Jack Ma’s tenacity and competitiveness were great assets when he was building Alibaba Group from nothing to the ecommerce giant we know today. But there can come a time when that very pugnacity, on the behalf of a market leader, is self-defeating. His speech last week at an investor conference at Alibaba HQ in Hangzhou was a perfect case in point. But the speech perhaps revealed rather more than he may have intended.
Ma’s speech was no doubt intended to tweak the noses of Western analysts and the International Anti-Counterfeiting Coalition (IACC), both of whom have been putting pressure on Alibaba Group this year, as reflected in its share price falling 11% over the past year. On May 13th, Alibaba Group was dropped from the IACC, just a month after joining, with the IACC board claiming the move was “in consideration of some of the concerns raised by our membership.” Michael Kors fashion group described Alibaba’s membership of the IACC as giving “cover to our most dangerous and damaging adversary.”
Fighting talk, then, and Jack Ma has rarely been one to turn the other cheek, as eBay and Yahoo! will attest. His speech last week however not only struck the wrong note – the classic public relations move would have been to strike a note of humility and to emphasise the work Alibaba is doing to prevent and intercept counterfeits on its platforms. But no. Ma struck back aggressively, saying, “The problem is the fake products today are of better quality and better price than the real names. They use exactly the [same] factories, exactly the same materials but they do not use the names,” he said, adding, “It’s not the fake products that destroy them [luxury brands], it’s the new business models.”
This received a scandalized press, shocked at Ma’s equivalence of counterfeits and the genuine. Ma perhaps was intending to suggest that the only reason counterfeits are so popular is because they can do it better and cheaper than the genuine manufacturers, who ought to up their game so that people don’t need to buy fakes. The “new business models” he mentioned are of course the Alibaba model, where sellers can operate online for the barest fraction of the cost of an expense retail outlet in a premium shopping location, with the savings to be passed to the consumer. But by saying that fakes are comparable to the real thing, Ma also seemed to be suggesting that there was a free market, as it were, in each product, with counterfeits and the genuine article competing in terms of quality and customer satisfaction.
This fundamentally misunderstands how product are developed and sold. Of course it’s easy to produce high quality fakes, and at lower prices: there’s an already-existing template. Counterfeiters do not have to bear the costs of the genuine brands: they have no designing, no prototypes, no advertising, no customer feedback, no endorsements, no marketing, no materials sourcing. These higher-order components of the luxury market are precisely where value, such as it is, is generated – not in the manufacturing. Without advertising, sponsorship, endorsements and marketing, Gucci and Louis Vuitton and all the others would be nothing. They don’t manufacture fashion items – they generate meaning. Similarly, the retail experience – smoothly seductive, expensive, exclusive – is part of the branding.
The lack of respect for IP is often seen in developing countries. It’s only natural to value that with which you are more familiar, with the international division of labor split between high-end intellectual property and lower end manufacturing. But with China striving urgently to ascend the value chain of manufacturing by encouraging high-tech innovation, IP has to be given more respect. China’s e-commerce and tech products are now some of the best in the world, with WeChat superior to Whatsapp and taxi app Didi Chuxing more than holdings its own against Uber. But for Chinese innovation to be taken seriously, there has to be sufficient protection for those who spend the time, energy and money to come up with quality products.
Steve Jobs’ famous business strategy was that you didn’t need to market or focus-group great products; they created their own advertising and customer base. The same is true of the reputation of Chinese innovation: the products create their own narrative. Jack Ma’s comments unfortunately show that even some at the top of Chinese business don’t recognize the importance of intellectual property. Until that changes, the reputation of Chinese products will suffer.
Published in Global Times