(Tiểu luận) international business risk management reportregulatory risk management a case of alibaba

FINDING DOMINANCE of platform - Alibaba as a source ofabusive conduct 9 Trang 3 Nowadays, laws and regulations across countries and industries can change rapidlydepending on the governm

FOREIGN TRADE UNIVERSITY

FACULTY OF ECONOMICS AND INTERNATIONAL BUSINESS

*************

INTERNATIONAL BUSINESS RISK MANAGEMENT REPORT

REGULATORY RISK MANAGEMENT:

A CASE OF ALIBABA

Instructor: MA Pham Thanh Ha

Group 11:

Nguyen Thi Khanh Linh 2011520025

June, 2023

I INTRODUCTION 1

1.3 Differences between regulatory risk management and compliance risk

2 Factors causing regulatory risk 4

1 Overview of Alibaba Case in China 7

2 The situation: China completes overhaul of antitrust law to corral Big Tech 72.1 Rising concern about tech giants’ power over the world 72.2 China’s Anti-Monopoly law: New regulations 92.2.1 RELEVANT MARKET DEFINITION 92.2.2 FINDING DOMINANCE of platform - Alibaba as a source of

2.2.3 Amendment of regulations to China’s Anti-Monopoly Law 10

3 The impact of the Anti-Monopoly Policy on E-Commerce market in China 13

Nowadays, laws and regulations across countries and industries can change rapidlydepending on the government’s policy, especially in politically unstable countries.Since amendments to laws, rules, or regulations may result in regulatory risks,effective regulatory risk management is a significant concern for businesses in today'sglobal marketplace to not only protect a business from devastating consequences such

as substantial fines, reputational damage, and loss of business opportunities, but alsoremain competitive in their respective industries

In this report, we choose to analyze Alibaba’s regulatory risk management becauseAlibaba Group Holding Limited is a multinational technology company headquartered

in China specializing in e-commerce, retail, and technology services, and it hasbecome the world’s biggest e-commerce platform Since its founding in 1999, Alibabahas rapidly expanded and currently operates in more than 200 countries and regionsaround the world Moreover, digital adoption and transformation in retail areaccelerating globally since the COVID-19 pandemic, reshaping consumer behaviorand enterprise operations While such transformation presents tremendousopportunities, it also requires focus, innovation, and agility in establishing thenecessary strategic capabilities According to Alibaba’s annual report in 2022, theyhave stayed focused on strengthening their leadership and building core capabilities inthree strategic areas: consumption, cloud, and globalization

With this expansion, the company has also faced growing regulatory risk managementchallenges including antitrust investigations and regulatory scrutiny related to dataprivacy concerns, which have a significant impact on their business We will examineAlibaba's regulatory risk management strategies in response to these challenges andevaluate their effectiveness By using it as a case study, this research will come upwith some recommendations for other companies in the e-commerce industry todemonstrate the importance of effective regulatory risk management as well asdevelop their own regulatory risk management strategies

Our report will include three parts to analyze regulatory risk management:

Part 1: Literature Review

Part 2: Case Analysis

Part 3: Recommendations for Alibaba and other companies in the e-commerceindustry

II LITERATURE REVIEW

1 Definitions

1.1 Regulatory risk

Regulatory risk refers to the potential negative impact on certain businessesdue to a change in the laws and regulations in a country or region The term iscommonly found in articles about currency traders, whose exposure to financialloss is affected by the relevant regulatory agencies when they make changes incurrent rules and regulations or impose new ones

Businesses may face several regulatory risks, including legal, compliance,operational, and reputational risks Legal risk is being subject to lawsuits orpenalties for not complying with regulations, while compliance risk involvesnot adhering to regulatory requirements Operational risk relates to thepotential for disruptions to business operations due to regulation changes andreputational risk involves damage to a company’s reputation due to negativeregulatory actions

1.2 Regulatory risk management

Regulatory risk management aims to identify and evaluate these risks andimplement measures to minimize their potential impact

Regulatory risk analysis is essential for businesses operating in highlyregulated industries It involves evaluating potential risks and impacts ofregulatory changes and ensuring compliance with regulatory requirements.Failing to comply with regulations can result in significant financial losses,

fines, and reputational damage Therefore, businesses must proactively identifyand manage regulatory risks to minimize potential negative impacts.

