Alibaba: Competing in China & Beyond
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Alibaba: Competing in China & Beyond
Introduction
The recognition of Alibaba as a top-notch internet organization is evident globally. Due to its appealing interface that allowed successful connection between purchasers and vendors in the world, Alibaba.com Organization is notably one of the leading firms in E-commerce. The various business models that attributed success to the organization comprised Business-to-Business (B2B), Consumer-to-Consumer (C2C) and Business-to-Consumer (B2C) models. In addition to the competitive nature of the organization in the Internet market, Alibaba also possessed a competitive edge within the browser market. As among the first organizations to penetrate the Chinese Internet market, Alibaba facilitated considerably an Internet revolution in the country, which at one time negated the use of social networking. Interestingly, the main objective behind the conception of the firm was the provision of services to Small and Medium Enterprises within the local region and internationally.
Case Analysis
Background
Jack Ma was responsible for the inception of the organization. Irrespective of Ma being a teacher, his exposure to the Internet at the time he was in the United States facilitated his interest for the platform and thus allowed him to shape China’s internet by developing China Pages, which was the primary saleable website in the country. Additionally, Ma developed the first government website for the Ministry of Foreign Trade and Economic Cooperation during his tenure at the Ministry of Foreign Trade and Economic Cooperation (MOFTEC). His experience in E-commerce would later lead to the birth of Alibaba in 1999 with a sum capital of US$ 60000 and considerable investments of US$ 5 million and US$ 20 million from venture capitalists and Softbank Corporation respectively.
Following the inculcation of Peter Sutherland, who was Goldman Sachs’s Chairman at the time and Massayoshi Son, who was Softbank’s CEO, Ma shifted the firm’s headquarters to Shanghai and Hangzhou (Faheem, 2008). Consequently, Alibaba commenced on connecting international SMEs with Chinese manufacturers at a cost-effective price on the part of the manufacturers due to the high costs of doing global business. Even though the firm focused its strategy on using E-commerce as a connecting tool, the Internet at that time was unpopular in China and thus networking among banks was null. In addition, use of Credit cards was limited and it was considerably hard to offer logistics services. As such, the firm decided to connect buyers and sellers. This realization facilitated the creation of a foreign English B2B trade under www.alibaba.com and a Chinese B2B trade website under www.alibaba.co.jp for Japanese traders since Japan comprised China’s biggest trading partners.
Strategic Management
Indeed, the strategies that Ma implemented concerning intense competition include diversification strategies to ensure the growth of the organization and accessibility of different services to different types of customers locally and internationally. Nevertheless, the organization faced looming threats on the conduction of its business especially in the international E-commerce market. One threat delved from the SMEs. At that time, most SMEs did not trust the thought of online payments. For this reason, Ma assured the SMEs that the structure Alibaba utilized received management based on their agreement with one of the leading banks in China. Furthermore, the SMEs were also hesitant due to the requirement of computer expertise. Nonetheless, Ma initiated a strategy that focused on making the Alibaba E-commerce websites friendly, simple to surf through and easy to use.
In addition, Ma employed another strategy in ensuring that the websites availed a positive interface for the SMEs. As such, in May 2000, the firm acquired John Wu, Yahoo search engine’s developer as the Chief Technology Officer. Interestingly, the firm also faced an external threat to the success of its Internet exploitations. By the culmination of the business’ first year, Alibaba attained recognition as the biggest online international trading website with nearly 200000 members in 194 nations in Asia. Furthermore, about 1000 subscribers joined the website daily. Thus, the websites received over 1500 members daily (Faheem, 2008). Interestingly, about half of the applications ensued from firms situated in the United States, India and Europe while the remainder stemmed from China. These results prompted Alibaba to deduce an expansion strategy by venturing into the European market by March 2000 as well as in the United States through the establishment of the firm’s Research and Development (R&D) in Silicon Valley.
