Will Alibaba Smooth or Complicate Marriott’s Relationship with Beijing?

The e-commerce giant Alibaba is poised to take a central role in Marriott’s marketing strategy in China, with the expectation that it will eventually take over Marriott’s Chinese-language websites and app.[1] On the analyst call for Marriott’s 1Q18 earnings results, CEO Arne Sorenson was effusive about his hopes for the partnership: “We think we can deliver real value to Alibaba’s Chinese membership, about 500 million strong, and we can drive great results for us and it should be successful for both of us.”[2]

But the relationship between Alibaba and the Chinese government has been marked by conflicts between Alibaba, Executive Chairman Jack Ma, close affiliates, and the government over the past 4 years. How will this affect Marriott’s relationship with the Chinese government?

Chinese Regulators Repeatedly Took Action Against Alibaba

Alibaba’s Executive Chairman, Jack Ma, has been portrayed in the Western press as a supporter of the Chinese government. According to Bloomberg, Ma praised the stability of China’s one-party system and spoke out in support of the government’s tight control of the internet.[3]

However, government regulators have taken several measures against Alibaba, its related businesses, and two major Alibaba investors.

In 2015, USA Today reported that inspectors from the State Administration for Industry and Commerce (SAIC), a central business regulator in China, had claimed that they found more fake than genuine merchandise on Alibaba’s online marketplace, Taobao.com.[4]

After the release of SAIC’s findings, the Wall Street Journal reported that Taobao responded with a statement that charged, “We believe director Liu Hongliang’s procedural misconduct during the supervision process, irrational enforcement of the law and obtaining a biased conclusion using the wrong methodology has inflicted irreparable and serious damage to Taobao and Chinese online businesses.”[5]

The head of the SAIC met with Jack Ma. According to China Daily, Ma stated, “Alibaba has always been engaging in combating fake products to crack the hard nut. Next, Alibaba will actively cooperate with the government, devote more capital and technology and further expand its professional team for fighting fakes.”[6]  The same day, the SAIC downplayed the significance of its report.[7]

Since then, Alibaba’s sale practices have been scrutinized multiple times by government agencies in China:

  • In March 2016, the state-owned TV station CCTV ran a documentary on the practice of ‘brushing’ on Taobao, where sellers would pay people to place fake orders to boost their standing on the e-commerce platform.[8]
  • In the same month, China Daily reported that food and drug administrations in both Shanghai and Chengdu announced they had launched investigations against Alibaba’s online food ordering service after a state broadcaster reported that it allowed unqualified vendors to sell food through the platform.[9]
  • In August 2017, Reuters reported that Chinese authorities had issued Taobao.com a warning over the sale of illegal virtual private networks that allow users to skirt state censorship controls. [10]

Jack Ma and Wei Zhao

In December 2017, Chinese actress Wei Zhao and her husband Youlong Huang, business partners of Jack Ma and Alibaba investors, were the subjects of regulatory action by the Chinese government. Bloomberg reported that Zhao received a five-year ban from trading in the mainland stock market, and that Zhao, Huang, and the company they control were fined 1.2 million yuan (around USD $150,000).[11] The penalty followed from a failed acquisition of a minority stake in a Hangzhou-based animation firm.[12]

Jack Ma distanced himself from the couple following the sanction, according to the Financial Times: “But Mr Ma sought to distance himself from Ms Zhao last week, telling local media that he has met the actress ‘no more than 10 times’.”[13] This was despite the fact that couple bought a 9 percent stake in Alibaba Pictures in 2014, and Huang partnered with Ma in the acquisition of the investment bank Reorient Group, now known as Yunfeng Financial.[14] Apple Daily reported that Ma and Zhao had met for at least 18 times, but the two was seen in public together only twice after the failed takeover.[15] Asia Times stated that according to a book titled Jack Ma and his friends, authorized and published by the Alibaba Group, Ma visited Zhao when the latter was filming, and attended Zhao’s grandfather’s birthday party.[16]

What does this mean for Marriott?

In a March 2016 article, Business Insider asserted, based on some of the stories previously mentioned, “Quietly, the Chinese government is turning against Alibaba.”[17]

Alibaba is key to Marriott’s outreach in China: Marriott’s Chinese-language website lacks a direct-booking feature, but instead directs users to Marriott’s page on Alibaba’s travel website, Fliggy.[18] Marriott CCO Stephanie Linnartz has stated that Alibaba will eventually take over Marriott’s Chinese-language websites and app. [19]

What does Alibaba’s relationship with the Chinese government mean for Marriott?

