Six Split – Alibaba’s Unique Decision
Alibaba is the most-known Chinese company in the world, one of the byproducts of China’s rapid economic growth over the past few decades. Although China was founded on Communist values, loose regulations have allowed corporations like Alibaba to grow exponentially and bring the economy forward, especially the tech sector, and this was spearheaded by well-known businessman Jack Ma who is currently the 36th richest person in the world. His wealth was much higher when Alibaba was at its peak of $800 billion in value, but that declined rapidly due to a couple of reasons. Chinese regulators started to severely crack down on tech companies as President Xi strengthened his hold on the economy, and US regulators started to threaten Chinese companies and their listings on American stock exchanges. Ma has stepped down as a result, and Alibaba has entered a new era.
One of the most defining moments of this new leadership occurred on Tuesday as Alibaba announced that they will split into six independently-run companies, a major left turn from Ma’s strategy to centralize the company and create the “Alibaba Economy”. These six areas will be cloud computing, logistics, media and entertainment, Chinese e-commerce, global e-commerce, and digital mapping and food delivery. This essentially turns Alibaba into a holding company, and it is a great strategy by CEO Daniel Zhang to adapt with changing Chinese regulations as a centralized Alibaba was viewed as too powerful. Under the plan, all 6 companies will have their own CEO that reports to the board of directors, and they could seek separate IPOs and raise external capital. Part of the strategy is so each piece of Alibaba can address the issues that are currently plaguing them, and it makes for an interesting proposal to large companies in the United States. Investors are curious as to whether businesses like Alphabet or Amazon might undergo a similar process, and it’ll be interesting to see the reactions as investors loved the move by Alibaba, sending their shares up higher.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.