Alibaba, Based in China, Imitating Japan

May 15, 2014 Leave a comment

Alibaba, Based in China, Imitating Japan

By William Pesek on 05:58 pm May 08, 2014

Alibaba Group, the Chinese e-commerce giant, is offering the investment world a novel experience: one-stop shopping.

By now, we’ve heard all the superlatives about the “everything company.” Jack Ma’s hundreds of millions of subscribers will swell as the Alibaba founder enters just about every business imaginable. In a quirky, yet revealing exercise, Quartz.com made a list of all the Western names you’d have to combine to get something like the Alibaba Ma is taking public in a New York initial public offering. They include, of course,Amazon.com, eBay and PayPal, but also Google Maps, Spotify, WhatsApp, Dropbox, ING Direct, Uber Technologies and Hulu. Alibaba also is getting into travel, education, business lending and a bewildering array of unrelated markets.

Ma’s plan it to create a company so diversified and comprehensive that a consumer won’t have to go anywhere else. Want to buy just about anything? We’re the place. Looking for the latest news, movies or music? Got that, too. Need to tweet something or keep up with friends and family on social media? Oh yes. The same could be true for investors; with one stock, they can gain exposure to a multitude of sectors.

But is Ma taking on more than any one management team can handle? In other words, is he making that most Japanese of corporate mistakes: trying to do too many things and ending up doing nothing particularly well?

Japan lacks a direct Alibaba comparison. Its tech giants, such as Rakuten, are less diversified and so far lack Ma’s sweeping ambitions. Still, Japan’s iconic corporations offer multiple cautionary tales for Ma as he turns Alibaba into a corporate smorgasbord the likes of which the tech world has never seen.

Look no further than Sony, a proud name that rose from the ashes of World War II. Not content with shaking up the electronics world with Walkman music devices and Trinitron televisions, Sony expanded into everything from banking and insurance to medical-related industries. Fujitsu, Hitachi, NEC, Sharp and others got burned expanding time and time again beyond their central businesses. Honda Motor surely rues the day it veered into the aviation business. The same goes for Panasonic’s 1990 acquisition of Universal Studios. And what of Tokyo Electric Power Co. expansion into Internet services on the dubious assumption that it could offer connectivity via its power lines?

What all these companies had in common was a mindset that exalted size at the expense of management’s capacity to control and excel. History may show Ma’s ongoing shopping spree makes sense. But it could just as easily reflect a corporate magnate whose grasp exceed his ability to achieve synergies between too many moving and ill-fitting parts.

No doubt, Ma’s journey from English teacher to Internet titan is astounding. The company he started in a Hangzhou, China, apartment 15 years ago is now the toast of Wall Street, the pride of China and a name that puts him in the same class as Jeff Bezos and Mark Zuckerberg, maybe even beyond. And by riding the emergence of China’s middle class, Ma’s success offers many lessons, both economic lessons and strategic.

What remains unclear, though, is whether gobbling up more and more businesses and adding ever-more layers of options for customers is a viable business model. Alibaba, remember, isn’t reinventing the technological wheel, so much as crafting a cacophonous collage of Internet functionality.

If things go according to the aspirations of this billionaire, posterity will include Jack Ma in the pantheon of great business leaders along with Henry Ford, John D. Rockefeller and Bill Gates. Thinking big and talking even bigger are hallmarks of mega-success, of course. Hubris isn’t. With his acquisitions binge, Ma may be trafficking in the latter. As Japan shows, it’s better to excel at a few things than to be mediocre at many.

William Pesek is a Bloomberg View columnist based in Tokyo and writes on economics, markets and politics throughout the Asia-Pacific region. 

 

Filed under Macro Trends, TMT Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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