Alibaba's Joe Tsai | Full interview | Code 2018

so Joe thought that a good way to avoid hard questions today would be by wearing a Yale lacrosse shirt and making me about it so okay Joe why are you wearing a yellow crusher because you just won the national championship in lacrosse on Monday okay okay and by the way I was wearing this shirt on Saturday during the semi-finals so I haven't washed it yet oh so okay we're getting spicy I thought you were gonna say it's something with the Under Armour logo and okay so we're gonna start with the really fun stuff which is policy but there's just you know obviously there's a ton in the news with the scorin administration and trade relations with China on again off again trade war most recent announcement around 25% tariffs proposed on fifty billion dollars worth of goods coming out of China I'm cute you know there's still a lot not to be decided that hasn't been decided but you're watching this and I'm sure you're thinking or I'm thinking how is this affect potentially affect your business globally can you give us a little insight into that well I think we already got a little bit of a preview when the when Trump was on on the campaign trail he talked about being unpredictable so we're seeing a lot of the song again off again unpredictability you know a week ago they they came out after the summit meeting to say that the tray wars is on hold but now there's a terrace on fifteen billion dollar of goods I think we are in a way we kind of predicted the unpredictability there's always going to be volatility but what we're focused on is in the long term and when one thing that alibaba's business here what we're trying to do in the united states is to get small businesses and farmers to see how big of a market there is in China China right now has over 300 million middle-class consumers and we're in the process of upgrading the economy so that the economy is going export-driven - consumption-driven your average consumer now is is cares about buying better food healthier products and things like that so they're looking to outside of China to bring in more imports and that's a great huge opportunity for for the producers or around the world including farmers including small businesses in the United States and that's what we're focused on so that so that's been the company's messaging since since your IPO in New York so we've been consistent you could yes you could call it that and and I'm wondering how much of that is a business decision versus a recognition of perhaps the challenge the challenge to do business in the u.s. in a big way if you work to try to do it whether it be big M&A activity in the US and I should have pointed out earlier you run it you run M&A globally for Alibaba and there's a lot of that which we'll get to right but how much of it is that is decision on well we might not be able to get the deals we want to get done in the US so this is our this is our strategy well the the thing is four years ago when we went public there was no trade war there's not even the threat of trade network and we talked about helping small business helping American companies to sell into China so that that's been very very consistent and that's pretty much driven by by business if you look at our mission to make it easy to do business anywhere implied in that mission is we want to help small businesses that's how Alibaba was found that we were founded as a marketplace for small businesses to actually for Chinese companies to sell overseas so that's pretty much in very much in our DNA to help the small business so the the opportunity today is that there are a lot of consumers in China we're basically a consumer facing company over 500 million active consumers on our platform buying things but most of those consumers are inside China so the trade 99 percent of revenue or more than more than 90% of the revenue is coming from China so the trade flow is coming is going from from the US where what you know if you sitting in China you're importing stuff into China from all over the world including in the United States and that's always been our business model so the the you know on-again off-again speculation that you see sometimes in the press of a big move by Alibaba in the US M&A wise is we're not gonna see that that well we have not tried to do a big M&A transaction in the United States we're making investments we're trying to partner with entrepreneurs here and invest in in minority equity stakes in companies here we're looking for innovative people we're looking for people that are highly entrepreneurial we're looking for people who are want our help in expanding their markets into China Connor so so you're you're looking for strategic fits versus our versus simply an ROI situation absolutely we never make I mean I'm responsible for M&A of our company and I just want to reiterate we will never make a investment or acquisition purely for EPS or you know by our our financial reasons it's always with a very strong strategic lens that we look at these things okay I know one more related topic and I know you weren't here this morning when Senator Mark Warner was here but he stands on the other side of the aisle from the Trump administration and he had some strong comments about a big Chinese Internet companies Ali Baba named talked about them being deeply penetrated by the Communist Party in China this is I'm sure not the first time you've heard comments like that from a u.s. politician what you know what do you what do you think when you hear that and is there are nuance there the senator is missing well I'm sure in a lot of American companies there are Republicans their employees would belong to the Republican Party right yeah so China happens have a single party system that's a difference in the political system but there's nothing the Communist Party per se is is not a it seems like a dirty word here but in China that's the form of government what's happening right now is you know over the last thirty years China has been a manufacturing country but it's focused on a lot of the manufacturing is low-end Apparel's they're we're assembling iphones and making $20 per phone while apple with all the IP and the technology makes 600 dollars of profits on an iPhone right so there's a there's a recognition by the government of China that we need to upgrade our technology we need to upgrade our manufacturing sector focus more on higher value on manufacturing things like robotics