In March 2000, the Dotcom Crash affected the global Internet market and as such, considerable business platforms such as E-commerce affected considerably and negatively due to numerous online firms filing for bankruptcy. Nevertheless, the firm was able to survive the effect due to its non-dependence on marketing revenue. This effect to the E-commerce industry saw Alibaba use the opportunity as a means to diversify its strategy in the competitive market. As such, the firm proceeded with selling its advertising space, statistics and reports on sellers and announced three novel B2C plans. These strategies included Back to China, Back to Central and Back to Coast in which the organization would focus on enhancing its local business, relocating its headquarters and enhancing its occurrence in the coastal regions (Lai, 2010). Furthermore, the organization provided a personalized marketplace accessible for a certain premium. However, such strategies did not generate revenues.
The success of the organization is further evident in the statistics the organization has regarding its share in the Internet market. By 2007, Alibaba had a share of 69.04 percent in the Chinese Internet market. This gained facilitation from the number of its clients, which was 24.6 million listed users, scattered over 200 nations in the world. Nonetheless, irrespective of the company’s exceptional performance in the local and international market, the firm did not possess considerable influence within the web-search business. This is evident due to the assertion that Alibaba dawdled within the search engine market in China regardless of employing an acquisition strategy on Yahoo. Furthermore, large corporations such as Google Inc. and Baidu.com dominated the Internet search market by offering free services. As such, in order for Alibaba to initiate a competitive edge in the market, the firm, under the leadership of Jack Ma, initiated various models, especially in the domain of E-commerce that saw the firm gain success within the respective market.
Factors Leading to Alibaba’s Leadership Maintenance in Chinese E-commerce Market
Various factors were sufficient in ensuring that Alibaba sustained its success in the E-commerce industry in China. These factors include:
Opportunity Advantage
The commencement of Alibaba as an internet organization in an environment that did not accommodate the use of the Internet facilitated the success of the firm. At the time that Alibaba received conception, China did not completely embrace the Internet. Furthermore, the introduction of the E-commerce market in China in 1993 created an unexplored vacuum that required expertise, experience and investment in website technology. By combining such factors, the sector increased from RMB 120 billion to RMB 680 billion between 2001 and 2005 (Faheem, 2008). In addition, the E-commerce sector received influence from government legislations, logistics and imbursement systems. As such, considering the potential of the emergent sector, Alibaba commenced with strategies that focused on offering B2B services to SMEs with the aim of traversing internationally.
Effective Competitive Strategies
From the time of its infancy, the main strategies that Alibaba employed were diversification strategies. In this context, the organization did not focus on providing similar services that were similar to those provided by organizations such as E-bay. Rather, Alibaba focused on distinguishing its services by offering improved services to clients through enhancement. As such, Alibaba placed an ingenious business model that allowed clients to attempt its services without receiving charges. Over the years, the organization was able to produce returns from different streams and augment revenue due to the increase in the keenness of clients to pay for the supplementary services.
Perfect Information
In addition, Alibaba possessed perfect information regarding the E-commerce market in China. The understanding of the market within the country facilitated considerable success for the firm. For example, the decision of the organization to commence a payment system in conjunction with one of China’s leading banks derived from the familiar understanding of the financial market in China. In addition, even though credit cards gained use in the country, they were unpopular for business transactions since most Chinese nationals were uncomfortable in using them. As such, this understanding of the Chinese market facilitated Alibaba to initiate a payment system that offered the Chinese safety and as such, influenced them to conduct online transactions. Moreover, the organization possessed the capability of offering a simple and effectual website that assisted SMEs that did not possess considerable technological expertise to surf the website efficiently.
Mitigating Internet Regulations in China
The regulatory obstacles in China posed considerable barriers to other companies that attempted to invest in China’s budding market. One of the facets that experienced significant regulation in China was the Internet. The Internet faced significant regulation in the country. This is evident in the non-existence of web search engines operating in the country at the time. As such, the heavy regulation imposed on the Internet in China made it difficult for international firms to conduct business and thrive in the country. Nonetheless, Alibaba, in its quest to provide browsing services and internet, mitigated the problems arising from the regulation by exploitation of present opportunities and countering the operational risks within the E-commerce market.
