Hi, everyone. Today, we have a special guest visiting called Joe Tsai, Chair, Co founder of one of the world's largest companies with more than one billion consumers called Alibaba, a giant in e-commerce, digital payments, cloud computing, entertainment, and much more. We own almost 2% of the company. And you know what? Joe is also a huge sports fan, and you even own a basketball team, Brooklyn Nets. So great to have you here, Joe, and lots talk about.

Thanks for having me, Nikolai.

Now, let's start with the beginning, just to get to know you a bit. You were born in Taiwan, but when you were 13, you moved to the US. So how was that transition?

It was an extraordinary transition. I came from a very different culture. I grew up in a very Chinese environment and went to a Chinese school. So I barely spoke English when I landed in New Jersey in the United States at age 13. So I went to a boarding school. I thought the best way for me to integrate and be friends with everyone was to play a lot of sports. I tried out for a lot of teams. I got cut from the baseball team and the swimming team.

Were you any good?

I wasn't good skill-wise in baseball, but I was fairly athletic and had some speed. I was fast. So I tried out for football, American football. I played American football on the varsity team and also played lacrosse in high and then went on to play lacrosse in college.

Okay. Who were the formative people in your upbringing?

My father. He is one of the most brilliant, one of the most sharp-minded people I know, but he's very tough. I fear my father. You still fear him? Well, he's no longer with us.

Yeah, but is he still a bit of a ghost in your life?

Still a bit of a ghost, but I think over the years, I felt that I could now, if he were alive, I could talk to him and say, Hey, I've accomplished something in my life as well and probably could rival your accomplishment, but I'm still not as smart as he is.

I just love to see these drivers. We all have something we want to prove for somebody. Now, before You went to Yale, you studied law, but before you joined Alibaba, you also worked for the Swedish Wollenberg family, the Investor AB. What was that like?

It was one of the best experience I've had. I transitioned from being a as a lawyer to being an investor. I worked for an investor in Hong Kong in their office and focused on private equity investments. It was really where I learned the fundamentals of investing. I still remember they gave everybody a book, the McKinsey Corporate Finance Book on Valuation. That's when you learn how to do a DCF model. The discipline, the work ethic was incredible, and I love that environment. I still stay in touch with In fact, before I came in here earlier this week, I was in Stockholm and had dinner with Marcus and Jacob, both of them, actually at the same time, which was rare. I really enjoy that time just catching up with them.

Yeah, they are for sure long-term thinkers. Now, how did you end up at Alibaba?

I was at Investor AB. I think it was my fourth year going into it. I started working at Investor AB in 1995. And then in 1999, a friend of mine who I knew from Taiwan, our parents are friends as well, he came to me and said, You have to go to Hangzhou to meet this man, Jack Ma. He is special. He's crazy, but you should meet him. So I got on a flight to Hongzhou. Back then, there were only two flights a week between Hong Kong and Hangzhou, Tuesdays and Thursdays. I got on a flight and I went to Hongzhou to see him. When I went into this apartment, he had a second-floor apartment in in the city of Hangzhou. It's called Laisai Gardens. It's in this complex. I saw multiple pairs of shoes outside. So there were quite a few people inside working. There were engineers, there were customer service people. And back then, Jack had created a website to have small, medium-sized companies from China that are exporters that want to sell around the world. Our first website, believe it or not, Alibaba was in English language because it was customer-facing to the West.

And there were engineers working away, customer service people doing things. I still remember they had a notebook. They wrote down every single registered user on the site, and there were 28,000 registered users at the time. And then after about an hour, I chatted with Jack. I said, Jack, I have to use the restroom. Can I go to the bathroom? And I went in there. There were 10 toothbrushes next to the sink. I thought, Oh, my God, these people are 24/7 living, breathing in this room, working away. That was the start of the culture. That's the equivalent of a garage.

So did you join that Toothbrush Club.

I didn't bring my toothbrush, but I went away very inspired, not just by Jack's vision and charisma, but also the fact that there were a lot of people that are willing to follow him. It was very early. He didn't have any money, and the people that worked there were his students.

Why did they want to follow him? What are the characteristics of a leader who people want to follow?

I think the most important thing is to give people a sight of what the future looks like.

What site did he give you at the time of what Alibaba could be?

