Alibaba Group Holding Ltd., China’s online commerce giant, announced a major restructuring plan on Tuesday that will break its $220 billion empire into six units. The units will explore IPOs and independently raise funds, freeing up Alibaba’s main divisions from e-commerce and media to the cloud to operate with far more autonomy. This marks the most significant overhaul for the company since its establishment more than two decades ago.
The move toward a holding company structure is unusual for major Chinese tech firms and could present a template for Alibaba’s peers. Decentralizing the company’s business lines and decision-making power addresses one of Beijing’s primary goals during its sweeping crackdown on the technology sector. The government had criticized the influence of online platforms, particularly those of Alibaba and Tencent Holdings Ltd.
This new restructuring approach will likely receive support from government regulators, who have been concerned that concentrated power in tech has been suppressing innovation. Alibaba and Tencent invested in hundreds of startups over the years, often helping to craft strategy as they grew. Marvin Chen, an analyst with Bloomberg Intelligence, said, “It is one step in the direction with China’s policy to reduce the monopolistic nature of the tech giants.”
Alibaba’s shares climbed 8% in pre-market trading in New York following the announcement. The restructuring is a strong signal that Alibaba is ready to tap investors and public markets after the Xi Jinping administration’s clampdown on internet spheres wiped out more than $500 billion of its value.
The new structure divides the company into six separate divisions, each with their own specific function. Group Chief Executive Officer Daniel Zhang will head up the cloud intelligence division, while international commerce chief Jiang Fan will head up the global digital business unit. Longtime executive Trudy Dai will take charge of the main Taobao Tmall online shopping division. Other divisions include local services such as meal delivery, the Cainiao logistics group, and digital media and entertainment.
Alibaba has had previous success with spinoffs, having hived off Alipay in 2010, which led to the creation of Ant Group Co. The fintech affiliate controlled by Jack Ma was on the verge of pulling off the world’s largest IPO before Beijing pulled the plug. The company has said it would consider a second run at the market.
Despite the creation of a half-dozen business lines, Alibaba reaffirmed its pledge to cost-cutting on Tuesday to shore up the bottom line. This is a conservative shift for a tech conglomerate that once spent aggressively to dominate swaths of the economy, reflecting the dissipation of growth since Xi’s crackdown in 2020.
China has cracked down on the country’s tech giants over the last two years, forcing fundamental changes in the business models of companies such as Alibaba. The e-commerce pioneer is also navigating increasingly tough competition from arch-rival JD.com Inc. as well as up-and-comers such as PDD Holdings Inc. and ByteDance Ltd.
Gary Dugan, chief executive officer at the Global CIO Office, stated, “The innovative plan to split up its businesses, we assume has had some kind of blessing from the authorities. In which case, it will be seen as an elegant solution for unlocking the value inside the business.”
Alibaba’s announcement coincided with the return of its billionaire co-founder Jack Ma to China after more than a year abroad. The restructuring represents a departure from the internet company’s traditional preference for keeping most of its operations under one roof, running everything from supermarkets to data centers under the main Alibaba umbrella. It will serve as a blueprint for the industry going forward.
