Alibaba’s reorganization: reasons for splitting the business
In March, 2023, the Chinese tech giant announced that it was splitting up its business, sparking its shares surge. Alibaba’s reorganization involves the creation of six standalone divisions, which are scheduled to go public in the future. At the same time, each of the new entities will independently raise capital.
The decision to reorganize was made by the Chinese corporation for two reasons. Firstly, the government is putting more and more pressure on large businesses by restricting their development. And splitting up into several independent companies will help to reduce the level of attention from the authorities. Secondly, local and foreign investors can invest actively without fear of government reaction.
It should be noted that IT companies from China rarely operate as holding companies. However, with the tightening of business development rules, Alibaba’s reorganization is well justified. Experts expect that the example of the technology giant may be followed by other corporations in China, such as direct competitor Tencent. The Chinese authorities have been pursuing a policy against large corporations for several years now, believing that their monopoly could limit the development of the industry.
However, what the government fears most is the IT giants’ influence. This could reduce the party’s credibility in the country and lead to the government losing control over the population. That said, both Alibaba and Tencent contribute enormously to the development of the technology sector. Thanks to their support and investments in new startups, the Chinese market is developing in various areas. In addition, healthy competition has evolved in many areas, which is also a powerful stimulus for progress.
The separation of Alibaba’s business is also interesting from the point of view of the fact that traditionally IT companies prefer to consolidate their businesses into a single structure. This has been a centralized way of managing, and the inefficiencies of some divisions have affected others. The reorganization will allow Alibaba’s business units to act independently, making the best decisions for their development.
Alibaba’s New Structure:
1. Taobao includes all online commerce platforms;
2. Cloud Intelligence, a division concerned with cloud computing and data storage;
3. Global Digital Commerce is responsible for international trade operations, both retail and wholesale. This will include online retailers that focus on the external market, such as AliExpress;
4. Cainiao is responsible for logistics operations, shipping goods within China and to other countries;
5. Local Services – food delivery services, travel reservation services, and other platforms that work for the domestic consumer;
6. Digital Media and Entertainment operates Chinese video services, streaming platforms, and a film company.
After Alibaba announced its reorganization, its shares rose 13.6 percent on the Hong Kong stock exchange and nearly 14 percent on US trading floors.