Keynote Lecture: Doing Business In China: It is a question of trust (The Alibaba Story)

27 April 2016

Keynote Lecture: Doing Business In China: It is a question of trust (The Alibaba Story)

In 2001, Savio Kwan started on a journey that would create an empire which now employs over 20,000 people and is worth in excess of $200billion. Savio told the Alibaba story to a captivated audience at the latest Engaging Business event, organised by Henley Business School and hosted by international law firm Hogan Lovells in London.

 

Introduced by Professor John Board, Dean of Henley Business School, Savio Kwan began by recalling his years at General Electric (GE), before recounting how he was drafted in to address crippling $2million-a-month losses at Alibaba, a Chinese company that had just 150 employees.

It was, in Savio’s words, like enduring a ‘near-death experience’ and it was expected that the company would last no longer than five months without drastic action.

Driven by the belief that there was a real opportunity to deliver a new service by creating an online platform for bringing buyers and sellers together, expenditure was slashed, and Savio and his team set about re-engineering the organisation in radical ways.

Within a month of initiating the cost-cutting exercise, the wage bill shrunk and the company’s monthly losses were reduced by 75%. But it became clear that Savio and his colleagues had to set out a roadmap for growth and success, which would include their values, their targets and the answer to a big, big question: should they offer bribes to grow the business? Much against the prevailing Chinese culture, they took the courageous decision not to give bribes, and were soundly derided by the sceptics around them who did not share their bravery, vision or values.

 

Targeting the masses with a new set of values

At that time, the marketing landscape for business-to-business activity among small and medium-sized enterprises (SMEs) was dominated by printed trade magazines, but the focus of the media was very much the top end of the market, leaving 80% of SMEs feeling disenfranchised. This was Alibaba’s opportunity – to create a platform that was affordable for everyone and, fundamentally, achieved the goal of ‘making business easy’.

‘We disrupted the conventional model’, recounted Savio. ‘We dared to be different.’

The single focus of the firm’s activity became to put the customer first in everything it did. This was underpinned by teamwork and co-operation, all built on a foundation of passion, integrity and honouring one’s job. These ‘rules of engagement’ governed the company’s ethos and operations, and each element was translated into real actions.

Another key element in the reorganisation was an innovative reward structure, and in this respect, Savio drew heavily from his own experience at GE, where each employee’s appraisal was based equally on their personal performance and their adherence to the organisation’s cultural values. With a sales force that rapidly grew from almost zero to 6,000 people, getting this aspect of the business right was clearly crucial.

‘We needed to instil a culture of quality, innovation and value,’ said Savio. ‘We needed everyone to understand – and buy into – the ethos that today’s top performing behaviour would be tomorrow’s minimum standard.’

On this basis, the star employees were given encouragement and promotion, and the under-performers were allowed to move on. The improvement in the company’s performance was spectacular, and its exponential growth attracted new investment which was put to very good use.

Education provided a competitive edge

As the company grew, the Alibaba College was launched to help clients to understand how to manage their own businesses more effectively and get the most from the internet revolution.

This not only cemented the company’s business relationships with their clients, but also reinforced its reputation as an organisation that really cared about its customers.

 

Seeing off the external threat and delivering further expansion

The model established by eBay around the world served as an inspiration for the company’s next venture, Taobao, and its ambition was to grab a small part of a huge market.

However, eBay had other ideas, and an acrimonious battle between the two ensued.

The team behind Taobao was determined to retain a strong indigenous culture, and based the brand’s values on those of wuxia, which relates to Chinese martial arts.

Every employee was encouraged to adopt a traditional wuxia nickname, as well as its philosophy, which emphasises the righting of wrongs and helping the weak to be strong.

Everyone in the organisation was encouraged to act in an almost playful manner – but always with an unerring loyalty to the team and, more importantly, to the customer.

Capitalising on eBay’s cultural naivety, Taobao forced its rival out of the market and built a client base of over 400 million registered users and achieved an 80% market share, with double-digit annual growth and high margins.

The next innovation was Alipay – a payment facility based on a simple but guaranteed escrow system. The meteoric rise of this model encapsulates how trust and simplicity can generate massive rewards, and very soon, Alipay’s active users numbered in the several hundreds of millions.

SMEs were then provided with modest funding loans, without any collateral or fees. Another example of a market opportunity created through the short-sightedness of the accepted players, yielding 650,000 borrowers in the first six months alone. And despite many observers’ misgivings about unsecured loans, the default rate proved to be less than 0.1%.

The internal threat and lessons learned

With such phenomenal growth, the company felt invincible. But in 2011 it was subjected to an attack by almost 3,000 fake sellers who had infiltrated the Alibaba operation, sidestepping salespeople who had become more focused on profit than quality and managers who were turning a blind eye.

Suddenly, the reputation the company had worked so hard to build threatened to collapse around it. The share value dropped by almost three-quarters and only decisive action from Savio – including firing over 100 people including a CEO and COO – saved the brand from imploding. But a huge amount of trust and business had already been lost, and it took time to time to restore confidence. It was a hard lesson, but one that served as an important reminder that you can never be complacent and you should never take your eye off the ball.

Savio is now the CEO of A&K Consulting, of which he was a founding partner, but he still insists that trust has always been at the heart of the Alibaba Group, and any successful organisation.

‘Trust is difficult to create and easy to lose, but if it is value-driven and if participation is universal, it will deliver rewards.’

And based on what Savio and his colleagues achieved in just 15 years at Alibaba, it’s a philosophy that is impossible to dispute.

 

Audience feedback

Following a brief Q&A session led by the Vice-Chancellor of the University of Reading, Sir David Bell, the audience was invited to a reception and asked to give their feedback on the event.

‘Savio is an incredible man. He has definitely changed my attitude towards doing business in China.’

‘This was my first visit to a Henley event, and it’s amazing to see the variety of people who have attended.’

‘I’ve only been here for a couple of hours, but I’ve already made a few priceless contacts and learned so much.’

‘I must admit that I didn’t know much about Alibaba, but it’s a fascinating story, and it was told with such dignity and feeling. Savio is a very impressive man and there were lots of lessons for all of us.’

‘Henley always delivers such thought-provoking, insightful events. I can’t get enough of them!’

‘Great presentation, great people, great venue, great food. What else can I say – I’ve had a great evening!’

  • Savio Kwan