Alibaba, the e-commerce giant from China

The Chinese e-commerce group Alibaba is among the hottest topics being discussed in recent days because of its expected initial public share offering as the largest in US history, exceeding even Facebook.

Founded by teacher Jack Ma 15 years ago in his one-room apartment 100 miles outside Shanghai, it’s a true modern day ‘rags to riches’ story. Ma named the company after Ali Baba – ‘a young man always willing to help others.’ His ambition was to bring together businesses and consumers and his early experience with computers came from his work as an interpreter on a trade mission to the US in 1995. Analysts have estimated that the floatation could raise up to 15bn which would value the company at around $100bn. The 49-year-old entrepreneur is likely to have a personal stake in the company in excess of $10bn.

Alibaba is still relatively little known outside China, but dominates e-commerce in its home country with a staggering $90bn worth of product exchanging hands on its various platforms every year. To put into some context, that’s currently more than Amazon and eBay combined. Alibaba also accounts for over 60% of the parcels delivered in China. Imagine the potential of knowing the spending habits and credit worthiness of the whole Chinese middle class, as well as millions of Chinese merchants!

Alibaba Group owns Alibaba.com which is a B2B portal for connecting overseas buyers with Chinese manufacturers. It also owns Taobao.com and Tmail, Chinese versions of Ebay and Amazon.com, together controlling over 80% of Chinese e-commerce.

The staggering growth of e-commerce in China has also brought with it significant logistical challenges. In 2009 Tmall launched a new shopping festival on the 11th November (11.11). ‘Single day’, or ‘bare sticks holiday’ as it is referred to, is a day of celebration for people who are single. It started among young people as a joke due to the high male ratio in the population. But this day was given new meaning when Tmall introduced its huge one-day only discount. Since then each year on ‘Single Day’ e-commerce businesses in China compete in their promotional campaigns which results in astonishing peaks in sales.

In 2011, products valued at 5.2bn yuan ($0.8bn) were sold on Alibaba websites. This figure more than tripled in 2012 and the last 11.11 Shopping Festival in 2013 achieved an amazing 35bn yuan ($5.6bn) in 24 hours, which meant 400 million parcels needed to be delivered in the following weeks around a country as large as China.

Understandably, the network was put under tremendous pressure and another new word was invented in the Chinese language ‘bao cang’, literally meaning ‘exploded warehouse’. It was reported that over 100 planes were rented by the parcel delivery companies in preparation for the event. Some couriers even offered cash incentives for the self-collect customers to ease the pressure. Despite the premium pay for overtime, the 11.11 Shopping Festival has become the most pressurised time in the parcel delivery industry.

Alibaba understands better than most that logistics capacity plays a key role in the success of any e-commerce business. It has made real effort to collaborate with vendors and logistics companies well in advance of the event to make sure the orders can be fulfilled.

Alibaba has almost finished its IPO roadshow, which commenced in New York, Boston, Baltimore, Los Angeles, San Francisco and Denver—and then extended to Singapore, Hong Kong and London. It remains to be seen how much demand there is for shares in Alibaba.