Alibaba is making aggressive moves to expand Alipay in Southeast Asia, expecting the payment platform that took the Chinese ecommerce from the dark ages into the biggest ecommerce market in the world to sweep through the region similarly. We fully agree, and think his Lazada acquisition and the follow up planned 20% investment into Ascend Money are cunning moves to bring the trojan horse — Ant Finance (the parent group of Alipay) — into the ASEAN region. Yet despite many similarities, ecommerce in Southeast Asia is ultimately very different from China, especially when it comes to the adoption of a unifying payment system.
Cultural Revolution destroyed trust in China
Speaking at the recent Honour International Symposium 2016 in Singapore, Ma shares why Chinese culture, despite being one that traditionally valued trust and integrity, now lacks a system that enforces it. Some also argue that traditional Confucian values of trust were destroyed during the Cultural Revolution years. As a result, Alipay, a third-party escrow-based payment system similar to PayPal, was required to fill the trust gap and accelerate China’s ecommerce away from cash-on-delivery towards one that is seeing 68% of transactions from Alipay today.
But values are different in Southeast Asia
Contrast that with Southeast Asia, where for example in Thailand an estimated 33% of ecommerce gross merchandise value (GMV) is already going through small merchants on Facebook, Instagram, and Line. The transactions happening on these platforms are mainly done through the rudimentary bank transfer, with the user sending the money first and then the merchant shipping the goods after receiving the funds. Here, the essence of trust already established and critical to its continued growth and functionality.
This would be unlikely in Jack Ma’s world as he painfully reminisces why he had to built Alipay in China in the first place. Perhaps in a place like Thailand that never went through a Cultural Revolution and as a result was able to preserve traditional Confucian and Buddhist influences, Alipay may have to localize its product as people may not be that starved for an escrow service.
To watch the video of Jack Ma, a great visionary, and one that’s becoming increasingly influential in Southeast Asian ecommerce, see below. We have also transcribed the entire video below.
Note: errors and omissions may be due to translation.
It is a special honor to be invited to the symposium. However, due to work conflicts, I regret that I cannot attend and partake in the insightful discussions. However, I have a special interest in today’s topic and have many thoughts to share and discuss as well as to learn from you all. In this regard I would like to pay special thanks to the symposium organizers for allowing me the opportunity to show my video.
At first, I questioned both my English and Chinese language abilities as I could not precisely translate “honor” to Chinese. In the end, I was relieved when I learned many of you also had trouble translating the meaning of this word into Chinese. In fact, when you carefully consider the meaning of “honor” and the principles it embodies it has been ingrained in Chinese people for thousands of years and has also been deeply embedded in the “bones” of Chinese people around the world.
Chinese have long understood that in order to do things completely you must complete certain tasks first. As a first step, China took to thoroughly considering and understanding the meaning of compassion, justice, courtesy and wisdom before realizing the past two thousand years of glory, politics, culture, art, and economics. Each of these areas have been great achievements for China.
Over the past 800 years the rise in China’s GDP ranked first in the world. “The Analects of Confucius” is only 11,000 characters long, only taking the space of one page of a newspaper today, but this important literary work has influenced and guided China for 2,000 years. Similarly, today’s symposium represents a topic of equal importance because the next 2,000 years of human development also needs our influence and guidance.
I believe that Singapore has set an example for the Chinese-speaking world and I fully agree with the beliefs of the Singapore government.
This includes the level of development that it has achieved today and its international status but the most important factor is its steadfast commitment to “honor” and everything that it includes: respect, righteousness, integrity, responsibility, etc.
When I first started doing business, I asked my wife if she would rather have a husband that is rich or one that has values and is well respected? She replied, of course have values and be respected. Because at that time, most people did not believe I could make money.
…most people did not believe I could make money.”
In the past, I did not look highly on businessmen. Furthermore, I believed the societal value created by businessmen was very limited. However, after I had my own business, I realized that if you want to last long and be successful your daily considerations and analyses should have nothing to do with money. Decisions that are made related to money are not strategic. Instead, the decisions that aren’t made based on profit and instead made based on values are actually the truly strategic ones. Hence, I have always believed that a good finance director would not make a good chairman because a good finance director is always thinking about money. People that have money fully occupying their mind have difficulties in doing good things and have difficulty in being good friends.
I realized that if you want to last long and be successful your daily considerations and analyses should have nothing to do with money.
When Alibaba was founded, we were in a very difficult situation. We had nothing. Nobody believed in what we did. Everyone said we were crazy people or cheaters but what actually allowed us to survive? Was it money? In fact, we had no money. Was it resources? We had no resources. Was it human talent? In fact, our human talent all ran away when they saw our situation. In fact, what we had were our values. Our values included: customers first, team spirit, and integrity. And when you look at these areas they appear empty and worthless. When Alibaba first started, we were really poor. But we believed in the future development of the internet. We had a dream of creating a future. We had our own values for doing business.
We started out by helping Chinese foreign trade companies with their overseas orders, charging them annual fees. But after a year had passed, these companies’ transaction value did not even exceed their annual fees to us. Our staff felt heart broken and felt like they let their clients down. During the end of year’s visit, our staff spoke to them with honesty: Ecommerce will have a great future but results may not be instant. Perhaps you can get a refund and not sign up next year.’ What resulted instead was that our clients encouraged our young employees. “It takes time and training for foreign clients to migrate online. Your considerations of our business have earned our belief and trust.” There have been many similar companies and even from over ten years ago until now they remain Alibaba’s clients.
