No Result
View All Result
  • Login
  • Register
Business & Technology
SUBSCRIBE
  • .
  • Thought Leadership
  • Conversations
  • International Voices
  • News
  • Wealth
  • Digital Transformation
  • Lifestyle
  • Videos
  • Podcasts
  • .
  • Thought Leadership
  • Conversations
  • International Voices
  • News
  • Wealth
  • Digital Transformation
  • Lifestyle
  • Videos
  • Podcasts
No Result
View All Result
Biztech Asia
Home Thought Leadership

What the war between Alibaba and Tencent says about strategy

In emerging markets or nascent industries, plan-as-you-go has proved to be a winner many times over

by editorial
03/11/20
in Thought Leadership
6 min read
0
What the war between Alibaba and Tencent says about strategy

By Guoli Chen, Professor of Strategy at INSEAD

Cross the river by feeling the rocks. – Chinese proverb    

When Alibaba Group went public on the New York Stock Exchange (NYSE) on 18 September 2014, CEO Jack Ma said of the record-setting USD25 billion IPO: “What we raised today is not money, it’s trust.” Six years on, investors remain loyal to the e-commerce giant – Alibaba’s stock is trading at four times its opening price on the NYSE. But the company’s faith in its future in the United States has been shaken by recent heightened tension between Washington and Beijing.

This sets the stage for the listing of Ant Group, an Alibaba spin-off that has evolved into the world’s largest fintech company. What is shaping up to be the mother of all stock market debuts, eclipsing even Alibaba’s, will take place in October in Hong Kong and Shanghai, not Wall Street.

In eschewing the established NYSE for the HKSE and Shanghai Stock Exchange’s fledgling, Nasdaq-like STAR market, Ant Group – which changed its name from Ant Financial Services Group in July – is sticking to a strategy that has served Alibaba well. That is, adapt like hell to a dynamic environment with many moving parts instead of following a game plan that worked in the past or elsewhere but may not be fit for current purpose.

Such an emergent strategy – compared to planned or deliberate – is key to the meteoric rise in China of Alibaba and Tencent and the ecosystem they have built.

Jack the giant slayer

In a market of rapid technology changes, shifting consumer expectations and regulatory uncertainties, the traditional analyse-plan-execute approach is not good enough. Strategy becomes more dynamic and needs to be constantly tweaked based on new information. Ideas and processes must be tested through experimentation and adjusted to each new reality and opportunity – in other words, through the emergent approach. Especially if you’re going into a market of vastly different culture and social norms.

The tussle between eBay and Alibaba in China provides a classic example of how critical an emergent strategy is for MNCs entering a culturally alien market. In 2003, eBay acquired EachNet, then the dominant player in China’s C2C e-commerce market with an 85% market share. Alibaba, then a relatively unknown B2B e-commerce platform for small businesses, met the competitor head-on. It set up a separate business unit and launched Taobao (“Dig for Treasure”). Within three years, Taobao had turned the tables on eBay EachNet, becoming the market leader.

What went wrong for eBay? It tried to replicate in China a model that worked in the US, despite these countries’ vast differences in terms of culture and financial infrastructure. Cash was still king, credit card and Internet penetration was low, and few Chinese consumers were confident about buying things sight unseen. Yet eBay stuck to a planned strategy and rolled out its US business model. It charged fees on listings and commissions on transactions, but did not encourage direct communication between buyers and sellers, who didn’t trust each other. Payment could only be done through cheques, credit cards or PayPal, none of which was familiar to Chinese customers.

In contrast, Taobao offered free listings and enabled buyers and sellers to communicate directly. It also launched Alipay, a free platform which held the payment in a secure account until buyers received their purchase and were satisfied with the quality. Alipay would go on to become the foundation of Ant Group.

Other foreign big names that are struggling in China or have bowed out after failing to adopt an emergent strategy include Airbnb (its Chinese brand Aibiying trails homegrown market leader Tujia, which provides third-party services like cleaning, after four years in the market) and Expedia (which sold its stake in a Chinese venture to main local rival Ctrip in 2015 after a 10-year foray).

No doubt preferential treatment and certain regulations decreed by the Chinese government haven’t helped foreign entrants, but strategic rigidity and inability to adapt to local conditions have been the much bigger factor behind Western MNCs’ lacklustre showing.

