Wednesday, 7 September 2016

Alibaba - Jack Ma's first letter after the IPO of Alibaba.

Dear Alibaba Group Shareholders,
I would like to take this opportunity, on behalf of everyone at Alibaba Group, to express my deepest appreciation to our customers, employees, investors and partners who have believed in us and supported us over the past year as we embarked on our journey as a public company.

It has been a volatile time for global markets, and we have watched these developments closely. We have a clear vision of where Alibaba is and where it’s headed. Over the past year we have become healthier, stronger and more confident and have made great progress in our strategic development.
What I said on the occasion of our IPO last year when we raised US$25 billion bears repeating. What we earned was not money, but trust. Maintaining that trust means we must listen carefully to the views of others. It also means we must reflect on the challenges we have when communicating with our shareholders and the public. The majority of our products and services are not accessible outside China, which makes it difficult for our overseas shareholders and stakeholders to fully understand the company and what it is like to be an Alibaba customer. As a result, many are trying to understand us through the lens of an outsider and may not have a full or accurate understanding of who we are and what we do.
So, I would like to share some of our thoughts about Alibaba Group here with you:


Many people confuse us with other e‑commerce retailers and therefore assess our business model solely on the basis of the growth rate of our gross merchandise volume (GMV). In fact, this narrow definition of e‑commerce is only a fraction of the Alibaba Group strategy. What we are building is an open, transparent and collaborative infrastructure for commerce.
At the end of June 2015, Alibaba Group has 34,000 employees, and fewer than 10,000 of those employees are directly involved in our China retail marketplaces and related GMV. Our platform model is highly efficient as we generate close to RMB3 trillion GMV at an average of nearly RMB300 million per person. We continue to improve our technology and products in order to win market share through innovation and technology — we never rely on the strategy of simply increasing headcount. In the coming years, we will have the opportunity and capability to build the most efficient business organization among the large global companies while creating the most job opportunities through our ecosystem.
Setting aside the employees working on our China retail marketplaces, our B2B business and backroom operations teams, close to half of Alibaba’s workforce is focused on building businesses that have long-term strategic importance. We firmly believe that only by investing in the future and adhering firmly to our long-term strategy will Alibaba have a true future.
It is only through Internet technology and big data that we can establish a truly meaningful innovative infrastructure for commerce that will provide comprehensive support to small and medium-sized enterprises. The less developed business infrastructure in China provides Alibaba a unique opportunity to create the infrastructure of China’s future commerce, not just the infrastructure of e‑commerce. Around half of Alibaba Group’s workforce and our affiliated companies, including Ant Financial and Cainiao, are working on important areas of our ecosystem, including logistics, Internet finance, big data, cloud computing, mobile Internet, advertising and the so-called double H industries — Health and Happiness (the big data-based healthcare and digital entertainment businesses which will take 10 years to become data-driven).
Today, Cainiao, our logistics affiliate, helps handle around 10 billion packages every year; our affiliated Internet financial arm serves more than 400 million active users; our cloud computing business, which is maintaining an annual growth rate of over 100%, is taking a leading role in the world; and our mobile-based products, including search, map and browsers, are providing vital infrastructure services to Chinese users. In the future, we will continue to provide a broad spectrum of services to tens of millions of Chinese companies, spanning e‑commerce, financial services, logistics, cloud computing and big data, marketing, and cross-border trading services.
Our strategy is long-term, so although the above new platforms we are building are still in progress and have yet to yield substantial revenue, their prospects are exciting and we are making headway.
We firmly believe the era of heavy business conglomerates is gone. The economy of today and tomorrow will rely on a platform and ecosystem approach. Sustainable growth can only be achieved when enterprises operate within an ecosystem, participate in collective development and share common interests.
Today, some of our strategic businesses are yielding initial results. Take logistics as an example. In fiscal year 2015, Alibaba generated more than 24 million packages on a daily basis handled by the more than one million delivery personnel employed by our logistics partners. We expect that in 10 years, the number of delivery personnel in China will exceed 10 million. This growth will be driven by social forces rather than by any single company. We also believe that over the next three years, Cainiao’s unique services will bring significant changes to the logistics sector and users will be able to enjoy enhanced and standardized services. Logistics will become a standard offering of e‑commerce companies rather than a core competence. Therefore, Cainiao’s mission is to enable delivery firms to provide standardized and formalized services.