Aeronautics high-tech medical equipment and that's part of the China 2025 manufacturing plan there's nothing wrong with a country wanting to upgrade its own manufacturing sector go more go higher tech be more innovative but then from the Chinese perspective what we're seeing is there are a lot of people in America that want to stop China from doing that so that's that's kind of unfathomable what you know we're wondering why that's the case and I think senator Warner's in that camp they want to hold China back I still don't understand it I tend disagree with his characterization of Chinese companies what is the bound so one of the senior most leaders of the company what is the balance your striking between what you talked about what what the Chinese government wants to see and what the balance your striking between that what the Chinese government wants to see and what's you know and what's good for Alibaba and Alibaba shareholders my assumption is they don't always align well I think we work for our customers Jack Ma has always said if you have to rang our constituencies by priority you start with our customers first employee second and shareholders third okay it's because if you're pushed right you have to choose among the three you always want to serve your customers otherwise you wouldn't have a business and then you need to have the talent the employee resources to be able to enable you to serve those customers if those first two things work out then the shareholders will be taken care of so we never think about of ourselves as only serving our shareholders we have a lot of constituencies government is important because they regulate us they're they create the environment in which we operate so we have to have good relationship with the government and I think it's no different from a company in the United States where you know every company here has has a government relations department or a regulatory department that deals with data the day-to-day interaction with the government sometimes regulation may not be totally consistent with making profits but that's fine because there are constraint they should be constraints on making profits if you're destroying social value so I think you know I don't see China being any anything anywhere different from the United States okay we're in shift gears for a second I've been in the u.s. one in retail one of the biggest news items of the last year was Amazon's acquisition of Whole Foods the idea of a digital first company buying a big physical retailer is a very new idea here Alibaba has been at this in their own way for several years now want you to just quickly walk through what what is the innovation you think you all have created with the met with the convergence of digital and off and off on I know you have grocery stores call it humma and which are part offline part digital can you just quickly lay out what what you're seeing there that we're not seeing here in the US sure I think what's different is the consumer the consumer is very very mobile in in China we have more than 80% of our transactions that's being done on a mobile phone okay so when you have a mobile device the distinction between online and offline is is kind of blurred because you could you could sit at home and order something online and have it delivered to you on a mobile device or you can carry your phone and walk into a store and use that phone as a device to learn more about the product and also pay for the item so that's that's really the insight we have when we talk about new retail the cold consumer experience has been transformed because of the mobile phone and we want the the same customer to be able to you know walk into a store buy something take take it away and then the next week they're on the phone they're sitting at home or their office and they don't want to go into the store but then they can order and have something delivered to them and and one of the most important things about having store based operation for an e-commerce company is that those those store locations are also fulfillment spots I mean it's not a secret to you know say that if the inventory is closer to the consumer the logistics that delivery is faster so it's very very important I think in that you know you take think about the Amazon scenario there's over 400 stores Whole Foods stores if people are ordering groceries online if they could fulfill and deliver from those hopeful stores that's that's a much faster proposition in our case in the OMA case we can deliver items within 30 minutes in fact that's our core value proposition that's our promise to the consumer and this is someone this is someone not coming into the store having delivered from it's coming or coming into the store and then having picking out and having delivered to them it's not coming to the store just simply you're sitting at home or you're in your office and you could you could schedule it and say I want this item to be delivered to my home because I'm cooking dinner at 6 o'clock but right now I'm in my office so there's there's a lot of flexibility and we want to give the consumers a total experience whether they are online or in-store and the economics on a business like that you know delivery in the US you know for a lot of companies it's very challenging I think even think even Amazon and their prime now you know one hour two hour they won't talk about the numbers but I think you know it's clear it's a challenge challenging to make those numbers stand upright or these business are these delivery businesses profitable already how did the economics work out yeah are we are profitable our grocery stores if you combine the online and offline PL they're they're profitable so including the delivery it's it could be run on a profitable basis the reason its profitable is number one that has scale and with scale you can actually map out delivery route routes in a much more efficient way if you if the store only gets you know 15 orders a day then their each trip is and if you only deliver to one customer on each trip that's pretty costly but if the store gets like 1500 or 5,000 orders a day online then there's a lot of room to map how your delivery routes so so the same guy that's making the delivery is serving five to ten customers and that's where that's where technology and the data about mapping out the routes makes a lot of sense so that we can make that a much more efficient operation than the one-off type delivery situation