Clash of the Mas

Alibaba has perfected a strategy comprising both planned and emergent components. It identifies unmet consumer needs (such as collateral-free microloans for farmers, individuals and small businesses), collaborates with other service providers like state banks to meet those needs, and does all this while complying with regulations as they emerge.

Strategy-making takes place at every level of the company. Senior managers convene “co-creation meeting” of employees and customers whenever new opportunities arise. They dream up new business models, which are then run as a separate unit before the most promising is scaled up.

For example, Alibaba launched the B2C Taobao Mall following a successful experiment in 2006 but shut down the software-as-a-service initiative, AliSoft, in 2009 after the latter failed to launch. Today, the Alibaba ecosystem has burgeoned far beyond e-commerce platforms to encompass payment, finance and insurance (Ant Group), cloud computing (Alibaba Cloud) and logistics (Cainiao Network).

While Alibaba dominates the e-commerce space, Tencent holds sway over social networking and gaming. Founded by Pony Ma (no relation to Jack) in 1998, Tencent launched its first product in 1999, a free online instant messaging service called QQ that also offered shopping, microblogging, gaming and other entertainment services. In 2005, Tencent introduced Qzone, a multimedia social networking service. It soon became the largest social networking platform in China thanks to its policy of accepting apps from third-party developers.

The now-ubiquitous WeChat super app that combines instant messaging, social networking, shopping and payments was released in 2011 to tap the growing ranks of smartphone users in China. By the end of 2019, WeChat had over 1.1 billion monthly active users (MAUs) and was among the world’s largest standalone mobile apps.

Increasingly, as the Chinese market develops and matures, and as more native start-ups blossom into unicorns, Alibaba and Tencent are competing with not only MNCs but each other.

The two began encroaching into each other’s turf early on, with varying degrees of success. Tencent had pushed out Paipai in 2005 to compete with Taobao in e-commerce. Alibaba launched Laiwang in 2012 in a bid to go one up on WeChat. The rivalry extends into ride-hailing and more recently, the food and grocery delivery service space. Alibaba’s USD9.5 billion acquisition of Ele.me in 2018 was seen as a declaration of war on Tencent-backed Meituan-Dianping.

Most memorably, WeChat’s launch of a virtual fund transfer service, dubbed Red Packet, on the eve of Chinese New Year in 2014, rankled Alibaba. Red Packet triggered millions of signups to WeChat Pay, the app’s mobile payment platform. By the end of 2014, WeChat had 500 million MAUs, up from 355 million in 2013. Its share of China’s mobile payment market – then under Alipay’s near monopoly – would surge from 10% in 2014 to 32% by 2016. Alipay’s share meanwhile plunged from 80% in 2014 to 55% in 2016.

Corporate social responsibility, gamified

Alibaba’s Ant Group and Tencent’s WeChat Pay effectively have a duopoly in China’s digital and mobile payments market and the fintech industry. But their dominance is not assured. More state-owned banks and financial institutions are entering the fintech domain. Upstart tech companies such as ByteDance, parent of Douyin and its international clone TikTok, pose a looming threat. Companies need to find new ways to increase the number of new users, especially younger ones with the attention span of a fly. What’s a tech giant to do?

Corporate social responsibility (CSR) may be one of the answers. Seen increasingly as a way for firms to fulfil their obligations to customers, workers, shareholders and the community, CSR can also help boost engagement and loyalty, especially among millennials. Tencent ventured into CSR as early as 2007, when it created the Tencent Foundation. In addition to direct funding for disaster relief, rural development and ecological conservation, Tencent built the first online public fundraising platform by leveraging its existing infrastructure. In 2019 alone, 98 million users gave a total of RMB2.8 billion.

Ant Group’s innovative “Ant Forest” initiative is another example of a CSR attempt that is not for show only. Launched on Alipay in 2016, Ant Forest latches on to the gamification trend. It starts with a “carbon account” for registered users to accumulate “Green Energy” points by using public or green transportation, buying tickets online and so on. The points are used to “water” virtual saplings until they grow into virtual trees. Ant will then plant real trees in China’s arid regions such as Inner Mongolia.

