How did China's Alibaba defeat rival eBay? With the Six Vein Spirit Sword and kung fu

Beijing/Hong Kong: When Jack Ma and his colleagues sat down in 2001 to lay out Alibaba’s defining values, they named them after a martial arts technique drawn from Ma’s love of kung fu novels and their heroic themes.

But the corporate culture of China’s biggest e-commerce company also draws heavily from Western values in a mix of East and West that Ma dubbed ‘Hupan culture’ after the apartment block in Hangzhou where he set up his business.

These core values, now named the ‘Six Vein Spirit Sword’ - customer first, teamwork, embrace change, integrity, passion and commitment - shaped Alibaba Group Holding, which began as an online bulletin board for companies in Ma’s Hupan Huayuan apartment complex in eastern China.

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Alibaba’s aspirations helped it grow from just 18 employees to more than 20,000 today. Along the way, it knocked eBay Inc out of China and is now preparing for a U.S. stock listing that could be the biggest tech IPO to date.

But its romanticism - and even cultishness - has sometimes sidelined the business reality, almost bankrupting Alibaba in its early years and more recently denying Ma his preferred Hong Kong stock listing.

“Alibaba is not like a Chinese company, it’s a blend of the good parts of East and West,” said Andrew Teoh, a former Alibaba executive and founder and managing partner at Ameba Capital. “It’s grown huge, but they maintain a start-up culture. Alibaba is a flat structure, bureaucracy is a pet hate there.”

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Crucial to this was Savio Kwan, a former General Electric executive, who lifted from the U.S. conglomerate’s playbook to introduce a reward system that was new to China at the time. Half an employee’s annual appraisal was to be based on their performance. The other half depended on how well they embodied Alibaba’s core ‘kung fu’ values.

“We wanted to make sure that even in a company of 10,000 people it had this Hupan culture, a start-up culture,” said Porter Erisman, a former vice president at Alibaba and director of “Crocodile in the Yangtze”, a documentary on Alibaba’s first decade. “We didn’t want to lose the sense of innovation and teamwork, so those were the systems Savio helped introduce.”

Kwan, who joined Alibaba as chief operating officer in 2001 and left the company in 2012, did not respond to e-mail and phone requests for comment.

REBELS AND RELIGION

From day one, Alibaba lacked nothing in ambition.

“Our core mission was, and is still, to make it easy to do business anywhere,” Joe Tsai, Alibaba’s executive vice chair, told Reuters in March. “The mission … is our religion.”

Armed with that quasi-religious fervour, Alibaba grew from a simple business-to-business website hooking up overseas companies with their Chinese suppliers.

“Savio came and said he would change us from a rough bunch of rebels into a regular army,” recalls Li Zhiguo, a former Alibaba employee and now CEO of accounting site Wacai.com.

By 2003, Alibaba began work on its first major departure from business-to-business e-commerce. Ma summoned a small group of employees, giving them the option to carry on with their normal work or sign a document and begin a secret project, said Shou Yuan, a former employee who took that second option.

The group gathered in the original Alibaba apartment to create Taobao, the consumer-to-consumer e-commerce site that was launched in 2003 and faced off against eBay, which that year bought rival Chinese site EachNet for $180 million.

At 4 p.m. every day, the Taobao project group would break from work to swim, do handstands and play video games. “We were just a group of country bumpkins, and our competitor was eBay,” Shou recalled.

By 2006, eBay effectively conceded defeat, shutting down its EachNet site. Today, Alibaba dwarfs its U.S. rival, with the Chinese group’s estimated value of around $150 billion more than double that of eBay, and the goods traded over its sites are worth more than eBay’s and Amazon.com Inc’s combined.

Driven by Ma’s force of personality, Alibaba was able to tilt at windmills, said Duncan Clark, managing director of Beijing-based tech advisory BDA and a former consultant for Alibaba. “He likes to win. They’re the company that humbled eBay in China.”

PUTTING THE CULT IN CULTURE

Alibaba goes a long way to embracing its employees.

Days after the company filed for its U.S. IPO last month, Ma presided over the company’s ninth corporate mass wedding, blessing 102 couples who performed “wedding rituals of ancient times” clad in traditional scarlet and black robes from a 2,000 year-old Chinese dynasty, state media reported.

The company’s annual ‘Alifest’ is now a stadium-sized event, packed with tens of thousands of employees, families and friends, where workers sing, dance and perform skits. In one act, Ma sported a red and black leather punk rock costume with a long bleached white wig and oversized mohawk to serenade Joe Tsai, Alibaba’s financial mastermind.

Workers sometimes become known by their stage names. One employee was called ‘cunzhang’, or ‘village chief’, after he performed sketches as the bumbling head of a rural village.

All of which has prompted some, including those close to the company, to say it’s ‘cultish’.

“I really loved Alibaba, but others weren’t able to make sense of it, they didn’t know if I was mad,” said Shou, one of the Taobao creators.

CLOSE TO THE EDGE

Yet Alibaba’s romanticized notion of itself and its aspirations have sometimes worked against it.

From 2000 to 2001, Alibaba’s confidence had seen it expand too rapidly. Having almost burned through its money just after the dotcom bubble burst, the company was close to bankruptcy. Senior managers targeted potential investors, pitching a vision of a global network of small- and medium-sized enterprises doing business - with Alibaba as the middle-man.

“More than a handful of Silicon Valley venture capital firms turned down Alibaba for investment,” said David Chao, co-founder and general partner of venture capital firm DCM. “The whole industry went through a nuclear winter after the Internet bubble popped. It was a period where people were just not betting on models that weren’t making money or companies that didn’t have a clear business model.”

Alibaba was forced to strip down its business, getting rid of international staff and focusing on building a core market in China - a strategy it dubbed ‘Back 2 China’ or ‘B2C’.

More recently, Alibaba’s emphasis on its values has trumped more practical goals. The company was denied entry on to the Hong Kong Stock Exchange after Ma refused to budge on Alibaba’s controversial partnership structure that would see an unelected group of 28 people nominate board members. Hong Kong authorities insisted this violated its one-share-one-vote policy, and kept its doors closed to an IPO.

Alibaba’s weighty U.S. listing prospectus mentioned the company’s culture and values more than 30 times.

“If we are not able to maintain our culture, or if our culture fails to deliver the long-term results we expect to achieve, our business, financial condition, results of operations and prospects could be materially and adversely affected,” it said.

Reuters