The most talked about tech company in China, at least over the past few weeks, has been JD.com.

One after another

The eCommerce company has seen a number of negative developments with its team since the Chinese New Year (5 Feb this year):

  • On 19th Feb, at the kickoff of the new year, Richard Liu, the founder, announced that it would lay off 10% of the ‘lowest performance’ senior executives.
  • On April Fools’ Day, the company cancelled contracts with hundreds of fresh graduates who were supposed to join the company very soon. The reason was restructuring and each graduating student received CNY 5000 (US$ 744) as compensation.
  • Three days later, Richard Liu sent an internal note stressing that the company needed to get rid of three types of people: those who can’t fight, those who can’t perform, and those who do not provide good ROI.
  • In the same month, the company announced that it would stop paying the provident fund account of newly hired delivery personnel. Existing employees will be purely paid on commission, with a revised (higher) performance target.
  • Three C level executives also departed within a span of one month.

Just yesterday, rumours came out that JD.com is pondering a massive layoff which might impact up to 8% of the workforce, or 12,000 employees.

Stark contrast

This is very different from the image of JD that Richard Liu always tried to portray. Coming from a humble ground himself, Liu in the past spent a lot of time with his delivery boys on the frontline, and vowed for a number of times not to ever lay off anyone.

What has happened?

Some are guessing the pressure from investors, especially with the rapid ascent of Pinduoduo, who sought to replace JD as the number 2 ecommerce company in China (and eventually catch up with Alibaba).

If not for the recent almost 1/3 drop in share prices, the 3.5 years old Pinduoduo would almost match JD.com with market cap.

JD.com was founded in 1998, a year before Alibaba.

In its early days, JD was a reseller of DVDs and other memory disks.

The doubters are attributing the trouble to JD.com’s asset-heavy business model, which is more similar to Amazon than Alibaba (effectively an advertising company).

As service levels improved on Alibaba’s platforms, especially with Cainiao logistic networks, the advantage of JD.com’s model is quickly evaporating.

It’s Richard

The founder Liu seems to be a problem as well. Though he repeatedly said that JD.com should run smoothly even when he is away (as he did a number of times, taking studies in the US), he still makes all the key decisions.

When he was away in the US, he would still catch up with his lieutenants every day.

I still have a business to run, back in China

This is very different from Jack Ma, who already liberated himself from daily chores of managing the business (which was handed over to a suite of competent senior leaders).

Many of our friends who have been in internal meetings with Liu told us about his rage and the fear that was among the senior executives at the meeting.

And the incident in the US last year, which saw Liu in jail briefly for alleged sexual assault charges, certainly did not help. He was eventually cleared.

Not all is bad

However, all these negative news could provide a good excuse for radical reforms – badly needed for the company.

While its oversea ventures have long been problematic, largely due to the concentration of decision making on Liu himself (and he has been indecisive or flip-flopping on global strategy a few times), it is making some good progress recently.

Its financial services arm received a digital banking licence in Hong Kong, through a partnership with Bank of China and Jardines. It is also receiving a license in Thailand after years of trying.

It can (and we believe will) regain its mojo, but first, it needs to solve its internal power problems.

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Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].