Well, at the time, our business is a B2B marketplace. He said, On the cusp of China, joining the WTO, all these small and medium-sized companies want to do business around the world. Alibaba's mission back then was and still is to make it easy to do business anywhere. Our DNA, our culture is to help small businesses, to go as far abroad as possible. That was the vision. Obviously, we developed into a big domestic consumer company as well as cloud computing now.

When did you understand that this was going to be really big?

I didn't appreciate the scale until around 2005, when that was six, seven years into our founding, when Yahoo came knocking on the door and they said, We want to invest. And at the same time, eBay was also looking at investing in the company. And we were even thinking about selling our little baby called Taobao, which today is the largest this e-commerce marketplace in China for consumer e-commerce. And eventually, we negotiated with Yahoo, and that's just the size of their investment. They invested $1.25 billion, not just into the company, but they also bought out a number of VCs. In a secondary transaction, $1.25 million that valued the company at over $4 billion. And I still remember it was the summer, and then I saw my parents in the summer talking about my dad. That was a proud moment when I said to my dad, I think I've made it. Made some money. Sort of.

But when did you see the real potential scale of the business? When did you really feel that it was taking off?

Well, it's a good question. The scale of the business didn't take off until when Taobao started to monetize. We knew we had a good thing going with Taobao, with buyers and sellers in the marketplace, but we were having trouble monetizing. And there were several efforts in 2006 and 2007 that didn't work out that well. But then we got onto something. We basically monetized the marketplace using search advertising. And so you can imagine you have a Google way of monetizing the marketplace on an eBay-type marketplace. And that was unique. That was actually new, pioneered by Alibaba. And I just remember in 2008, our cash flow started to grow exponentially. And that's when we realized we had a really good thing going.

Of course, you're not the only one who have seen the opportunities here, and so you have now competition in several of your businesses. Tell me about the most serious competition you are facing.

I think the competition, I I can name a number of competitors, and you know them, too. You probably invest in some of them. I think when we look internally and self-reflect over the last several years, we have fallen behind because we forgot about who our real customers are. Our customers are the users that use our apps that are shopping, and we did not give them the best experience. So in a way, we stepped on our own foot and didn't really focus on where the value is, where we could provide value. And so as part of the reorganization, our new CEO comes in. I'm the chairman, but I work with a CEO who is 12 years younger than I am. He's very, very user-focused, focused on the product and the interface and the user experience. And that's the most important thing for us.

And how are you rectifying it? What steps are you taking?

The first thing we did was to acknowledge mistakes. We've acknowledged that in the past, we might have not focused on our user experience. The second thing is to reorganize our personnel, change the organizational structure that fits the strategy. I think this is a very common problem of big companies. Big companies are set in their organizational structures, and then they don't change because people don't like to change. They don't want to change a niche job, they are afraid to be fired and things like that. And then you start to fit the company's direction into your org structure, which it shouldn't be that way. It should be the other way around. You should define what the direction is and then set the company's organization And so we actually reorganize ourselves within Taobao. Our group CEO, who's also directly the CEO of the Taobao T-Mall marketplace. If you look at his direct reports today, they're drastically different from who his direct reports were three months ago.

But was there like, bureaucracy building up or what happened? What made you not see the change in the marketplace?

I think it's human nature that people don't like to acknowledge mistakes. And true leaders and true good managers Have that sense, have that ability to self-reflect and say, I might not have done something right. I did this wrong. I need to change. They need to change themselves. But it is human nature that they Don't do that. I think we fell into that trap, and you have to eat a little bit of humble pie. I think part of leadership is humility. You got to be able to admit your mistakes and say, All right, let's correct course, but here's the new vision, because employees are looking for that direction. It's very, very important.

What does it do to morale in a company which has been growing so fast and where the share price went through the roof when these things reverse?

The morale has not been good in the past three years. I mean, through a multiple of factors. First, we had COVID, and then the The Chinese economy bounced back after COVID, but then it flattened out. Competition was another issue. Also another issue was regulatory scrutiny. We paid big fines, but that's all behind us. But all those things combined was quite devastating to the morale. But as I said, the most important thing, though, is employees are looking for a direction. If you can clearly communicate what the direction is, then they will get rejuvenated.

Changing tack a bit. Of course, your business depend on a strong consumer. How do you see the Chinese consumer just now?

