Cyrus Gill is a junior hospitality management and entrepreneurship and innovation major.
Cyrus Gill is a junior hospitality management and entrepreneurship and innovation major.

Alibaba, the largest company you’ve never heard of, is taking the U.S. stock market by storm. Chinese e-commerce juggernaut Alibaba Group priced its initial public offering at $68 per share, the largest in U.S. history. Alibaba earns revenue by charging fees, commissions, and selling ads. Its highly profitable business model is a combination of services and features from Google, eBay, Paypal, and Amazon. However, according to the Wall Street Journal, transactions on Alibaba’s sites totaled $248 billion last year, which is greater than the sales of eBay and combined. Should American business be scared? We have no clue how large of an impact Alibaba will have on global e-commerce. Despite all the sales, speeches, and hype, I believe Alibaba and CEO Jack Ma’s Chinese technology invasion is no cause for alarm.

Alibaba should be seen as an astounding example of business triumph rather than a competitive threat. The company is also a symbol of the globalization of finance, commerce, and culture, and further proves that the root of China’s success is tied to the innovations of American companies and global financial markets. “In choosing the U.S. over Hong Kong or London, the Chinese e-commerce giant is reaffirming Wall Street as the center of the financial universe”, NYSE President Thomas Farley told CNBC.

Alibaba’s listing in the U.S. not only benefits its growth in China, but the American companies that manage the listing as well. Specifically, Yahoo, Sunnyvale CA tech giant, owns 22.4 percent of Alibaba. As a result, Yahoo’s investment returns can be used to innovate new services, expand its business, and reward shareholders. Meanwhile, Alibaba’s structure of governance does not provide sufficient protections for its public investors.

Alibaba investors are not granted company control because it is locked in the hands of group insiders known as the Alibaba Partnership. The locked partnership is able to ensure that its chosen directors have a majority of board seats. Zhang Tianyu, a specialist in corporate governance at the Chinese University of Hong Kong, said that this arrangement allows Ma to secure company control despite the fact that his degree of ownership is outweighed by Yahoo’s 22.4%, and the 34.1% held by Japan’s SoftBank Corp. Without majority shareholders in the mix, investors should be worried about the small yet powerful stake held by the Alibaba Partnership.

The U.S. investor is not the only party fearful of Alibaba’s centralized governing system. As China’s private business sector becomes more complex and powerful, it is difficult to imagine the Chinese government exchanging power smoothly. China’s industrial growth model is losing its luster, but according to Forbes, China has over 560 million Internet users who spend 20 hours a week online, twice the size of the U.S. market. Alibaba is the first Chinese company to effectively connect these users for a financial gain. Greater innovation from private business like Alibaba seems to be the only way to grow the Chinese economy, yet the Chinese government fanatical system of control is stifling such ingenuity.

I still believe that America’s innovative spirit has the edge on China’s industrious workforce. Unless Jack Ma can build a culture of individualism, freedom, and innovation in China, Alibaba will not lead the e-commerce revolution.


Leave a Reply

Your email address will not be published. Required fields are marked *