Monday, 8 September 2014

Alibaba Storms Wall Sreet


Twenty years ago, a young Chinese entrepreneur named Jack Ma set off for Seattle, U.S.A.  to find customers for his new business.  Ma, trained as an English-as-a-Second Language teacher, had established a Chinese/English translation service which he believed could capitalize on the increasing trade between the West and China.  A friend in Seattle demonstrated a young computer network called the internet.  Ma punched in the search terms for "Chinese"  and "beer"  but came up with nothing - no sellers, no buyers.  Then Ma's entrepreneurial vision took hold of his imagination.  He dumped the translation service and visualized a world-wide network linking millions of buyers and sellers in all areas of human commerce.  Ma's first attempts failed, but in 1998, he founded Alibaba -named after the woodcutter in the  "Arabian Nights" tales who stumbled across the secret cache of jewels hidden away by 40 thieves.

Today, Alibaba is a web sensation.  Last year the company handled sales of goods worth $250 billion - more than Amazon and eBay combined.  In contrast to Amazon and eBay which operate a single platform for buying and selling goods, Alibaba offers numerous sites for different transactions.  Essentially, Alibaba operates in 3 major areas.  The first and most profitable so far is alibaba.com, a marketplace where businesses can trade with each other.  This site has become a gateway for companies around the world to deal directly with Chinese manufacturers.

The second site, Taobao, pairs private sellers and businesses with Chinese consumers.  Today, Taobao controls 80% of China's ecommerce retail market.  As China's middle class continues to grow and disposable income rises, Taobao's profitability is expected to skyrocket.

The third major division of the Alibaba empire is Alipay, a payment network used by millions of sellers and buyers to complete the transactions.  Just to give you an idea of how big Alibaba is, last year it delivered 5 billion packages to Chinese consumers.

But Jack Ma is not content to be the "ecommerce king of the Chinese Marketplace".  Last week, he said "In the future, we will be judged by how much progress we make in the world".  His sights are now set on Amazon's and eBay's own backyard - America!  Ma plans to raise U.S. $21 billion through an IPO (Initial Placement Offer)  to American investors - both individuals and institutions.  Then, Alibaba  will list on a U.S. stock exchange.  Whether or not American investors embrace the new kid on the block remains to be seen.  But with Jack Ma's track record, I wouldn't bet against him.

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