It may be safe to say that Alibaba will refrain from making the same mistake again and will revamp its policies
While things are not getting any better for businesses around the world due to the coronavirus, problems have exacerbated for tech giant Alibaba who was recently fined by Chinese regulators for an amount of 18.2bn yuan ($2.78bn).
From the time of its founding on June 28, 1999 in Hangzhou, Zhejiang, Alibaba has come a long way.
From being the 31st-largest public company in the world to having the sixth-highest global brand valuation, Alibaba has made its mark in the tech and retail world with its products, services, reliability and policies.
However, China’s market watchdog had its eyes on Alibaba from December last year not because audacious statements delivered by Jack Ma against Chinese regulators raised a few eyebrows since October but because the watchdog suspected Alibaba of abusing its dominant market position in the trading industry.
Deeper into the investigation, the regulators found that Alibaba practiced a culture of “erxuanyi” which quite literally means “choose one out of two” while dealing with its merchants.
This essentially means that Alibaba discouraged and/or prohibited its merchants from trading with any other company or competitor in the market (with or without a good reason).
As a result, competition in the Chinese market was curtailed and the antimonopoly law of China was breached.
Article 1 of this Anti-monopoly Law states that the purpose of the law is “preventing and restraining monopolistic conducts, protecting fair competition in the market, enhancing economic efficiency, safeguarding the interests of consumers and the public interest and promoting the healthy development of the socialist market economy”.
Article 3 goes on to describe monopolistic conducts as: (i) monopolistic agreements among undertakings; (ii) abuse of a dominant market position by undertakings; and/or (iii) concentration of undertakings that eliminates or restricts competition or might be eliminating or restricting competition.
Discernibly, the Chinese regulators have found Alibaba in breach of Article 3 (ii) of the Anti-monopoly Law meaning that Alibaba abused their dominant market position by “requiring its counterparty to trade exclusively with it or trade exclusively with the appointed undertakings without legitimate reasons” (as per Article 17 (iv) of the Anti-monopoly Law). Therefore, imposition of the $2.8 billion landmark fine might have been the right thing to do.
The laws in Bangladesh provide with similar provisions in s.16 of the Competition Act 2012 corroborating that, “No enterprise shall abuse its dominant position” so as to “affect its competitors or consumers or the relevant market in its favour”.
Hence, similar landmark decisions may be given by Bangladeshi courts if the occasion calls for it.
It is worth noting that since the imposition of the fine, Alibaba has not denied any of the allegations; rather, the company said that they have “accepted the penalty with sincerity and will ensure its compliance with determination” but what will actually happen is yet to be seen in the upcoming months.
Many have taken the liberty to compare this fine with the one imposed by China on Qualcomm (American Chip giant) in the year 2015 mentioning that the fine imposed on Alibaba is much greater than the $975 million fine imposed on Qualcomm six years ago.
Nevertheless, no matter how large the amount, it has been argued that this fine will not have any significant impact on Alibaba’s balance sheet because it amounts to only 4% of what the company made in 2019.
Furthermore, Alibaba made $12 billion in October, November, and December of 2020 alone indicating that taking a fine of $2.8 billion from the company will be similar to taking out a bowl of water from an ocean.
However, the targeted impact of the fine goes far beyond the balance sheet of Alibaba because the primary and colossal reason why China fined its tech giant is because it wishes to balance competition in the market and diminish any attempts to create a monopoly market.
By definition, monopoly is “a market structure characterized by a single seller, selling a unique product in the market”.
The Competition Act 2012 of Bangladesh provides with a similar definition which reads that monopoly means "a situation where only one person or enterprise takes control over the market of goods or services” (s.2 (o)).
Applying these definitions to the situation at hand, it can be commented that if merchants of Alibaba are prohibited from trading with other companies then Alibaba will start selling products that are unique in the market, making them a single seller i.e. a monopoly.
Undoubtedly, a monopoly market will have great adversarial effects on the consumers and create a gulf between the products needed and products bought (owing to unfair prices).
Therefore, the fine imposed has set a good judgment for any who attempts to create a monopoly in the Chinese market and sufficiently warns Alibaba to not commit the same breach of law again.
Fortunately, reports show that Alibaba has already learnt its lesson from the penalty and that the fine “served to alert and catalyze” companies like Alibaba.
Furthermore, Alibaba appreciated the regulators’ decision by stating: “It reflects the regulators’ thoughtful and normative expectations toward our industry’s development.”
Thus, it may be safe to say that Alibaba will refrain from making the same mistake again and will revamp its policies.
However, regardless of whether they aim to erase monopolistic behavior from their actions, Alibaba is required to submit reports on its compliance for the next three years now.
This therefore, means that Alibaba must ensure that it cuts down on its anti-competitive nature of trading and establishes competitive, law-abiding policies in place.
Be that as it may, as the sharp-witted and legendary Jack Ma says: "Today is hard, tomorrow will be worse, but the day after tomorrow will be sunshine" and perhaps, this Ma-ism might work out for Alibaba.
For now, however, Alibaba needs to be extra careful with its trading policies as all the competitors are paying hawkeyed attention to every detail.
The author is an LLM Graduate and a reviewer of the International and Comparative Law Journal