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Alibaba's Next Trick: Expanding Abroad


The Hong Kong e-commerce outfit, which connects Chinese suppliers to global buyers, is adding suppliers in India, Vietnam, Turkey, and elsewhere

Hong Kong - It's an unorthodox investor-relations strategy: Jack Ma, founder of Chinese e-commerce company Alibaba.com, likes to let stock owners know how little they matter to him. At a recent meeting in a Hong Kong hotel, Ma roams the stage, sleeves rolled up, and brags to shareholders that Alibaba, which connects makers of everything from shoelaces to diesel engines with buyers worldwide, has a clear pecking order: Customers come first and employees second. Investors? Other corporate chiefs might talk about building shareholder value, but for Ma, owners come last. If you don't like that, "you don't have to invest in Alibaba," Ma says.

Investors, it seems, aren't bothered by Ma's attitude. Thanks to optimism about China and confidence in Ma, they have tripled the value of Alibaba's Hong Kong shares this year. As exports from the mainland pick up, investors believe, more Chinese manufacturers will pay Alibaba's annual fees of $400-$3,000. For that, they get to list their wares and information about their factories on the site and receive links to potential buyers. "There is huge demand in China for this kind of service," says Elinor Leung, an analyst at CLSA Asia-Pacific Markets in Hong Kong.

Alibaba's buoyant stock performance will help Ma's next big initiative. Sensing opportunity in the economic crisis, he is expanding aggressively overseas. As people lose their jobs, he predicts, many will go into business for themselves and will want to connect with manufacturing or distribution partners worldwide.

The ultimate goal is to reduce Alibaba's reliance on China and turn the site into a global marketplace for importers and exporters. When Ma started Alibaba 10 years ago, he faced many doubters, "but we made it happen," he boasts. Now, says the 44-year-old former English teacher, "we think our model can work in India, in Japan, in Mexico, in Peru"—anywhere.

Ma is putting that belief to the test. Alibaba plans to triple its U.S. employees this year, to 60. In May he formed a partnership with Turkey's Logo Group to reach Turkish companies. And in July, Alibaba said it had signed up 1 million members in India, where last year it launched a partnership with media company Network18. With Indian exporters cutting back on overseas travel, "Alibaba really took off," says Haresh Chawla, Network18's chief executive.

Ma's goal is to recruit entrepreneurs such as Jane F. Ivanov. Four years ago the 30-year-old launched Eve Alexander, a line of lingerie for pregnant women and nursing mothers sold in stores such as Target (TGT) and Wal-Mart (WMT). She used Alibaba to find a manufacturer and says the site's virtual factory tours were particularly valuable. "You really feel like you're there," says Ivanov.

Some critics wonder whether Ma can make Alibaba into a big money earner. The company's stock has been on something of a roller-coaster ride. After its $1.5 billion initial offering in 2007, shares quickly soared, then plunged to a third of their listing price, only recently climbing back above that level. With Chinese exports off dramatically this year, Alibaba's main customer base is still suffering, says Steven Liu, an analyst at DBS Vickers in Hong Kong. "I do not expect any near-term growth," Liu says.

A BOOST FROM CHINA?

Many investors, though, believe Beijing's $586 billion stimulus package will continue to lift the Chinese economy—and that Alibaba will benefit. While earnings will fall 32% this year, to $138 million on sales of $517 million, they'll rebound next year to $194 million on revenue of $670 million, predicts Kim Eng Securities.

Ma has a reputation as a cheerful iconoclast. Before the IPO, he persuaded Yahoo!'s (YHOO) Jerry Yang, Softbank's (SFTBF) Masayoshi Son, and other heavy hitters to invest. He hosted a Chinese knock-off of The Apprentice, gives frequent lectures throughout China about entrepreneurship, and is known to encourage employees to do headstands so they can see the world from a different perspective. "Jack Ma has a lot of charisma," says JPMorgan Chase (JPM) analyst Dick Wei. "He has a long-term strategic view and, on the operations front, is very detail-oriented."

But as is evident from Ma's attitude toward investors, he can come off as arrogant. In 2005, when eBay (EBAY) announced a $100 million push in China, Ma declared that Taobao, Alibaba's consumer auction site, would bury the Americans. His confidence was well-placed. Within two years, eBay was restructuring in China and Taobao had become the mainland's undisputed champion—though to maintain his market share Ma had to offer free listings to sellers, eliminating any profits.

Today, as China recovers and Ma weaves a global network, he predicts Alibaba will soon challenge eBay and Amazon.com (AMZN) for the top spot in e-commerce around the world. "We will definitely be there," he says. "This is just the beginning."

With Esmé E. Deprez in New York, Mehul Srivastava in New Delhi, and Manuel Baigorri in Hong Kong

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