Alibaba and the Fourteen Years

Which is the biggest ecommerce company in the world ? Take a guess. Amazon ? E Bay ? You would be wrong if you guessed either of them. The biggest e commerce company in the world is Alibaba. Its portals handled a sales volume of some $ 170 bn. That is more than the volumes handled by Amazon and E Bay combined.

No, this is not some elaborate hoax dreamed up from 1001 Nights. Alibaba is indeed the largest e commerce company in the world. The reason you may have never heard about it is that it operates almost exclusively in China. It started life as simply Alibaba.com , a business to business portal. It then added Taobao - a consumer to consumer portal, whose similarity to E Bay is, of course, entirely coincidental. Now it has started Tmall, a business to consumer portal, which again, bears a completely coincidental similarity to Amazon. All this in just fourteen years. The last two, if you click on the link, you will see are entirely in Chinese. And therein lies the issue. Can Alibaba really be a global major, while being largely only in China.

One of the trends you may have not noticed is that China has overtaken the US as the largest ecommerce market in the world. Chinese love to shop. And they are merrily shopping online. There is terrific internet penetration in China. And Alibaba, thanks to its visionary founder, Jack Ma, is reaping the rewards.

But then, can it be really the dominant player in the world ? I can't see shoppers of virtually any other country migrating to Taobao or TMall, even if it is in English.  "Open Sesame" worked for the fictional Alibaba, but its hard to see the doors opening that easily for the real Alibaba. There is a huge brand image problem to be overcome, not just of Alibaba, but even of China. As Huawei and a clutch of Chinese companies have discovered, it is not easy going global.

Even in the home market, Alibaba's position will surely be under threat from competition. However big the Chinese market may grow into, its hard to see any company being the world's dominant major, being exclusively in China. As Britain discovered a century ago and the US is discovering now, the sun does set on everybody who thinks he alone can dominate the world.

What of the supposedly more tech savvy India. India does not even have a pipsqueak of an ecommerce company. Why ? The blame for that is squarely on Ramamritham. He has made internet connectivity one of the most difficult things in India to obtain. He has virtually made impossible an Internet Cafe industry. He does not allow easy payment systems to emerge. He goes after those who try, like Flipkart,  and brings his full attention on them by lodging all sorts of cases. And he does not allow the global majors to come in.

And therein also lies the risk for Alibaba. Thus far, the Chinese equivalent of Ramamritham , Li Xiao has left them alone. But then Li Xiao is not a bureaucrat. Li Xiao is from the Party. Ramamritham is completely predictable - he will create every obstacle possible, but do nothing else. Li Xiao is entirely unpredictable. If Alibaba attracts political attention, then its fate is sealed.That's probably why the wily Jack Ma is stepping down as CEO. And he is planning an IPO. An IPO that might even best the Facebook IPO.

Not interested in the US anymore ?

So says Huawei. Really ?? No, not really. They are very interested in the US. Its just that they have realised that the doors to the US are simply shut for them. There has been a spat going on between the US politicians and Huawei for some time. It looks like the politicians have won.  And it begs the bigger question - can any company in the world be exclusively in one country or region (however big that might be) and hope to be a major player in the world.

Huawei is a telecoms company. They sell networking equipment significantly cheaper than say Cisco. They used to be crappy ( Cisco would snigger at the mention of their name). Not any longer. Same quality, half the price. In an uncomplicated world, companies  should be falling over themselves to buy from them.  But then, the world is not an uncomplicated place.

Huawei is a Chinese company. So what, you might ask ? Huawei's founder and leader was formerly in the Chinese army. Still so what ? Well, the ties with the Chinese government/army/party (same thing) never go away and its quite possible that Huawei will do whatever the Party in China asks it to. Huawei is not a transparent company. It largely refuses requirements that it be so.  And cyber espionage and hacking are weapons that the Chinese government uses against other countries constantly.The world's chief bugger (if you will pardon the bad pun) is China.