Recently, signals of China’s economic slowdown have triggered widespread concern and, I believe, overreaction around the world. This reaction illustrates how China’s economy has been fully integrated into the world economy with a considerable degree of influence. However, we believe an economy that continues to experience such rapid growth is neither realistic nor sustainable and China shouldn’t aim for such growth.
For example, the cost of high-speed economic growth has been the destruction of ecological resources. After many government vows to upgrade the economy, the financial crisis in 2008, fatigue in investment and exports and unrealistic expectations of ever-faster growth, China’s economy has reached a point where it must upgrade and update. The current GDP growth pattern is not sustainable. In fact, if China continues to pursue the high growth rates of the past, then China will pay a high price.
I firmly believe that for the future, the advantages of a slowdown in China’s economic prospects far outweigh the disadvantages. China’s economic development is no longer in need of increasing its numbers, but of increasing its quality. China is the world’s second-largest economy, and even with a GDP growth rate of 5%, the growth rate is more than double that of developed economies.
In the past 30 years, the Chinese economy has benefited from the liberalization of thinking and a more open economic policy. However, we have not focused on fostering the creativity and innovation of people, which is the most important factor in stimulating productivity. High GDP growth relies on the capacity of manufacturing, while the improvement in quality of life relies on innovation. I believe there is much more we can do in this regard.
China’s economy is transitioning from an export sales-driven economy to a domestic-consumption economy, and from investing in infrastructure to operating infrastructure. China will use advanced technology and a new market-driven approach to solve the issue of sustainable development. All in all, China’s economy has immense potential. It will not be easy, but China’s future “economic miracle” will lie in its ability to boost productivity and its use of big data and Internet technology to stimulate domestic consumption and generate exponential development opportunities.
Will the economic slowdown have any impact on Alibaba?
At the end of March 2015, the GMV of Alibaba’s China retail marketplaces had already reached RMB2.44 trillion, accounting for 9% of China’s retail consumption. We predict that over 50% of China’s consumption will be conducted online within 10 years, and that means massive potential for the e‑commerce market. On this basis, more than 80% of China’s enterprises will need to use an Internet-based e‑commerce platform, logistics network, financial services, cloud computing and cross-border services. Alibaba’s investments today will make this possible. Our business is no doubt closely related to the Chinese economy, and we believe the services Alibaba Group will provide in the future will be the fourth indispensable resource for enterprises, after water, electricity and land.
I do not agree with the notion that consumption will decline as economic growth slows. It is inaccurate to think that the slowdown of the Chinese economy means that Chinese people are unwilling to spend. The Chinese lifestyle philosophy is different from that of the West. Consumers in developed Western economies are good at spending the money they believe they will earn in the future. To the contrary, Chinese people are constantly saving for the future. The saving rates in China are some of the highest in the world. During economic downturns, Western consumers may have trouble borrowing to maintain their lifestyles, but their Chinese counterparts have savings for retirement or for times of crisis. Therefore, slower economic growth does not mean declining purchasing power. With the convenience and value-for-money merchandise offered by e‑commerce, consumers are becoming more and more willing to shop online.
China’s middle-class population is close to 300 million and in 10 years, that number is going to reach 500 million. Yet the level of consumption among the middle class is still well below their income level. Bearing in mind that consumption is triggered by innovation, it follows that Alibaba’s business model will be a strong driver of domestic consumption in China going forward. This is clearly illustrated by the consumption volume of Alibaba’s 11.11 Global Shopping Festival. China does not lack domestic consumption power. Being thoughtful about how to ignite that power is the key. Whether it is about facilitating imports, driving domestic demand in tier 3 and 4 cities or unleashing the purchasing power of a rural population more than 600 million strong, Alibaba has a great deal to offer.
Great companies are born in challenging times. We believe the transformation of the Chinese economy from a focus on quantity to quality will lead to the formation of some of the world’s most remarkable enterprises. Alibaba hopes it will become one of them.


