This special edition of Supply Chain Matters This Week in Supply Chain Tech highlights China based Alibaba’s announced sweeping corporate reorganization in the light of a changing online retail business environment.

 

The Announcement

China based Internet infrastructure and multiple online retail platform provider Alibaba announced a sweeping corporation reorganization. The organization will split itself into six independently run entities to reportedly be focused on strategic priorities and overseen by an existing holding company.

According to statements from Alibaba Chairman and CEO Daniel Zhang, the primary reason for this move is to improve organizational efficiency across all business units. In a letter transmitted to employees, Zhang specifically indicated: “If you don’t change you will be defeated by the times.”

The six independent entities are indicated to be:

  • Cainiao Smart Logistics which includes Alibaba logistics services
  • Cloud Intelligence Group which controls the company’s Cloud and artificial intelligence technology elements.
  • Digital Media and Entertainment Group which includes online video streaming and movie business activities.
  • Global Digital Commerce Group that umbrellas Alibaba’s international E-commerce businesses and include AliExpress and
  • Local Services Group which controls Alibaba’s food delivery services me.
  • Tabao Tmall Commerce Group which umbrellas online shopping platforms that include Taobao and Tmall. Reportedly, this business group will remain totally owned by the Alibaba holding company. Each of the other above businesses will have an appointed CEO, a designated board of directors and specifically determined business objectives. Each can raise independent external funding via IPO

Not mentioned in this restructuring is the online financial affiliate Ant Group which came under pressure from China’s regulators to cancel a rather large planned public offering in November 2020.

 

Added Perspectives

This move is being perceived as the reverse of a prior business strategy of centralization that occurred under the leadership of Alibaba founder Jack Ma before his departure from the company. Interesting enough, Mr. Ma has reportedly returned to China after the government exercised tighter regulatory control of the country’s high flying tech entities.

According to reporting by global business broadcasting network CNBC, Alibaba has wiped out $600 billion of its former $800 billion valuation since October 2020 after the government crackdown and reign in of the private technology sector. Another factor has been the decline of online retail after a year of Covid-19 lockdowns and movement restrictions across China. Growth momentum has reportedly slowed in online retail as well as Cloud technology deployment. Last year’s online shopping holiday event Singles Day turned out to be a muted event in terms of retail sales growth.

Broader Picture

Within our January published 2023 Predictions for Industry and Global Supply Chains (available for complimentary downloading in our online Research Center), we included our prediction that the boom in online commerce and fulfillment would moderate to more realistic growth levels. We anticipated that the impacts to global online retail platform providers, customer fulfillment and logistics providers would be manifested in various dimensions and the industry would have little choice but to adjust.

As readers are likely aware, Amazon has undertaken a number of actions in headcount and physical capacity reductions thus far with perhaps more coming. Transportation and logistics sectors globally are now wrestling with a discernable decline in overall global freight and logistics volumes, with observers pointing to the declines extending for the remainder of this year.

Alibaba itself had already trimmed a reported 7.5 percent of its workforce prior to this corporate reorganization. As each of these new independent businesses become operational, that will each have to make their own separate decisions regarding talent and resource needs.

Added Reader Takeaways

There will likely be challenges related to economies of scale as logistics, online customer fulfillment and advanced technology services evolve to be independent businesses driven by differing financial and business growth objectives.

Online retail and B2B supply chain competition has increased across China in the entities of online rivals JD.com and Pinduoduo and others.

We foresee that this Alibaba move may prompt financial market movers to again probe as to whether Amazon should explore spin-off moves, particularly of its highly profitable Amazon Web Services (AWS) technology arm.

Thus is the unfolding new normal of online retail and commerce, and the various ecosystem providers that have handsomely benefitted from the previous boom.

 

Bob Ferrari

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