If you look at the whole Chinese economy, China is about 31% of global production, but the consumers only consume 14% global consumption. So obviously, there's an imbalance. China is a net export country, makes a lot of things. But at some point, Chinese consumers should come into more significance and rival that of the Western developed markets. In China, overall consumption is slightly over 50%, whereas the developed markets, consumption is over 70% of the total economy. So there's a lot of potential. But the way I see the consumers today is there's a couple of factors that temper their confidence and willingness to spend. Number one, there's a wealth effect from the property downturn. I think on average, property prices have come down 30 %. And when people's assets, a lot of their wealth is tied up in real estate, and this downturn happens, they don't feel as wealthy and they want to save if they want a propensity to spend is diminished. The second thing is I think young people today are still worried about being able to get a job. Just to look at ourselves. In the last several quarters, we've had headcount reductions. Just through attrition, it's not like we were laying off people, but just through attrition, we're not hiring.

I think it's important that businesses, especially private businesses, are given incentives and the signal and the confidence to invest and hire people. When people don't feel very certain about the future, about their job stability, then their propensity to spend is also affected. The ability to spend, though, is there. China has very high savings rate, and people household cash is still very strong.

Yeah, we had expected the upturn after COVID in China to be stronger than what actually happened. But it sounds like you had the same opinion.

Well, I just said consumer confidence is quite low right now because of the wealth effect and uncertainty about employment in the future.

You mentioned increased regulation. Are you still seeing increased regulatory pressure?

I don't think it's increasing. I think regulatory framework is now more clear. We know what are the lines, how to keep within the boundaries, and not to overstep the boundaries. Having that clarity is very good for business.

Now, China has been the factory of the world for many years now. How do you see this developing going forward?

I still think China will continue to be a manufacturing powerhouse in the world. Despite declining population, on a relative basis, China's population is still very large. You're looking at 800 million productive workers in the economy. Even if that reduces to 600 million, 650 million, that is still a very sizable production force at scale. The Chinese people are industrious, and the education system has been very good. You have a well-educated labor force and skilled labor force. And just relative, you see a lot of reshoring or offshoring to people, diversifying their supply chains to Vietnam, Mexico. But look at the population. The population of Vietnam is about 100 million. The working population, the workforce is 60 million. China is more than 10 times the size of that. They will never be able to replace China as the manufacturing center of the world.

Now, we are now in the second year in the AI revolution. How do you approach AI as a firm?

We're one of the largest cloud players in China. Ai is essential. Having a good large language model that is proprietarily developed in-house is very, very important because it helps our cloud business. If we have a great LLM and other people or the developers are developing on top of it, They're using our computing services. We see AI as very much the left hand and right-hand for our cloud business. The other aspect is the e-commerce business is one of the places where you can have the richest use cases for AI. You can develop a lot of really cool products on top of our own model or even someone else's open source model. We have multiple development efforts going on. In those scenarios, for example, you can try something on using virtual dressing rooms. Our merchants doing business on our marketplace will be able to use AI to self-generate photos, product descriptions, and things like that.

Is that because you have less GDPR and more personalized data?

I don't think it's less GDP. I don't think regulation... We collect a lot of data. We have a lot of data of our consumers. And we also have... There's a lot of open source data because the whole premise of a large language model is you can crawl the web and be able to get open source data to train your model. And it's the same thing in the US, it's the same thing in China. But we are able to further use AI to develop vertical applications, given our own data, what we know about the consumers and the merchants. So it's a beautiful combination using AI to improve our user experience.

Where do you think China is in the AI development compared to the US companies now?

I think China is today behind. It's clear that the American companies like OpenAI have really leaped ahead of everybody else. But China is trying to play catch up.

How far behind do you think it is?

I think China could have a lag that will last for a long time. It's not like Because everybody else is running very fast as well.

But do you think it's one year, five years, three years? What do you think?

I think today we're probably two years behind the top models.

Now, what is your situation when it comes to chips and semiconductors?

Last October, the US put in very stringent restrictions on the ability of companies like NVIDIA to export high-end chips to every company in China. So they've abandoned the entity list approach, and they put the entire China on their list. And I think we're definitely affected by that. In fact, we've actually publicly communicated it did affect our cloud business and our ability to offer high-end computing services to our customers. So It is an issue in the short run and probably the medium run. But in the long run, China will develop its own ability to make these high-end GPUs.

You are doing that yourself as well?

We have some effort of doing that, but we also are looking at other players to source chips from other players.

How big an issue is this lack of chips?

