Chinese internet giants restructuring business as challenges grow
Published: Dec 06, 2021 07:03 PM
Alibaba's headquarters in Hangzhou, East China's Zhejiang Province Photo: cnsphoto

Alibaba's headquarters in Hangzhou, East China's Zhejiang Province Photo: cnsphoto

Alibaba Group announced a "bold" management restructuring that includes reshuffles of the firm's CFO and commerce department heads on Monday, the latest internal adjustment by the e-commerce giant amid Chinese regulators' stricter supervision moves and an increasingly competitive domestic internet landscape.

The Chinese internet giant will create two digital commerce groups, one focused on the international market development to be led by Jiang Fan, and the other targeting the domestic market led by Trudy Dai, according to an internal letter written by CEO Zhang Yong.

Long-serving executive Maggie Wu will step down as CFO from March 31 next year, succeeded by Toby Xu. Wu, who's been working at the firm for 15 years, will remain part of the Alibaba Partnership and serve as an executive director on Alibaba's board.

CEO Zhang Yong stated in the letter that the purpose of upgrading the company's governance structure is to face the future challenge with a clearer strategic blueprint and a more agile organization across a number of business fields, so as to "create long-term value." 

The e-commerce giant, which was fined a record of $2.75 billion by Chinese regulators for monopolistic behavior in April 2021, has been keeping a low profile which even extended to the firm's China's Double 11 shopping festival, the world's largest shopping carnival and Alibaba's flagship annual promotional event.

"The reshuffle across its digital commerce teams sends a clear signal that the e-commerce giant will move to focus on international market development, amid rising antitrust pressure, a constant slump of company share prices and a more competitive domestic market," Ma Jihua, a close follower of Alibaba, told the Global Times on Monday.

The firm is pivoting to seek out new opportunities overseas rather than competing in the same lane against fellow domestic giants, which is a move in line with the central government's strategic agenda, Ma said.

Overseas market development

Alibaba is apparently not alone. Industry players noted more internet giants in China are pursuing new growth areas, centering on new technology and new tracks such as cloud computing and AI as the domestic market becomes increasingly saturated. 

Tencent's Ma Huateng said at the company's Q3 earnings call that Tencent will focus on business line like cloud, maps, and various businesses in the Cloud & Smart Industries Business Group (CSIG). He also emphasized the importance of recruiting talent in online gaming business, and said that he plans to ramp up investment in online games. 

For Baidu, the focus is on cloud services, intelligent driving, and artificial intelligence-related business lines. Baidu executives mentioned that they have been promoting App Light this year to attract broad users outside the first-tier cities.

Apart from increased investment in new fields, some internet platforms are trimming their employees, adjusting benefits, and reducing non-core business budgets, to cut down expenditure in preparing for what observers are calling a coming "cold winter." 

Winter for Internet firms

In the next three to five years, internet giants will not "live large," as they face more difficulties to expand, a person close to a leading domestic internet giant, told the Global Times on Monday.

An employee at Chinese streaming firm iQiyi who spoke on condition of anonymity said that the layoffs were mainly in business groups that were invested heavily but had yet to deliver results, such as the short video sector. Cash-burning units like marketing and event departments have also seen layoffs.

Starting from late November, the employee noticed fewer cleaners working at the company's Beijing office building - a signal of employee downsizing. "Trash bins beside our desks were replaced with large ones sitting at fixed locations," she told the Global Times on Sunday. 

Some speculated that the policy might also be linked to new recycling rules implemented by the local government. 

Tougher supervision of online platforms, and the regulators' targeted crackdown on "fan circle" culture dealt double blows on iQiyi, which produced phenomenal talent shows and had enjoyed several years of buoyant revenue. 

"It's like cutting off one of our legs," the employee noted. 

An insider at TikTok, which has been maintaining a strong growth overseas, also confirmed with the Global Times on Monday that the firm is moving ahead with structural adjustments. 

The person, who didn't want to be named, said redundancies in its education and real-estate business lines had been ongoing for some time. 

"So long video is not a quick-cash business compared with short video, going overseas will be crucial for iQiyi after our domestic subscribers have hit 100 million. Southeast Asia will be a vital market, because of the similarities in cultures and geographical proximity," the iQiyi employee said. 

TV series produced by iQiyi are now gaining rising popularity in Southeast Asia, particularly in Thailand and Vietnam. 

Reduced cost and growing efficiency look set to become mainstream trend for internet firms in the coming years, industry observers said. 

With industry giants set to double down on developing core businesses and scale back cash-burning business, the platforms are likely to push forward with overseas expansion and extending their domestic reach into China's smaller cities and towns.

Nevertheless, a slowdown in the internet market would also be an opportunity for the whole industry to learn to live within their means, depart from previous unchecked growth, and create real values for the users, they noted.