Alibaba.com’s stock price on the day of its listing alone and the subsequent profit-taking
confirmed Ma’s scepticism, which led him to believe that such unsustainable economic
activity would eventually lead to an implosion of the global economy. As the Beijing
Olympics neared, Ma saw that people in China were displaying the same mania over the
country’s economic outlook as Alibaba.com’s investors had with the company’s IPO, and
considered taking more drastic measures to moderate public sentiment.24
Response to External Pressure
Ma’s unusual approach was also reflected in his state of mind in the run-up to Alibaba’s IPO
in November 2007. Whereas virtually all chief executives would be drained by extremely
20 US$1 = Rmb 6.97 on 20 May 2008.
21 The Standard (20 May 2008) “Charity Stays at Home for Mean Tycoon Ma”.
22 ᄅ ௡ ᄅ ፊ (2008 ڣ 05ִ  19ֲ  ) ψ௡௡௡್್್್߀೴ ցΛԫந ॳߺ֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣٦ந 2500 ᄅ ᚰ ᄅᝓ ߢω [Sina News (19 May 2008)
“Jack Ma Only Donated One Yuan? Alibaba Donated Another 25 Million Yuan to Crush Rumours”].
23 ᜤٽ೴ (2008 ڣ 9ִ  11ֲ  ) ψግ ್್್್߆߆߆߆߆߆߆߆߆߆߆߆߆໌
ທ٤೴
No.1ؓ ጻሁሁሁሁሁሁሁሁሁሁሁሁሁ ሁ ω [United Daily News (11 September 2008) “Crazy Jack
Ma, Creating World’s No. 1 Online Platform”].
24 Ma, J. (1 December 2008) “Economic Winter: Now What?”, Speech at the Edward K.Y. Chen Distinguished Lecture Series,
The University of Hong Kong.
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09/415C Alibaba’s Jack Ma: Rise of the New Chinese Entrepreneur
5
hectic schedules and the meetings and publicity surrounding an IPO, Ma described those 10
days as “the most relaxed I’ve been in ten years … I watched a movie. I visited some galleries
in New York. I even played a round of golf.” 25 Normally, a top executive on the verge of an
IPO would come under heavy scrutiny from potential investors and media during the
marketing phase before a stock launch. Very often, even seasoned executives would find the
process overwhelming.26 With Alibaba.com’s relatively short history and lack of track record,
the pressure should have been even more intense, as investors and media had less data to base
their speculation on. However, Ma managed to shrug off the frenzy and carved out a
“relaxing” schedule for himself, although this could also have been due to investors’ blind
faith in the profit potential of Alibaba, which would have alleviated the pressure of the “IPO
road show”.
Employee Education
Anxious about the effects of the deteriorating global economy on Alibaba.com core clientele
shortly after the IPO, investors were quick to realise profits, sending share prices into a
freefall.27 In turn, the slumping share prices attracted negative publicity and speculation. At
the end of 2007, reports of several top-level executives going on sabbatical further fuelled
scepticism about Alibaba. 28 Ma later confirmed what some analysts had predicted: the
executives had actually been sent on study sabbatical to attend business school outside China
to pave the way for Alibaba’s international expansion. According to Ma, international
business education served an additional purpose of adjusting the lifestyle and focus among the
executives, most of whom had spent all of their professional lives at Alibaba. Ma felt it
important for these executives to redress their work-life balance, and while in the short run
the company might lose some productivity, in the long run the gain in international
experience, fresh perspectives, and sustainable dedication among the executives would more
than compensate.29
Ma also planned to send more of his executives to study, particularly in MBA programmes.
However, he had one peculiar comment for them:
If they forget everything they have learnt, they have graduated.