It's a big issue. It's something that everybody is trying to grapple with. In the short run, though, I think prior to the restrictions coming down, people have stocked up inventory. So currently, I think in the next year, 18 months, the training on large language models can still go ahead, given the inventory that people have. I think there's more high computing that's required for training, as opposed to the applications, what people call inference. So on the inference side, there are multiple options. You don't need to have as high power and high-end chips as the NVIDIA, the latest model.

So if you had unlimited supply of NVIDIA top models and everything else you wanted, how would your business have looked differently?

I think we will have a more robust cloud computing business, and we will be able to have customers that want to rent computing power from us.

This leads us to the geopolitical aspects of running a company like Alibaba. Now, what geopolitical considerations do you need to take when you run a company like this?

I think the first thing is to understand all the regulations. We need to make sure that we are compliant with law and with the policies everywhere we operate so you don't run a foul of regulators and then catch the attention of the politicians. That's very, very important to us. I think in terms of compliance structure, we are one of the most robust companies around the world, not just one of the robust Chinese companies. We're one of the most robust companies around the world. I think that's very, very important. Now, Now, speaking of US-China, specifically, if you look at Alibaba, we do so much business on behalf of US companies. We sold over $60 billion of American products to Chinese consumers annually. Trade is two-way. In Europe, about €14 billion of French products to Chinese consumers, €7 billion German products to Chinese consumers. These are all really great stories that people really don't understand. Alibaba is good for the world, good for global trade. So set in that context, people can understand Alibaba better and really not say, Oh, you're just a Chinese company that is trying to flood the market with your cheap Chinese products.

I think it's very, very It's important for the world to know Alibaba is here to do business globally.

Now, in addition to the Chip Act, are there any other geopolitical tensions that impact the way you do business?

Just generally, being a Chinese company in the US, we have to be very careful. For example, we don't have much of a consumer-facing business in the United States, and that's because concerns about data privacy, cybersecurity, and things like that. These are some of the issues that we will have to navigate in the future.

What are some of the misconceptions that you see that people in the West have when it comes to the current situation in China?

I think people tend to be categorical about China, whereas a lot of the truth is somewhere in between. I find this talk about whether China is investible or not quite ridiculous. You're talking about the second largest economy in the world, a very industrious labor force, as I referred to before, 800 million people that are working very hard. I don't think it's constructive to talk about whether to pull out from China or investible in China. I think people have to recognize that you can't bet against the Chinese people. This is an economy that will be around for a long time, and that will actually be good for the world.

You mentioned that one can't bet against China, which brings me to corporate culture and work ethics. What is strong corporate culture to you?

A strong corporate culture means that you identify with the mission of the company, you see the company's direction very clearly, and you love working with your colleagues. You love your boss, you love your colleagues. I think that has always been the Alibaba culture. We have a saying, Work happily, Live seriously. People always talk about work-life balance. But at Alibaba, we say, Well, why does it need to be a dialectic of work versus life? When you come to work, you should be happy because you're among friends. Do you work all the time? No, I don't work all the time. I have to admit, I have actually found ways to become more efficient, so I don't have to work. I used to work a lot more, a lot harder.

You used to have the toothbrush in the office.

I used to have the toothbrush in the office. But here's the thing.

And what do you do to make yourself more efficient?

I apply some of the things I learned in sports and athletics. What? Like training, high-intensity training for a few minutes, and then you rest. So on a given day, I don't want to go 10 hours the whole day working really, really hard. I would go two or three hours, very intense work. I'll be very efficient and get something done, and then I'll take a rest. I'll read the newspaper or take a nap or go out for a workout. So this interval training is the concept that I take from sports and apply that to work.

What does it look like when you do high intensity work in your office? What do you tell me?

People are very afraid of me. I'll make a lot of phone calls and ask tough questions. But I also like the fact... Because I'm untrained as a lawyer, and as well, the training at Investor AB, they taught me how to work a spreadsheet. I do a lot of things by hand myself. If I'm working on a deal, for example, an investment project, I'll write my own term sheet.

You close the door and have You have no interruptions. How does it look like in your office? How do you operate?

Nobody likes interruptions, but I seldom work in the office. I'm always traveling. I'm in a hotel room. I'm on the plane. Sometimes I just call in and say, I'm going to stay at home. In the next five hours, I'm just going to focus on doing something so nobody should call me. So it's never in one place. It's always finding that chunk of time where I can be not bothered.

Do you see yourself as a nice boss?

