In the folk legend, Ali Baba was a poor woodcutter who shrewdly found his way to a hidden treasure inside the thieves’ den. Included in the collection “One Thousand and One Nights,” Ali Baba's phrase “open sesame” — employed to gain access to riches — went on to symbolize a more general introduction to greater things.
The contemporary Chinese equivalent began to master its deal-cutting secret in 1999 as a humble Hangzhou-based website to link up local manufacturers with foreign buyers. On Tuesday, the private company solidified its place in the den of Internet sales giants, after hitting an annual sales figure higher than eBay and Amazon combined.
On pace to do $1 trillion in transactions per year, the e-commerce giant is nonetheless relatively unknown in the U.S. But its May 6 initial public offering (IPO) filing with the Securities and Exchange Commission could make American history as one of the largest ever, possibly bigger than Facebook’s.
Alibaba’s stock symbol remains a mystery, as the New York Stock Exchange and Nasdaq compete for the listing.
‘Titanic force in China’
With some 800 million products listed on its consumer-to-consumer Taobao service, 7 million sellers push their wares. Overall, the company processed more than 11 billion orders from 231 million buyers last year alone. Its main money makers include a business-to-business Web portal, a shopping search engine and cloud computing.
“This is not only China’s largest private company, but really the first significant entrance onto the world stage," said Orville Schell, director of the Asia Society’s Center on U.S.-China Relations. “Alibaba is a real titanic force in China, and we now confront the prospect of it becoming a major global player. This IPO is a metaphoric coming-out party.”
For tapping into the enormous spending power of China’s rising middle class, founder Jack Ma has been called the “crocodile of the Yangtze.” His packages amount to more than three-fifths of those delivered in the world’s most populous country. And his face was the first of a mainland Chinese entrepreneur to grace the cover of Forbes magazine.
The company’s Alipay online-payments service works especially well in emerging economies with a model that uses escrow, releasing funds to a vendor only once the purchaser has signed off on items received. The service accounts for half of such e-transactions in China.
China analysts say Alibaba can benefit internationally from the perception that it has relatively few links to the central government in Beijing. The ring of its name has also helped broaden its appeal.
“Most Americans couldn’t come up with any Chinese brand name. But if there were a few, it would be Lenovo, Haier, Huawei, and that’s about it. This is a real problem for China,” Schell told Al Jazeera. “Their global companies do not have global brand recognition. In some cases, they have bad recognition, while Alibaba has a fairly clean reputation.”
‘Most Americans couldn’t come up with any Chinese brand name. But if there were a few, it would be Lenovo, Haier, Huawei, and that’s about it. This is a real problem for China.’
Asia Society’s Center on U.S.-China Relations
Schell continued: “I think foreigners have a terrible time putting any blush of personality on Chinese-language brands. All sound the same to them, whereas ‘Alibaba’ is something they recognize.
“The world has gotten its knickers in a twist over the emergence of China in general, and certain companies, in specific, in the race for who’s number one, two, three. But one problem [for Chinese companies] is transparency, and another is moving up the value chain. The third is quality, reliability. So far, Alibaba has delivered reasonably well on these.
“I remember Jack Ma saying, it must have been eight years ago, that ‘eBay doesn’t understand China. We’re going to eat their lunch.’ He said it in Chinese … not arrogantly, but with a calm consonance. He was going to triumph over them.”
‘Everyone shops on Taobao’
Alibaba has a strategic relationship with Yahoo and through a separate firm has also acquired a stake in the video-sharing site Youku Tudou, known as the “Chinese YouTube.”
Chris Marquis, a professor at Harvard Business School, said he’s visited Alibaba several times and is optimistic about the IPO.
“Everyone shops on Taobao, as you can get same-day delivery on most things,” Marquis told Al Jazeera. “There are little motorcycles driving around with boxes on the back, since much of the Alibaba stuff is done by third-party folks.”
The 24,000-employee digital bazaar’s English-language international site Alibaba.com sells everything from air compressors and wheel adapters to sunglasses and pencil skirts.
But Marquis said Alibaba doesn’t expect too much from U.S. small businesses looking for cheaper producers in China. “There are entrenched market participants, so it’s hard to crack the American market.”
He said the company had turned to New York for the investment potential. “Being in a [stock] market like the U.S. would expose them to larger institutional investors,” Marquis said, adding that governance rules are also looser than in Hong Kong and permit management to control more of the voting shares.
“Alibaba is a pretty amazing company in a number of dimensions,” Marquis said. “As e-commerce has risen in China, Taobao has ridden that wave and spurred online marketplace growth. There are a lot of people online in China, but there’s still a lot of room to grow.”