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How Alibaba uses Blockchain to compete in the cloud

Foreign companies can use emerging technology to build a reputation as a strategic partner in solving local problems.

There is a lot of excitement for the big Chinese technology companies. The world seems intimidated while Baidu, Alibaba and Tencent (the "BAT") move from success to success in China. In recent years, some of these large Chinese technology companies have entered foreign markets, particularly in Southeast Asia. The most important examples were the WeChat of Tencent, the investment of Alibaba in the e-commerce trade of Southeast Asia in Lazada and the successful Ttedtok and Musical.ly apps of Bytedance in the United States. United and elsewhere. More recently, large Chinese technology companies have adopted corporate technology solutions for multinationals, an arena that US providers (Microsoft, IBM, Amazon, etc.) and Europeans (SAP, Siemens, etc.) have so far dominated , thanks to their enormous technological capabilities and strong relationships with customers.

Cloud services are an area in which large Chinese technology companies are willing to raid internationally. Comparing the world market share of the major cloud players, Amazon is in a separate league with a market share of 33 percent, but also Microsoft, IBM and Google are doing well. So, in fact, some may say that self-satisfaction has crept into US technology, giving rise to a monolithic approach: a strong sales force chasing the succulent multinational accounts of this world, offering generic solutions with a minimal amount of customization. Meanwhile, Alibaba's market share is a single figure (4%), but it is growing faster, fueled by an entrepreneurial mindset.

For geographical, cultural and strategic reasons, Chinese companies have always had an eye on the Southeast Asian market. In particular, Alibaba has shown a keen interest in the region. Just think of Lazada, the Singapore-based e-commerce retailer where he has Alibaba invested US $ 2 billion since 2016. More recently, Alibaba, through its subsidiary Ant Financial (formerly Alipay), has used the blockchain to enter the global remittance business, which is currently worth $ 600 billion. My case study, "Alibaba and Blockchain", examines the lessons we can learn from the use of this emerging technology as much publicized by the great Chinese technology.

Making lemonade with lemons

Many years ago, the co-founder of Alibaba, Jack Ma promised Filipino friends who one day could have used a service like Alipay to send money home and save on high bank remittance fees. While his original idea was to acquire MoneyGram and revise it, he had to come up with another plan after Trump's administration. Nixed the deal, citing national security reasons. But he turned and told the CEO of Ant Financial that they should only have built something better than MoneyGram. In June this year, Alibaba, in partnership with Standard Chartered and Globe Telecom, launched GCash, a blockchain app that allows Filipino workers in Hong Kong to send money home quickly, safely and economically .

Blockchain is a distributed ledger, which means that it is a way to permanently record transactions on a shared network, using a consensus process to eliminate the need for third party verification. Its association with cryptocurrencies like Bitcoin – and by extension the dark web in the early years – has not done any favors in terms of public relations, but many companies are paying close attention to its development and potential for disruption.

For example, while blockchain could effectively destroy traditional proprietary clouds, the GCash app illustrates how technology could complement the cloud services of large technology companies. For example, a company on Alibaba Cloud may, one day, be able to offer blockchain-based payments in supply chains or trade at the touch of a switch. Compared to normal payment solutions, blockchain-based services may prove to be advantageous in terms of speed, security and costs. A semi-public blockchain could exploit the distributed computing power of a proprietary cloud. The central challenge is the creation of an ecosystem that encourages third parties to use the system and allows them to find the right business model to make it profitable.

How GCash creates value for all stakeholders

A fundamental lesson is that Alibaba created value because it focused on how technology could be used to solve a local problem (the high cost of remittances) while cutting dominant intermediaries, namely MoneyGram and Western Union. Its initial target market is the 200,000 Filipino workers in Hong Kong, who put over $ 550 million a year to their families. With taxes reduced by about half, you save 20 million dollars a year, in addition to the convenience of not having to queue at a physical counter. Looking ahead, the service also adapts to the profile of Alibaba's domestic customer base, as more and more Chinese are traveling or living abroad.

GCash offers Alibaba a wide range of opportunities. First of all, it allows Alibaba to build capacity and experiment with new cross-border technology. There are some precious examples of blockchain applications distributed on ladder. With an initial solution, Alibaba puts a stakes, which could give an edge to the first move in the future.

The partnerships with Standard Chartered and Globe Telecom that were needed in this first GCash launch are also a demonstration of Alibaba's willingness to collaborate effectively with large companies. Ironically, multinationals in foreign markets could offer more alliance potential than companies in China where BATs are already quite powerful. GCash serves as a proof-of-concept, demonstrating that at least two different types of key partners – a bank and a telco – can successfully participate in a system designed and managed by Alibaba.

More important, GCash is an opportunity for Alibaba to build its reputation as a partner focused on the problem that can handle strategic alliances with multinational companies. It is probably no coincidence that he chose a fair market as the first test case: a large percentage of targeted Filipino workers are poor foreign domestic workers. This could allow Alibaba to achieve an excellent relationship with public relations, fighting the negative image that many Chinese technology companies face when they go abroad.

Like Ma He said when he accepted an honorary doctorate at the University of Hong Kong at the beginning of this year, "real businessmen make money by solving social problems for others". If the great Chinese and Western technological companies will become a real force for good, they could also achieve this by using technology to solve problems for all of us.

Jason Davis he is associate professor of entrepreneurship and family business at INSEAD. He is an expert in digital transformation and innovation in large companies and start-up strategies in ecosystems of digital platforms.

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