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
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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
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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
4
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 ᄅᄅᄅᄅ (2008 ڣ05 ִ19 ֲ) ψᄅᄅᄅ߀ᄅᄅᄅցΛ ᄅ֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣֣٦ᄅ2500 ᄅᄅᄅᄅߢω [Sina News (19 May 2008)
“Jack Ma Only Donated One Yuan? Alibaba Donated Another 25 Million Yuan to Crush Rumours”]. 23 ᄅٽᄅ (2008 ڣ9 ִ11 ֲ) ψᄅ߆ ໌ທ٤ᄅNo.1 ᄅᄅᄅᄅω [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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