Users can see the direct impact of their actions by monitoring the trees’ growth on their phones via AI, drones and remote sensing satellite. Alipay reported that, as of May 2020, Ant Forest had more than 550 million participants and had planted 200 million real trees, cutting daily carbon emission by 12 million tonnes.

Both Ant and Tencent appear to have successfully integrated CSR into their existing ecosystems. The story of Alibaba and Tencent is a continuing tale of two unicorns that have spun their respective solid ecosystems, ready to roll with the punches whenever and wherever they may fall. They show that in an emerging market, crossing the river by feeling the rocks is just as important as having a roadmap in hand.

This is article is republished by the courtesy of INSEAD Knowledge

Previous Post

RHB Bank Lao has new CEO

Next Post

Fiscal deficit reduction – is there a magic number?

editorial

editorial

Related Posts

Are bad PCR practices churning out false positive Covid-19 cases?
Thought Leadership

A vaccination race between nations can have no winners

The Big Picture: Boats afloat
Thought Leadership

The Big Picture: Boats afloat

Comprehensive measures required to win Malaysia’s pandemic war
Thought Leadership

Comprehensive measures required to win Malaysia’s pandemic war

IKEA fits in a world that wants to buy less, says Ingka Group’s CEO
Thought Leadership

IKEA fits in a world that wants to buy less, says Ingka Group’s CEO

The how of adopting blockchain route for the halal meat industry
Thought Leadership

The how of adopting blockchain route for the halal meat industry

How to build more resilient countries after the COVID-19 pandemic
Thought Leadership

How to build more resilient countries after the COVID-19 pandemic

Next Post
Fiscal deficit reduction – is there a magic number?

Fiscal deficit reduction – is there a magic number?

Uncertainty prevails in markets

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

I agree to the Terms & Conditions and Privacy Policy.

Recommended Stories

Personal Finance Show – Value Investing 101

4 growth stocks that will do well in 2021

US dollar extends its decline

US dollar strengthens

Airbnb soars 112% in public market debut

Airbnb soars 112% in public market debut

Popular Stories

  • Economic recovery: an elusive thought?

    Economic recovery: an elusive thought?

    0 shares
    Share 0 Tweet 0
  • Cannibalising your business can be profitable

    0 shares
    Share 0 Tweet 0
  • Sexual fulfillment builds confidence and well-being

    0 shares
    Share 0 Tweet 0
  • Tech Stocks – Ant gets stomped on but REITS offer stability amid volatility

    0 shares
    Share 0 Tweet 0
  • Singapore REITS and China tech stocks – Which should you buy?

    0 shares
    Share 0 Tweet 0

About Us

A Business and Technology digital publication that engages business leaders in business and technology conversations to help everyone pivot, adapt, and thrive in these turbulent times.

LEARN MORE »

Contact Us

Phone: 016-2011 050

Email: editor@biztech.asia

Address:
Level 18, Boutique Office 1 (B01-C)
Menara 2, No. 3, Jalan Bangsar,
KL Eco City, 59200, Kuala Lumpur.

Email Newsletter

Loading

© 2020 Business & Technology - made possible by Milestones Digital.

No Result
View All Result
  • Home
  • Thought Leadership
  • Conversations
  • International Voices
  • News
  • Wealth
  • Digital Transformation
  • Lifestyle
  • Videos
  • Podcasts
  • Login
  • Sign Up

© 2020 Business & Technology - made possible by Milestones Digital.

Welcome Back!

Sign In with Facebook
Sign In with Google
OR

Login to your account below

Forgotten Password? Sign Up

Create New Account!

Sign Up with Facebook
Sign Up with Google
OR

Fill the forms bellow to register

*By registering into our website, you agree to the Terms & Conditions and Privacy Policy.
All fields are required. Log In

Retrieve your password

Please enter your username or email address to reset your password.

Log In
Social Media Auto Publish Powered By : XYZScripts.com
This website uses cookies. By continuing to use this website you are giving consent to cookies being used. Visit our Privacy and Cookie Policy.
Are you sure want to unlock this post?
Unlock left : 0
Are you sure want to cancel subscription?

You have successfully subscribed to the newsletter

There was an error while trying to send your request. Please try again.

will use the information you provide on this form to be in touch with you and to provide updates and marketing.