ALIBABA

July 3, 2014


One of the services my company (Cielo Technologies, LLC) provides is locating resources for clients, both individual and commercial.  We find people and vendors that can do “stuff”.  People and companies that can perform successfully, on time, following specification given as a part of a contractual arrangement.  In short, we provide sourcing services for commercial concerns.  Ones that can get the job done.

In 2006, I was given a call by a manufacturing company providing extension springs for doors used on residential cooking products.  This company has been in business since 1974 with springs being the first product produced.  Due to decreasing demand for the product and increasing costs for hard-drawn and oil-tempered wire, they made a management decision to out-source manufacturing efforts.   I immediately started searching for vendors, both domestic and foreign.  I looked at thirty-seven (37) companies that I eventually interviewed for the products required.  During that search, the name ALIBABA, came up frequently—very frequently.  Let’s take a look at this company.

HISTORY:

Alibaba Group was established in 1999 by 18 people led by Jack Ma, a former English teacher from Hangzhou, China.  Jack Ma chose the name because it is well-known around the world and can be easily pronounced in many languages.  According to Mr. Ma,  “One day I was in San Francisco in a coffee shop, and I was thinking Alibaba is a good name. And then a waitress came, and I said do you know about Alibaba?  And she said yes. I said what do you know about Alibaba, and she said ‘Alibaba and 40 thieves’. And I said yes, this is the name!  Then I went onto the street and found 30 people and asked them, ‘Do you know Alibaba?’ People from India, people from Germany, people from Tokyo and China… They all knew about Alibaba.  Alibaba — open sesame.  Alibaba is a kind, smart business person, and he helped the village. So…easy to spell, and globally known. Alibaba opens sesame for small- to medium-sized companies. We also registered the name Alimama, in case someone wants to marry us!”.  E-commerce is global so the company needed a name that was globally recognized.  Alibaba brings to mind “open sesame,” representing the hope that their platforms would open a doorway to improved sales and even fortune for small businesses.  From the outset, the company’s founders shared a belief that the Internet would level the playing field by enabling small enterprises to leverage innovation and technology to grow and compete more effectively in the domestic and global economies.  Since launching its first website helping small Chinese exporters, manufacturers and entrepreneurs to sell internationally, Alibaba Group has grown into a global leader in online and mobile commerce. Today the company and its related companies operate leading wholesale and retail online marketplaces as well as Internet-based businesses offering advertising and marketing services, electronic payment, cloud-based computing and network services and mobile solutions, among others.

PRESENT DAY:

As of March 31, 2014, Alibaba employed more than 22,000 people around the world.  Quite a jump from the original eighteen.   As of December 31, 2013, the company maintained seventy-three (73) offices in mainland China and sixteen (16) offices outside mainland China.  In 2012,two of Alibaba’s portals together handled 1.1 trillion yuan ($170 billion) in sales, more than competitors  and e-Bay and Amazon.com combined.  In  March 2013 it was estimated by The Economist magazine to have a valuation between $55 billion to more than $120 billion.  The following timeline will indicate the growth of the company.

  • In May 2003, Taobao was founded as a consumer e-commerce platform.
  • In December 2004, Alipay, which started as a service on the Taobao platform, became a separate business.
  • In October 2005, Alibaba Group took over the operation of China Yahoo! as part of its strategic partnership with Yahoo! Inc.
  • In November, 2007, Alibaba.com successfully listed on the Hong Kong Stock Exchange.
  • In April 2008, Taobao established Taobao Mall (Tmall.com), a retail website, to complement its C2C marketplace.
  • In September 2008, Alibaba Group R&D Institute was established.
  • In September 2009, Alibaba Group established Alibaba Cloud Computing in conjunction with its 10-year anniversary.
  • In May 2010, Alibaba Group announced a plan to earmark 0.3% of its annual revenues to fund environmental protection initiatives.
  • In October 2010, Taobao beta-launched eTao as a shopping search engine.
  • In June 2011, Alibaba Group reorganized Taobao into three separate companies: Taobao Marketplace, Taobao Mall (Tmall.com) and eTao.
  • In July 2011, Alibaba Cloud Computing launched its first self-developed mobile operating system, Aliyun OS over K-Touch Cloud Smartphone.
  • In January 2012, Tmall.com changed its Chinese name as part of a rebranding exercise.
  • In March 2014, Alibaba group said it will begin the process of filing for an initial public offering in the U.S.
  • Prior to its IPO filing on Form F-1 as a foreign issuer in the U.S., Alibaba undertook an aggressive acquisition spree – previously atypical for the company – acquiring numerous majority and minority stakes in companies including micro-blogging service Weibo, China Vision Holdings, and car sharing service Lyft.
  • On May 6, 2014 Alibaba Group filed registration documents to go public in the U.S. in what may be one of the biggest initial public offerings in American history.
  • On June 5, 2014 Alibaba group agreed to take a 50 percent stake in Guangzhou Evergrande Football Club, winners of 2013 Asian Champions League, for 1.2 billion yuan ($192 million).
  • In June 2014, Alibaba acquired the Chinese mobile internet firm UCWeb. The price of the purchase has not been disclosed, but the company did claim that the acquisition creates the biggest merger in the history of China’s internet sector.

MARKETS AND SALES:

Mr. Ma was definitely on to something as the chart below will indicate.  The projection through 2017 is dramatic.

CHINAS E-COMMERCE MARKET

China’s online shopping market is absolutely dominated by Alibaba.

CHINA'S ON-LINE SHOPPING MARKET

If we look at other companies related to the Internet, we see the following, in billions:

HOW ALIBABA COMPARES WITH OTHER E-COMMERCE SITES

The gross merchandise volume in 2013 looked as follows:

GROSS VOLUME IN MERCHANDISE

As you can see, the company is a “player” on the global stage.

In the very near future, Alibaba will issue an IPO.  At this time, the Wall Street Journal estimates the IPO could be one of the largest in corporate history.  Only time will tell.

By the way, I placed the spring business with a company in Texas.  We wanted to keep the product “at home” for several reasons, 1.) Communication, 2.) Transportation, 3.) Import complexities, 4.) Changing exchange rates and 5.) Buy American.  With this being the case, Alibaba is still a great source for products purchased.  I would invite you to take a look.

I always welcome your comments.

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