1.3 Differences between regulatory risk management and compliancerisk management

Compliance risk is the risk that a company will have been determined to be inviolation of already established laws or regulations This can have manycauses, including inadequate controls, negligence, and human error Ensuringthat a business is capable of maintaining compliance and doing so can be asource of significant expense As with regulatory risk, managing compliancerisk is an essential part of a business's overall risk management

Managing regulatory risk involves forward-looking strategic thinking, as well

as careful monitoring of public opinion and the regulatory process in abusiness's given sector Compliance risk, on the other hand, involvesknowledge of existing laws and regulations and a more systematic approach toverifying that the company is compliant with all of them

2 Factors causing regulatory risk

There are some main factors that cause regulatory risk :

Legislative changes: Legislative changes made by governing bodies have thepotential to create regulatory risk Businesses face more regulatory risk as aresult of new laws or revisions to current laws that impose stricter regulations

or new compliance standards

Political shifts: Regulatory risk can be caused by changes in politicalenvironments, such as elections or changes in government goals Differentpolicy objectives may be introduced by new governments, changing rules thataffect businesses

global and regional developments For example, international trade agreements,geopolitical events, or changes in international standards can trigger regulatorychanges that affect businesses operating across borders.

Technological advancements: Technological advancements often outpaceexisting regulations, creating regulatory gaps To handle developingtechnologies like artificial intelligence, cryptocurrencies, or data privacy,governments may react by proposing new legislation or updating current ones.These changes might result in increased regulatory risk for companies doingbusiness in certain locations companies doing business in certain locations,these changes might result in increased regulatory risk

Public sentiment and societal pressures: Public sentiment and societalpressures can drive regulatory changes The growing focus on data privacy andprotecting the rights and interests of customers and key stakeholders hasresulted in a flurry of global, national, and state regulations The alreadycomplex regulatory landscape that organizations are required to wade throughsaw a fresh wave of regulations and numerous regulatory updates in the pastyear due to the COVID-19 pandemic

Financial crises and market disruptions: Major financial crises or marketdisruptions can prompt regulatory reforms aimed at preventing similar events

in the future These reforms can introduce stricter regulations and oversight,resulting in increased regulatory risk for financial institutions and otheraffected sectors

3 Consequences

Regulatory risk refers to the potential negative impact on businesses andindustries resulting from changes in regulations, laws, or government policies.The consequences of regulatory risk can vary depending on the specificcircumstances and the industries involved Here are some commonconsequences associated with regulatory risk:

Management None

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Green Multi-Toned Pattern Recognition…

Compliance Costs: Regulatory changes often require businesses to adjust theiroperations, processes, or products to meet new standards or requirements Thiscan lead to increased compliance costs, such as investing in new equipment,implementing additional safety measures, or hiring specialized staff to ensureadherence to the new regulations.

Financial Impact: Regulatory risk can have a significant financial impact onbusinesses Compliance costs, fines, penalties, or legal expenses associatedwith non-compliance can erode profits and strain resources In some cases,businesses may need to allocate significant funds for regulatory compliance,reducing their ability to invest in other areas or expand their operations

Operational Disruptions: Regulatory changes may disrupt existing businessmodels, processes, or supply chains Companies may need to modify theiroperations or find alternative suppliers or partners to comply with newregulations These adjustments can cause temporary or even prolongeddisruptions, leading to delays, inefficiencies, and decreased productivity

Market Uncertainty: Regulatory risk can introduce uncertainty into themarket, affecting investor confidence and business decision-making.Uncertainty about future regulations or their potential impact on the industrycan lead to hesitancy in making long-term investments or strategic decisions.This can result in a slowdown in business growth and innovation within theaffected industry

Competitive Disadvantage: Regulatory changes can create disparities betweenbusinesses operating in the same industry If some companies can adapt morequickly or effectively to new regulations than others, it can lead to acompetitive disadvantage for those lagging behind Compliance requirementscan also favor larger or more established players who have the resources tonavigate complex regulatory landscapes, potentially limiting competition andhindering market entry for new or smaller businesses

Saunders chapter 12 this is a book related…

-RiskManagement None

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reputation Negative publicity, customer dissatisfaction, or legal disputesresulting from regulatory violations can tarnish a brand's image and erodecustomer trust Rebuilding a damaged reputation can be a challenging andcostly endeavor.

