Case 1 Analysis – Morgan Gittings, Bryn Wirthlin, Sophia Council, Jordyn Moehrle

As the first major American internet company to enter China in 1999, Yahoo faced a multitude

of challenges regarding navigating their relationship with their business partner, Alibaba. From the start,

the difference in Chinese and American business styles were in direct conflict with one another.

One of these decisions that showed a difference in cultures was Yahoo’s decision to sell the

1.14% stake in Alibaba that they had bought during Alibaba’s IPO in 2007. While this sale financially

benefitted Yahoo, it blindsided Alibaba executives and caused a drop in their share price. Although

analysts found that this sale did not indicate a fundamental weakness in Alibaba’s business, it still

showed a lack of respect from Yahoo when communicating their strategy to Alibaba. This can come

across as offensive to Alibaba due to their different perspectives on the individualism dimension of

Hofstede’s Model. The United States has a very high score of 91, explaining Yahoo’s strategy to benefit

themselves, without necessarily thinking about the effects it may have on their business partners.

Businesses in China, like Alibaba, can find these actions disrespectful because their individualism score

is quite different at a low 20. With this highly collectivist culture, it is important for large decisions, in

business and in life, to be conferred upon by all those involved or affected by the outcome. Yahoo’s

decision-making strategy created distrust in the partnership that could potentially be solved by valuing

communication.

Another example of the cultural differences between business in America versus in China is

shown with the hiring of new chief executive of Yahoo, Carol Bartz, who opened her relationship with

executive officers of Alibaba by undermining authority and denouncing Alibaba’s management of

Yahoo! China. Rather than professionally discussing the declining market share of Yahoo! China, Bartz

criticized Jack Ma, founder of Alibaba, during his visit to the US without any prior suggestions and

potential solutions. Yahoo’s actions demonstrated little professionalism and understanding of the

importance of power distance in Chinese culture. On Hofstede’s Model, China scored an 80, suggesting
Case 1 Analysis – Morgan Gittings, Bryn Wirthlin, Sophia Council, Jordyn Moehrle

a high-power distance. A high-power distance is characterized by a high concentration of authority,

polarized subordinate-superior relations, and centralized decision making. Therefore, when Carol Bartz

criticized Alibaba’s management of Yahoo China!, she undermined Jack Ma’s authority in front of his

subordinates. From the Chinese perspective, this act would be considered offensive and uncharacteristic

of a multinational executive.

The relationship between Yahoo and Alibaba had the potential to be very successful.

Unfortunately, the two companies did not practice cultural recognition nor effective communication.

The partnerships could have been strengthened by first understanding each other's culture. In terms of

cultural intelligence, Yahoo management should have displayed better cognition (more specific cultural

knowledge), motivation (willingness to learn about and engage in intercultural interactions), and

behavior (appropriate actions). The next thing that the company should have done was establish their

expectations and goals. This would make guidelines clearer about what actions and strategies the

companies could take. Another option that the companies could have chosen was to establish a board or

team made up of the management of both companies. This team would be able to evaluate decisions

from both companies and come to an agreement about how to change or alter the deal to positively

impact both Alibaba and Yahoo. For example, when Yahoo was partnering with Microsoft, they should

have taken the decision to the board to demonstrate an interest in improving and developing an in-group

relationship and making decisions with the best interest of the group in mind. Overall, the relationship

between Yahoo and Alibaba had the potential to be very successful, but lacked the cultural intelligence

and communication needed to succeed.