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2 October 2018

How Jack Ma Changed the Chinese View of Entrepreneurs


When Alibaba co-founder and chairman Jack Ma announced earlier this month that he was stepping down as head of the Chinese e-commerce giant, the move reverberated in multiple directions. The 54-year-old Ma has not only taken Alibaba to a market capitalization of around $430 billion over a span of 19 years, but also inspired a wave of entrepreneurship in China. He especially demonstrated a knack for finding ways to both cultivate the government and to circumvent stringent laws.

CEO Daniel Zhang will succeed Ma as chairman in September 2019, but Ma will stay on the company’s board until 2020, when his term ends. Trained as a teacher, Ma said he has “lots of dreams to pursue,” including returning to education and continuing as a founder of the Alibaba Partnership, a group made up of founders and company managers.

“The growth of Alibaba from tiny start-up to New York Stock Exchange darling depended on its strategic agility above all else,” said Wharton management professor Michael Useem, who is also faculty director of the Wharton Center for Leadership and Change Management and the McNulty Leadership Program.

“Jack Ma repeatedly redirected Alibaba’s strategy in response to its fast-evolving market, and in doing so he successfully toppled the better established, but less adaptable, business of America’s eBay in China,” Useem continued, recalling insights contained in the book Fortune Makers: The Leaders Creating China’s Great Global Companies, which he co-authored with Wharton management professors Peter Cappelli and Harbir Singh and China Europe International Business School management professor Liang Neng. Ma’s flexible approach “led [Alibaba] to become one of the largest online retailers, auction sites and payment portals in the world. Whatever lies ahead for him, we are sure to see the application of an extremely agile and entrepreneurial spirit.”

In an interview on the Knowledge@Wharton radio show on SiriusXM, Wharton management professor David Hsu identified three aspects that distinguish Ma. “First and foremost, his early recognition of the entrepreneur opportunity [in China], seizing it, and building the vision and the company to execute in the face of a very complicated business environment,” he said. “Secondly, he has blazed a different career path than the tried-and-true model for many Chinese. He’s very forthright about his various failures. He has been quite persistent; seizing on various opportunities, he’s had to create his own fortunes. Third, retiring early and having the aspiration to do something else to keep his mind active and to go into a different domain than what he’s in, rather than just resting on the Alibaba legacy.”

Navigating Tough Terrain

Wharton emeritus management professor Marshall W. Meyer has known Jack Ma since 2014. Alibaba’s business has become “far more demanding” than it used to be, Meyer said, and its scale and scope have grown immensely. “The business environment [in China] complicated his job immensely.”

“The growth of Alibaba from tiny start-up to New York Stock Exchange darling depended on its strategic agility above all else.”–Michael Useem

Meyer noted that while Alibaba is listed in the U.S., it is also accountable to the Chinese central government. “So there are two masters, both powerful and demanding, whose interests, increasingly, diverge and may at some point prove inimical…. Daniel Zhang’s challenge will be essentially the same as Jack’s, less the personal elements: serving two masters — Wall Street and the Chinese government — which will prove ever more difficult going forward.”

According to Meyer, private enterprises in China continue to operate in a difficult business terrain, and that may have played a role in Ma’s decision to retire. “Though [Ma] demonstrated the power of entrepreneurship and private enterprise in a challenging environment that had been dominated by China’s SOEs, that power is now waning.”

Alibaba is incorporated in the Cayman Islands, but China’s strict laws governing what foreign entities can hold in the country has led it to adopt a complex legal structure that Meyer said “is beginning to look rickety.” Alibaba uses an ownership model where its intellectual property and other assets are owned by “variable interest entities” — or VIEs — which, in turn, are owned by Ma and Alibaba co-founder Simon Xie. The VIEs sign contracts with Alibaba’s subsidiaries to have control over the VIEs’ assets, sales and profits, as an article in The Economist explained.

Meyer noted that using the VIE structure may be creative, but it also could spell trouble. “The VIE structure is artifice, a workaround of rules banning foreign ownership in the ICT (information and communications technology) sector,” he said. “It’s not been fully vetted in the courts. I can’t gauge the VIE risk. Most investors ignore it. I’d bet Jack doesn’t.”

In an interview with the K@W radio show, Orville Schell, director of the Asia Society’s Center on U.S.-China Relations, noted that Ma has maintained a strong relationship with Chinese President Xi Jinping, going back to the days when Jinping was the party general secretary of Zhejiang province (2002-2007), where Alibaba has its headquarters in the city of Hangzhou.

Schell explained why developing such relationships is critical to doing business in China. “This is the great, black box that we on the outside don’t understand, and people who do corporate analysis and due diligence find very hard to see,” he said. “In America or in other open societies, companies exist and we know the regulatory environment, and yes there are lobbyists. But they exist independent of the state, whereas in China there is not a single company that exists in any other state but at the sufferance of the state.”