- Jack Ma, founder of Alibaba30
The wisdom behind this comment was that Ma found many MBA graduates to simply
regurgitate the book knowledge from their studies and the advice of their professors without
truly understanding the underlying principles. To Ma, business was more than just
quantitative metrics and rigid strategies. His primary aim of sending executives to study in
MBA programmes was for them to soak up the learning culture, to rethink their outlooks, to
learn how to be more inquisitive, and ultimately to achieve new levels of creativity.31
In January 2009, Alibaba was reported to have frozen salaries for the senior management
while “rewarding most of its 12,000 staff worldwide with a pay rise and performance-based
bonuses” for the previous year.32 Ma wrote the following in an internal e-mail:
25 Chandler, C. (10 December 2007) “China’s Web King”, Fortune.
26 BusinessWeek (6 September 1999) “Inside an Internet IPO”.
27 Hu, Y. (13 November 2008) “Alibaba Catches a Chill”, Beijing Review, 51 (46), p. 35.
28 So, S. (29 January 2008) “Alibaba Reshuffle a Precursor to Global Expansion”, South China Morning Post.
29 Ma, J. (1 December 2008) “Economic Winter: Now What?”, Speech at the Edward K.Y. Chen Distinguished Lecture Series,
The University of Hong Kong.
30 Ibid.
31 Ibid.
32 Perez, B. and Yeung, F. (21 January 2009) “Alibaba Freezes Executive Wages, Lifts Staff Pay”, South China Morning Post.
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09/415C Alibaba’s Jack Ma: Rise of the New Chinese Entrepreneur
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We believe company resources should flow towards the general staff when
times are tough, and a sense of urgency should be felt first among senior
management.
- Jack Ma, founder of Alibaba33
True to his belief in the importance of employee education, in the same internal e-mail Ma
also “told employees that the group ‘will have a substantial training budget’ to help upgrade
people’s skills to match the greater responsibilities in their jobs”34 [see Exhibit 1 for financial
and operating data of flagship subsidiary Alibaba.com].
Champion of Small Businesses
Ma famously defined his company’s principle as “customer first, employees second and
shareholders third”. 35 He reasoned that customers should receive top priority from the
company because they were the sources of revenue and were therefore critical to the
company’s survival. To Ma, employees were more important than shareholders because
employees tended to stay with a company to ride out challenging times, whereas shareholders
would be the first to desert a company to contain investment losses.36 Alibaba.com’s principle
of shifting importance away from shareholders ran directly against the concept of maximising
shareholder value, which since the 1980s had led the majority of publicly traded companies in
developed economies to focus on generating monetary gains for shareholders. As argued by
Lazonick and Sullivan, the process of maximising shareholder value often involved
downsizing staff and was therefore incompatible with maintaining employee welfare.37
Putting his belief in small businesses into action, Ma set up a scheme in June 2007 through
Alibaba.com to help secure loans for overseas business activities for Chinese small- and
medium-sized enterprises (“SMEs”), especially those hampered by insufficient
documentation and credit history. By providing e-commerce track records and reviews of
member small businesses, Alibaba facilitated lenders in establishing the credit scores required
of loan applicants. In February 2009, Alibaba bolstered the scheme with the backing of eight
of China’s largest banks, securing over US$1 billion in loans. According to John Spelich,
Alibaba’s vice-president for international corporate affairs: “The general feeling is that we
have a responsibility to do what we can to help our customers weather this economic winter,
so they can thrive again in the spring.” Ma echoed this sentiment, saying that the bolstered
scheme was a “first step in creating an entirely new financing environment built around e-
commerce” and that it would have “long-term and far-reaching benefits for SMEs around the
world”.38
Companies like Wal-Mart, these big-size buyers, killed a lot of SME buyers.
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.
- Jack Ma, founder of Alibaba39
33 Ibid.
34 Ibid.
35 The China Vortex (July 2008) “Alibaba’s Jack Ma Predicts Hard Times Ahead”.
36 Ma, J. (1 December 2008) “Economic Winter: Now What?”, Speech at the Edward K.Y. Chen Distinguished Lecture Series,
The University of Hong Kong.