how tempting is it to what you know if you feel your head in a space and this is just one example how tempting is it to license that technology or export that excellence in a certain category whether it's a much another mature mature market like the US or in emerging market yeah it absolutely I think the model has to be you you have your own operated stores but then you take the standard operating procedure and the technology and you license you license to tell the people but the key thing is the licensee the whoever licenses your technology is willing to make the change and not just say oh now I've got this great technology then everything will work out changes like for example organizational structure how do you manage an online presence with an app who runs the app and the gut and and who runs the store you know every store has a store manager and you have to make sure that the people that are running your online operation and your offline business their interests are perfectly aligned and most retailers are not organized that way so there's got there are sellers here in the US most retailers in the US or in China are not organized that way and there has to be a lot of willingness and and true resolving commitment to making those changes to make it work so that's a no 1 on bringing some of this to the US or have you not even and entertaining those conversations now we have not entertained those conversations I think the US market when you're you know serving US consumers is a very different market from China let's talk for a bit about your global M&A strategy we've talked about the US and I can harp on it for another hour but that would be able to boring so what's had it how do you think about where you're going to buy where you're going to invest and the types of businesses whether they're consumer facing or other have it wait way this out for us there's sort of two areas to two things that we think about number one what we are good at can we be helpful in a new market so we're good at developing emerging markets our experience in China over the last 19 years you know growing in the e-commerce marketplace from basically zero to something that's really large what does that experience tell us about helping helping a company Indonesia or India for that matter that that's one area the other is to look at the demographics whether the the country has a young population how mobile is the population there's you know when you look at most of the Southeast Asian country the they're basically leapfrogging you know then nobody uses computers everybody's accessing the internet on a mobile phone so you look at all those things and and also and that's attractive that those are attractive absolutely young population mobile population and also another thing that people kind of overlook is whether the country has a strong manufacturing base Alibaba has been successful in China well there are a lot of consumers but the flipside of the coin is that the merchants can easily find sources of product that they can they can buy they could source and because China is is a large manufacturing base so in countries where they don't produce a lot of things themselves you have to import that's that's a different kind of organization of your merchant base you know you because you have to provide the sourcing opportunities for them so those are the some of the factors that we look at when we when we grow into a new market let's talk about India for a second one I'm fascinated by it too there's been a lot of activity there very recently so Amazon set up shop in in India back in 2013 in the past few months probably in the past month walmart has announced their intent to buy a majority stake in the number one or the number two player their foot home girl and player flip car you also have investments in payments company Paytm grocery delivery company they're a big basket and also a third put and you also invested in snap deal which was in the e-commerce site a distant third for Amazon that is they they they failed in China they're still in China but they will say they missed it so this is the market they say they cannot miss what is what is your strategy in India well if you look at India it's very very early we're in the first inning right total industry gmv for e-commerce this year is going to be less than 20 billion US dollars China is close to 1 trillion today so you know very very early early days we want to take a very patient approach in in fact Amazon is doing a very good job educating consumers of the benefits of buying online and good service they provide a very good service in India our strategy is to look at high frequency use cases so online payment today Paytm you know we have an investment in Paytm which is the largest mobile payment company in India the the app is no longer just a payment tool it's your portal you know to access other services that require payment like buying movie tickets buying train tickets buying gold fund for finit you know for investments India Gold is a very important asset to own and so with all these use cases you're creating engagement you're creating high level engagement that's why we're involved in a grocery company because grocery is almost daily it's it's something that is you know highly engaging so we want to enter through high frequency use cases and build an e-commerce business on top of that I think some of the other e-commerce players go into the market and they focus on electronics lots of gmv lots of volume today is selling you know Samsung phones and huawei phones and a little bit of Apple a lot of Xiaomi phones but how how often do you buy a phone I mean it's gonna be once every six months or what 12 months come on right I'm a journalist once every two years maybe six months or six months for you to two years for me anyway it's everyday yeah we're gonna open up to questions in just a bit hopefully we have some good ones we haven't touched you I'll acknowledge you guys have big cloud business big media business that we have not even got yet gotten to so if you have any questions there that'd be appreciated one last question u.s. related private company in the u.s. called wish valued at eight billion dollars on paper they're competitive with one of your products which is Aliexpress selling globally to consumers outside of outside of China you know knowing a little bit about where Aliexpress is strong globally and where wish is strong seems like there's complimentary there could