Chinese giant E-commerce company Alibaba has assured investors that its recent restructuring which saw the company split into six units won’t affect the company’s growth, rather it will make the business more agile.
In a message to investors, Alibaba CEO Daniel Zhang said that he strongly believes that the company’s overhaul will allow it to become more nimble, which will enhance the business decision-making process and help it respond faster to market changes.
In his words,
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“We’ve been stressing the idea of agility and being a more nimble and agile organization for several years now, the split will see Alibaba’s board continue to have control over its entities.
“Alibaba Group will be in the nature of a holding company that is the controlling shareholder of the business group companies. As the controlling shareholder, the Alibaba board will continue to have control over the boards of these new companies.”
Shares of Alibaba listed in Hong Kong rose nearly 3% at the market open on Thursday roughly an hour after the CEO’s assurance to investors. Also, the stock on Wednesday closed by over 12% and saw its best day since Nov. 11, 2022.
Meanwhile, a senior lecturer in Chinese and East Asian business at King’s College London Xin Sun warned that while there are promising signs for investors, there is also a reason to be cautious. He describes Alibaba’s overhaul as a move to break up the company’s business empire and to reduce its huge influence that could potentially pose a threat to the Chinese Communist Party’s rule.
He said, “After restructuring, the organizational structure of Alibaba will become more decentralized, and the control over its assets, data, and resources will be less concentrated. The Party could then impose stronger political control over each of the new entity more easily”.
It would be recalled that Alibaba on Tuesday, March 28, Alibaba split its company into six business groups each, (Cloud Intelligence Group, Taobao Tmall Commerce Group, Local Services Group, Cainiao Smart Logistics, Global Digital Commerce Group, and Digital Media and Entertainment Group) with the ability to raise outside funding and go public.
The company’s recent overhaul is coming following Beijing’s regulatory crackdown on the Chinese tech sector which began in late 2020, wiping off more than a combined $1 trillion from the country’s biggest companies. Over the past two years, China’s government has often fought against the disorderly expansion of capital of tech firms that have grown into large conglomerates which they believe stifles market competitiveness.
In 2021, Chinese regulators hit Alibaba with a 18.23 billion yuan ($2.8 billion) fine in its anti-monopoly investigation of the tech giant, saying it abused its market dominance. Regulators opened a probe into the company’s monopolistic practices in December. The investigation’s main focus was a practice that forces merchants to choose one of two platforms, rather than being able to work with both.
This saw Alibaba’s founder come under fire for saying that China’s financial system was “the legacy of the Industrial Age.” Therefore, part of Alibaba’s announcement noted that its recent groups of businesses could raise outside capital and even go public, seemingly heading in a contrary direction to Beijing’s concerns.
Alibaba remains optimistic to please investors with its major business restructuring, heralding the biggest shake-up of China’s best-known e-commerce company since Jack Ma founded it 24 years ago.