| Boston Globe | - |
HANGZHOU, China - This leafy manufacturing hub two hours southwest of Shanghai is best known for its scenic lake, Buddhist pagodas and tangy fish-head soup.
Alibaba IPO creates thousands of new millionaires in China
CHINA DAILY /REUTERS
Alibaba headquarters on the outskirts of Hangzhou, China.
HANGZHOU, China — This leafy manufacturing hub two hours southwest of Shanghai is best known for its scenic lake, Buddhist pagodas and tangy fish-head soup.
With Chinese e-commerce giant Alibaba Group poised to start trading Friday, Hangzhou will earn another accolade: the city that minted thousands of Internet millionaires.
Started here in 1999, Alibaba has followed the model of Microsoft, Google and other US technology companies, generously handing out stock to all levels of workers, from senior executives to receptionists. It has created a wealth diaspora rarely seen in China, where the economy is still dominated by state-owned enterprises, and private companies generally reserve riches for executives at the upper echelons.
The initial public offering Thursday, which valued Alibaba at $168 billion, will provide Silicon Valley-style payouts. At Alibaba and its affiliates, around 6,000 current and former employees owned stock worth nearly $8 billion before the IPO. And that sum represents only a piece of the shares doled out over the years to employees, some of whom cashed out earlier at lower, albeit still lucrative, prices.
“Can you imagine the sort of wealth that’s being generated through this?” said Sanjay Varma, a former Alibaba vice president who still owns shares in the company. “It’s incredible.”
The rise of Alibaba and its founder, Jack Ma, has proved instructive for a generation of young Chinese — not just as a road map to riches, but as a lesson in entrepreneurial individualism. Today, thousands of young people across China are creating startups of their own, driven by visions of what they might do if they, too, strike it big.
The Alibaba money has helped spur a constellation of Internet companies in China. Over the last decade, one-time Alibaba employees have helped start 130 Internet businesses, more than any other Chinese company, according to Itjuzi.com, a website that tracks investment in domestic technology companies. There’s Mushroom Street, a social shopping site that caters to young women; Didi Dache, a taxi-hailing app that has 100 million users in China; and Tongcheng, a travel website founded by a former Alibaba salesman that currently has more than 2,000 employees.
Three years ago, Lai Jie, a former Alibaba product manager, sold a big chunk of his shares and started WiTown with three co-workers. Today, the venture, which runs wireless Internet service in public spaces like airports, has nearly 80 employees, most in Hangzhou.
“The city is chock-full of talent,” said Lai, 33.
Alibaba has been educating employees about the hidden risks of sudden wealth. In an email to employees in July, Ma wrote about the looming IPO and warned that Alibaba’s fast growth could push up prices in its hometown, likening the effect to Microsoft on Seattle or Facebook on Silicon Valley.
“All our hard work hasn’t been just so we could turn into a bunch of tuhao,” he wrote, using a slang reference to China’s swarms of uncouth newly rich.
From the early days, top executives like Joseph Tsai, the current vice chairman, would hold companywide sessions about the basics of spending and saving, as well as stock options.
“We talked about freedom of choice in 2002 and 2003,” said Savio Kwan, Alibaba’s chief operating officer at the time, who still owns shares. “People said, ‘What is that?’ I said, ‘It’s when you become rich and you don’t need to work for a living anymore. You can choose to still come to work at Alibaba or choose to retire or to do something else.’”
“It was hard to explain the concept to people who were earning only a couple thousand renminbi a month,” Kwan added, referring to an amount that was roughly $250 at the time. “But the company was growing like crazy.”
The mindset, in part, requires a cultural shift among a work force that has, even by Chinese standards, gotten by on modest salaries.
Like a number of employees awash in stock options, Su Jie, 33, left the company in recent weeks. He wants to set up a product management consultancy, partly funded by his Alibaba stock.
But he said the decision to depart from what many Chinese consider a prized, stable job was not easy, especially in the face of pressure from his parents, who would have preferred he join the “iron rice bowl” security of China’s civil service.
“One thing you can say about Alibaba is that the company gives its workers a sense of purpose and a belief that anything is possible,” said Su, who joined the company eight years ago right out of college.
Traditionally dependent on manufacturing, Hangzhou, a city of 6 million people, has been embracing the high-tech sector. Local Communist Party officials have been aggressively promoting the city as a magnet for startups through special economic zones, high-tech incubator centers and low-cost capital to young entrepreneurs. Lai, the former Alibaba product manager, pulled together $81,000 for his company, supplementing his own funds with money from an angel investor and a no-interest loan from the local government.
“People here really value bold thinking and risk-taking, and the government is also pretty good, which is a rarity in China,” Lai said. In recent years, Hangzhou’s department of science and technology has distributed $130 million to 152 startups, according to its website.
The combination — Alibaba’s success and the government’s support — has helped turn Hangzhou into an entrepreneurial hub. Last year, the e-commerce industry contributed 39 billion renminbi ($6.3 billion) to the local economy, a 56 percent increase over 2012, according to government figures. In the city’s technology-heavy central business district, e-commerce was responsible for 25 percent of all economic activity last year, up from 7 percent in 2011, according to the Hangzhou Daily newspaper.
Zhejiang University, one of the nation’s top-rated schools, has become something of a feeder farm for local high-tech companies that aggressively recruit graduating seniors. Incubators, which bring together a number of startups under the same roof, are also popping up around the city.
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Started in 2012, the Fudi Startup Incubator Centers are the brainchild of Li Zhiguo, an early employee at Alibaba who went on to found Koubei.com, a business review site later sold to Alibaba. The newest Fudi center, which opened a few months ago, is a collection of brightly colored buildings that are home to dozens of startups, including a venture focused on Internet coupons, a dating app for college students and a wedding-planning site for young couples.
Among the biggest tenants are Zhang Jie and Fang Yi, angel investors and entrepreneurs who oversee eight startups. During a recent visit, the vibe was unmistakably Silicon Valley, as dozens of young programmers hunched over computers and others napped on an air mattress or inside a pup tent. A blowup kiddie pool and punching bag dominated the room, which was flecked with exhortations to “Hit the Ground Running” and “Find the Must-Win Battle.”
“The first year or two of a startup is very challenging, so you have to keep an eye on these guys, otherwise it’s easy to go under,” said Zhang, 30, a fast-talking woman who is part den mother and part drill sergeant. “Also, you have to keep your employees happy because other companies will steal them.”
The couple, graduates of Zhejiang University who have started a number of Internet companies since 2005, has done well for themselves. In June, they became among the first residents in Hangzhou to own a Tesla.
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Although luxury car dealers and property developers are hoping the Alibaba IPO will prompt a spending bonanza, several employees with significant stock holdings said they would probably defer big purchases and instead use their money to finance startups. Su, the former Alibaba product manager, said he had no plans to trade his 2-year-old Ford Mondeo for a more expensive car.
Travel is a different matter, he said. Like other Alibaba alumni, he said he had taken few vacations in the last eight years, in keeping with the company’s work-till-you-drop ethos. Several weeks ago, not long after giving notice to the company, Su and several friends set off on a two-month trek across Tibet.
“Before this, the only time I took off from work was for my honeymoon,” he said shortly before leaving town. “For a lot of Alibaba employees, we are finally getting a chance to enjoy life.”
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