be a complimentary match there do you do follow that business wish closely and is it you know something you think could make sense in the future as part of the Alibaba umbrella mmm yeah of course I followed that business and every time I watch a Lakers game they sponsor the Jersey yeah wish and song like though it was profits worth 240 million dollars right there they got Jeff and Gina yeah and no I look first of all I think they're in a similar business as ours sort of this cross-border consumer business we're very positive about that business and because having having one foot in China serving global consumers is is a you know for for Alibaba is an advantage because we're close to the merchants we're close to the factories we're close to the sellers the I think I think this business is bound to have competition because other people can see opportunities and our view of competition is that makes us better we we have to keep asking ourselves are we serving consumers better are we are we falling behind and it's just like in sports you have to play against good teams in order to get better so we will welcome that competition and we you know we follow the company and hope to you know have a chance to talk to them at some point but at this point we're not doing anything to you know they're there we're not having any conversations okay is that a question there it is okay just tell us who you are you got John Ford from CNBC I want to ask you about 5g and if you will give us a couple of scenarios people expect the US and China to lead in 5g the next couple of years will be key what are a couple ways you expect for 5g to be an accelerant to alibaba's cloud business and accelerant to the the commerce business both in person and maybe off-site at home on the phone where are the ways that that low-latency network is going to I guess allow you to pull ahead you said you expect to pull ahead of Amazon in the next couple years yeah we're looking at 5g the proliferation of 5g as a catalyst for a Internet of Things strategy with the ability of devices at the edge to to you know to run data and and have-have computing that's done locally that's gonna you know slightly be different will be different from a cloud business but that's something that's very exciting from our standpoint and you can you can think of scenarios where a lot of compute can happen locally and and and and consumers will benefit from that so that's going to be a very important catalyst for a you know ecommerce business or gaming business or a lot of other types of businesses and and these devices will proliferate but how so how are people going to be buying more in the store or buying more at home because there's a 5g network what kind of scenarios are your gaming out well I I think you know you could be buying not just from your cell phone you can buy it from your refrigerator you know if you run out of milk and you push button on your refrigerator and and you know the smart refrigerator makes the order so there could be a lot of scenarios where different devices are that the device is going to get smarter the device is not your phone but it's going to be something else not in Amazon echo oh maybe an Amazon echo maybe by the way our team all Gini which is a similar product is is the best-selling you know personal assistant in China today that's a good good comeback here we go tell us who you are please jeetu Patel from box you know if you think about a lot of Chinese companies that are getting to scale one of the big reasons why there's a lot of success as you folks seem to intrinsically understand scale at a very different level than what some of the American companies have been advantaged in doing what would you give as advice to people over here on principles around understanding scale that we don't have the benefit of just being able to experiment with because we don't have a billion people in an addressable market over here that you have the advantage of doing what what what lessons would you teach us from a scale perspective well first I think you have to make sure that your technology systems and also people can scan scale I think we're kind of spoiled in in a china market with 800 million Internet users and everything that you do you know you are you're you're assuming that it's going to be tens of millions of or hundreds of millions of people that is going to be using your product I think for a company that's in this market first of all there's plenty of skill in this market as well and you know I I think a lot of companies in the United States are also looking at overseas markets including China so my advice is you know don't listen to politicians that criticize China look at the Chinese market as an opportunity and there are a lot of partners potential partners companies ourselves included could be your partners to explore the China market together oh one last quick one just tell us who you are please all right Joe this is a high t-v high as investing Alibaba they also wish xiao mei changsu some other companies compete against you some other companies collaborate with you so I get a lot of question in the u.s. like is Alibaba good for the startup system in China since odd ABAB are so strong it's everywhere it is investing all these companies and then secondly if I were so strong in China does that encourage startups in China to expand beyond China and go for the rest of world what do you see and how do you answer when people ask you what's out of the impact on the sub up system in China i I think Alibaba is good for innovation and good for entrepreneurs because the the space that we're in e-commerce is a pretty good business so there's always new competition you know five years ago there's there's company a now there's Company B we you know you're investing in a lot of them so I think there's always going to be entrepreneurs that see the opportunity and say Alibaba is doing it this way but we can find a different way of doing things and be Alibaba at their own game I think there's plenty of people today that think that way I and I think that's healthy it makes us better it keeps us on our toes all right I think that's all the time we have Joe thank you so much thank you [Applause] you

Channel: Recode

Views: 35,716

Rating: 4.8540144 out of 5

Keywords: Alibaba, China, Amazon, tech, Recode, Code, Code Conference, Code Conference 2018, e-commerce, commerce

Id: FREispbUxms

Length: 30min 51sec (1851 seconds)

Published: Wed May 30 2018