III CASE ANALYSIS

1 Overview of Alibaba Case in China

On April 10, 2021, China's State Administration for Market Regulation(SAMR) issued a list of 28 anti-monopoly legislation infractions Each instancefeatured merger transactions that had not been reported for antitrustinvestigation, some dating back to 2011 According to documents, officialsfound earlier this year that each of these transactions violated the country'scurrent competition regulations

Alibaba, one of the world's largest e-commerce enterprises, has been fined.SAMR claimed that Alibaba misused its dominating position in China's onlineretail platform market through a practice known as "choose one from two" -punishing merchants who maintain online storefronts on both Alibaba and itsrival platforms, or who conduct promotions on both platforms at the same time.Alibaba was levied a record fine of 18.2 billion CNY (approx $2.8 billion),which represents 4% of the company’s domestic annual sales The fine exceedsand almost triples China’s antitrust fine imposed on Qualcomm in 2015, 6.088billion CNY, the record keeper before Alibaba

2 The situation: China completes overhaul of antitrust law to corral BigTech

2.1 Rising concern about tech giants’ power over the world

Across the globe, serious concerns have emerged over tech giants ‘becomingtoo-big institutions, not just providing crucial utilities that are central to thelives of citizens but setting the rules of the game in which society operates

Despite reservations about the fairness of how they acquired market power andhow they may be employing (or misusing) that power, most competitionagencies took their time acting, prompting scholarly criticism.

The difficulties faced by Ant Group, a subsidiary of Alibaba Group, come at atime when the Chinese government has moved to "regulate" the private sector,levying fines and conducting investigations against numerous private firms.various technology firms, such as the "tycoon" of online auto booking DidiGlobal Inc and ByteDance, the owner of TikTok must take action in thenational interest

These corporations have vast quantities of wealth and user data, making itimpossible for the government to oversee them Meanwhile, Chinesepolicymakers are concerned about Alibaba and Ant Group's growing marketdominance Ant Group owns Alipay, China's leading mobile payment service.This payment application currently has over 1 billion users

The regulatory authority claimed that Ant Group utilized data obtained fromAlipay users to gain an unfair advantage over banks and make credit riskmonitoring harder in the country

Furthermore, Chinese officials are keeping a close check on Yu'e Bao, aChinese money market fund (MMF) run and managed by Ant Group Thisinvestment product enables hundreds of millions of Alipay users to depositfunds into accounts with interest rates higher than those offered by China'sstate-owned banks With about $244 billion in assets under management, Yu'eBao's flagship fund became the world's largest money market fund in 2018.However, Chinese regulators have asked Ant Group to limit the fund's size due

to concerns that the fund has taken on too much risk

At that time, perhaps the "one move" of billionaire Jack Ma had "fallen into thesights" of Beijing Jack Ma's speech criticizing Chinese regulators for stiflingfinancial innovation Last October was the last straw in the relationship betweenthe Chinese government and Alibaba Days later, the initial public offering

(IPO) of more than $34 billion worth of Alibaba-owned financial technology(fintech) Ant Group was postponed Since then, Ant Group has been forced torestructure its business.

