MGN 590 – CAPSTONE
Part A – Current Strategy of Alibaba
For every company to be successful and have competitive edge, it must look at its internal and external environment. This is the case of Alibaba an e-commerce and e-trade company.
Internal and External Environment
Threat of new entrants:
This threat is very low in e-commerce industry especially in China as it requires low or moderate capital in maintaining and website and conducting online commerce. New entrants can bring new innovations, reduced costs, and different ways of doing things and even different or low pricing strategy that can put pressure on Alibaba Holding. Even so, many factors will restrict the entrants of new firms to compete with already existing firms like Alibaba. Not just trust is needed for manufacturers to register themselves in an e-commerce business for a fee but it also requires high initial investment, powerful worldwide distribution channels and require advanced technology to support the large number of online users. Continuous innovation is needed to attract new customers and keep existing ones. Economics of scale and research and development are factors that will prevent new entrants into online market place.
Bargaining power of customers
Customers bargaining power is high in e-commerce businesses this is so because customers can easily switch between many platform. They want to pay the minimum price possible for the best quality of offerings available to them. E-commence businesses do not have exclusive power to negotiate with buyers for they do not produce the goods themselves and do not possess sole selling right. When it comes to e-commerce shopping, convenience and pricing plays a great role. Alibaba’s customers are both businesses and individual consumers. Despite switching cost is low in online market, Alibaba’s low prices, wide variety and a strong distribution network make it difficult for its customers to switch to other online sellers. Also as Alibaba’s buyers increase, it becomes difficult for them to influence the market.
Bargaining power of suppliers
The bargaining power of small suppliers is low as they rely heavily on e-commerce site’s user based to stay in business or grow and to generate huge profit. However, the growth in demand of a particular brand (product) would increase the supplier bargaining power as the brand is well known, suppliers will have little or no fear to lose some sales thus will offer their products elsewhere online or in-store. Alibaba has several manufacturers as suppliers that produces different categories of products and are members of its selling pages. Suppliers pay membership fee to have their products listed on Alibaba’s website due to its strong reputation. Switching cost of supplier is low and so with many new suppliers in China willing to register and get their products in Alibaba’s website, any supplier that attempt to increase market rate will easily be replaced by Alibaba with those that will sell at the normal market rate.
Threat of substitute
Threat of substitute is high as physical retail shop will pop in that offers lower prices goods. Also, suppliers in China may turn to sell directly through social websites and shipping directly to customers. Many companies have set up their on retail website offering the same prices as Alibaba saving the supplier the membership costs (Zheng, 2015). Alibaba is the largest online retailing in Asian Pacific website and has millions of merchants and billions of qualified goods (Pang, 2015) but may have difficulties in providing good quality products, returned goods and even exchange goods thus making entity shopping more convenience and faster.
Intensity of rivalry competitors is high. Alibaba face both local and global competitors such as Paipai.com and Amazon.com respectively. Even though Alibaba is just an intermediary that does not own most of the items in its platform, it still compete with Amazon who has massive distribution centers. Alibaba has a competitive advantage over its rivalries as it is the online one that connect buyers directly with manufacturers as it offers a variety of products (Adamkasi, 2017).
Political and Legal
In every economy, government have a huge role to play as it will impact how businesses are carried on and the rule and regulation governing business in that country. China is not an exemption by joining World Trade Organization (WTO), Chinese government over the pass years have been focusing on the development of e-commerce and is willing to help small businesses enter international market. The joining of WTO has given Alibaba the edge to go globally and by promoting and supporting e-commerce by Chinese government have also positively impacted Alibaba.
According to PESTLEanalysis (2015), China has little experience for drafting e-commerce legislation topics such as intellectual properties right protection and tax as the framework is still in its early stage.
China today is the world’s biggest manufacturing country with large quantity of small and medium size enterprises. China is a communist country with an open economy which contribute to about 70% GDP of the country. China has a high rate of economic growth and over took Japan in 2010 to become the second largest economy and in 2011, over took US to become the world’s producer of manufacturing goods (Hemsley, 2014). With so many products, China market needs expansion and Alibaba has cease this opportunity and taken full advantage to expand globally. The mature development of Chinese related industries and foreign e-commerce provides a beneficial economic environment for Alibaba (Pang, 2015).
