Alibaba’s Alliances

Image: Stephen Slade Tien/Wikimedia
Image: Stephen Slade Tien/Wikimedia

Chinese e-commerce concern Alibaba Group Holding Ltd. is a colossus most any way you measure it. It already handles more online transactions than Amazon and eBay put together, and when it goes public (later this year, according to reports this week), the valuation is sure to be massive.

But as giant as it is, Alibaba is proving remarkably nimble in the way that it is managing its expansion. Perhaps its founder, Jack Ma, has some Peter Drucker books on his shelf.

One notable quality of Alibaba’s approach to new markets overseas and new technologies is that, unlike Google or Facebook, it doesn’t tend to make outright acquisitions. Instead, it buys minority stakes in U.S. firms and forms strategic alliances.

For example, as an article in Reuters noted, the company bought a 39% stake in the shipping service Shoprunnner in order “to learn about U.S. online shopping, the country’s distribution infrastructure, and potentially build relationships with retailers.” In this respect, Alibaba resembles a lot of growing Chinese companies, which “often take 10% to 30% stakes in other firms, even marginally competitive ones, to build a ‘network of alliances.’”

“Business growth and business expansion in different parts of the world will increasingly not be based on mergers and acquisitions or even on starting new, wholly owned businesses there,” Drucker wrote in Management Challenges for the 21st Century. “They will increasingly have to be based on alliances, partnerships, joint ventures and all kinds of relations with organizations located in other political jurisdictions.”

Drucker also pointed this out in Managing in a Time of Great Change, published in 1995. “The greatest change in corporate structure, and in the way business is being conducted, may be the largely unreported growth of relationships that are not based on ownership but on partnership,” he wrote, pointing to Japanese computer makers “gaining access to software technology by buying minority stakes in high-tech Silicon Valley firms” and pharmaceutical companies doing the same to gain access to research in biotechnology.

It was an avenue that, at least during this time, many American firms were resisting. “This new type of growth upsets the traditional manager, who believes he or she must own or control sources and markets,” Drucker observed.

It’s not a new type of growth that’s upsetting Alibaba.

Which businesses do you think have become especially adept at the use of alliances?