Alibaba’s planned restructuring might mollify the Chinese government's concerns about its size and influence. But the move does not seem likely to alleviate antitrust concerns in any meaningful way, and there is no strong business justification for the company's chosen approach.
HONG KONG – Markets are welcoming Chinese tech giant Alibaba’s plan to split into six independent entities. The reason might seem obvious. Because smaller autonomous units appear likely to be nimbler and more adaptable, one might expect the restructuring to help to revitalize the massive company and boost productivity. One might also assume that dividing the company will alleviate the monopoly concerns that have made Alibaba a primary target of regulators in recent years. But, as compelling as this logic seems, it is deeply flawed.
Breaking up a firm can help to stimulate internal competition if the firm has a genuine monopoly that prevents others from exposing it to competitive pressure. But Alibaba operates in cutthroat sectors – e-commerce, entertainment, cloud computing, and logistics – where competition is fierce. As large as Alibaba is, its operations are subject to strong external pressure.
In any case, Alibaba will most likely retain significant control over the new “units” it is creating, even if some go public. So, from an antitrust standpoint, Alibaba will still be regarded as a single entity, with the same market power it already possessed.
HONG KONG – Markets are welcoming Chinese tech giant Alibaba’s plan to split into six independent entities. The reason might seem obvious. Because smaller autonomous units appear likely to be nimbler and more adaptable, one might expect the restructuring to help to revitalize the massive company and boost productivity. One might also assume that dividing the company will alleviate the monopoly concerns that have made Alibaba a primary target of regulators in recent years. But, as compelling as this logic seems, it is deeply flawed.
Breaking up a firm can help to stimulate internal competition if the firm has a genuine monopoly that prevents others from exposing it to competitive pressure. But Alibaba operates in cutthroat sectors – e-commerce, entertainment, cloud computing, and logistics – where competition is fierce. As large as Alibaba is, its operations are subject to strong external pressure.
In any case, Alibaba will most likely retain significant control over the new “units” it is creating, even if some go public. So, from an antitrust standpoint, Alibaba will still be regarded as a single entity, with the same market power it already possessed.