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Alibaba’s New Chairman Says He Has to Reinvent Retail BeforeSomeone Else Does By Peter Elstrom and Lulu Yilun Chen September 9,2019, 6:01 AM GMT+2
For months, Daniel Zhang huddled with a small team in anunderground garage in Shanghai. The chief executive of AlibabaGroup Holdings Ltd. was working on a secret plan that would soundcrazy even to many of his own colleagues 100 miles away inHangzhou. Zhang wanted to launch a startup inside the e-commercegiant that would combine a grocery store, a restaurant, and adelivery app, using robotics and facial recognition to speed uplogistics and payment. That project, Freshippo, has since become amajor part of Zhang’s blueprint for Alibaba’s future, with 150stores (and counting) across 17 Chinese cities. On a recent weekdayafternoon at a store in Hangzhou, plastic bins shuttleautomatically along tracks in the ceiling, collecting goods fromaround the store for online orders. Deliverymen stand by totransport the goods anywhere within a 1.9-mile radius in as littleas 30 minutes.
Zhang is the little-known 47-year-old with the unenviable task ofstepping into the shoes of China’s most famous businessman. OnSept. 10 he’ll add the title of chairman of Alibaba after assumingthe CEO role in 2015, and he’ll be the first person sinceco-founder Jack Ma to hold both positions at the same time. Ma is aglobal figure known for hobnobbing with heads of state and for hisfiery speeches at gatherings such as the World Economic Forum.Zhang is slight and soft-spoken, often proceeding haltingly inEnglish during calls with investors. Even in China, he’s largelyunknown. At Alibaba headquarters, an employee’s parent mistook himfor the janitor.
Yet in his understated way, Zhang is proving as radical as hispredecessor. He says Alibaba is uniquely positioned to pulltogether the online and offline worlds in groceries and beyond, anddozens of his new initiatives are leading Alibaba deeper intofields including finance, health care, movies, and music.Especially in the U.S., where the company’s shares trade, theseefforts have baffled some investors, who worry about overreach. InZhang’s view, they’re a matter of survival. “Every business has alife cycle,” he says during an exclusive interview at Alibaba’sHangzhou headquarters. “If we don’t kill our existing business,someone else will. So I’d rather see our own new businesses killour existing business.”
MODULE OPERATION MANAGEMENT IN SUPPLY CHAIN MANAGEMENT
TOTAL MARKS 20 MARKS
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Alibaba’s online marketplace made it China’s largest publiccompany, with a market value of about $460 billion, but recentmonths have provided several signs of strain. China’s economicgrowth is slowing, squeezing consumer spending and advertising.Investors have pushed down the company’s share price. And protestsin Hong Kong forced the delay of a stock offering that could haveraised $20 billion. “He’s got to find new seeds for revenuegrowth,” says Mitchell Green, managing partner of Alibaba investorLead Edge Capital. “He’s planting a lot of seeds.”
Born and raised in Shanghai, Zhang followed the path of hisaccountant father to Shanghai University of Finance and Economics.Early in his career, he saw up close how quickly establishedinstitutions can vanish. He was interviewing at Barings Bank whenone trader lost more than $1 billion and took the 233-year-oldinstitution under. Instead, he became an auditor at the Chineseaffiliate of Arthur Andersen, and was working in the satelliteoffice when Andersen went down in connection with the Enronaccounting-fraud scandal.
“This is a very funny story,” he says, with the comic timing of aman who loves bookkeeping jokes. “After I joined Arthur Andersen, Ihad a joke with him. I said, ‘For many years, you didn’t want me tobe an accountant. Then I became an auditor.’ I was never anaccountant for even one day.”
Zhang later became chief financial officer at game developer ShandaInteractive, at the time the largest internet company in China.That’s where Alibaba Vice Chairman Joseph Tsai, the next-mostinfluential cofounder after Ma, found Zhang in 2007. “Daniel reallyunderstands business,” says Tsai, who recently plunked down $3.5billion, about a third of his wealth, to buy control of theBrooklyn Nets. “You can’t disrupt unless you really understand whatyou’re trying to disrupt.”
It was at Alibaba that Zhang truly distinguished himself. When hejoined, the company’s hottest website was Taobao, an EBay lookalikethat was losing money and full of phony goods. “When I looked atthe financial statement, oh Jesus,” Zhang says. “Revenue? Zero.Bottom line? A lot of losses. Then I moved to the balance sheet,even worse.”
Starting in 2008, Zhang took over the development of Tmall, anonline marketplace more like Amazon.com Inc.’s that’s now Alibaba’smost lucrative operation. To attract brand names to the site, hefurnished top merchants with new levels of information on theircustomers: who was buying what, where they lived, which kinds ofads worked best. Sales boomed, and Zhang slowly coaxed globalbrands such as Procter & Gamble Co.’s Tide and SK-II intoselling online in China. He showed Alibaba was serious aboutfighting fakes by installing software to detect copycats, and bygiving companies a hotline to report violations. P&G estimatesthat only about 1% of goods carrying its brands on Alibaba sitesare counterfeit on average, though Taobao remains on the U.S.government’s list of “notorious markets” rife with copyrightinfringement.
