Telecom Operators Crucial To Alibaba s Overseas Expansion

(Chinese Version)

Internationalization is now a common goal for Chinese enterprises, such as Huawei, Lenovo, Baidu and Alibaba etc., that are working towards. Whether it’s in America, Europe, India, or in Southeast Asia, you can always find their efforts in finding new markets and investment opportunities. However, most of these companies are faced with challenges such as localization in overseas markets.

Chen Xuan, writer at TMTpost with years of experience working at international enterprise’s branch in overseas markets, concludes an opinion piece on Chinese enterprises’ overseas expansion strategies combined with his insights. This is the first article of this column:

Alibaba has literally entered every aspect of our everyday lives as the enterprise continues to expand in several prominent fields. The industry talks a lot about this very company. Today let’s dig deeper into the stories and look at something that’s not so known to the public.

In China, Baidu, Alibaba, Tencent, and their subsidiary companies account for 80% of the total income of the Internet economy. No matter in what Internet business, you can always find BAT’s presence more or less. However, with this prosperity also comes the inconvenient truth: the domestic market is already saturated. The next step for BAT and these companies is step out of the country and try to enter overseas markets.

Alibaba started off as a platform provider gave small item vendors a place to do online business and eventually took these vendors, or let’s say, businessmen and their merchandise to the world. At first, Alibaba was diligent when entering the overseas market and had made cooperation with thousands of Chinese businesses in Southeast Asia, pretty similar to the Chinese people who went to the South sea for a living a century ago. But similar stubbornness occurred among the Chinese people a century ago and the problems that came along can be also found in Alibaba.

To make the B2C business work, it's essential to handle the cultural aspect well

If you asked a random pedestrian in Europe about the Chinese company they know, the answer is most likely to be Alibaba instead of Huawei. Although Huawei started to go global earlier and has a relatively more successful result, the company’s experience in international operation can’t be really used by Alibaba since Huawei engages in B2B business and targets international clients like telecom operation whose users are lesser attached to local properties.

Huawei in some way adopts a Genghis Khan style rapid expansion in the European markets. The company only wants to conquer the market fast and gives little thought to fusing different cultures.

In contrast to that, Alibaba does B2C business and therefore it’s important for the company to establish close connection with local people. The connection I am talking about here is based on cultural fusion and grows on mutual value recognition. An Italian who I made acquaintance with in a jogging event once told me:

“I hate Chinese, you bought everything.”

When entering overseas markets, Chinese companies will generally crush local companies with low pricing strategy and then spend a great deal of money to acquire local companies, football teams, and buildings etc. Such Genghis Khan style expansion no doubt makes local residents uncomfortable and subsequently triggers the mindset like the Italian buddy of mine has.

For over a century, Chinese people have been migrating globally, bringing their businesses along with them. In the past people around the world criticized Chinese people for being to flexible and their lack of spirit of contract, as well as the product quality issues that occurred. Sounds familiar, right?

These are the bad comments about Chinese businessmen even till today. In Switzerland, I over heard a client from the banking industry in Switzerland’s comment on the Chinese equipment provider that did business with them eight years ago, which was cheap and dirty.

How come Chinese businessmen do business like they are gypsies instead of Jewish businessmen? To figure out this question first let’s take a look at the consuming market in Europe:

Europe has a low population density, which makes the cost of building sales network and branches higher. On the other hand, influenced by religious beliefs, European cultures value credibility greatly, and therefore online shopping and second-hand market are also very popular and matured there.

Different from the impression Chinese people hold that e-commerce is not popular in western countries, many migrant workers and low-income households, such as West Europeans working in UK and East Europeans working in Western Europe etc., in fact like to shop online a lot. I met a taxi driver in Germany who spoke to me about Alibaba once he knew I am Chinese, and showed me a Lenovo smart phone he purchased on Ebay from Spain.

In Europe’s free markets it’s actually easier for logistics to move around compared with that in China. So how should Alibaba operate its Taobao business in such e-commerce market? The truth is, Alibaba doesn’t need to pay for expensive international training for its staff or come up with fancy slogan to establish new organizational structure and protocols for cultural fusion.

Jack Ma is already one of the best teachers the country has to offer and Jack Ma apparently no longer needs some experts to feed him with their so-called professional expertise. As a matter of fact, the issue of cultural fusion is very easy to solve. All Jack Ma has to do is read a novel—— The Adventures of Tintins —— a novel that showcases everyday European people’s value and lifestyle.

The Adventures of Tintin is a series of 24 comic albums created by Belgian cartoonist Georges Remi, who wrote under the pen name Hergé. The series was one of the most popular European comics of the 20th century. It features an ordinary male lead who represents the European middle class, Tintin. Tintin’s value and outlook continue to transform and evolve as time changes since 1987.

Plain as he looks, Tintin doesn’t have any special ability that can make him a superhero. But with his kind heart and curiosity, he’s able to solve crisis in the story, which is a reflection of European’s mindset formed and shaped by religious belief and morality, showing Europeans’ common impulse, a rather idealizing mindset, to seek the truth and protect the weak.

Only when a consensus on value and morality is reached can Chinese companies reap fruitful rewards more easily in overseas expansion of the To-C businesses. The low pricing strategies will usually result in the image of cheap and dirty.

