The hottest company in the business world is a Chinese firm with an Arabic name going public on a US stock market.
Oh, and one of the biggest beneficiaries of this development is … the American economy.
How can that be? Read on:
Alibaba is one of the most successful companies to emerge from China’s three decades of rapid economic growth. It is often referred to as “the Amazon.com of China,” but that description fails to do Alibaba justice.
No, Alibaba is not another Sino knockoff of a pioneering US firm. It’s different, and uniquely Chinese.
Unlike Amazon, Alibaba doesn’t stockpile the goods it sells in giant warehouses bustling with shipping clerks. Instead, it connects buyers with sellers. It’s essentially an exchange.
Its Web platforms enable shoppers to buy goods directly from businesses large and small.
Its technology works especially well with the smartphones that are the most common way for Chinese citizens to connect with the Internet.
Alibaba makes money by charging commissions and fees, or selling ads and search placements. Its business model is a highly profitable hybrid that incorporates features from Amazon, Google, eBay and PayPal — a secure payment system is among Alibaba’s most important innovations.
Its founder, Jack Ma, created Alibaba step by methodical step. For years, he introduced small, pragmatic upgrades until Alibaba worked well enough to take China by storm. Today, it is the hottest e-commerce site in the world’s biggest country — and therefore a desirable investment prospect. On Friday, it is expected to raise $25 billion in an initial public offering of its stock, valuing the company at nearly $200 billion.
This latest proof that China can innovate should come as a relief to Americans — some of whom are reflexively inclined to view any Chinese success as a threat to the US True, China is a growing economic and military rival. But keep in mind that the world’s two largest economies are intertwined. America will do better if China does well too.
Making low-cost goods in smog-belching factories took China’s economy a long way, but that isn’t the future of this maturing powerhouse. Like any big, modern economy on the make, China’s needs innovation to keep growing.
How direct is the impact of China’s success on the US? It doesn’t get much more direct than this upcoming IPO:
Alibaba’s Ma is the biggest individual investor in the company, with a 9 percent stake — no small amount, to be sure. But Western institutional investors collectively own a lot more than the founder does. Thanks to a smart investment move years ago, Yahoo, the American Internet corporation based in Sunnyvale, Calif., owns 22.4 percent of Alibaba.
As a consequence, this Chinese IPO stands to shower a US company that has had its share of struggles over the past decade with a multibillion-dollar windfall. Yahoo, in turn, can use the fresh capital to reward its shareholders, expand its business and — that’s right — pursue its own surge of innovation.
Sounds to us like a win all around.— ©2014 Chicago Tribune / Distributed by MCT Information Services
The above editorial appeared in the Chicago Tribune on Thursday, Sept. 18.