China is officially a communist country, but what does that mean exactly? The terminology can be confusing. In 1978, China moved away from its socialist roots, where the government (in the form of the Chinese Communist Party) owned the factories and farms, toward a more free-market economy that China calls a “socialist market economy.” This relatively new version of China allows individuals to own property and to take risks, as Jack Ma did when he started Alibaba. The growth and diversification has been impressive. The company provides online marketplaces that connect buyers and sellers; Alibaba earns commissions and advertising dollars for this service. It is the leading platform in China with a strong footprint outside the country and global ambitions. In fact, Alibaba has set a goal to serve two billion customers (one out of every four people in the world) by 2036.

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Ma’s story isn’t one of overnight success, even though it may seem that way today. It took Ma Yun, aka Jack Ma, four years to pass the tough entrance exams for college in China, but he fought hard and finally received a degree in English. Shortly after that, he worked his way through graduate school, teaching English, to earn a degree in business. Still, he couldn’t land a job in the tough Chinese job market. In the mid-1990s, he took a trip to the United States and experienced the internet for the first time. Back in China, he started building simple websites for Chinese companies, and in 1999, he founded what is now known as the Alibaba Group, a family of online wholesale and retail companies.

The empire began with Alibaba.com, a business-to-business platform that allowed even small businesses access to a large network of sellers. Building upon this success, Ma launched Taobao and Tmall.com, retail sites targeting the growing Chinese middle class. One of the keys to the success of these sites is Alipay, a financial services firm that provides safe transactions. Through Alipay, money is held (in escrow) until the quality of goods is confirmed. This protection has helped to overcome concerns about subpar and fake goods and inadequate remedies through the Chinese legal system.

Jack Ma took the company public in September of 2014, raising $25 billion overnight and making him one of the richest men in the world; it has also allowed Alibaba to expand almost exponentially. In 2017, Alibaba reported sales of almost US$25 billion, and counting third-party sales through its websites (known as Gross Merchandise Volume, or GMV), the company surpassed $547 billion. To put that in perspective, the value of goods sold on Alibaba’s platforms was greater than the gross domestic product of Sweden.

Marketing has played a big part in the company’s success. China is experiencing a high volume of unmarried citizens, and Alibaba managed to adopt an informal holiday, called Singles Day, on November 11 of each year (11.11), which is like Valentine’s Day. Marketing gurus at Alibaba began launching Double 11 deals to bolster sales during the slow period before Christmas, and they hit a magic button. Sales went through the roof, and Alibaba trademarked “Singles Day.” In just one 24-hour period, Alibaba posted $17.8 billion in GMV.

It should be no surprise that sales in China are strong since China’s population is now almost 1.4 billion (roughly 18.5 percent of the world population). Compare that to a population in Canada of approximately 36.7 million. The middle-class consumers in China are still a small proportion of the total population, but they are growing in power and size and are consuming more and more goods, as evidenced by Alibaba’s sales volume and that of Bombardier, General Motors, and the many other international businesses selling to the Chinese markets. Some experts estimate that right now the United States accounts for nearly half of total world consumptions of goods and services, with only 5 percent of the total population. What happens to the world economy when China catches up with and maybe even surpasses the Americans per capita rate of consumption? Will there be enough goods and services to supply that amount of demand? Will there be enough natural resources? One of the great challenges of this generation of business people will be to find the socio-economic balance between global demand and supply.

Meanwhile, protectionist threats from the United States and elsewhere are a key concern. However, when all interests are examined, cooler heads will likely win. The future opportunities for intelligent entrepreneurs seem to be limited only by the imagination as the economy becomes global and borders—both physical and political—continue to disappear. But while the Alibaba Group is a leader in e-commerce, it did just buy a 36-percent stake in China’s largest Walmart-style hypersmart named Sun Art Retail Group. Is that a hedge against the drumbeat of threats of trade wars or simply a wise investment in a local business? Time will tell. But one thing is certain: The Alibaba Group is a global company with big ambitions and a proven record of adapting to the times.

Questions for Discussion

1. In what ways does Alibaba demonstrate the true promise of the global economy?
2. How does the increased formalization of the BRICS group benefit Alibaba?
3. In the past couple of years, we have seen growing protectionism threats (especially from the United States). What is the potential impact of these threats if a full trade war breaks out?
4. What impact do current trade agreements and proposed trade agreements play on online global companies like Alibaba?

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