In 2009, Zhang and his team created Singles’ Day, an annualdeals-fest that coincides with a relatively obscure Nov. 11celebration of singlehood. Zhang spent months pushing merchants toget on board, then oversaw sales, promotions, and items to befeatured on key webpages. Sales hit $135 million the second year,then $5.8 billion in Year 5. Last year the total hit $31 billion,far beyond the U.S.’s big shopping holiday, Black Friday.
The momentum from Tmall and Singles’ Day “basically made thecompany the retail giant that it is today,” says Duncan Clark,author of Alibaba: The House That Jack Built. Jerry Yang, a memberof Alibaba’s board and a co-founder of Yahoo! Corp., says Zhang’slow-key style is a plus. “Daniel’s results speak louder thanwords,” says Yang. “He’s all about execution.”
Subsidiaries such as Freshippo are part of what Alibaba is calling,optimistically, “new retail.” The combo stores were conceived byFreshippo CEO Hou Yi, who was planning to create the company on hisown when he met with Zhang in 2014. Over coffee, Zhang persuadedhim to join Alibaba instead and gave him $100
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million to start with no expectations of profits for the first twoyears. “Then I knew how determined he was,” says Hou. “This is theequivalent of Daniel’s second startup. He said after so many years,he finally saw a project that could surpass Tmall.” Only now is Houworking out a business model.
Freshippo is far from a guaranteed success. Margins are woefullythin in the grocery business, and several well-funded startups arecompeting with Zhang’s effort. An Alibaba delivery venture calledEle.me is also bleeding money in its battle against Meituan. WangXing, Meituan’s founder, told Bloomberg Businessweek earlier thisyear that Alibaba wouldn’t be able to keep up the fight into 2020.Zhang says he’s wrong, and that Alibaba is determined to take atleast 50% of the market in food delivery to obtain an advantage inrelated businesses, such as digital-payments services. Expansionabroad may be the biggest challenge. Ma pledged that Alibaba wouldone day generate at least half its revenue from outside China, atarget Zhang says he’ll pursue. But foreign sales are far from thegoal, and gains are proving expensive. Alibaba has already sunk $4billion into Singapore’s Lazada Group to expand in Southeast Asia,but it has struggled in key markets such as Indonesia. In March,Lazada got its third CEO in nine months.
While Alibaba’s spending raised few questions as consumer demandsurged in China and capital markets rallied, it’s looking tougherto maintain. The company’s shares more than tripled from the timeZhang took the CEO role in September 2015 through June of lastyear. Since then, they’ve lost 15% of their value.
The new initiatives take a toll on Zhang, too. Even by thestandards of China’s tech industry, which views working “996”—9a.m. to 9 p.m., six days a week—as normal, his schedule is intense.During the week in Hangzhou, it amounts pretty much to work, eat,and sleep, according to a former colleague. On weekends, Zhangusually meets two or three CEOs. Besides trying to out-hustle hisrivals, he’s also got to contend with the memory of Ma; successorsto iconic chief executives often get pushed aside when the businesshits a rough patch and nostalgia sets in. “It’s always hard tofollow founders,” says Jeffrey Sonnenfeld, senior associate deanfor leadership studies at the Yale School of Management. “It’s evenharder when you’re following someone with global stature.” —WithPhilip Glamann   
Source:https://www.bloomberg.com/news/articles/2019-09-09/alibaba-s-new-chair-says-he-ll-find-the-wayto-kill-his-business  
1.1 REQUIRED: Answer each of the following questions:
“For months, Daniel Zhang huddled with a small team in anunderground garage in Shanghai. The chief executive of AlibabaGroup Holdings Ltd. was working on a secret plan that would soundcrazy even to many of his own colleagues 100 miles away inHangzhou. Zhang wanted to launch a startup inside the e-commercegiant that would combine a grocery store, a restaurant, and adelivery app, using robotics and facial recognition to speed uplogistics and payment. That project, Freshippo, has since become amajor part of Zhang’s blueprint for Alibaba’s future, with 150stores (and counting) across 17 Chinese cities.”
In light of the above observation, identify and critically discussthe strategy underpinning the “new retail” that Alibaba GroupHoldings Ltd. is pursuing under Daniel Zhang, the chief executiveand chairman. In your discussion, highlight the maincharacteristics of the strategy as well as a brief SWOT analysis ofAlibaba, using the information provided in the article.1.2 Yet in his understated way, Zhang is proving as radical as hispredecessor. He says Alibaba is uniquely positioned to pulltogether the online and offline worlds in groceries and beyond, anddozens
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of his new initiatives are leading Alibaba deeper into fieldsincluding finance, health care, movies, and music. Especially inthe U.S., where the company’s shares trade, these efforts havebaffled some investors, who worry about overreach. In Zhang’s view,they’re a matter of survival. “Every business has a life cycle,” hesays during an exclusive interview at Alibaba’s Hangzhouheadquarters. “If we don’t kill our existing business, someone elsewill. So I’d rather see our own new businesses kill our existingbusiness.” Based on the above extract, Alibaba’s new chairmanappears to be implementing a strategy meant to reinvent retail as amatter of survival. Identify and critically discuss any TWO (2)types of managerial strategic decisions that could be used byAlibaba to “kill [its] existing business,” innovate its operationsand optimise its offerings. As part of your discussion, define andexplain the two strategic decisions you have identified andhighlight the potential role they could play in Daniel Zhang’sbundle of new initiatives which are “leading Alibaba deeper intodiverse fields such as finance, health care, movies, and music.”