In 1995, Jack Ma taught English in Hangzhou, China, a city near the economic center of Shanghai.
Question:
In 1995, Jack Ma taught English in Hangzhou, China, a city near the economic center of Shanghai. Ma wanted to get into the business world, so he raised $2000 from relatives and friends to start Chinapage.com, one of the first Chinese online businesses. He followed that experience with a job at the Ministry of Foreign Trade and Economic Cooperation. He grew frustrated with the slow pace of the government bureaucracy and left after a year to start his own company again. He placed an ad on the Internet advertising a language translation service for companies that wanted to do business in China. Within two hours, he had received six e-mailed inquiries. About 60 percent of the Chinese economy is manufacturing, and 90 percent of manufacturing companies are small or midsized businesses. Ma began collecting information from Chinese manufacturing companies that wanted to do business internationally. He translated and organized the information, and then posted it on a B2B Web portal site he named Alibaba.com.
Alibaba.com has always concentrated on small and midsized businesses (SMBs). Ma believed that global companies spend most of their efforts on doing business with large companies. He sees China (and the rest of Asia) as having a different economic structure than the United States or Europe, where the economies are dominated by large companies. Ma believes that Alibaba.com’s true opportunities lie in connecting SMBs around the world with SMBs in China. He argues that SMBs seldom have any sales channels outside their own country. To compensate, SMBs must travel extensively to meet suppliers and customers at exhibitions or trade fairs. Ma believes that Alibaba.com offers SMBs a reasonably priced alternative.
Foreign companies interested in buying from Chinese suppliers must register on Alibaba.com (buyer registration is free) before they can access the site’s supplier database. Alibaba.com charges Chinese companies a membership fee of several thousand dollars for translating and listing their information. The site also lists foreign suppliers. These suppliers can list a small number of items at no charge; however, most choose to pay a small fee that pays for a credit check and allows them to be listed as TrustPass members on the site. The TrustPass designation provides assurance to Chinese companies that want to buy from these suppliers. By 2001, more than 1 million companies had registered with Alibaba.com. In 2003, the company reported its first profitable year, with a net income of $12 million. Since then, the company has grown steadily and continues to be profitable. Many of Alibaba.com’s registered members are happy with the results they obtain, as indicated by the annual membership renewal rate, which exceeds 70 percent.
Alibaba.com, like all portal sites, suffered a setback during the 2001–2002 time period, but its fee-based revenue model allowed it to recover more quickly than portals that were dependent on advertising revenue. The company sees future growth in the continued expansion of trade between Chinese manufacturers and the rest of the world. Ma is also optimistic about the portal’s potential for helping Chinese businesses connect with other Chinese businesses.
In 2005, Yahoo! paid $1 billion for a 40 percent interest in Alibaba.com. Yahoo! was interested in the company’s Taobao.com auction site because Yahoo! had not been as successful as it would have liked in developing its own Chinese auction site. However, Yahoo! was also interested in using Alibaba.com’s strong reputation in China to help it compete with Baidu.com, the top Chinese search engine site. In about 200 words, describe the ways in which Alibaba.com’s reputation could help Yahoo! compete more effectively as a search engine and Web portal in China.
