Alibaba Group slapped with US$2.8bn antitrust fine, no plans to appeal

Alibaba Group does not plan to appeal the US$2.8 billion antitrust fine recently imposed by China's State Administration for Market Regulation, executive vice chairman Joseph Tsai said in a conference call on 12 April. Tsai added that it will operate in accordance with the law and continue to strengthen compliance systems and build on growth through innovation. The State Administration for Market Regulation said two days ago that Alibaba "punished certain merchants" which sold goods on both Alibaba and other eCommerce platforms.

The regulator said in a statement that since 2015, the Group "has abused its dominant position in the market" and imposed a "Choose one out of two" requirement for its merchants. It also claimed that this has prohibited Alibaba's merchants from opening stores or participating in promotional activities on other rival platforms.

The investigation, which began last December, concluded that Alibaba's "choice of two" behaviour "eliminates and restricts competition" in China's eCommerce market and "hinders the free circulation of commodity services and resource elements", the State Administration for Market Regulation said. It added that this also "affects the innovation and development of the platform economy".

On the same day that Alibaba was hit with the fine, the company issued a statement saying that it "[accepts] the penalty with sincerity and will ensure [its] compliance with determination". It also expressed gratitude to the trust and patience that its merchants, consumers, partners and shareholders have given the company.

"The penalty issued today served to alert and catalyse companies like ours. It reflects the regulators’ thoughtful and normative expectations toward our industry’s development. It is an important action to safeguard fair market competition and quality development of Internet platform economies," Alibaba explained.

Moving forward, the company plans to further strengthen its focus on customer value creation and customer experience, as well as continue to introduce measures to lower entry barriers and business costs of operating on its platforms. 

Meanwhile, Tsai explained in the recent conference call with investors that the action taken by the State Administration for Market Regulation is "very clear" that it is affirming Alibaba's business model, also known as the platform economy. "Our business as a platform is fully endorsed and affirmed by the authorities, that this kind of model is good for the growth of country’s economy and also helps promote innovation. We feel very comfortable that there is nothing wrong with our fundamental business model, platform company," Tsai added.

He stressed that these regulatory actions are undertaken to ensure fair competition in order to benefit the public, the merchants and consumers, all the constituencies in a platform economy. Tsai also explained that this news signals that large scale Internet companies are "doing a lot of good things to help grow the economy". In China specifically, this is carried out by digitising the economy to benefit, to lower the barriers for average citizens to access products and services. Moving forward, Tsai said the trend is that regulators will be more keen to look at some of the areas that could have unfair competition.

At the same time, chairman and CEO Daniel Zhang said during the call there are "hundreds of millions of users and merchants" on its platforms, and its annual consumer purchasing power is over RM9,000. This demonstrates to merchants that Alibaba is engaging all sectors of consumers, including those with the most consumption power.

"We do not rely on exclusivity to retain our merchants. This only covers a couple of flagship stores which are directly operated by brands. But today, all these merchants have multi-platform strategies," he said. Instead, it provides value to merchants via backend services and education, Zhang said, adding that it does not expect the recent fine to have any negative material impact on the brand. According to him, Alibaba has 80 million annual active users and it will focus on two areas - customer service, acquisition and retention as well as merchant services - to grow its business. 

The Group and its co-founder Jack Ma have been under scrutiny over the past few months after Ma enraged regulators by saying that traditional banks should move away from their "pawnshop operating model". He also questioned if international financial regulations are fit for the Chinese economy. This led to the abrupt suspension of Ant Group's IPO in November 2020.

Months later in March, the Chinese government also requested for Alibaba to divest its media assets, which includes South China Morning Post. The Wall Street Journal previously reported that Chinese officials were becoming more concerned with Alibaba's influence over public opinion in China. Discussions of the Group potentially selling its media assets began early this year, WSJ said.

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