Our key priorities for the next decade will be globalization, development of the rural economy and big data.
In terms of globalization, we aim to help small- to medium-sized businesses around the world expand beyond their borders by leveraging the power of e‑commerce, Internet financing, big data, and marketing and logistics platforms. We believe the experience of Alibaba Group in China can be applied globally, giving all SMEs the opportunity to participate and compete in a transparent and fair marketplace. We further believe that future economic globalization will allow consumers everywhere to access a truly global purchasing experience. We have been preparing for a considerable amount of time to make this vision a reality. It may take another one or two decades to complete the mission, but we won’t quit until we live up to our true mission “to make it easy to do business anywhere.”
China has a rural population of more than 600 million, and the business infrastructure in China’s rural areas is poor. However, with the growing popularity of mobile phones, tremendous changes have taken place in these areas. Taobao Marketplace and Tmall, in particular, link farmers directly with urban life. We are now renovating rural infrastructure by leveraging mobile Internet technology, big data, logistics and Internet financing. We do this not only because of the tremendous market potential, but also to close the digital divide, promote information equity and help alleviate poverty through economic opportunity. We are witnessing great changes in China’s countryside, and we encourage our shareholders to visit China’s rural areas to see these changes for themselves. What we are doing today may become a development model for many developing countries in the future. At this historic time, Alibaba Group must embrace change, invest in change and drive change.
Over the past six years, Alibaba Group has made a significant strategic investment in cloud computing and big data services. We believe that mankind is departing the IT era and entering a new era of DT (data technology). In the society of tomorrow, data will be the most important means of production, innovation and social development. People and data will be interwoven. We must continue to invest in the development of data technology. Alibaba is fundamentally a data-driven company. We firmly believe that we will see substantial returns from the investments we have made in data and related technologies over the past six years and will continue to make in years to come. Still in its infancy, we are working to make data and cloud computing the foundation for an inclusive economy. The future potential is massive.


Alibaba has challenges, but what concerns us may be different from what some may think, and we never shy away from talking about competition or our competitors. Over the past 16 years, we’ve never been short of competitors, nor have we benefited from any form of protection. We’ve blazed our own trail through fierce market competition. We have learned to survive while maintaining our ideals and values. It hasn’t been easy.
We have never been afraid of confronting new challenges. We excel over our competition by engaging in effective strategic planning and flawless execution.
Alibaba seeks to initiate a business revolution. Our future is the infrastructure of commerce. We are in the business of enabling sales transactions — this means we never compete with the businesses on our platforms. Our so-called competitors are also businesses that we want to support and help scale. In other words, it is not appropriate and an oversimplification to view companies that are engaged in e‑commerce as competitors to the Alibaba Group. Comparing us to other e‑commerce companies is not an apples-to-apples comparison. In our case, our relationship with merchants on our platform is more like apples and the apple tree.
Our biggest challenge is not our competition, but our ability to grasp the future and manage ourselves. With our ambitious vision and unique ecosystem, we need professional talents from different fields, a unique culture and an organization that can adapt to future developments. Our colossal business ecosystem and intertwined structure will require not just more corporate managers, but leaders, innovators and trailblazers. This is a tremendous challenge for a 16-year-old company with a workforce with an average age of only 29. There is almost no reference for us when we develop our talents, corporate culture, management model, and the relationship between our business units and government departments. As a young company, we are committed to a mighty challenge, one that’s unprecedented and beyond the imagination. But this is a golden opportunity. We have told ourselves over the past 16 years: If not now, when? If not us, who?
This is the first letter I have published since the IPO on my thoughts about Alibaba’s development strategy to our investors. Thank you again for investing in us and being part of the development of a future business ecosystem. We are grateful for the trust you have placed in us and what we will accomplish in the future.


Executive Chairman
Alibaba Group Holding Limited

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