For Alibaba, it may be a case of “pay up and move on.” The weekend brought a fine in the billions of dollars for the Chinese tech giant, which – though unlikely to have much financial impact – may carry reverberations for other large tech players in that country.
As reported, Chinese regulators have imposed a fine equivalent to about $2.8 billion tied to antitrust violations. The regulator, the State Administration for Market Regulation (SAMR), has said that Alibaba forced merchants to choose its own eCommerce platform over those of rival firms (known as “choose one”), a practice that CNBC said, via translation of the Chinese order, “infringes on the businesses of merchants on the platforms and the legitimate rights and interests of consumers.”
The fine equates to about 4 percent of Alibaba’s top line (for sales made within China), and seems to be rather easily digestible (even though it’s a record fine levied in that country). It could have been worse, as The Wall Street Journal reported that the antitrust regulator’s fines are capped at 10 percent of sales.
But more impactful is the fact that the regulators are also requiring that Alibaba reconfigure its operations. The fine and the revamp may signal the end of a multi-month investigation of the firm, but it seems the hard work is just beginning.
“Alibaba accepts the penalty with sincerity and will ensure its compliance with determination,” the company said in a release. “To serve its responsibility to society, Alibaba will operate in accordance with the law with utmost diligence, continue to strengthen its compliance systems and build on growth through innovation.”
The Road Gets Clearer
The road ahead is a bit clearer, it seems, which may be why the company’s stock rose a few percent in pre-market trading on Monday (April 12). Wall Street, it has often been said, hates uncertainty – and removing uncertainty lets investors focus on what the truer prospects (long- and short-term) may be.
On an investor call over the weekend, the Journal reported, Alibaba executives said that the firm will re-tool its operations to foster more competition and will also submit annual “self-assessments” through each of the next three years. Alibaba has also reduced its fees levied on merchants, according to company officials. As has been reported, Ant Group has agreed to restructuring plans that will tighten capital requirements as it transforms into a financial holding company.
But, as hinted at by comments from executives, regulatory scrutiny may be on the rise. As reported by the BBC, Alibaba Group’s Executive Vice Chairman Joe Tsai noted on the call discussing the regulatory actions that “we’re happy to get the matter behind us, but the tendency is that regulators will be keen to look at some of the areas where you might have unfair competition.” Regulators may be focused on Alibaba and tech firm peers’ mergers and acquisition activities.
Earlier this year, China’s SAMR published new guidelines to strengthen anti-monopoly restrictions on Big Tech platforms. The guidelines build on a draft law published in November, clarifying the “monopolistic practices” as defined by the SAMR. Among the guidelines: Companies would be prevented from price-fixing, manipulating the market using algorithms and restricting technologies.
For Alibaba, at least, the financial blow can be absorbed; but for that company (and its peers), the dialogue with regulators will be ongoing.
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