♠ Posted by Emmanuel in China at 1/30/2015 01:30:00 AM
|In a fight between Alibaba and the PRC, I'd bet on the PRC to win.|
Partly it's bad timing as Alibaba has gone into forays like mobile services as China's economy has slowed down:
Alibaba Group Holding Ltd. revenue missed estimates as the e-commerce giant’s push into mobile curbed its advertising sales growth. The shares fell. Revenue was 26.2 billion yuan ($4.2 billion) in the third quarter, compared with the 27.6 billion-yuan average of 25 analyst estimates. Ads on mobile phones generate less money than on desktop computers because of smaller screens, and transactions on the Tmall platform grew at a slower pace, the Hangzhou-based company said Thursday.Even if its most recent results have been well below market expectations, the Chinese government has undoubtedly treated its homegrown technology firms better than foreign ones. The objective, of course, is to encourage the emergence of PRC-based alternatives to the likes of Amazon, e-Bay, Google, etc. However, Alibaba now alleges that heavy-handed tactics government regulators have more frequently used on Western firms are now being applied to it:
Alibaba, which connects consumers and businesses across its platforms, has a “credibility crisis” fueled by its failure to crack down on shady merchants, counterfeit goods, bribery and misleading promotions, the Chinese government said Wednesday. The report by the State Administration for Industry & Commerce [SAIC] accused Alibaba of allowing merchants to operate without required business licenses, to run unauthorized stores that co-opt famous brands and sell fake wine and handbags.Apparently, Alibaba's leadership is not taking SAIC's clampdown in stride, accusing their own government of heavy-handedness:
“The scale of the revelations could leave Alibaba with substantial reputational damage,” said Cyrus Mewawalla, managing director of London-based CM Research. “We still see several risks in this stock that may in the coming months overshadow the earnings growth.”
Vice Chairman Joseph Tsai criticized the findings during Thursday’s earnings conference call and reaffirmed a commitment to ethical business practices. The company decided to file a complaint against the SAIC official who oversaw a meeting with Alibaba representatives in July to discuss the claims.
“We believe the flawed approach taken in the report, and the tactic of releasing a so-called ‘white paper’ specifically targeting us, was so unfair that we felt compelled to take the extraordinary step of preparing a formal complaint to the SAIC,” Tsai said.
Alibaba said in its IPO prospectus there were allegations in the past, and likely would be in the future, that the company’s platforms were selling goods that were counterfeit or infringed on other copyrights including music. The company takes a “very draconian” approach to counterfeits, Tsai said in an interview with Bloomberg Television on Thursday. “There’s nothing more important than the trust consumers have in our platform,” he said.Now this is far more interesting than missed earnings: Alibaba complaining of unfair treatment from its government. My general take is that the Chinese government, which otherwise is a large champion of Alibaba, is wary of its forays into telecoms, financial services and what else have you since over-diversification may be an unwise strategy at a time the Chinese economy is being cooled down. Of course, Chinese government officials also have to consider the interests of other PRC industrialists whose turf Alibaba is muscling into. Hence, the government may be giving a not-so-veiled message that Alibaba should not expand so much so quickly into other industries and areas.
Moreover, since when did the Chinese government care about copyright infringement on a large scale? It's often been treated as nothing more than an American whine. The timing, target and complaint are triply suspect. Unless the Communist Party leadership really wanted to, this would probably not have happened under normal circumstances. Someone really want get a message across to Alibaba that it has to toe the (fine) line.
Besides, biting the hand that feeds is usually an unwise strategy. PRC leaders may feel they have to knock some sense into Alibaba since they may be holding themselves in too high regard relative to other Chinese businesses and must be knocked down a peg or two. The nail that sticks out gets hammered down: wham-wham-wham!