Alibaba and Its Strategy
In the contemporary world, more people are looking online for their business needs. It has led to the rise of huge and successful online business organizations. Alibaba.com is a business to business (B2B) website that caters for the needs of buyers and suppliers. On B2B website organizations, information, services and transactions take place between businesses rather than the conventional transactions between business and direct consumer. B2B websites deal with complex services, as there are diverse customers and the buying process is more complex, involving numerous processes before completion. For such reasons, B2B websites face great usability challenges compared to other business transaction websites. Alibaba.com is the undisputed global leader in e-commerce and is the Flagship Company for Alibaba Group. The firm was started in Hangzhou, China in the year 1999. The company offers a comprehensive platform for small shoppers all over the world, who are searching for fast freights of small amounts of goods. Such marketplaces using Alibaba.com have created a symbiotic association with more than 350 million active registered users, coming from 240 Nations and regions. The company has more than 4000 employees, and has more than 60 offices all over China, Korea, Japan, the United States and Europe. Current paper seeks to identify and analyze the company’s business strategy.
Company’s Overview and Brief History
Alibaba was started in 1999 by 18 people under the leadership of Jack Ma, who is a former teacher in Hangzhou. The company was founded on the belief that the World Wide Web would enable businesses and small enterprises to leverage technology and innovation in order to grow and compete effectively in both domestic and global markets. The company’s mission is “to make it easy to do business anywhere.” Since its formation, the company has been successfully helping connect small Chinese companies, entrepreneurs, manufacturers and exporters, to deliver their product to both domestic and international markets. Alibaba operates mobile and online marketplaces in wholesale and retail trade and cloud computing among other services (Alibabagroup, 2015).
The company provides various technologies and services that enable merchants, consumers, and other participants to conduct commerce more effectively, using Alibaba’s system. The company has a goal to build the future infrastructure of commerce globally. On the company’s financials, Alibaba has enjoyed a steady increase in its revenues over the years. For the fiscal year ending 32st March 2015, company enjoyed a strong quarter with substantial growth across its key operating metrics. Such growths include gross merchandise volume, annual active buyers, and revenue. The number of company’s annual active buyers increased by 37% to 350 million. Its revenues registered a 45% quarterly increase to 2,811 million Dollars.
Alibaba Group has an online platform through which they conduct business operations. The major businesses of the company include:
- Taobao Marketplace (www.taobao.com), China’s biggest virtual shopping destination;
- Tmall.com (www.tmall.com), China’s leading third-party podium for trademarks and merchants;
- Juhuasuan (www.juhuasuan.com), China’s most prevalent virtual group buying market;
- Alitrip (www.alitrip.com), a top virtual travel reservation platform;
- AliExpress (www.aliexpress.com), a worldwide virtual marketplace for customers to buy straight from China;
- Alibaba.com (www.alibaba.com), China’s main international online extensive platform for small businesses;
- 1688.com (www.1688.com), a prominent virtual extensive marketplace in China;
- Alibaba Cloud Computing (www.aliyun.com), a provider of cloud computing services to industries and businesspersons.
Products and Partnerships
Alibaba provides virtual products that create a convenient and prompt management for exporters to upload or update important information freely into the database in order to contact buyers from overseas directly. Alibaba owns a ‘mini website’ that caries its client company profiles, virtual showroom for the products and services, as well as their contact information. The company also provides multinational management systems like product display descriptions according to categories, which are available in many other e-commerce marketplaces. Buyers search for products via the search engine of an extensive database that provides a wide range of products and services ranging from automobiles, computers, and electronics. Registered users can easily subscribe to trade alerts or send trade alerts to their buyers on the selected supplier of interest (Alibabagroup, 2015).
Alibaba provides services such as establishing blogs, forums and user groups at its website that offers a platform for customers to communicate and gather feedback regarding the services and products of their interest. Such forums as Taobao and Alibaba.com make communication more convenient and effective to all the consumers. The company also provides its clients with other communication channels such as Alitalk and Yahoo message to disseminate updated information of demand and supply in real time. Such modes of communication among trading parties in real time via trade Manager in Alibaba has made conducting business easy, convenient, and more genuine to consumers.
Dynamics Influencing the Industry
Several aspects in the general business environment have influenced the capabilities and operations of Alibaba. Current section reviews and analyses each of the given aspects.