Chinese authorities opened an antitrust investigation into Alibaba in December

2020, after ordering the postponement of Ant Group's giant IPO Once seen as

a driving force for economic prosperity and a symbol of China's technologicalprowess,` China is concerned when these companies attract hundreds ofmillions of users and influence nearly every aspect of people's lives

2.2 China’s Anti-Monopoly law: New regulations

2.2.1 RELEVANT MARKET DEFINITION

SAMR held that the relevant market, in this case, is the online retailplatform market in China

The SAMR focused solely on Alibaba as a virtual retail platform This is

in contrast with the European Commission’s Amazon Marketplaceinvestigation, centered around the company’s dual role as a ‘marketplacewhere independent sellers can sell products directly to consumers and a

‘retailer on the same marketplace, in competition with those sellers.According to the SAMR, retail platforms are a distinct product market intheir own right, distinct from offline firms, which, while functionallysimilar, cannot be deemed near alternatives

On the one hand, SAMR distinguished online retail platforms fromoffline retail operations in terms of demand and supply substitutability.Notably, due to the two-sided structure of a platform, demandsubstitutability is further divided into two perspectives - merchants andconsumers

SAMR, on the other hand, rejected the idea of defining narrowerrelevant markets by distinguishing between B2C and C2C, traditional

online retail and developing online retail modes (e.g., live broadcast,short video, graphic text), or retail categories.

2.2.2 FINDING DOMINANCE of platform - Alibaba as a source ofabusive conduct

Establishing Alibaba’s dominance in this relevant market was relativelyuncomplicated

According to the International Trade Administration, in 2015-2019, Alibabaremained counting for at least 60% of the online market Despite forces fromChina government, in 2023, Alibaba’s Taobao and Tmall still make up 50.8%market share, followed by JD.com (15.9%) and Pinduoduo (13.2%) are thedomestic platforms that dominate China’s e-commerce market

Chinese regulators ascertained that Alibaba had imposed an exclusivityagreement on its merchants for over five years In reality, refers to the practice

of requiring merchants to sell solely on one platform, which Alibaba haspreviously defended and has long been a subject of contention

According to the penalty decision, first, Alibaba would rate its merchants based

on their brands, sales, and other performance Then it would prohibit top-ratedmerchants from running stores on rival platforms, either by written contracts or

by oral requests during negotiations Next, it would also prohibit top-ratedmerchants from participating in promotional activities of rival platforms duringbig shopping festivals, e.g., “Double 11”, “618” – similar to Black Friday whenonline platforms compete most fiercely At last, Alibaba takes a variety ofmeasures, including rewards and punishments, to ensure its implementation.Many E-commerce giants such as Jingdong, Suning, and Pinduoduo haveregularly complained about and sued Alibaba for using exclusivity agreements

to stifle market competition Sellers on Alibaba would have suffered as well, astheir independence would have been severely restricted, reducing intra-brand

competition Consumers would suffer the same consequences, with feweroptions and less trade rights.

2.2.3 Amendment of regulations to China’s Anti-Monopoly Law

Overall, the law introduces new rules that impose stricter penalties forviolations and bar big tech companies from using their dominating marketposition to push smaller vendors into participating Sign exclusive businesscontracts The Amendment went into effect on August 1, 2022 It is asignificant step forward in Chinese antitrust enforcement

The following are the Amendment's more notable features:

Significantly enhanced penalties for AML violations, including theintroductionoffinesforindividuals

The AML provides that a monetary fine of 1% to 10% of the previous year’sturnover shall be imposed for such violations The Amendment raises themaximum fine from RMB 500,000 to RMB 3 million (or approximately) forcompanies that have entered into but have not yet implemented ananti-competitive agreement, and for trade associations that organizeanti-competitive agreements among their members, and adds personal liability

by imposing a fine of up to RMB 1 million on individuals who are responsiblefor violating AML's prohibitions against certain monopoly agreements.The Amendment significantly increases the penalty for failure to file areportable merger from a maximum of RMB 500 thousand (about USD 75,000)

to RMB 5 million (approx USD 750,000) If parties fail to file a transactionthat the Chinese antitrust authority decides raises serious competition issues,they may incur a penalty of up to 10% of their previous year's revenue.The introduction of a discretionary “stop-the-clock” mechanism for mergerreviews

This mechanism enables the authority to suspend the AML merger review