After ten plus years of building businesses, my most profound thought is that, as a businessman, the most important decision to determine a company’s destiny has nothing to do with money. Many people have asked me, “Jack why are you so capable Jack?” I said, in fact I’m not very capable, it’s just that we are lucky. Other people have said, “Jack, you are so lucky and succeed every time.” I don’t feel like this is the case. In fact, our success was due to right choices we made. Alibaba has grown to this point today because we made a few critical choices.
..my most profound thought is that, as a businessman, the most important decision to determine a company’s destiny has nothing to do with money.
The first case was in 2002 when the internet bubble burst, Alibaba had to survive. During that time the company was in a difficult situation but we set a goal of making $1 profit. At that time if we didn’t make any profit we would die and the most painful issue was in order to win website design business we had to offer bribes. So we held an all day meeting in Hangzhou. We understood that if we offered bribes we could survive but if we didn’t our company would likely die. I remember that day we met until 4pm and finally decided we would never offer bribes. We would rather close down the company. We would not operate without integrity. We would rather together find new jobs and continue to maintain integrity.
In 2002, because we maintained our integrity, we started to make a profit. After we started to make profit we discovered during our end of year review that two employees accounted for over 60% of the entire group’s sales. And we discovered these two employees were giving kickbacks, commissions, and bribes. So what should we do? If we fire them immediately, the company will not have profit. If we do not kick these two employees out then what does this say about us? It would imply that our words are empty so in the end we decided to let these two employees go. “Do not bribe”, this rule is written into Alibaba’s employee code of conduct. Employees that violate this rule are immediately expelled.
After Alibaba became a large company, bribes started to flow the other way around. We set new rules that forbid employees to take bribes. We have billions worth of procurement contracts every year. In our contracts we include this sentence: “Thank you for doing business with us. We hope that in our future business interactions our employees cannot ask for bribes and you will not offer us bribes. If we discover any such related problems, our group will never do business with you.” This is written in our contracts.
Today, Alibaba employees are well respected in the community. This isn’t because our business has grown large but rather the result of the many codes of conduct our employees follow. In many places, our employees are warmly welcomed. But our employees are not allowed to accept free car rides or meals. Small gifts, even a piece of candy is sent back. Otherwise the employee’s value score will be very low, and even be subject to penalties.
There was one time when I sat in a salesperson training session. The training instructor was speaking about how to sell hair combs to monks. After listening for five minutes, I got extremely angry and expelled the instructor. I thought the instructor was a cheater because monks do not need combs in the first place. So to sell a product to a client that doesn’t need it is deceptive and not skill-based sales. This practice was a significant challenge to our values.
Enter Alipay in China
The second choice we made at Alibaba was Alipay. As soon as we launched Taobao it quickly became very popular. However, many users communicated online without transactions actually occurring due to the lack of trust between strangers.
People were not willing to provide payment in advance and no one was willing to ship merchandise first. Our biggest problem was to solve this transaction problem.
That year I participated in the World Economic Forum meetings in Davos with the intent to find a solution to this problem. Instead, I discovered that all the businessmen were discussing corporate social responsibility. During my time at Davos, I suddenly realized that if we wanted to develop e-commerce in China, we needed to do something that had true value, something that would promote societal development. Without it we will never succeed. To do something like this requires tremendous responsibility. Without it, we will not be able to get anything done.
The lack of development in China’s eccommerce was due to one missing piece—a mechanism that could facilitate trust between people.
I believe that Alipay is the mechanism that can fulfill this gap. That same night at Davos, I called my friends and colleagues. I said, “Immediately, right now. Let’s create this product, let’s launch Alipay.” I understand the regulatory risks associated with creating Alipay in China, and if someone needs to go to jail for this product, I will go.
China is a country that has valued credibility and integrity. Confucius has said, “every day, I self-reflect on three issues.” During ancient times people self-reflected on three issues a day, two of these three issues are related to sincerity and honesty: did I try my best in helping others and did I keep my word when engaging with friends. Chinese value credibility but lacks a system of trust. If Alipay wants to have value in China it must establish a trust system.
Today, Alibaba has built a trust system in China: users provide reviews, Alipay facilities transactions, and all the actions taken on our platform is data which helps inform credibility and credit ratings.
Only with this system, would it be possible for users to send strangers money and merchandise solely based on a picture and a few sentences posted online.
Today, we have millions of daily visitors on our site. Sometimes an order can represent a diamond worth several hundred thousands or a car worth millions. A few days ago, we sold 100 Mercedes-Benz in only 25 seconds. As a result, without this trust system, these transactions would be nearly impossible. What makes us most proud today is not how many products we sold but rather the trust system Alibaba has built. We proved to everyone in a commercial manner how much trust is worth. We built a system of trust. We are also a beneficiary of the system. This system provides the foundation for Alibaba to achieve $500 billion in sales during our fiscal year. The power of honor is tremendous.
If the past 30 years of China’s development relied on its advantage in population size and the relatively low price of labor. Then in the coming years China should not look to rely on having cheaper products but instead rely on the trust or honor between people. If there is a significant human potential that has not been realized I believe mutual trust and credibility is the biggest undiscovered fortune. Only when we pay attention and care about “honor” will we “honor” ourselves. I believe it is only then that we can earn other people’s “honor.”
Many thanks to the symposium organizers for inviting me, and I am very sorry that I was not able to be here personally for the meetings. Congratulations to everyone here. Thank you all!