In China, small and medium-sized enterprises (SMEs) have a huge impact to the nation’s Gross Domestic Product (GDP), with their trading activities and operations contributing to over 60 percent. Approximately 80 percent of employment and 70 percent of trade activity in the nation is done by SMEs. Alibaba identified an opportunity to provide such SMEs with a platform to help them grow and reach out to the diverse customers to conduct trade activities within and beyond the nation’s borders in a cost-effective way.
Due to the technological advancements, the availability of the Internet and increased security, producers and consumers are looking for global business connections and opportunities. There is a huge demand for a diverse range of products from China in almost every corner of the world. Alibaba created Tmall.com and similar websites to help build connection between the producers in China and the rest of the world.
In the contemporary world, business models and operations are significantly influenced by technological developments. Technology is an essential part in the running of business for Alibaba. For instance, Internet browsers with enhanced web security have made shopping online possible, reliable, and convenient. Online payment systems, such as PayPal, have more than 150 million users from all over the globe. As a result, online shopping can be done conveniently, using applications on devices, such as smartphones, tablets, and computers.
Alibaba’s Business Operation’s Environment
Current section analyses the factors connected with the operational success of Alibaba’s business operations.
Bargaining Power of Buyers
The fact that Alibaba lacks the customary sense of suppliers and buyers leads to the situation when the customers have a low negotiating power. Alibaba only provides a platform for merchants to conduct business, which serves as an advantage in dealing with the bargaining powers of its clientele. The company mainly generates revenues from advertising, and its primary customers are SMEs and third party retailers who have shops on Alibaba. The company sells more favorable search results positions on its website. Since Alibaba has more than 15 million merchants, the businesses have a low bargaining power as Alibaba already operates the major online marketplaces. Consequently, it is detrimental for the businesses to switch to different platform providers.
Bargaining Power of Suppliers
The leading users of Alibaba are third party traders and SMEs, who also form the main base of suppliers, as they offer value to Alibaba through their merchandise listings. The company is the main player in the Chinese e-business market. Therefore, the SMEs do not have many alternative choices apart from Alibaba when they need to establish noticeable and lucrative online stores (Merced, 2014). Such merchants have low to medium negotiating power, since the only other corresponding option they have is eBay or Amazon. Moreover, the service delivery of Alibaba ranges from good to excellent, in addition to being affordable.
Rivalry among Competitors
In China, Alibaba has captured at least 80 percent of the online market share. The company has a strong focus starting on its home market position. Moreover, considering the existing domestic firms offering similar services, the threat of rivalry is low. However, on the global scale, the threat of rivalry is medium as there are more strong competitive companies like Amazon and eBay. Alibaba targets to perfect its delivery service to compete more effectively in the global market.
Threat of New Entrants
There exist entry barriers into the line of business similar to Alibaba’s operations, such as proprietary product technology, extensive capital requirements, and high switching cost of buyers. It means that new entrants will have to invest a considerably large amount of resources in their capital investment in order to be competitive. The threat of new entrants is low, as the market is dominated by the three giants: eBay, Alibaba and Amazon, and it is difficult to take a market share from such giant companies (Ruwitch & Carsten, 2015).
Since Alibaba majors in e-commerce, which is basically the buying and selling of transactions online, there are minimal treats to substitute services. The only viable substitute services are to use company websites to market to direct customers or sell at physical stores. Such options are less viable as they are costly and some of the SMEs cannot afford to shelf their products and compete with large firms. Selling directly to customers via website is also not viable to most SMEs as they may be unable to finance the technology to provide secure marketplace for their customers (Yazdanifard & Hunn Li, 2014).
Alibaba is the most competitive company of its kind in the domestic Chinese market. It will continue dominating the domestic market due to its diversified business and strong market power. With more than 650 million Chinese Internet users switching to smartphones, the company is putting increased emphasis on the smartphone market to stay competitive (Asicentral.com, 2015). The company earns revenues from customers for value-added service, membership fees and listing fees. Alipay also charges a small amount for transactions done outside Taobao and Alibaba. In pricing, Alibaba sets prices close to that of its competitors, still making them lower with good quality of goods to attract customers. Due to its dominant position in e-commerce, the company makes approximately 80 million transactions daily in the domestic market, showing good results in connection to the economics of scale, thus no competitor can compare to it (Merced, 2014). Globally, Alibaba’s main competitors are Amazon and eBay. All the companies enjoyed little competition on their way to the top, hence their rapid growth in business markets. Alibaba has the ability to compete with other companies as it has necessary resources. Moreover, the customers in the global market are always looking for new and different experiences.
