Edgar Anaya BUAD 501

February 24, 2017

Case Study: Alibaba Goes Public

I. Strategic Issues and Problem

The issues concerning Alibaba’s current and future success are outside influences and company
image. Some examples of outside influences are government regulation and the health of the
global stock market. The company’s image can be hurt by investor’s fears of the company’s
corporate governance and the existence of counterfeit merchandise sold through Alibaba.

II. Analysis & Evaluation

Alibaba’s short-term goal is to improve net profit by 20% within five years. The possible
conflicts of interest of Alibaba’s 28 partners, who collectively own more than 10% of Alibaba,
and the uncertainty of ownerships rights have caused doubt in investor’s minds. Accordingly,
Alibaba’s long-term goal is to improve public image and investor trust. By allocating enough
resources towards government regulation, Alibaba will continue to progress into a trustworthy
and established brand.

III. Alternatives
One solution is to decrease the threat of government interference. Presently, ownership interests
lie in China. The Chinese government at any time may choose not to honor the ownership rights
of foreign investors. If this does occur, Alibaba’s stock may fall drastically and Chinese
companies may also lose investor trust. In order to gain investor trust, strategic government
regulation, ensuring the rights of foreign investors is necessary. This plan will improve
Alibaba’s permanence, allowing the company to remain a profitable marketplace for generations.
Although this plan provides the most benefits, the likelihood of success of this plan is uncertain.
Government reform could be extremely lengthy and costly.

Another alternative solution is to change the order of the company’s corporate governance
structure. Currently, investors are fearful of the intentions of the board since the majority is
made up five of Alibaba’s 28 partners. By changing its corporate governance into a more
investor friendly structure, Alibaba may raise more capital through common stock. An increase
in stock price will provide Alibaba with more financial flexibility and security. Unfortunately,
no guarantee exists that investor fears will be relieved by this corporate governance change. The
stock market is also highly volatile.

IV. Action plan (recommendation & Implementation)

Firstly, changing the order of the company’s corporate governance is priority. This plan is low
cost, low risk, and easy to implement. The next step in the process is to establish a government
lobbying committee. Alibaba can then collaborate with the Chinese government and ideally
reach a compromise that favors both parties within the next ten years. This should result in a
positive public response from investors and propel Alibaba’s stock price to greater heights.