So Huawei is a pariah right. Wrong ? The US, and possibly every other major country does the same thing. Except that Obama cannot order Cisco to spy on his behalf while Xi Jinping can so order Huwaei. But then there is enough regulation and oversight in the US to prevent that from happening, or at least knowing that it is happening. And its not at all certain that Huawei would do anything major in the spying arena - its a $35 bn company. If its shown that it is doing something underhand, overnight, it would be expelled from the entire wold. But pompous Senators have repeatedly blocked Huawei from winning major deals in the US. Huawei has tried hard, but has won nothing. In frustration, they have simply given up. The beacon for capitalism and freedom, of course, does not think of the US consumers' interests (of getting things cheaper) and, of course, Cisco and other US competitors have been scrupulously fair , have never lobbied to stall Huwaei and surely windbag Senators have only the national defence of the US at heart.

Begs a question - why is only the US so paranoid. Every country in Europe has no problems dealing with Huawei . Even India, normally a completely paranoid country has plenty of Huawei here. The Chinese brass of Huawei in India go around with names like Ashok Li and Sundar Zhang. By the way, I have to recommend that Ramamritham Liu and Rajalakshmi Wang would also be worthy additions to their team. The only offense they have done to India is to start a Chinese canteen of their own on the grounds that what goes for Chinese food in India is unrecognisable by them and surely Gobi Manchurian is an abomination !

So what will happen to Huawei. They have admitted that they will have to revise their growth plans downwards. Without being truly global, no company can aspire to the big league. 

Or is that really true ? Could a company that's almost exclusively in one country be the largest in the world in its field ? We'll examine that in the next post.

Not so Yummy

Kentucky Fried Chicken is owned, by a company with a distinctively “uncorporate” name – Yum! Brands, complete with the exclamation mark.  This blogger is a vegetarian and therefore has not really sampled its wares. But I am reliably told that its fried chicken, is fairly delicious.  But these days, alas, KFC is not sounding very yummy.

The problem is in China. KFC is everywhere in China. I mean everywhere. Sometimes I wonder if the icon of Americanism in China is not McDonald’s or Coca Cola, but KFC. Every street corner seems to have one.  The Chinese were happily munching or chewing or licking, or whatever you do with fried chicken. All that changed in December of last year. CCTV, that great bastion of broadcasting  and China’s answer to Doordarshan,  aired a program that claimed that local suppliers to KFC had given its chicken excessive amounts of antibiotics.  CCTV is more renowned for informing the world that Xi Jinping had a good night’s sleep rather than do investigative reporting. But, expose, it did. I am not aware of the merits or the details of the case, but you can imagine what happened to the sales of KFC in China. It dropped by a vertiguous 41% in January.

Ouch. KFC has recovered from earlier unfavourable events – SARS and Bird flu, although it was responsible for neither. Apparently, the Chinese can’t be kept away from fried chicken for long. But will it recover from this latest blow ? The Chinese are fed up with food adulteration. Remember baby food adulterated with melamine some 3 years ago.

Yum! Brands , is of course, not just KFC. Its also Pizza Hut and Taco Bell. So the company will ride this crisis. But its exposure to China is massive.  Half its global sales of some $4 bn comes from China. And this is the dilemma of China. The opportunity is massive. But the risks are also high.

This incident also calls into question the issue of safety or desirability of processed foods. Popular perception is that all processed food is bad. Nothing could be farther from the truth. In fact the so called “fresh” product is often the most unsafe.  Just compare tap water with Bisleri. If you knew what the “fresh veggies” went through before they landed in your shop, you might be tempted to turn non vegetarian. If you bought that raw turmeric from the store – well, I will spare you the gory details of what that goes through. Will you buy milk from the milkman if he brought the cow to your doorstep ? The less said about hygiene in the neighbouring  Udipi, the better.

In general, responsible companies that process food take greater care; from the farm gate to the time it is processed. Like for like, processed food is actually safer than “fresh food” – unless you grew it yourself.  But as the KFC incident, or the horsemeat problem in Europe shows,  there can be disastrous lapses there too.  In the quest for profitability – individual or corporate, risks are taken with food; chiefly pesticides in crops and the cocktail of hormones and drugs with animals.

Any takers for retiring to the ancestral village (Sriram – the distance from Eugene to Pattamadai is rather long !) and growing your own stuff in the backyard ?