Thus, firms must work hard to cultivate a relationship with the state and to keep that relationship in balance, said Schell. “It is extremely difficult to do, particularly when you get so big and so powerful because you potentially exercise so much influence. And what you do is of great concern to any one-party system, which is what we have in China.”

Describing Ma as “a titanic figure,” Schell noted: “China is a double-entry economy where on the one side, you have the state-owned enterprises. On the other side [you have] this shadow world of private companies that have arisen, and Jack is the figurehead of that ship. Alibaba has developed into quite a leviathan.”

“[Jack Ma] has blazed a different career path than the tried-and-true model for many Chinese.”–David Hsu

Time to Call It Quits?

Schell noted that while Ma has been “a catalytic agent” and a model for other private entrepreneurs, he may have had some discomfiture with the overarching shadow of the Chinese Communist Party. “I think [Ma is being] particularly astute because one of the problems in China is that the party never really feels tremendously comfortable with alternative centers of power of any kind,” he said. “It has tolerated these big companies. But Alibaba is so big…. [It’s] not that it’s been insurrectionary or insubordinate or hasn’t kept its relations with the party. It’s just that when push comes to shove, the party never feels easy about having that much wealth and power on the other side of the ledger.”

Schell pointed to disturbing developments that may have precipitated Ma’s move. “We’ve already seen [the government] cracking down on other moguls,” he said. “People are disappearing, they’re hauled in for scrutiny, to be questioned, and no one quite knows why or what’s going on. So for Jack to make this lateral move now before that happens to him and his company I think is immensely smart.”

Schell predicts that Ma won’t attempt to pull strings from behind the scenes once he leaves Alibaba. “Jack Ma is always going to be part of Alibaba…. Stepping away from that and elevating the organization and the company beyond the cult of personality — he purposely wants that,” he said. “He wants to empower others to take real leadership — not always to just look back to the founder. That is nice to see in an economy like China’s.”

“The one thing I can promise everyone is this: Alibaba was never about Jack Ma, but Jack Ma will forever belong to Alibaba,” Ma wrote in his message to shareholders on the change in leadership. According to Ma, Alibaba began planning 10 years ago for life after he leaves the company, and it worked to put in place a leadership succession plan. “This transition demonstrates that Alibaba has stepped up to the next level of corporate governance from a company that relies on individuals, to one built on systems of organizational excellence and a culture of talent development.”

“Stepping away from that and elevating the organization and the company beyond the cult of personality — he purposely wants that.”–Orville Schell

Schell described incoming CEO Zhang as “a smart guy with a lot of experience but he doesn’t have the pixie dust of Jack Ma. Jack Ma is not only the CEO, but he embodies the founder’s mythology — the creation myth. [Zhang is] a good manager, but there’s a whole dimension that he lacks that is going to make it more difficult for him to even approach what Jack has done.” Hsu said he expected Zhang to drive innovation in new areas like cloud computing and artificial intelligence.

Life After Alibaba

Meyer said he isn’t sure if Ma will take on a larger role in public life. But if he does choose to do so, “he will act judiciously, through the South China Morning Post that [Alibaba] owns.”

Schell has sensed a public-spirited streak in Ma over the long years he has known him. “He’s always had a bifurcation between his drive obviously to create a company, but also to sort of retire, to pull back, to find a community where people think and do rather than just become wealthier and become the titans of management. There has always been that fundamental divide in his personality. Now we see it sort of resolving as he’s getting older.”

In his next role, Ma could exert influence beyond China with his activities on a larger canvas than just Alibaba, according to Schell. “He’s someone who will not only be of consequence in China, but also will help China be of consequence in the world because he can play on the global stage.”

Hsu noted that Ma could be a strong example for other Chinese entrepreneurs, especially in retiring early to free up time and mind space to do good for the community. Ma not only has “a tremendous amount of visibility” in China, but is also well respected and has the potential to be influential in domains beyond business. Hsu noted that Ma has in the past expressed interest in environmental issues and entrepreneurial education, among other areas.

“Daniel Zhang’s challenge will be essentially the same as Jack’s, less the personal elements: serving two masters — Wall Street and the Chinese government, which will prove ever more difficult going forward.”–Marshall W. Meyer

Ma has been candid about his missteps in business, and has urged Alibaba employees to not be dissuaded by failure. According to Hsu, Ma telling Alibaba employees that to be a success, they need to fail sometimes is “an incredibly important lesson.” With that encouragement “coming from such an accomplished businessman, it’s going to echo quite deeply into the youth of China. I wouldn’t be surprised to see a lot more people go in this [entrepreneurial] career direction, which is a healthy move for the economy.”

Schell noted that “in the Chinese scheme of things, failure has traditionally been viewed as a loss of face.” Ma’s approach to failure makes him “much more of a cosmopolitan person, who’s absorbed Western ideas. It’s that Silicon Valley notion that to fail is to understand something better, and it enables us to be more creative and innovative.”

Meyer had much praise for Ma: “Jack is a wonderful person. He is kind and soft-spoken. He leaves behind a big vacuum. There’s no substitute for his quiet charisma.”

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