Alibaba to restructure China’s biggest tech conglomerate in huge shake-up
Alibaba Group Holding will overhaul its sprawling US$257 billion empire, as China’s largest technology conglomerate undertakes its biggest corporate restructuring since its establishment more than two decades ago in Jack Ma’s Hangzhou apartment.
The company will reorganise its businesses into six independently run entities: Cloud Intelligence Group, e-commerce under Taobao-Tmall, Cainiao’s smart logistics operations, Local Services group, Global Digital Business Group, and the Digital Media and Entertainment Group, according to a letter to employees on Tuesday.
Each of the business units will have to face the test of market forces individually, and find their own path to compete, including the possibility of seeking their own fundraising avenues through initial public offerings (IPOs), said Alibaba, owner of the South China Morning Post. The business units will separately set up their own boards of directors.
Alibaba will also set up corporate entities for other operations following a “1+6+N” structure, with 1 referring to the group, 6 referring to the six business units, and N referring to future business units, according to the letter.
Alibaba’s share price shot up 10.5 per cent to US$95.43 at the start of trading in New York following the announcement of the plan.
Alibaba’s group chief executive Daniel Zhang Yong will sit at the apex of the holding company, but will devolve all operational decisions including hiring and firing, research, profit and losses to the CEOs of each business unit, according to his letter to the company’s employees.
“This transformation will empower all our businesses to become more agile, enhance decision-making, and enable faster responses to market changes,” Zhang said. “With this change, middle and back office functions at [Alibaba] will be slimmed down, while only functions required for listed company compliance will be retained.”
The objectives of the overhaul are to streamline the management and shorten the decision-making process to help reignite its entrepreneurial spirit, according to the plan. Start-ups only look good to their founders, like “newborn babies to their parents”, but they can grow and develop with dedication, love and hard work, said Ma in 2017 during a speech to mark International Women’s Day.
The agility, responsiveness and innovativeness of a company with 200,000 employees is “severely restricted,” Alibaba said. The fact that the biggest breakthroughs today have come from start-ups and small companies with a few hundred staff, is proof of the new tendency in the technological world, Alibaba said.
In delegating its centralised decision-making process, Alibaba is taking a page out of the playbook of globally prominent technology conglomerates like Alphabet, which was created as the holding company for Google’s internet search, life sciences, Calogo, Google X, Google Ventures and Google Capital.
Alibaba’s business restructure will help the company grow amid rapidly changing business environments and technologies, according to Zhang Yi, chief executive of research firm iiMedia.
“If the subsidiaries can focus on their own businesses, it will help them to be more professional in their services,” Zhang said. “The restructuring will also help them capture the wave of new technologies … Technological updates and product iterations will be fast.”
The group had 1.77 trillion yuan (US$256.9 billion) in total assets at the end of 2022, according to its latest accounts.
The six units would not be evenly matched in size or business scope. Nearly 70 per cent of Alibaba’s 170 billion yuan (US$24.7 billion) in third-quarter revenue came from the world’s largest e-commerce platforms, comprising mostly Taobao and Tmall Marketplace.
But the cloud computing business is Alibaba’s fastest-growing unit with the biggest potential, with its revenue growing 3 per cent to 20.2 billon yuan in the three months ended December. Alibaba runs China’s largest cloud-computing business.
Zhang will personally head the new Cloud Intelligence unit, in charge of cloud computing and big data. Trudy Dai will head the Taobao-Tmall unit as CEO, while Yu Yongfu will head the Local Services Group, Alibaba said.
Cainiao’s current CEO Wan Lin will continue to head the smart logistics group, while Jiang Fan will head the Global Digital business group, and Fan Luyuan will lead the Digital Media group, Alibaba said.
“Every [Alibaba employee], no matter which business group or company he or she is in, must rediscover his or her entrepreneurial spirit and be baptised by the market through your passion and strength, and build a future that belongs to you,” Zhang said. South China Morning Post
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