January 11, 2013, 4:13 PM

China’s e-commerce giant aims to remain agile

Alibaba Group divides into 25 business units.

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Alibaba Group claims to sell more goods to online shoppers than Amazon.com Inc. and eBay Inc. combined, but the Chinese e-commerce giant aims to remain nimble. With that in mind, the company announced this week plans to divide itself into 25 business units, the company’s third reorganization in less than two years.

"We are going to make the most difficult organizational and cultural transformation in Alibaba's 13-year history," chairman and CEO Jack Ma wrote in an e-mail to the company’s 24,000 employees, according to the company’s Alizila blog. Ma urged employees to "work together to make every business unit small but beautiful, and enable them to collaboratively drive the development of and create value for the ecosystem."

The change will keep Alibaba agile at a time when China’s Internet industry is changing rapidly, says Alibaba chief financial officer Joe Tsai.

"Rather than looking at six or seven big business groups, each of the 25 units could be a significant player in their industry and be very influential," he said. For example, he says, for the first time Alibaba has broken out online travel as a separate division.

Alibaba split itself into seven business units in July. A year earlier, it divided its Taobao marketplace business into three units.

These reorganizations are Ma’s response to the rapid evolution of e-commerce in China, says Ernie Diaz, director of Beijing-based online marketing firm Web Presence in China. “As the breakneck development of Chinese e-commerce ramifies into ever more profitable sub-industries: cloud hosting, display advertising, affiliate marketing, et al, Jack sees that the only way for Alibaba to remain a giant on the e-landscape is to create dedicated subdivisions to influence and dominate that development,” Diaz says. “Keeping these subdivisions integrated rather than siloed will be the issue that defines the success of this new tactic.”

These changes come as Alibaba reports ongoing growth and heads for a likely initial public offering of stock this year or next. The company says its two big online marketplaces in China—Taobao for smaller sellers and Tmall for larger brands—exceeded 1 trillion yuan worth of sales ($161 billion) in the first eleven months of 2012, a month ahead of company projections. Company executives expect those sales to triple in the next five years, putting Alibaba in position to challenge Wal-Mart Stores Inc. as the world’s largest retailer.

Taobao and Tmall dominate online retailing in China, accounting for 81.5% of online purchases by Chinese shoppers in 2011, according to data from investment firm Macquarie Capital Securities Limited. That helps account for the $40 billion market valuation of Alibaba, based on the $7.6 billion it paid Yahoo Inc. in September for about half of its 40% stake in the Chinese firm.

Alibaba also scored a coup last month when the U.S. government removed Alibaba from a list of marketplaces where counterfeit and pirated goods are freely sold.

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