Why Does Alibaba Split Into 6 Units?

Introduction

On March 28, 2023, Alibaba's Chairman and CEO, Daniel Zhang, announced the most significant organizational restructuring in the company's 24-year history. This restructuring involves the establishment of a "1+6+N" organizational structure, creating six major business groups and several subsidiary companies under the Alibaba Group umbrella. This move aims to enhance agility, shorten decision-making processes, and allow the company to respond more quickly to market changes, ultimately unlocking the full potential value of Alibaba's various businesses.

Alibaba Company History Brief Introduction

Alibaba Group is a Chinese company, established in 1999 by Jack Ma, has evolved from an alibaba e-commerce platform into a global technology conglomerate, offering a wide range of services, including e-commerce, cloud computing, digital entertainment, and more. Over the years, Alibaba has expanded its presence both domestically and internationally, becoming one of the world's leading technology companies.

Reasons That Alibaba Split Into 6 Units

Why does Alibaba split into 6 Units? Under the new organizational structure, Alibaba Group will establish six major business groups, each led by a CEO who will be responsible for independent operations and decision-making. The six business groups are:

1. Alibaba Cloud Intelligence Group (including cloud computing, artificial intelligence, DingTalk, etc.), with Chairman and CEO Zhang Yong serving as CEO.
2. Taobao Tmall Business Group (including Taobao, Tmall, Taoxi, Taocai Cai, https://1688.com, etc.), with Dai Shan as CEO.
3. Local Services Group (including Gaode Maps, Ele.me, etc.), with Yu Yongfu as CEO.
4. International Digital Commerce Group (including Lazada, AliExpress, (What is Aliexpress?) Trendyol, Daraz, Alibaba.com., etc.), with Jiang Fan as CEO.
5. Cainiao Network, with Wan Lin as CEO.
6. Alibaba Digital Media and Entertainment Group (including Youku, Alibaba Pictures, etc.), with Fan Luyuan as CEO.

Each business group will operate independently, with its own governance structure, allowing them to better adapt to market dynamics and innovate.

About the 6 Units of Alibaba IPO

Notably, except for the Taobao Tmall Business Group, which will remain wholly owned by Alibaba Group, each business group will have the potential to seek independent financing and pursue separate listings. This move towards full independence is expected to facilitate better valuation of each business unit and provide opportunities for innovation and growth. Alibaba's various business units, including Alibaba Cloud, Cainiao, and others, have already achieved significant market prominence and success in their respective fields.

Currently, several of Alibaba's businesses, such as Alibaba Cloud and Cainiao, are market leaders. According to Alibaba Group's announcement, Alibaba Cloud has already become the third-largest global and the largest in the Asia-Pacific region in terms of cloud computing services. Cainiao's globalization of the industrial internet is accelerating, with core capabilities such as international express delivery, warehousing and distribution, and logistics continuously strengthening. During last year's Chinese 11.11 shopping festival, Cainiao reached a peak daily parcel processing volume exceeding 18 million.

Four Benefits of Alibaba Splitting Into 6 Companies

The restructuring of Alibaba Group offers several advantages:

1. Faster Profit Turnover: With each business group operating independently, non-China business units may achieve faster profit turnover.
2. Lower Headquarters Costs: Streamlining backend operations and reducing overhead costs at the headquarters level.
3. Value Appreciation: Different parts of Alibaba's business may see increased value appreciation, particularly its independent China business and Alibaba Cloud.
4. Employee Stock Ownership Plan (ESOP) Implementation: If applied at the subsidiary level, ESOP could lead to lower dilution of employee ownership of Alibaba stock.

Conclusion

Alibaba's decision to restructure its organization reflects a strategic shift aimed at enhancing operational efficiency, fostering innovation, and maximizing shareholder value. By empowering each business group with greater autonomy and accountability, Alibaba is positioning itself for continued success and growth in an increasingly competitive global market landscape.