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Jack Ma retires: what problems Alibaba has & how they might be solved

Daniel Zhang is not afraid to replace Ma and wants to reinvent retail before someone else does.

On September 10, Chairman of Alibaba’s Board of Directors Jack Ma will retire and will be replaced by CEO Daniel Zhang. He joined Alibaba in 2007 as CFO of the Taobao trading platform, and in 2008 he took over as head of the Taobao trading platform. In 2011, Zhang headed the Tmall Marketplace, in 2013 he became the CFO of Alibaba Holding with a value of $460 billion, and in 2015 he became its CEO.

Zhang will be looking for new directions for Alibaba’s development at a time when the core e-commerce business is experiencing problems – the growth of retail sales in China has halved since 2018.

According to Zhang, the main task in his new position is to “reinvent the retail business before someone else does.

Daniel Zhang

Daniel Zhang

Unlike the world-famous Jack Ma, the new head is very quiet and discreet, and does not like publicity – he is not known even in China, and a parent of one of the employees of Alibaba took him for a janitor, writes Bloomberg. But this does not prevent him from being as ambitious and ideologically strong as Ma-Zhang works until he achieves his goals.

What difficulties have arisen in Alibaba

Reuters cites several failures of Jack Ma in the development of Alibaba, which now has to be corrected by Zhang:

Problems with Alibaba’s international expansion

Ma promised that Alibaba would receive about half of the income outside China, but did not reach the goal, despite the high costs. For example, Alibaba spent $4 billion on the purchase and development of Singapore-based e-commerce operator Lazada Group for expansion in Southeast Asia, but faced challenges in Indonesia – on March 2019, Lazada was replaced by its third CEO in nine months.

Alibaba was also unable to buy the American MoneyGram money transfer system – in 2017-2018, Alibaba’s daughter Ant Financial offered $1.2 billion for MoneyGram, but the U.S. government rejected the deal for national security reasons.

A slowdown in China’s economic growth

Retail sales in China increased by 17.8% in the first half of 2019, almost half the growth rate of 32.4% in 2018. In the long term, this may have a negative impact on the core business of Alibaba, as consumers cut costs for goods and advertisers – for advertising, write Reuters and Bloomberg.

Reuters also said that Alibaba was forced to postpone the placement of shares in Hong Kong amidst protests – the company planned to attract an additional $10-20 billion in August 2019. A new attempt may take place on October 2019.

The acquisition of new users

The biggest problem for Alibaba is to attract new users, says Vicki Wu, an analyst at Hong Kong’s ICBC International brokerage firm. For example, two major competitors of Alibaba from Tencent – JD.com and Pinduoduo – can use the WeChat service to attract customers, as it also belongs to Tencent, and Alibaba has no such levers to influence the audience.

For example, in underdeveloped rural areas of China, Alibaba has integrated e-commerce services into Douyin’s short video recording application to gain new customers, but in recent months, Douyin has also begun to collaborate with JD.com and other venues, which has also prevented Alibaba from doing so.

Counterfeit on the Taobao site

Foreign luxury retailers accuse Taobao of distributing fakes. Despite the use of fake detection algorithms, since 2017 Taobao has been on the U.S. list of “pirate sites” (Notorious Markets), where copyright infringement and too slowly moderated ads from sellers-violators.

Zhang’s plans for Alibaba

According to Zhang, Alibaba is uniquely positioned to connect the online and offline worlds, both in and out of grocery stores, with initiatives aimed at finding new business opportunities in healthcare, film, music, and finance. This scares some investors, but Zhang believes expansion is a matter of survival.

Every business has a life cycle. We need to be innovative and create new projects with new technologies and business models to make our entire business sustainable. We always say that we want to build a sustainable and long-term business, but most of it cannot live forever.

I firmly believe that if we do not kill our existing business, someone else will. Therefore, I would prefer our new projects to kill our existing business.

Daniel Zhang

For example, in 2016, Zhang, together with the author of the idea, Hou Yi, launched the startup Freshippo inside Alibaba, which brought together a grocery store, a restaurant and an application to order and deliver food and goods. Logistics and payment were accelerated by robotics and facial recognition. More than 150 Freshippo stores are now open in 17 cities in China, and order delivery within a 3 km radius to the customer’s door takes 30 minutes.

Freshippo has become the basis of NewRetail, Alibaba’s concept for the future, where the store becomes a logistics center, supermarket, online store and offline restaurant at the same time. According to Freshippo CEO Hou Yi, this project can surpass Tmall and is now developing a full-fledged business model of the company.

Another direction of the Alibaba development is food delivery. In April 2018, the holding purchased the Ele.Me startup, which was valued at $9.5 billion and now competes with the Meituan Dianping technology platform, which by the end of 2018 owned about 63% of the food delivery market in China.

But Zhang does not consider this business separately. In his view, it serves to expand electronic payment and on-demand delivery, which is not only about food delivery, but also about the execution of any orders from stores and the delivery of “the last mile”.

Despite the statements of Meitual founder Wang Xing that Alibaba is unable to fight in this market, Zhang believes that he is mistaken and wants to occupy at least 50% of the food delivery market to develop related businesses on its basis.

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New initiatives and directions are affecting Zhang. Even by the standards of Chinese IT companies with the “996” format (9 a.m. to 9 p.m., 6 days a week) his work schedule is full: for example, on weekends he meets with two or three directors of directions.

Zhang will need not only to fight his rivals but also to fight against the memory of Ma, Bloomberg believes because the successors of cult leaders are often suspended when the business faces difficulties and nostalgia. According to Jeffrey Sonnenfeld of the Yale School of Management, it’s harder to follow the path of the founders, even harder when you follow someone with a global reputation.