China is the most populated county in the world. Literacy plays a very important role in the growth and economic development of China. There is high user rate of internet across the country which has made it possible for online shopping because it is convenience. There is an increasing trend of people and doing business online which increases Alibaba’s popularity as an online leading commercial platform around the world.
China is faced with the problem of safe online payment system. The usability of credit card in China online market is very low and has greatly influence the development of B2C industry. Alibaba came up with a new online payment platform called Alipay and became the first to build B2B, B2C and C2C and other e-commerce trading platform (Pang, 2015).
Market share: Alibaba is the leading e-commerce marketer in Chine in terms of market share with about 58% in 2015 coming as a result of it solid manufacturers who has the capability of manufacturing at mass level and supplying across the globe (Melnyk, 2017 and Bhasin, 2018). Alibaba’s massive share comes from its B2C and C2C markets of which Tmall and Taobao holds the greatest proportion respectively. Alibaba also own the greatest portion of mobile shopping market in China.
Visionary leader: Jack Ma is the founder and leader of Alibaba. His popularity, trust and vision about the company drives Alibaba to success thus creating high customer trust. Jack Ma is in the forefront of the business and makes sure that be Alibaba is Ecosystem friendly.
Global player: Alibaba is trying to diversify its portfolio so as to ensure low business risk and not vulnerable to any country or client specific risk and has presence in China, Japan, Korea, the UK and the US (Marketline, 2012). The company has the knowhow of entering new markets and making its presence felt in those markets. Being a global player enables Alibaba to enjoy the opportunities that those countries provide thus looking forward to exploiting the opportunities of several other countries.
Strong relationship with partners: Alibaba provides a conducive business environment for all those who are involved in its success. Financial schemes, scalable platforms, cloud storage and real time access to all information is being offered to merchants, customers and third party dealers thus making it attractive for more partners joining hands with Alibaba (Bhasin, 2018). Chinese government is one of Alibaba’s customers there exist a strong bond amongst them. The company has built a culture that makes distributors and dealers not only promote its products but go further in investing on training its sales teams on how to make customers extract maximum benefits from products they buy.
Growing industry: e-commerce is still a growing industry in China and with China joining WTO, the government focus greatly on developing the industry and helping small business to grow internationally, according to Statista, 2018, the penetration rate of internet users in China has grown from 44.91% in 2016 to 47.2% in 2017 giving a percentage increase of 2.3. The percentage of users in rural areas is still growing and Alibaba will take advantage of that in selling it products across China.
Too many sellers: there have been an increasing number of sellers who register their products with Alibaba and this has cause competition amongst them fighting for online market place. While it might be good for Alibaba as it will make more profit, it might not be good for the sellers. Some of the brands will not experience success and thus withdraw from the contract and pulling out their products from Alibaba’s websites.
Very high discount: Alibaba makes most its revenues by selling advertising spaces to sellers at the same time depriving the sellers from not selling their products at a fair a profitable price as they are being suppressed by Alibaba to offer high discount rate for the products they sells to customers through Alibaba’s websites.
Security: Most customers are afraid and skeptical about the integrity of payment process. Customers always find themselves being insecure and it is the biggest challenge so far in e-commerce. Despite the introduction of new online payment platform called Alipay by Alibaba, China is still faced with safe online payment system problem and the use of credit card in online market is still very low.
Counterfeit products: customers are reluctant to buy products online for fear of not having the right quality and brand delivered to them and they are unable to touch and feel the products before purchase since it is online. Sometimes counterfeit products are delivered to customers which does not meet their expectation and being online market, customers does not know where or how to return the products if it does not meet their test as opposed to physical retail shops which the customers actually see and feel the products they want to buy before actually buying them.
Customer satisfaction: direct physical and direct face to face contact between customer and seller is absent in online sales. Customers are not moved as there is no one to convince them to buy thus customers will prefer most of the times to shop in physical retail outlets than online.
Favourable government rules and regulations: in trying to promote small businesses and develop e-commence, the Chinese government have revise its business rules and cut some processed for easy business in the country. Alibaba will benefit greatly on these favourable rules as it is first of all the leading online market in China.