 

 

[1] “Marriott set to woo Chinese tourists with Alibaba deal,” Reuters, 8/7/17. https://www.reuters.com/article/us-marriott-intnl-alibaba/marriott-set-to-woo-chinese-tourists-with-alibaba-deal-idUSKBN1AN1JN

[2] First Quarter 2018 Earnings Conference Call Transcript, Marriott International, 5/9/18, p.16. https://marriott.gcs-web.com/static-files/0eae8e59-7bad-4991-881d-b2778424c00f , p. 16

[3] “Alibaba’s Ma Says China Benefits From Stability of One Party,” Bloomberg, 12/5/17. https://www.bloomberg.com/news/articles/2017-12-06/alibaba-s-ma-argues-china-benefits-from-stability-of-one-party

[4] Calum McLeod, “As Alibaba battles Beijing, Chinese hope to curb fakes,” USA Today, 1/29/15. https://www.usatoday.com/story/tech/2015/01/29/alibaba-china-beijing-saic/22532629/

[5] Carlos Tejada, “China Raps Alibaba for Fakes,” Wall Street Journal, 1/28/15. https://www.wsj.com/articles/chinas-saic-criticizes-alibaba-over-fake-goods-1422425378

[6] “China’s commerce regulator meets Alibaba chairman Jack Ma,” China Daily, 1/31/15. http://www.chinadaily.com.cn/business/tech/2015-01/31/content_19456693.htm

[7] “Alibaba meets with China regulator, controversial report retracted,” Reuters, 1/30/15. https://www.reuters.com/article/us-alibaba-group-saic/alibaba-meets-with-china-regulator-controversial-report-retracted-idUSKBN0L31S020150130

[8] Kathy Chu and  Laurie Burkitt, “Chinese Broadcaster Raps Fake Sales on Alibaba That Pump Up Shop Rankings,” Wall Street Journal, 3/16/16. https://www.wsj.com/articles/china-cctv-raps-fake-sales-on-alibaba-that-pump-up-shop-rankings-1458132816

[9] Meng Jing, “Unwelcome spotlight falls on food delivery app Ele.me,” China Daily, 3/17/16. http://www.chinadaily.com.cn/business/2016-03/17/content_23903039.htm

[10] Cate Cadell, “China targets Alibaba’s Taobao, other e-commerce sites, in VPN crackdown,” Reuters, 8/17/17. https://www.reuters.com/article/us-china-censorship-vpn/china-targets-alibabas-taobao-other-e-commerce-sites-in-vpn-crackdown-idUSKCN1AX0KX

[11] “China Bans Actress Zhao Wei From Stock Trading for Five Years,” Bloomberg, 11/9/17. https://www.bloomberg.com/news/articles/2017-11-10/china-bans-actress-zhao-wei-from-stock-trading-for-five-years

[12] Patrick Frater, “Chinese Actress Vicky Zhao, Fined For Stock Manipulation, Risks Lawsuit,” Variety, 11/16/17. http://variety.com/2017/biz/asia/chinese-actress-vicky-zhao-stock-manipulation-lawsuit-risk-1202616317/

[13] Gabriel Wildau, “Beijing makes example of A-lister after failed takeover,” Financial Times, 12/11/17. https://www.ft.com/content/fcd1501a-dbca-11e7-a039-c64b1c09b482

[14] Gabriel Wildau, “Beijing makes example of A-lister after failed takeover,” Financial Times, 12/11/17. https://www.ft.com/content/fcd1501a-dbca-11e7-a039-c64b1c09b482

[15] “趙薇醜聞纏⾝身 ⾺馬雲割席,” Apple Daily, 12/8/17. https://hk.news.appledaily.com/international/daily/article/20171208/20238184

[16] Ben Kwok, “Is Jack Ma cutting ties with Chinese actress Zhao Wei?,” Asia Times, 12/11/17. http://www.atimes.com/article/jack-ma-cutting-ties-chinese-actress-zhao-wei/

[17] Linette Lopez, “There are signs China is turning against Alibaba,” Business Insider, 3/21/16. https://www.businessinsider.sg/china-turns-against-alibaba-2016-3/

[18] Marriott International, retrieved April 30th, 2018, http://www.marriott.com.cn/reservation.html

[19] “Marriott set to woo Chinese tourists with Alibaba deal,” Reuters, 8/7/17. https://www.reuters.com/article/us-marriott-intnl-alibaba/marriott-set-to-woo-chinese-tourists-with-alibaba-deal-idUSKBN1AN1JN