Alibaba is set to aid China’s shaken economy with its recent restructuring. Previously, Alibaba went past a series of challenges facing the pandemic business curbs. Alibaba’s co-founder, Jack Ma, criticized the nation’s rigid and strict financial regulation of small entities. Ma’s criticism towards the government soon became a counter effect to his company. The anticipated Initial Public Offerings (IPO) of Ant Group, Alibaba’s sister company, were impeded. Subsequently, the country’s tech sector experienced a significant crackdown from the Chinese government towards the end of 2020. These procedures were taken to reduce the sector’s monopoly power amidst Xi Jinping’s reign. As a result, most tech companies struggled to make ends meet. Jack Ma fled abroad to avoid the fierce crackdown until recently appearing back in the Homeland. The clampdown hindered China’s economy, which resulted in easing regulation on tech companies. Alibaba first reacted to the situation by dividing itself into six units: domestic e-commerce, international e-commerce, cloud computing, local services, logistics, and media and entertainment. These measures sought to ease the government’s past concern about monopoly power. Following the news, Alibaba’s shares in New York and Hong Kong skyrocketed, aligned with investors’ hope to regain trust in the company. According to the Chief Economist of the Grow Investment Group, Hong Hao, it is believed that Alibaba’s restructuring was part of Beijing’s strategy to boost confidence in the private sector.
The recent announcement by Alibaba last Tuesday (3/21) that the company will split into six business groups, each able to raise outside funding and go public, in the most significant reorganization in the Chinese e-commerce giant's history. The split will give independent control of each business lineage as its CEO and board of directors will manage every group. Reasoning why they organized to split was said in a statement by Alibaba stating it was created to increase the value of shares for shareholders and promote competitiveness in the market. Other controversies are that breaking up the company may ease the government's concerns about the concentration of power and influence among the country’s web giants. According to Graham Webster, the editor-in-chief of the DigiChina Project at the Stanford University Cyber Policy Center, dividing the company into various segments seems to align with the goal of avoiding antitrust scrutiny, a concern that has affected not only Alibaba but also other Chinese companies in recent times. The company planned on splitting the groups based on its strategic priorities. The six groupings are; The Cloud Intelligence Group will focus on cloud and artificial intelligence, while the Taobao Tmall Commerce Group will oversee online shopping platforms. The Local Services Group will manage food delivery and mapping, while the Cainiao Smart Logistics Group will focus on logistics. The Global Digital Commerce Group will handle international e-commerce, and the Digital Media and Entertainment Group will manage streaming and movies.
The restructuring of Alibaba's company has had a critical impact on both the company's stock price and investor confidence. This maneuver indicates the termination of Beijing's regulatory crackdown on corporations, which has increased Alibaba's shares and boosted prospects for Chinese tech firms. Alibaba's shares have lost more than 70% of their value ever since Jack Ma's speech more than two years ago that set off a broad crackdown on China's most prominent tech groups, including the suspension of Alibaba's fintech arm Ant Group's initial public offering. After leaving it with a market capitalization of about US$220 billion in the past few years, Alibaba's founder's plan worked, and shares of BABA climbed roughly 12% on Wednesday (3/29), forging the market capitalization into US$260 billion. Furthermore, there was an overnight 14% surge on Wall Street, leading the technology sector's gains in the Asia Pacific. Except for Taobao Tmall Commerce Group, which will remain a wholly owned Alibaba Group entity, the restructure aims to allow each group to attract outside financing and seek an initial public offering. With these adjustments, Alibaba intends to reduce the group's middle- and back-office responsibilities, retaining only the functions required for listing compliance while moving other capabilities to appropriate business groups and enterprises. The restructuring will boost Alibaba's growth and investor confidence in the coming years.
The New York Times
What would you like to learn next week? Comment, Like, and Share.