INTERNET: Alibaba Hires Big Gun For Critical Washington Challenge

By newsdoug on June 9, 2015

Bottom line: Alibaba’s new hiring of a Washington insider to head its international government affairs reflects its attempts to look more global, and also an intense lobbying campaign to ensure its name stays off an annual US piracy list.

E-commerce giant Alibaba (NYSE: BABA) has just made a major new addition to its Washington lobbying team, as it gears up for what’s likely to become one of its biggest battles yet on Capitol Hill. That battle will see the company try to convince the Obama administration that it’s a strong partner in the battle against piracy, as it tries to stay off an annual list published by Washington that singles out major internet sites that don’t do enough to stamp out counterfeiting.

Alibaba’s new hire of former GE Capital executive Eric Pelletier to head its international government affairs is also part of its attempts to look more global by adding big-powered non-Chinese to its top management ranks. The move parallels similar hires by equally globally-minded companies including networking equipment giant Huawei and leading PC maker Lenovo (HKEx: 992), which are also trying to convince the world that they’re truly global players and not just Chinese companies.

Washington has been buzzing with word of Alibaba’s latest hire, which will see Pelletier join with the formal title of vice president and head of international government affairs. (company announcement; English article) Despite his most recent role as an executive at GE’s financial unit, Pelletier has strong Washington credentials through his previous job as deputy assistant to the president for legislative affairs in the administration of President George W. Bush. Before joining the White House he also had an extensive history of working on Capital Hill.

His arrival marks the latest hiring of a big-name and politically connected US executive for Alibaba, which entered the record books last September when it made a $25 billion IPO in New York. Both of Pelletier’s bosses are also well-connected Americans, including the company’s head of international corporate affairs Jim Wilkinson, who was formerly a high-level official at the US Treasury Department.

Alibaba will need the Capitol Hill fire power as it tries to become a more global company and justify its high valuation, which has made it more valuable than older and more established e-commerce names like Amazon (Nasdaq: AMZN) and eBay (Nasdaq: EBAY). But on the more immediate horizon, the company will face a critical challenge in the next 6 months as it attempts to convince the Obama administration that its name should remain absent from the next edition of the “notorious” piracy list compiled by the US Trade Representative’s office.

That list usually gets published about once a year, and in the past has typically come out anywhere between December and March. Alibaba’s name had appeared on the “notorious” list in the past, but the company scored a major victory when its name was deleted for the first time in 2012. Its name has remained off the list since then, including the latest list that was published this past March. (previous post)

But company watchers will also know that Alibaba was involved in a high-profile spat in January with one of China’s top commerce regulators over piracy. That tiff saw the State Administration for Industry and Commerce (SAIC) disclose that its own independent study showed that nearly two-thirds of the goods sold on Alibaba’s popular Taobao C2C marketplace were fakes. Washington had no comment on that tiff, and its decision to keep Alibaba off this year’s “notorious” list was probably made before the SAIC spat. But in an important footnote, Washington said it would continue to monitor the situation between Alibaba and the SAIC.

The SAIC spat marked a big embarrassment for Alibaba, kicking off a sell-off for its shares that has seen them drop 14 percent since the start of the year, wiping out billions of dollars in market value. It’s not at all clear whether the US Trade Representative’s office has been in contact with Beijing about the SAIC’s independent investigation, which Alibaba has criticized as flawed.

It’s also not clear what might happen if Alibaba’s name were to reappear on next year’s “notorious” list, which doesn’t have any legal ramifications but would certainly come as a blow to the company’s reputation. Thus Pelletier’s arrival comes at a critical time, and one of his first and primary responsibilities will almost certainly see him head a major lobbying campaign aimed at keeping Alibaba’s name off the next US “notorious” list.