37 Lazonick, W. and Sullivan, M. (February 2000) “Maximizing Shareholder Value: A New Ideology for Corporate Governance”,
Economy and Society, 29 (1), pp. 13–35.
38 Perez. B. (2 February 2009) “Alibaba Plans 6b Yuan Loan Scheme for SMEs, E-Commerce Giant Enlists Support of Eight
Leading Banks”, South China Morning Post.
39 Hille, K. (19 January 2009) “The Godfather of Small Enterprise”, Financial Times (London).
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09/415C Alibaba’s Jack Ma: Rise of the New Chinese Entrepreneur
7
Watchful Delegation
Despite Alibaba’s relatively short history, Ma was comfortable relinquishing day-to-day
operational control. Prior to the IPO in late 2007, Ma stepped down as chief executive of the
subsidiary to make way for David Wei, an outsider who had previously headed home-
improvement group B&Q’s venture in China. Retaining overall control as the chairman of the
parent group, Ma maintained watch over all the subsidiaries, but only at a fair distance:
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 Alibaba.com. 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.”
- South China Morning Post40
Nevertheless, Ma insisted that he was comfortable delegating:
Jonathan [Lu, president of Taobao] 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?
- Jack Ma, founder of Alibaba41
Vision
Ma had always been known for his charisma and his ability to communicate his vision. 42 His
knack for communicating his grand plans and spurring his employees was evidenced by a
leaked e-mail to employees dispelling concerns over sluggish performance of the company’s
share price [see Exhibit 2]. He not only managed employees’ expectations of share prices,
which affected their personal wealth, but also put forward convincing arguments for focusing
on creating value for customers and working toward significant new opportunities.
Ma’s ability to spur his troops on stemmed from his personal beliefs, as reflected by his own
assessment:
I’m just a purist. What is important in my life is that I can do something that
can influence many people and influence China’s development. When I am
myself, I am relaxed and happy and have a good result.
- Jack Ma, founder of Alibaba43
Ma confessed that the classroom was one of the places where he felt most relaxed and
fulfilled. One of the reasons he had left teaching early in his career was to gain commercial
experience that he hoped to bring back into the classroom a decade later. He felt that, toward
the end of his teaching career, he was merely passing book knowledge on to his students and,
lacking commercial experience, he had little else to offer.44 While Ma’s return to teaching had
been indefinitely delayed, his passion for teaching had spawned the Alibaba Institute, which
was the company’s channel for partnering with over 70 universities in China to provide
training on e-commerce for faculty and students. Alibaba would also train more than 100
40 Ibid.
41 Ibid.
42 Fannin, R. (2008) Silicon Dragon, McGraw-Hill: New York, p. 28.
43 Fannin, R. (January 2008) “How I Did It: Jack Ma Alibaba.com”, Inc., p. 106.
44 Ma, J. (1 December 2008) “Economic Winter: Now What?”, Speech at the Edward K.Y. Chen Distinguished Lecture Series,
The University of Hong Kong.
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09/415C Alibaba’s Jack Ma: Rise of the New Chinese Entrepreneur
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professors in e-commerce every year at its Hangzhou headquarters, so that in turn they could
teach e-commerce to their students. In addition, Alibaba regularly conducted management
training programmes targeting mostly entrepreneurs and covering “e-commerce, global trade,
value-based management and corporate social responsibility”.45
Against the backdrop of an increasingly connected global economy and a rising China, Ma
realised his personal vision in e-commerce through the development of Alibaba. Could his
personal traits and characteristics be credited with his phenomenal success? Could these same
assets help him sustain his miracle for One Thousand and One Nights to come? Would it be
possible for another entrepreneur to duplicate Ma’s success on the strength of similar traits
and characteristics? Would the requirements of a chief executive or entrepreneur be different
during the various business phases, both internal and external, of a company, and if so, what
would they be?
