Seven years into his two-decades-long campaign to transform Alibaba into China’s premier website for e-commerce and beyond, Jack Ma called on Ming Zeng to join as his zong canmouzhang–director of strategic planning. Ming, 48, has assembled his thinking into a new book, Smart Business: What Alibaba’s Success Reveals About the Future of Strategy, which will be published in September by Harvard Business School Press. He elaborated on his vision and Alibaba’s in recent conversations, as edited:
FORBES ASIA: You’ve talked about core aims. One of them is total transparency. That seems antithetical to what we know about China in the last 20 years.
Ming Zeng: Despite all the ups and downs, the overall theme over the last two decades has been market reform. Alibaba has benefited tremendously from that. The online market is one of the least regulated markets and maybe the most competitive in China. This is also a high-tech industry. So most of the companies value transparency and competitiveness in the marketplace. Alibaba has been proposing that type of value in China for many years. We are known in China as a company driven by mission, vision and value, and a company that aims to do good for the whole society.
How do you see yourself as different from Tencent, apparently your biggest rival, and how will your future growth compare?
It is not that they are competing fiercely against each other. Tencent is more a typical internet company and Alibaba is quite a unique e-commerce company. Of course, in any e-commerce company of the future you have to have a social element. And also for any social networking platform, there is a certain level of e-commerce growing out of that platform. So I think both ecosystems are highly self-sufficient. Still, there are overlaps between the two ecosystems, but these two ecosystems are more or less growing independently.
Do you really need to take Alibaba to Europe or, eventually, even the U.S. to continue achieving this growth pace?
Alibaba is very interested in building an international trading platform that really benefits countries all over the world including Southeast Asia, India, Africa, in addition to Europe and the U.S. So our expansion is not primarily driven by growth but more by our mission. We have a new global trading system built on a new infrastructure of technology that will benefit tremendously enterprises all over the world.
I am interested in what you call “datafication.” You gather more data on people and companies than most Western internet companies. But that seems to be accepted in China?
There is a similar standard in China and the U.S. We do pay attention to internet data privacy. We follow the same standards as Amazon and Google. People in China are also very sensitive about use of their private information. The usage of data is following the international standard of using information at the aggregate level, not selling or disclosing individual information at all.
In your Alipay or lending operations, you find out quite a lot about individuals and their ability to repay loans, to be responsible lending prospects. How do you convince people to give you that information?
For individuals or SMEs who have no access to lending at all, giving some information to us so we can assess their credit risk so they can get access to loans is worth some imposition.
That’s how you develop huge databases of lenders and consumers as well?
That is a fundamental question in this data age: To what degree are you willing to give out your information or data so you can get much better service, including tailor-made offerings. If the concern about privacy protection or data usage is not severe, most people would opt for better customer value.
Clearly, you have to understand the culture where you are operating.
There is a certain element of culture, but also there is an aspect of fast innovation of tailor-made products and services. You can get much faster access to loans, simply because you have very good data that you can share with others.
The traditional model for corporations is that they need to stick to their core competencies. Yet you seem to be diversifying into every form of business imaginable. How did you get away from this traditional structure of core competencies to become as you are–really a huge conglomerate in many respects?
I can argue the core competence of Alibaba Group is to build the infrastructure of the future–different types of platforms or ecosystems. So we just apply our core competencies in different contexts. That’s one way to answer your question. The other is that concepts such as core competence are becoming obsolete. The organization of the future will look more like a network. A network grows by different dynamics. The old, diversified conglomerate was like a complex machine of the old industrial age. It collapsed when it reached a certain complexity. But the future of business is more biological rather than mechanical. And a company like Alibaba is growing organically, with very important and inherent connections of different parts of our ecosystems. So an ecological system grows and becomes more and more sophisticated, even more robust when it becomes richer and more diverse.
You’ve tried to expand in other areas. For instance, Ant was trying to take over Moneygram in the U.S. And the U.S. government refused to allow that. How does a company get around those kinds of obstacles?
Any new business, while growing up, always encounters obstacles. We understand that. It is part of the cost of doing business. So we might be frustrated. But because the value we create is so overwhelming, we will find some way to overcome that barrier. So to take this example, it might not be bad that we didn’t buy Moneygram. Ant Financial just launched an international wire transfer service–an even newer, more innovative technology, based on blockchain.