Globalization and the demand for services: the coming of globalization has prompted many countries into investing substantially in online transactions. Alibaba has got a lot of experience in the Chinese e-commerce market and with it good relationship with major brands in and out of China, it has got the potential to compete in the global market. Moreover, despite the difficulties of Alibaba competing with welled established B2C players in other markets, Alibaba’s B2B sites face a more fractured market, where its economies of scale and economies of scope can provide it with a huge advantage (Denzel, Swan & Mahboubi, 2015).
Changing trend of consumers: people are very brand conscious. They go for branded stuffs irrespective of where the branded product is found E-commerce have made it easy for people to get the brand they desire as it is fast, convenient, effective and transactions can be done anywhere across the globe with ease.
Increase number of internet users: the number of smart phone users is fast growing across the globe which also affects internet users in a positive way. As the number of internet users increases, people begin to feels more comfortable carrying out transactions online.
Competitors: on like any other business, Alibaba faces threat both at home and abroad. It has JD.com and Tencent as local competitors and Amazon and eBay as global competitors. These competitors makes it difficult for Alibaba to gain grounds in certain countries like in India as they dominate the market.
Changes in environment, laws and regulations: different countries have different laws and regulations governing businesses. The environment plays a great role to in operating businesses. Some countries have stringent rules which favours their own businesses and makes it difficult for Alibaba to do business or compete in those countries.
– To make it easy to do business anywhere.
– To build the future infrastructure of commerce. We envision that our customers will meet, work and live at Alibaba, and that we will be a company that lasts at least 102 years.
– To be the world’s largest sinle e-marketplace for online shoppers and to become a premier all-purpose e-business by leveraging its existing brand and business model.
– To hit $1 trillion in gross merchandise value by 2020.
– To serve two billion customers, effectively becoming the world’s fifth largest economy by 2036.
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Armstrong, P., ; Wang, Y. Can Alibaba Realize its global Ambitions? Retrieved from https://www.forbes.com/sites/ywang/2017/07/02/can-alibaba-realize-its-global-ambition/#155d8b4862dc
Awais, M., ; Samin, T. (2012). Advanced SWOT Analysis of E-Commerce. International Journal of Computer Science, vol. 9, Issue 2, No. 2. Retrieved from http://ijcsi.org/papers/IJCSI-9-2-2-569-574.pdf
Alibaba group official website. Retrieved from http://www.alibabagroup.com/en/about/overview
Bhasin, H. (2018). SWOT Analysis of Alibaba retrieved from https://www.marketing91.com/swot-analysis-alibaba/
Denzel, R., Swan, D. ; Mahboubi, A. (2015). Retrieved from http://economics-files.pomona.edu/jlikens/seniorseminars/Likens2015/reports/AlibabaClientReport.pdf
Hemsley, A. (2014). Pestel Analysis of China retrieved from https://prezi.com/urpfabv90bw0/pestle-analysis-of-china/
Melnyk, N. (2017). Alibaba SWOT Analysis retrieved from https://prezi.com/xeuhwpn0wkun/alibaba-swot-analysis/
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Statista. (2018). Mobile Phone Internet users penetration in China from 2015-2022 retrieved from https://www.statista.com/statistics/309015/china-mobile-phone-internet-user-penetration/
Pestleanalysis, (215). PEST Analysis of China retrieved from http://pestleanalysis.com/pest-analysis-of-china/
Pang, J. (2015). Chinese E-commerce Model (case study Alibaba) retrieved from https://www.theseus.fi/bitstream/handle/10024/103215/pang_jie.pdf?sequence=1;isAllowed=y
Ricky. (2013). A PESTLE Analysis on Chines Market (E-commerce sector) retrieved from https://www.chinaabout.net/pestle-analysis-chinese-market-e-commerce-sector/
Zheng, J. (2015). Porter Five Forces Analysis on Alibaba retrieved from https://mgmt7160jz.wordpress.com/2015/02/10/porters-five-force-analysis-on-alibaba/
use in part B http://fernfortuniversity.com/term-papers/porter5/analysis/2588-alibaba-group-holding-limited.php