Joe Tsai can't take Alibaba back to its golden days

Henny Sender is a strategic consultant to financial services companies and was previously a managing director at investment company BlackRock and a correspondent for the Financial Times.

When times were good, there were few figures who were held in as high regard on both sides of the Pacific as Joe Tsai, Jack Ma's partner in the creation and cultivation of Alibaba Group Holding and its financial affiliate, Ant Group.

That was before Alibaba faced competition as China's leading digital consumer platform. It was also before regulators in Beijing paid much attention to the sector. And before anyone had talked of a decoupling between the U.S. and China.

The outspoken, irrepressible Ma has always overshadowed his partner, but could never have succeeded without him. It was Tsai who tried -- consistently, if not always successfully -- to keep Ma focused and make sure that their common vision was properly executed.

When Goldman Sachs made its early investment in Alibaba, it was Tsai who provided the reassurance that enabled the investment bank's team in Hong Kong to sell the deal to its partners in New York.

Today, Ma is turning once again to Tsai to revive the fortunes of a company whose market capitalization has fallen steeply from the peak of nearly $850 billion reached in October 2020.

According to Alibaba's announcement last week, Tsai will move up from vice chairman to chairman in September, taking the place of Daniel Zhang who has run the company since Ma's retirement.

The very elements which contributed to the rise of Alibaba and the credibility that Tsai brought to the company in its youth may no longer be the advantages they once were, though.

It is likely that in today's world, the ability to understand both the U.S. and China means far less than it did in the beginning, not least because powerful interests on each side of the Pacific no longer care about bridging the distance. Those who saw Alibaba as a beacon of the future or even as China's national champion no longer see it that way at all.

The need for a restart and the difficult odds of turning around Alibaba's fortunes show how dramatically circumstances have changed for the company and for its newly anointed savior.

Tsai was the personification of the melding of two worlds. Born in Taiwan to one of the most distinguished lawyers of his generation, Tsai attended boarding school in the U.S. before going on to college and law school at Yale University.

Today, he carries a Canadian passport and has an apartment in one of the most expensive buildings in New York. In recent years, he has spent more time and money on his American sports team investments, including the NBA's Brooklyn Nets, than he has on investments in mainland China or Hong Kong, notwithstanding the presence of Blue Pool Capital, his family investment office, in the city.

Alibaba founder Jack Ma, center, and Joe Tsai at the New York Stock Exchange in 2014: Ma has always overshadowed his partner but could never have succeeded without him.   © Reuters

Meanwhile, bridging the U.S.-China gap is ever more challenging. For example, when the National Basketball Association got caught up in a firestorm of criticism in China over remarks by a team official that were perceived as hostile, Tsai attempted to defend China by referring to sensitivities dating back to the Opium Wars. That did not go down well on the U.S. side where many analysts and investors were bewildered by the connection he sought to draw between Britain's 19th century aggression in China and the current developments.

Alibaba's circumstances are now more nuanced and gray than black and white.

Western analysts saw Beijing's decision to halt the blockbuster initial public offering of Ant Group in November 2020 as a response to withering comments about state-owned financial institutions and regulators that Ma delivered just weeks before.

But that interpretation ignores the legitimate concerns that regulators already had about everything from the fact that Ant was handling almost 75% percent of Chinese digital payments to the company's taking in billions of dollars in deposits from households free of the regulations binding the country's banks.

Many regulators considered Ant nothing more than an arbitrage play. Ant and Alibaba were also seen by both competitors and regulators as would-be monopolists, stifling the sort of innovation that they had originally benefited from.

The idea of splitting Alibaba into six pieces originated with independent members of its board. They had come to the conclusion that the whole of Alibaba was valued more lightly than the sum of its diverse parts would be.

Alibaba's cloud business, which Daniel Zhang will continue to lead, would appear particularly valuable based on the example of Amazon.com. Logistics, the focus of the group's Cainiao unit, is another current investor favorite.

Alibaba's independent directors also felt that the group had become too big for those at the top to manage. The breakup has the additional advantage of addressing regulatory concerns about the behemoth that Alibaba has become.

Competition for investor and consumer interest is far keener than it was in Alibaba's early days. Baidu has succeeded in convincing the market that its Ernie Bot is the best face of generative artificial intelligence and high tech yet put forward in China. PDD Holdings, which operates the Pinduoduo platform and is heavily backed by Alibaba rival Tencent Holdings, has made substantial inroads into Alibaba's core e-commerce business, as has ByteDance's Douyin.

Clearly, Tsai does not yet aspire to a peaceful life. Ma, meanwhile, has found a safer outlet for his insights, lecturing as a visiting professor at the University of Tokyo.