I would like to. I think being a good boss... I think nice is not... Because if you're too nice to people, you are misleading them. I think the most important thing about a good boss is you give them immediate feedback. Feedback can't be a quarterly review thing or a year-end review thing. Feedback has to be immediate. People need to know whether they did something that wasn't quite right or they didn't apply the full effort. They need to know right away.

What are some of the other leadership principles that you adhere to?

I think humility. I talked about humility. You have to be able to admit to your own mistakes. The other thing is you can't pretend to be the smartest person in the room, always. Sometimes people are looking for that leadership. You want to come up with a good idea, whatever. But that can be all the time because you got to let your people, the people that report to you, be empowered to come up with your own ideas. Otherwise, you kill innovation.

You mentioned sport. Tell me about your love for sport and why you bought a basketball team.

I've always I've been fairly athletic myself. And just having participated in sports, both in high school and in university.

But Joe, there are a lot of people who like sport who don't buy sport clubs.

You're right. But first, about sports. I think sports teaches you not only the discipline and hard work, but also sport teaches you how to fail. If you fall down, if If you lose a game, you got to bounce back. I think that's really, really important. A lot of those principles apply to business. So why I bought a sports team? It's actually serendipity. When the Brooklyn Nets were up for sale, this is in 2017, I really I have no idea what it's like to invest and be an owner of a sports team. But then I looked at the characteristics of the league, how the league shares economics. One of the great things about the NBA is they have a very good collective bargaining agreement that splits the economics between the teams, the owners, and the players. The players are really providing value, so they should get their fair share of the economics. That's all set out in the collective bargaining agreement. Then the other thing about the NBA is among the 30 teams, it doesn't matter if you're competitively successful or not. There is a mechanism for all teams, even the small market teams, to be competitive and to also make money.

There's a pretty fair sharing economics among the teams. For example, the TV rights. The NBA today gets something like $2.7 billion of national TV revenues every year. That gets split among the 30 teams evenly. That's very, very different from the EPL, for example. I thought those characteristics are almost like a little bit socialist, but it ensures that everybody that invest in the league will not lose a lot of money. And the other thing is Brooklyn, we're in New York City. Where else and how else can you get an opportunity to own an asset that is like a crown jewel in a big city, in a big country, with one of the most popular sports in the world.

Is it fun?

It's absolutely fun. I love going to games.

I can see you are having fun with it. What are the other ways you're having fun?

I spend time with my kids. I One of the most rewarding things is to see my 17-year-old son play a basketball game, just a high school game. He's the starting point guard on the basketball team, and it just gives me so much pleasure to see him do well on the court.

Do you read?

Yeah.

What do you read?

Well, I like to read spy novels. I'm a big John LeCarrie fan.

Okay.

I still remember when I was a teenager, one of the first books I read was Tinkert Taylor, Soldier's Spy, and I got hooked on it right away. I think Lecari, the author, has been able to take some of his real life and turn it into this experience for the readers. It's almost aspirational. You want to be one of the characters in the book. I enjoy that very much. Other than that, I try to read as much current affairs as I love The Economist, but that's probably not reading books. No.

What would be your advice to young people?

My advice is learn one or two very fundamental skill sets that you're going to be on the top 10% of everybody else. If you want to learn how to code, if you want to learn a particular subject area, I think you have to develop some specialty. My specialty, professionally, was actually tax law. I was a tax lawyer for three years, and I knew I could go into a room and be at least somewhat smart when people talk about tax structuring, and it still actually is helpful to me today. We're looking at some things internationally where structuring the right corporate entities and tax structures and licensing structures are important. So I get very involved in that. So you can't just be walking to a room and just be a generalist in all areas. You have to be able to tell somebody, I'm an expert in one thing, this particular thing, and that's how you get respect. The other thing that I would say to young people is learn multiple things, in particular, I think in the future, data science is important. Take a class in data science. It used to be called statistics, but data science is the more fancy way of naming it.

Also take a class in psychology. I think there is something that's fascinating about the human mind and how the mind works, and that's very different from machines. If you are equipped with some ability to code, like young people nowadays, they all learn how to code on Python or Java or whatever it is, understand data science and understand a little bit of psychology, I think you're equipped with all the tools that you need to be successful in life.

Sounds like a good plan. You for sure have been very successful, and it's been really great having you on.

Thank you so much. Nikolai, thank you very much. I appreciate it.