Alibaba: What Does it Mean for the U.S. Market?

The world’s biggest tech IPO is just a couple months away. Alibaba, the largest e-commerce company in China, will be releasing their shares to the United States for what is expected to be the biggest initial public offering in American history.
Currently, Alibaba is worth nearly $170 million and accounts for 80% of all Chinese e-commerce sales. Many expect that value to surpass $250 million once it goes public. Some believe Alibaba’s U.S. release will have a dramatic impact on American tech companies and e-commerce giants, such as EBay and Amazon. This could change U.S. and Chinese trade relations and markets forever.
I met with our C.O.O, Roosevelt Fenelus, for a short Q&A on what he thinks will be the impact on U.S. tech, trade, and e-commerce markets.

Q1:  For the first time ever, American and Chinese tech companies will be competing on the same side of the ocean. How will this impact the U.S. tech market?

I don’t think the American tech Industry has much to worry about in the short term regarding a Chinese Tech invasion. What I mean is that we will not see the influx of “Made in China” tags that we have become so accustomed to happening in the tech world for several reasons.
First, the U.S. market is a consumer driven market, “buyer’s power,” and basic economic principle teaches us that the consumer behavior is the driving force behind such a market. Chinese companies (non-industrial), in general, have a long history of not being able to integrate the U.S. market on a broader scale.
Second, despite that nearly everything we buy in America is tagged “Made in China”, the U.S. consumer is very skeptical of Chinese businesses and questions the quality of the products produced by Chinese manufacturers. However, due to cheap labor and tax structure, U.S. companies will continue to overwhelmingly base their manufacturing jobs in countries like China but it will take businesses of U.S. origin to market and sell them in the U.S. as well. People will give the benefit of the doubt to a U.S. company selling Chinese goods vs. a Chinese company selling Chinese goods in the same market.

Q2:  Alibaba controls over 80% of Chinese e-commerce.  How will this affect current U.S. e-commerce giants like Ebay, Amazon and Walmart?

There’s no doubt that Alibaba has seen tremendous success in China. The question is, will it be able to replicate the same success here in America and elsewhere? The territories couldn’t be more contrasted for Alibaba. Running a successful national company is one thing but taking a company across multiple borders and cultures is not an easy task. It will require a lot of flexibility and adaptation on the part of Alibaba to reach the same success here.
The biggest obstacle for Alibaba is TRUST. Alibaba is notorious for not being reliable and trustworthy. That is in part due to the overwhelming control of the transaction given over to the manufacturer. Amazon and Walmart get the product, tests it, negotiates the pricing with the manufacturer and then resells it in the U.S. market.
EBay’s business model is closest to Alibaba but the majority of products resold on EBay are not manufactured by the seller and therefore have undergone extensive quality control before reaching the market as a new product in the first place. Alibaba, however, is set up as a manufacturer’s market place. Like a flea market for manufacturers. Unlike Ebay, Alibaba has a poor consumer protection policy which actually favors the seller against the buyer. If you ever bought something on Alibaba you at least know (1) it’s probably fake/counterfeited, (2) the product you received is not exactly the one you ordered, and (3) forget about trying to return the product or getting your money back. Unlike China, the U.S. market will not put up with any of these three major issues for long.

Q3: What impact do you think Alibaba’s release in U.S. markets will have on other Chinese e-commerce like JD and TenCent?

I do not foresee a big impact. I guess we have to wait and see how the Alibaba move is received. This is no doubt a pioneered mission for Chinese businesses. Other e-commerce companies will learn and react accordingly to what happens to Alibaba.
On the other hand, Alibaba is making a “value” move if not calculated. The U.S. stock and investor market is the largest in the world and the U.S. dollar continues to be worth much more than the Chinese yuan. Like you said, Alibaba has 80% market share in a country of over 1.2 billion people. It’s a huge market for stock buyers and investors alike. It has a tremendous potential to make a lot of money. I don’t think the stock is going to stay that high for long and only time will tell how it reacts to consumer complaints and dissatisfaction with Alibaba. But I have no doubt that if their intention is to raise a lot of money, they indeed came to the right place.

Q4: Could this open the market for U.S. tech companies doing business in China?

Traditionally, American companies have had a hard time doing business in China. Remember Google, Facebook, Twitter, and even Apple? The Chinese government’s business policy for some time has been; we will be the world manufacturing hub but don’t come do business in our country, especially tech companies. This may be changing though. Chinese people are much more aware and connected to the outside world than ever before and the rise of the growing Chinese middle class will certainly put pressure on the status quo.
Thanks Roosevelt!
Alibaba’s IPO is expected to kick off the first full week of August. But with SEC regulations and market negotiations, a mild delay is not out of the question.  Time will only tell how much this release will affect the U.S. market.


Kai Hsieh

Marketing Director | NULOU

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By : NULOU /May 21, 2014 /E-Commerce, TECHTALK /0 Comment


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