45 Alibaba (2009) “Alibaba in the Global Community”, http://www.alibaba.com/aboutalibaba/aligroup/alibaba_community.html
(accessed 14 April 2009).
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09/415C Alibaba’s Jack Ma: Rise of the New Chinese Entrepreneur
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EXHIBIT 1: FINANCIAL AND OPERATION INFORMATION OF ALIBABA.COM
Consolidated Income Statement
Note 1 Include paying members with active storefront listings on our international and China marketplaces as
well as paying members who have paid membership package subscription fees but whose storefronts
have not been activated.
Note 2 Average conversion rate for year 2008: US$1 = Rmb 6.96225 and HK$7.8.
Note 3 Average conversion rate for year 2007: US$1 = Rmb 7.61720 and HK$7.8.
Source: Alibaba (19 March 2009) “Alibaba.com Announces Full Year 2008 Results”, Press
Releases.
US$ 2008 2007 Change
(in US$)
Change
(in local currency)
(Note 2) (Note 3)
Revenue (million) 431.07 283.94 52% 39%
Operating income (million) 171.27 105.59 62% 48%
Net income (million) 173.10 127.05 36% 25%
Earnings per share, basic (cents) 3.43 2.62 31% 31%
Earnings per share, diluted (cents) 3.42 2.62 31% 31%
Change
Registered users 38,075,335 27,599,9 59 37.95%
International marketplace 7,914,630 4,405,5 57 79.65%
China marketplace 30,160,705 23,194,4 02 30.03%
Storefronts 4,614,250 2,956,8 46 56.05%
International marketplace 965,747 697,5 63 38.45%
China marketplace 3,648,503 2,259,2 83 61.49%
Paying members (Note 1) 432,031 305,5 45 41.40%
Gold Supplier 43,028 27,3 84 57.13%
International TrustPass 16,136 12,1 52 32.78%
China TrustPass 372,867 266,0 09 40.17%
2008 2007
US$ '000 (Note 2) US$ '000 (Note 3)
Revenue
International marketplace 273,925 203,184
China marketplace 157,142 80,746
Total revenue 431,067 283,931
Cost of revenue (55,638) (36,774)
Gross profit 375,428 247,157
Sales and marketing expenses (156,858) (96,730)
Product development expenses (26,789) (17,263)
General and administrative expenses (45,983) (30,177)
Other operating income, net 25,466 2,609
Profit from operations 171,264 105,596
Finance income, net 34,358 45,305
Share of loss of associated companies, net of tax (2,311) -
Profit before income taxes 203,311 150,901
Income tax charges (30,208) (23,847)
Net income 173,103 127,054
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09/415C Alibaba’s Jack Ma: Rise of the New Chinese Entrepreneur
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EXHIBIT 2: JACK MA’S LEAKED E-MAIL TO EMPLOYEES REGARDING SHARE PRICE
PERFORMANCE
Fellow Alibaba employees:
When it comes to the recent share price of Alibaba, I’m sure that your feelings are
complicated! Today, I want to share with you my views on the current business and economic
environment. I hope that they are helpful.
I’m sure that you remember in the February all-employees conference I said that winter was
coming, and that we all needed to prepare for winter! When our company listed in Hong
Kong, and our share price tripled in price, dark clouds were forming and the thunder was
coming closer. When a share price goes up this quickly, the retreat will be just as surprising
and quick! I don’t want you to have any misunderstandings about how the market behaves.
When we listed, I said that we would continue doing business as we have before, and that our
mission would not change because of our listing. In the future, I hope that you forget about
our share price, and remember our long-term commitments to our customers, our society and
our fellow partners, our shareholders and our families. When we meet our commitments, our
share price will reflect the value the value of your commitments.
The world economy is now facing major structural problems, and it is very likely that in the
coming years it will go through a period of major challenges. My view is that the world
economy will go through a very challenging period, and the challenges will be much bigger
than anyone has thought possible! This winter will be longer, colder and more complicated
than any have predicted! We need to prepare for this winter!
