Why Jack Ma thinks he's too old at 48 ...

2013-01-21 02:11:15 GMT2013-01-21 10:11:15(Beijing Time)  SINA.com

Jack Ma, the charismatic founder of China Internet giant Alibaba, is expected to continue as visionary "elder" of the company after stepping down as chief executive officer.

Ma, who ranked 11th in Forbes magazine's China's rich list last year with reported assets of US$3.4 billion, announced last week that he will relinquish day-to-day control of Alibaba in favor of younger executives but remain as chairman.

"I'll pass leadership to more people who were born in the 1970s and the 80s, who have a better understanding about the future," Ma said in an open letter to employees. "I'm no longer 'young,' and the next generation of leaders is better equipped to build and operate a healthy Internet ecosystem."

It's perhaps a telltale sign of the nature of the industry that a man of 48 should relegate himself to the "older" generation. It's also a sign of how Alibaba is trying to restructure itself in a rapidly changing digital landscape.

Cloud computing

Ma founded Alibaba in Hangzhou 14 years ago. The company now operates the world's biggest business-to-business online trading platform for small businesses, a search engine, cloud computing and online retail and payment services, an online advertising system and a growing number of mobile phone applications.

Alibaba, excluding revenue from online payment unit Alipay, had revenues of US$1.1 billion and profit of US$293 million in the second quarter last year, according to filings of Yahoo Inc, which owns about 24 percent of its stakes.

Last year, combined transactions on its retail platform Taobao.com and Tmall.com nearly doubled to exceed 1 trillion yuan.

Less than one week ago, the company was broken up into 25 units headed by nine executives. The decentralization was aimed at providing greater flexibility and improved efficiency in each unit.

Ma also set up a strategic committee under the board of directors and an operational committee to be overseen by the CEO to separate long-term vision from day-to-day business.

"Alibaba's challenge is to remain swift in the fast-changing Internet market, and the split-up will enable each unit to be more competitive in each field," said Li Zhi, a principal researcher at Analysys International.

The latest reconfiguration of the company came after it was divided into seven major business groups last July.

Other domestic Internet companies, such as Baidu and Tencent, have undergone similar restructuring in recent years to cope with rising competition posed by hungry start-up firms.

There's nothing to suggest that Ma's influence over the company will be diminished, however.

"Alibaba needs to put more focus on innovation, with new e-commerce companies and start-ups emerging in recent years," said independent e-commerce consultant Lu Zhenwang. "Ma can now concentrate on strategies after stepping down as CEO."

China is home to the world's largest Internet population, but even at a penetration rate of 42 percent, the growing number of new users still lags penetration rates as high as 70 percent in developed nations. That leaves wide scope for expansion.

E-commerce transactions account for a mere 5 percent of China's retail trade, and still to be tapped are vast inland regions where online shopping has yet to gain the popularity it enjoys in coastal cities.

Last May, Alibaba entered into an agreement to buy back 20 percent of its stake from Yahoo Inc for US$7 billion, regaining control of itself while also paving the way for a future initial public offering.

Minority investors

It is also entitled to buy back another 10 percent stake from Yahoo at the same price should the IPO be completed by the end of 2015. Alibaba also took its Hong Kong-listed B2B unit private after paying US$2.5 billion to minority investors.

Such a sprawling enterprise, with a payroll of 24,000 workers, is not without its internal management problems.

In early 2010, Wei Zhe, chief executive officer of then-listed B2B unit Alibaba.com, and Lee Shi-Huei, its chief operating officer, both resigned to take responsibility for fraudulent activities related to some online sellers.

An internal investigation found increasing fraud by buyers toward certain suppliers since 2009, later identifying 2,326 China "gold supplier" customers in the swindles.

In March last year, a general manager at Alibaba's daily deals site Juhuasuan was sacked, along with three other employees, for taking bribes from external vendors.

The company blamed loose internal controls in a fast-expanding business for the lapses. The illegal activities also underscored the lack of laws and regulations on activities in the virtual world.

"The best way to train employees is letting go and allowing them to make their own decisions," Ma said in an interview with fashion magazine Trends Esquire at the end of last year.

"I'm not worried at all because the company will run perfectly smoothly, even without me."

After vacating the chief executive's chair, Ma is expected to focus on development of the company's culture and talent, as well as pursue charitable causes.

A new CEO is expected to be named by mid-May. Speculation about who will get the post has been rife.

The most likely candidates are the leaders of Alibaba's major businesses, such as Alipay or the B2C site Tmall.

Among frequently cited top contenders are Peng Lei, Alibaba's chief human resources officer and CEO of Alipay, and Lu Zhaoxi, who was once Taobao.com's CEO and is now in charge of the group's statistics and information infrastructure.

If the succession should run foul of Ma's visions for the company, no one is ruling out a comeback to a day-to-day role.

"Maybe someday Ma will return, like former Lenovo Group chairman Liu Chuanzhi did when that company was going through tough times. Who knows?" said IT columnist and industry watcher Wang Guanxiong.

The rise of Alibaba

1999

The Alibaba Group is founded in the city of Hangzhou led by Jack Ma and 17 co-founders.

1999-2000

Alibaba Group raises US$25 million from institutional investors including Softbank, Goldman Sachs and Fidelity.

2004

The online payment platform Alipay is launched.

2005

Yahoo Inc acquires 40 percent of Alibaba's stakes and Alibaba starts the operation of Yahoo China.

2007

Alibaba.com, the business-to-business trading platform, is listed on the Hong Kong stock exchange.

2011

Taobao.com is split into C2C unit Taobao Marketplace and B2C arm Tmall.

2012

Alibaba buys back 20 percent of its stake from Yahoo Inc and delists Alibaba.com.

2013

Alibaba is split into 25 business units and Jack Ma announces he is to step down as its chief executive officer.

 

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