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What’s Wrong With Alibaba?

Posted by on September 19, 2014

The Chinese web company made history today, with the richest IPO ever, bringing in an anticipated USD $21 billion + valuing this middle-man company at over USD $200 billion, giving it a larger valuation than its nearest rival, Amazon.

If you’re not familiar with Alibaba, it’s a Chinese based group of internet-based e-commerce companies, including payment services. Its largest “front facing” site is the namesake, which is a business to business networking, introduction service.

One can’t argue with the company’s financial results, with revenue of over USD $7 billion, and profit margins that make US company comparisons look anemic.

One could argue however, with Alibaba’s revenue reporting, which comes out in both Chinese Yuan and USD, but the method of currency conversions seem to change from time to time, according to many analysts.

Should we be suspicious that Alibab came to a US exchange for their offering? That the Hong Kong exchange turned them down?

Yahoo is going to be one of the biggest winners, as they hold a chunk worth $8 or $10 billion; this is on top of the $7 billion Yahoo collected a couple years back from selling part of their holdings. This probably assures Melissa Mayer’s position for years to come, even though the original deal was made 6-7 years before she came on board.

What’s my beef with the namesake site? It’s a lot of bullshit, smoke and mirrors. Not from Alibaba, but the participants.

I ran companies in China for six years, and there were hardly any of my employees that didn’t have 2nd and 3rd jobs, that they were able to parlay success from the work I was paying them for.

And that’s indicative of the Chinese participant/suppliers on Aliababa’s B 2 B site. No matter what the company’s main source of income, pretty much they all can supply anything you happen to be looking for. The middlemen become further middlemen.

Post an inquiry for, say, dried flowers in bulk, and you’ll receive answers from (sometimes) dozens of companies, ranging from electronics manufacturing to pharmaceuticals. It’s difficult to say whether or not the actual company is participating in the ‘offer’, or whether it’s just employees acting on their own initiative.

You’ll find out quickly if you ask for samples, and the response is either 1) that it will take an unreasonable amount of time, or 2) you will have to pay for samples.

Of course, the biggest problem in using China suppliers is the complete lack of respect for intellectual property, and no matter how well you are lawyered up, chances are if you send a proprietary design over, your item will be coming out the front door, and a copy will be coming out of the back door of the same factory.

It was fascinating to live and do business in China, a real learning experience. Many major, major US companies have failed several times prior to having success in China,, and that’s not unusual.

One big mistake many western companies make is thinking “wow, if we only get a one percent share of the market,” which seems achievable academically, but will prove elusive in reality; have this attitude and you’re destined to fail.

So let me give you the wisdom of doing business there for nearly twenty years, and living there for six of those years.

It will take you five years to figure out the answer to every single problem in China is asking two words: “How much?”

However, it will take you another five years to learn how to ask that question without offending everybody in the room.

Something to watch with Alibaba if you bought in. Three of China’s wealthiest men have announced plans to invest nearly USD $1 billion to launch a competitive site to Alibaba. It’ll be supported by Alibaba’s two largest tech competitors in China.

Interesting news. Interesting times.


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