So what do we need to do?
First, we need to be prepared and have confidence!
Winter is not frightening; not being prepared is frightening! Not knowing how long it will be,
and how cold it will be is frightening! Opportunities come equally to everyone and tragedies
come equally to everyone! The ones who prepare for the winter are the survivors! The
guarantors of survival are a strong desire to survive, psychological preparation and storage of
materials. Having gone through the first internet bubble and the SARS crisis, we know what it
takes to survive multiple crises. By going public last year, we were able to raise US$2 billion
to prepare for the upcoming winter. At the beginning of this year, our group “dug deep holes,
stored grain and prepared reserves while avoiding major projects”, and this thinking has been
pushed out to all member companies of the group. For this terrible winter, all Alibaba
employees think “If not now, then when? If not me, then who?” In 2001, we said “Be the last
man standing!” Even if we were on our knees we would be the very last to keel over! With
our resources today maybe we will not keel over, but nowadays we have an even greater
responsibility to our customers. Not only must we not fall over, but we have a responsibility
to protect them, the tens of thousands of small and medium sized businesses all over the
world who count on our services! We need to protect them so that they will prosper and not
keel over! In the upcoming business environment, these companies will face major challenges
to their survival; it is our mission to help them to survive—to make it easier for anyone to do
business anywhere. Remember, if our customers fail, then we will not survive to see another
day!
Second, do what you should do for winter preparation!
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09/415C Alibaba’s Jack Ma: Rise of the New Chinese Entrepreneur
11
Great companies survive not because they can take advantage of multiple opportunities, but
because they can survive challenges which wipe out other companies. In 2002-2003, during
the first internet winter, we focused on building our Alibaba culture, our company structure,
and developing talent. Today, aside from being grateful for the opportunity we got by going
public last year, we need to be able to show our gratitude for the opportunity globalisation and
the world economy has given us. Alibaba has grown from 18 people to more than 10,000
employees today. Our culture, organisation and talent have grown and we have faced
challenges. We have had opportunities in the past five years, including founding Taobao.com,
starting Alipay, buying Yahoo! China, starting Alisoft, the Alimama ad network, all the way
to going public. We need to time to rest and recuperate, and are grateful for this opportunity.
We have thought about this deeply, and based on our principles of “customer first, employees
second and shareholders third” our goals now are:
1. For Alibaba to become the world’s largest ecommerce company;
2. For Alibaba to become the world’s best employer;
In order to achieve these goals we must grasp the opportunities this harsh winter presents us!
Let us now return to our ecommerce roots and our founding principles of treating our
customers first and to grasp the opportunities which come to us! The power of a great army is
not shown when it is advancing; it shows when it is in an organized retreat. The power of a
great company is shown when it can survive in a harsh environment, and have a positive
attitude and can continue to learn and grow.
In this new globalized world, the Chinese economy will play an ever greater role. We are
pleased to see that world leaders are learning to communicate and coordinate their activities
better on major issues like the Asian tsunami, earthquakes, fighting diseases, and fighting
global warming. These are all good signs of a brighter future for humanity. This will change
the world from one which is solely reliant on the US dollar to something more multilateral!
The internet powered by ecommerce will play a revolutionary role in this change! “Push
consumer spending and creating jobs” will be our major missions in the next stage of internet
development! The future of ecommerce is bright, and will help our small and medium sized
customers to survive this crisis, and when we emerge in ten years, it will be a whole new
world!
Fellow Alibaba partners, we will be messengers and witnesses to this whole new world!
Jack Ma
Source: The China Vortex (July 2008) “Alibaba’s Jack Ma Predicts Hard Times Ahead”.
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This document is authorized for educator review use only by Ching Yang HE OTHER until March 2015. Copying or posting is an infringement of copyright. [e-mail] or
617.783.7860