Does Alibaba really understand telecom operators?

In the course of internationalization, besides pushing the cultural fusion in B2C businesses, Alibaba should also note that there’s another broader market, which is the B2B sector.

In China nowadays, Internet companies and telecom operators are competitors. Under these circumstances, BAT will normally avoid working with telecom operators even though they have little experience in this particular field.

In the past I once recommended a few well-known telecom operators to some Chinese enterprises that were doing server acceleration in overseas markets, but they later turned down my recommendation and teamed up with small companies that did data centers. The result they got was disappointing, which literately causes the slow processing issue when we overseas Chinese try to grap red packets on WeChat.

Alibaba falls short of operators’ experience and doesn’t know how to collaborate with them either, and it makes Alibaba in disadvantage compared with its American peer rivals in future layout.

Introduced by my German friend, Germany Telecom flew to Hangzhou in 2014 to negotiate on possible cooperation with Alibaba. Unfortunately, Alibaba showed little interest and Germany Telecom then left even before the meeting ended. Huawei, on the other hand, teamed up with Germany Telecom on a public cloud project after one year of negotiation. In the same year, Alibaba’s potential cooperation with China Telecom on public cloud was aborted.

It seems that Alibaba is clueless of what American Internet giants are doing currently. “In the future, emerging operators such as Facebook and Google etc. would eliminate traditional operators,” Kevin Kelly recently stressed on an internal forum.

In reality, Apple, Facebook, and Google etc. are infiltrating the fundamental telecom business through softSIM/eSIM, social apps, and global standardized SMS system. Their ultimate goal is replace traditional PSTN telecom network with their information service and social apps. Additionally, these giants are also trying to build their own optical network.

Meanwhile, international telecom operators are experimenting with their revolutionary innovations as well. Many operators have even become collaborative partners with Internet companies from enemies. For instance, giant operators such as VDF, Telefonica, Germany Telecom, AT&T, and Verizon etc. are working on the same thing, that is sell out their data centers.

To be specific, they want to only maintain their racks and power source and entrust their collaborative partners with the software, hardware storage, servers, as well as the application system. Telecom operators want to focus on portal and keep their public cloud brand image and run end-to-end network connection and provide cyber security service. As for their cloud businesses, they will be handled by their competitors such as Amazon, Google, and Azure.

For example, America’s AT&T initiated its Domain 2.0 project in 2012 and is planning to transfer traditional telecom soft modules to the cloud this year. AT&T’s goal is become a software company and OTT business operator, replacing WebRTC with PSTN.

Additionally, VDF and Telefonica are working on Vodafone ID and Telefonica ID, applying methods similar to Facebook ID to re-register all subnet users. For telecom operators, user resource is their most crucial asset. With OTT and eSIM cards, they can enhance the user experience and increase the user retention rate.

Let’s look back at the European market, Germany Telecom lately announced to join Facebook’s TIP project, which has already gathered nearly 20 major operators. They brought forth the idea of getting rid of the control of telecom equipment providers such as Erisson and Huawei etc. Germany Telecom believes that usually telecom equipment providers can bring about a business system that makes profit, but when it comes to business expansion, it’s better to work with Internet companies.

The reasons here are plenty. To expand further, great investment is needed to improve the system and boost its capacity. Working with Internet companies can make telecom operators the designer of the business system, business process, and user experience while Internet companies will be the business module providers, which no doubt gives telecom operators more say in the process.

The examples mentioned above illustrate the phenomenon that western operators are becoming OTT business operators through making revolutionary innovations while Internet companies are entering the traditional telecom industry. Here comes the question: where is Alibaba?

Europe has recently launched new policy protection regulation, which brings obstacles to Alibaba’s newly-launched Taobao business in Europe. The value of data collection, which contributes greatly to Alibaba’s success, is strictly prohibited in Europe.

The case for Aliaba is similar to that of Amazon, Google and Azure. The company can cooperate with heavyweight telecom operator and enter the operator’s global telecom network. Alibaba’s advantage lies in the fact that it hasn’t invested much in building fundamental infrastructures in overseas markets and that it has rich experience in running data centers. In this case, Alibaba and Microsoft can work better with heavyweight telecom operators that have invested in fundamental infrastructures and maximize the interest.

Alibaba can utilize these data centers to improve its Taobao and other e-commerce businesses and launch extended information service, which will make it an upcoming international operator. After that, Alibaba can make information service a fundamental service.

As a traditional fundamental service, voice message service is only an extra value-added service of the information service system. In this way direct competition with domestic telecom operators is avoided. In the future, messaging service will be based on a IoT structure that will penetrates every aspect of our everyday lives. In that future Machines and sensors will gather data on our everyday scenarios, which will direct ads pushing to consumers.

Thus, Alibaba’s internationalization process is just like Tintins’s adventures: faced with challenges and risks, transforming itself in accordance with the current situation will be the best way to solve crisis. So, what would Jack Ma actually do in fusing cultures and becoming an upcoming operator?

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[The article is published and edited with authorization from the author @Chen Xuan, please note source and hyperlink when reproduce.]

Translated by Garrett Lee (Senior Translator at PAGE TO PAGE), working for TMTpost.