Opportunities and Challenges
Key opportunities include:
- There are numerous opportunities for growth and expansion in the domestic and Asian market. It is, however, fundamental that the company sustains its domestic market and attains optimal stability before spreading to the rest of the world.
- With recent moves to pursue the global market, the company is open to numerous opportunities for growth and sustainability in the vast worldwide market.
Main challenges include;
- Introducing Alibaba to new regions outside of China presents a huge challenge as the company is facing competition from big companies in the e-commerce sector.
- Moving into mobile platforms brings the question of security to users, with more than 845 of American consumers preferring to use e-wallet compared to credit or cash.
- The sale of counterfeit items through Alibaba is a major concern to the investors. Some of the SMEs may sell knockoffs, and Alibaba has to spend substantial amounts (more than 16 million) per year to identify them.
- Over-diversification may over-exert the resources of the company, which could cost the company its competitive advantage. A corporate venture of Alibaba’s caliber requires many human and financial resources to succeed, which should be seriously considered in venturing into new markets, especially the foreign ones (Yazdanifard & Hunn Li, 2014).
Alibaba Group operates in a wide spectrum of industries and has grown significantly into one of the leading mobile and online commerce company. Its business operations are transacted in leading online marketplaces and Internet-based advertising services, mobile solutions, electronic payment, and cloud computing. Today, Alibaba is the most valuable public company in China, and is one of the most popular technology companies in the world after its US IPO in September 2014, which raised 25 billion dollars, making it the fourth largest tech company after Apple Google and Microsoft (Ruwitch & Carsten, 2015). Alibaba’s current strategies include:
Alibaba gains substantial competitive advantage from having built the business to the massive scale it enjoys. Economies of scale enable the company to generate enough revenues to sustain its expansion to various market opportunities, giving the company the capability to satisfy the market needs for different sectors. It is also have an opportunity to provide third party brands, retailers, and SMEs with a cost effective platform to market and sell their products (Yazdanifard & Hunn Li, 2014).
Moderate to High Level of Diversification – Related Linked
Alibaba attracts both sellers and buyers through its diverse marketplaces. The different marketplaces, such as Taobao Marketplace, Juahuasuan and Tmall.com, were established to cater for diverse target consumers with diverse needs. In addition, the company has AliExpress to attract and retain foreign customers. The company has diversified to logistics, cloud computing, smart TVs and mobile applications, as well as online payment solutions among others. The level of diversification of Alibaba is related-linked as the businesses are connected through their technological platforms (Yazdanifard & Hunn Li, 2014).
Alibaba started by targeting the domestic Chinese market, succeeded in it and made enough revenues to finance its expansion to the global market. Today, Alibaba has opened many shops in the global market starting from Asia, Europe, and the United States. In the long-term, Alibaba targets to capture a large share of the global marketplace and global consumers, especially with the investments into the mobile and technology sector. The company has also established strategic alliances with global partners like Apple, and plans to continue building its brand, seize market opportunities, and sustain its competitive advantage (Asicentral, 2015).
In conclusion, Alibaba has revolutionized the field of e-commerce. Alibaba’s e-commerce marketing strategies have been successful, enjoying continued growth over a short period of time and receiving a boost from the growing technology. Alibaba has successfully built a strong and reliable connection between the SMEs in China and global buyers in a boundless marketplace by providing quality services at a reasonable price, using diversified marketing channels and promotion. Alibaba has significantly attracted a large base of consumers aided by the large Chinese population (Merced, 2014). Nevertheless, the company had to overcome numerous challenges. The management of Alibaba has done a tremendous work in building the company in 1999, facing numerous challenges and overcoming them. In addition, today, the company is one of the most recognizable and powerful marketing brand in 2015, and becoming the fourth largest technology company on Earth. With current trend and appropriate implementation of the strategic plans, Alibaba has the potential to be the best of its kind in the global marketplace.