That seems to be an opportunity that the U.S. government has given you that you might not have seized on your own.
Yes, they push us into a corner–we have to find more innovative ways to do things.
Do companies have to have a certain scale to take advantage of that? You are so hugely dominant in the regions and sectors where you do business. Is that equally applicable to companies that are less dominant?
We started with a very small startup. You cannot answer this question from the perspective of Alibaba today. You have to have a historical perspective. How did we get here? That’s why the lessons are so valuable. Let’s take this international money transfer. We are nobody in this area. There are so many other players who have larger positions. We launched a service just as another startup, and we just found a new way to push the envelope, to build new value for the customer. It’s not about our size, it’s about our innovation experience and our understanding of where the future goes.
It’s also a suggestion of why the U.S. is never going to win in a trade war with China, because China will always have a new and innovative way of circumventing these obstacles that the U.S. or any other country is putting up.
Yes. The so-called trade dispute is also an issue of the industrial age, the old paradigm. And what determines the future is who wins in the game of smart business. Think about Apple, Google, Amazon, and Facebook and Microsoft–the only competition is who becomes the first trillion-dollar company. I would doubt if any of their CEOs spend very much time at all on the U.S.-China trade dispute.
You say that China is the “richest petri dish of innovation in the world.” Washington has tagged China with stealing innovation from other countries. But you say you are developing it yourself–fostering the kind of innovation that will not necessarily need to take or borrow from other countries.
My first book ten years ago was about the fast growth of manufacturing companies in China. At that time innovation in China was mostly driven by low-cost imitation. But when we got into the internet era, like, for example, cloud computing, Alibaba developed the core technology of cloud computing all by ourselves. Also with artificial intelligence. How to apply that to real-world problems still takes tremendous innovation. We try, whenever a customer comes to our website, to show them a tailor-made Web page which will be different, even if the person logs on two hours later. It will be adjusted according to the person’s browsing history for those two hours. This is only feasible using artificial intelligence technology that was developed in-house. People have to understand that at companies like Alibaba, we drive innovation, we are a high-tech powerhouse.
So what happens if a government tilts the playing field like the U.S. now seems to be doing?
For most American companies, their principal worry seems to be whether their home base in the U.S. is being destroyed. It is not about whether they can succeed globally. It’s about whether their very foundation is being taken away. For example, take Walmart. Their real threat is to what degree Amazon will crush them. Amazon is getting into grocery delivery, buying Whole Foods. More and more companies are under the threat of Amazon. Can they really compete against Amazon? Companies need first to buy into the new logic of the future. They have to believe it. With internet companies, that’s how they grow up. So they are living it 100%. Most traditional companies may accept such terms as mobile internet, artificial intelligence, but very few of them really understand how they actually work. So without a real understanding in the first place, it’s impossible for them to start an organizational transformation. My book explains how internet companies really work and how they can gain the competitive advantage–lessons that will apply to everyone in the future. If they want to understand how to survive they have to understand and believe in these new rules. And then they have to transform their organization, to follow this new logic. It is going to be a very difficult challenge, but that is the only way to survive in the future.
There are at least three multibillion-dollar private equity funds in the U.S. that are targeting Asia, particularly China. How can companies in China especially make themselves more attractive to these potential investors, to these fund managers?
I will be quite blunt. You are asking the wrong question. You are falling into the old trap. The challenge is not for these innovative Chinese companies to look more attractive to the U.S. private equity funds. The challenge is for the U.S. equity firms to become more attractive to these innovative Chinese companies.
Okay, how do they do that then?
Globally–and it is not just about China–the balance between capital and innovative companies is shifting. The innovative companies are the scarce resources. Capital is abundant. So the game is changing from entrepreneurs trying to court capital to capital that has to court the private innovation companies. There is a generational shift. To answer your question more directly, the U.S. funds have to become much more local because they are competing against second-generation Chinese funds. The first generation of entrepreneurs not only make the money but also invest this money. So they are more attractive to the local entrepreneurs of the next generation. It is not easy for U.S.-based private capital funds to compete against this new generation of funds in China.