On Tuesday, founder and chairman of Alibaba Group Holding Ltd, Jack Ma wrote to its investors, customers, and traders highlighting that his recent words about counterfeited goods was taken out of context and his company has no tolerance for fake goods trading on its e-commerce portal.
Mr. Ma said in his article: “When Alibaba went public in 2014, I told our customers, employees and investors that what we had earned was trust—in myself, my team, and our company’s mission, vision and values.” Mr. Ma further highlighted that with trust come great responsibility and Alibaba’s responsibility is to protect all of its stakeholders.”
Last week, Mr. Ma released a statement saying that “counterfeited goods are better than original products,” after which Alibaba came under fire and many foreign brands owners challenged the company’s credibility and its efforts to fight against fakes traded on its e-commerce platform.
He stated: “The problem is the fake products today are of better quality and better price than the real names. They are exactly the [same] factories; exactly the same raw materials but they do not use the names.”
Yesterday, Mr. Ma indicated that whatever he said was an observation and has nothing to with the reality. He further added that “Failing to protect original designs, trademarks, and technology is akin to thievery, and it is detrimental not only to innovation but also to the integrity of the marketplace,” and Alibaba will never forgive any act of stealing.
Last year, several leading foreign brands filed lawsuits against the Chinese e-commerce giant, accusing it of deliberately promoting the counterfeited goods traded on its websites.
Kering SA, a French luxury goods holding company filed a lawsuit against the Chinese e-commerce giant last year, claiming that Alibaba is directly involved in the promotion of counterfeited goods. However, the company denied all such accusations and later, the case was resolved on mutual consent. Like Kering, many other foreign brands have alleged Alibaba of doing little to stop the trading of fake goods on its leading platforms including Taobao and Tmall.com. Likewise, many of them have even shifted to other e-commerce stores including those of JD.com Inc.
Last year, Alibaba also narrowly escaped the US black list for notorious goods; however, it received official warning from the US trade officials to quickly resolve the issue and prevent sale of counterfeited goods on its leading online platforms such as Taobao. Mr. Ma saw this escape a huge victory and assured the trade officials that his e-commerce firm is 100% committed to lead the fight against global counterfeiting, both online and offline.
The Chinese e-commerce giant has invested heavily and devoted significant efforts to develop an unparalleled level of technology to put a stop to this counterfeiting work. The Chinese e-commerce giant takes out full-bodied data processing and analytics to enable real time scanning of nearly 10 million new products a day by looking at key features such as pricing, trademarks, and buyer and seller identity. Despite such aggressive measures the world’s second largest retail network is yet to satisfy customer, trade officials, and most importantly brand owners.
In his write up, Mr. Ma emphasized on the fact that a cooperation spread globally is needed to fight the counterfeited goods issue. It’s a “long term crusade,” he said, a battle against human greed for which there are no short term fixes and easy way out.
Mr. Ma’s statement was not welcomed with gratitude by investors, brand owners, and trade officials. According to some analysts by terming the case a long term crusade, Mr. Ma has indicated that the counterfeited goods is likely to continue to trade on Alibaba’s online platform. He said he expected Alibaba to become the “fifth largest global economy” after Japan by 2020. This is likely to happen because China’s middle class consumption has increased massively, and the country’s middle class holds about $4.6 trillion in savings.
Recently, Security and Exchange Commission (SEC) have inquired Alibaba to present complete details of the company’s accounting policies and for one of its delivery affiliate, after the company was accused of using inappropriate financial measures and not disclosing complete transactions of its delivery affiliate.
In May, the Chinese e-commerce giant was handed a suspension from International Anti-counterfeiting Coalition (IACC), a supervisory body for retail industry after several leading members threatened to step down against Alibaba’s inclusion. Those members included Tiffany, Gucci America, and Michael Kors.
Role of Chinese Government
Though the Chinese e-commerce giant faces tremendous international criticism and pressure from trade officials, the government has done little to tackle the counterfeited goods issue i.e. no more than a few warnings. Even Mr. Ma himself proclaimed that the Chinese government can’t even ban his company for two hours due to its significant economic importance. We believe that there are solid reasons as to why the Chinese government can do very little to take action against Alibaba.
The following revenue table clearly depicts that Alibaba’s retail business generates significant profits, which is a vital catalyst for growth in China’s deteriorating economy. The country’s GDP growth is at its slowest in the past 25 years, and with crude oil continuously remaining on a lower side, the Chinese government is shifting to services and retail sector to inject growth in the Chinese economy, and Alibaba is the big connection to it.
It is indicated that Alibaba’s China retail business amounted to nearly 78% of total revenue generated in the quarter, while international retail also surged 15% year-over-year (YoY).
Its international retail segment growth also highlights the company’s eagerness to expand its footing in the international market. We depicts Alibaba’s international retail revenue for the past six years.
Though the growth is imminent but many analysts opine that is far below the expectations. As a result of counterfeited goods scandal, the company’s international retail revenue growth has plummeted 41% on average in the past five years.
At the recent investor’s day conference, the Chinese e-commerce giant also released its annual revenue forecast estimating a 48% YoY surge, mainly driven by the acquisitions of Youku Tudou and Lazada the Asian e-commerce giant. It said: “The Company expects to record 6 trillion yuan ($912 billion) in gross merchandise volume (GMV) in fiscal 2020, nearly double 3.09 trillion yuan in fiscal 2016.”
Despite achieving significant success, the Chinese e-commerce giant is surrounded by controversies since the past few years. Earlier on Wednesday, it also won the dismissal of a US lawsuit accusing the company of defrauding its stakeholders by “concealing a regulator’s warning about its ability to suppress counterfeiting on its websites.”
Overall, analysts have been keeping a mix view on whether Alibaba is right or wrong; however, Mr. Ma indicates that his company works hard each day to ensure that its stake holders are protected and its consumers are not fooled by shoddy fake products. However, he asserted that to completely eliminate the issue from the root cause, a time period is required and global assistance is necessary.
We believe that it is high time now that Alibaba should stop fooling customers and brand owners and should work with sincerity, rather than consoling and giving false hopes. Authenticity of the product is of key importance and Alibaba should return its stakeholders a favorable response or get ready to lose customers. We also believe that the Chinese government should embrace the rule of law. The government should stop promoting double standards and treat both foreign and domestic firms at permissible level. Has it been Amazon Inc or any other foreign e-commerce retail network, the consequences and treatment would have been different.
