Anti-monopoly state regulators hit Alibaba, the largest eCommerce platform with more than 800 million users in China alone, with a prodigious fine of 2.8 billion dollars (18.2 billion yuan) according to Wall Street Journal.
Alibaba’s antitrust fine was enforced over its abuse of market dominance. The anti-monopoly regulators have been looking into Jack Ma-owned Alibaba group for months before launching the penalty that is equivalent to 4% of the company’s annual sales. It is worth noting here that according to the Chinese rules, antitrust penalties are usually around 10% of the company’s annual sales.
The anti-monopoly regulators tightened their hands around the tech giant’s neck with their decision to suspend the much anticipated initial public offering for the Ant group, an affiliate of Alibaba following Jack Ma’s criticism of state-regulated financial institutions.
The company responded with an open letter that stated: “We accept the penalty with sincerity and will ensure our compliance with determination. On this occasion, the entire team at Alibaba would like to express our gratitude to the trust and patience that our merchants, consumers, partners and shareholders have given us. We would like to share our thoughts and plans for the long-term healthy development of our business in the future.”
How did this all come to be?
Alibaba has long been criticized for forcing merchants to sell only on Alibaba. The company supposedly used the practice “er yuan yi” which translates to “choose one out of two” and punished merchants who chose more than one platform to sell goods. This anti-competition drew attention over time leading to regulatory scrutiny followed by regulatory action that led to alibaba’s antitrust fine.
The penalty not only demands the hefty fine to be paid but also requires the eCommerce giant to submit a “self-examination compliance report” within the next couple of years.
We can’t go on about this penalty without mentioning Ant Group. Jack Ma’s fintech company was prepared to shatter records with a $37 billion IPO in November last year. The company reportedly had a valuation nearing $300 billion. It was projected to have a bigger valuation than any of the world’s biggest banks. But none of that came true as the Chinese regulators pulled the very ground from beneath the company’s feet following Jack Ma’s criticism of the state’s banking system.
The Eastern Nation reportedly introduced a set of new rules that inhibited the IPO launch. Experts believe that even if the IPO is launched later, it won’t have the same buzz around it as it had earlier. Following the suspension of Ant Group’s IPO, the regulators launched an antitrust investigation into Alibaba, which subsequently led to the aforementioned penalty.
Will this hinder progress or bring much-needed governance to Big Tech?
There have been several conversations about Big Tech and its monopolistic practices. Facebook and Twitter have been hauled in front of congress to shed a light on how they treat their competitors, and how would they explain the allegations made against them regarding practices that dissolve competition. We have discussed the Congress hearings here.
Ali Baba’s hefty penalty and demand for self-examination could be a trailblazer for regulatory bodies around the world. If regulations are done right, this could foster fair business practices on a global scale. But could this hinder progress?
According to Jeffery Towson, a former professor at Peking University (Guanghua School of Management), “This is serious money, but it’s not going to hinder their development.” He further adds, “ it strikes you as an appropriate level for corrective action.”
The goal should be to enforce laws that make Big Tech accountable not hinder its development. And it seems that this penalty would do just that.