The Rationale behind the Establishment of Taobao.com
The mounting reputation of Alibaba as well as the budding E-commerce sector in the country appealed to numerous international e-commerce firms to China. The first firm to penetrate the country in 2002 was eBay. Upon penetrating China, eBay acquired a market share of 33 percent in the local EachNet. This led to the formation of eBay EachNet. Still in 2002, eBay Each Net assumed its dominant position in e-commerce in China by materializing as the leader in the electronic sales market. Furthermore, eBay Each Net’s domineering presence was evident in 2003 when it acquired a share of 79 percent within the electronic sales market in China. In order to cement its position in the market, Alibaba initiated Taobao.com as a competitor against eBay EachNet (Faheem, 2008). By liaising with Masayoshi Son, the firm commenced Taobao.com in order to exploit the prospects within the rapidly emerging C2C market. Notably, Alibaba already possessed a prevailing advantage in the B2B market and thus sought to employ its understanding of the local market in order to overthrow eBay and lead the C2C sector.
Eventually, Taobao.com seized the C2C sector leading to a reverse in market shares held by both competitors. The comprehension of the Chinese customs, consumer tastes and lingo allowed Taobao.com to emerge as a flourishing competitor within the local electronic sales market. Furthermore, Taobao.com succeeded due to its conveyance of listings regarding free commodities within its website since eBay EachNet charged clients for such services. Alternately, the launching of AliPay by Alibaba facilitated its success since it allowed the Chinese clients to reimburse in cash of which eBay Each Net required to pay in credit cards. Furthermore, Taobao.com utilized hard advertising strategies by placing advertisements within their sites and the positioning of billboards in chief Chinese cities (Lai, 2010).
The penetration of Baidu into the C2C market in China also threatened the firm. This is because Baidu domineered over the firm in local search engine market and possessed an understanding of local knowledge regarding the market in order to take clients from Taobao. Additionally, Baidu possessed 60 percent of the search engine market and thus focused on inclining its users to the C2C sector. The popularity of the Baidu as a search engine stemmed from its understanding of the Chinese culture and communication’s nuances. As such, the firm already possessed a competitive edge (Faheem, 2008). Furthermore, Baidu’s knowledge regarding the customs, language and transactions with the government provided it with an advantage against Alibaba regarding the C2C market. However, Taobao’s success was dissimilar to that of Baidu in the sense that Taobao required a strategy to compete with eBay EachNet that was unable to maintain its position due to its insufficient understanding of the local market as well as reluctance towards the re-modification of its commerce model. As such, Baidu required a strategy to compete with Taobao.
Alibaba’s Business Model, Its Sustainability and Recommendations
The adoption of free strategy by Alibaba conceptualized the firm’s business model. A significant number of purchasers and vendors enquired their services through this site based on the free listing of commodities on the websites. This was different from other sites, which focused on imposing transaction charges on clients. The business model within the firm required the conjunction of Ma with his workers in order to initiate a corporate strategy. The model was a result of a methodical appraisal of the firm’s performance regarding its rivals. Through this assessment, the firm recognized the areas that required improvement and thus developed an exclusive value proposition. Furthermore, its predisposition towards focusing on the business sector was also vital since it offered the firm a scope to accomplish expansion without receiving effect from risks. Nonetheless, the model’s sustainability was dependent on the provision of free listings to clients. Since China did not comprise tech savvy individuals, most Chinese did not possess the amount of complexity that foreigners within developed countries possessed. As such, Alibaba required a strong and loyal client base in order to ensure its model’s sustainability by continuing to offer free listing services and improving the services offered in order to enable clients to pay for value.
Indeed, the global Internet market has become intensely aggressive. The environment in China as well is rather aggressive due to the advocacy for barriers of entry for investing firms. As such, for Alibaba to extend its growth globally, the firm can expand its business model in other budding markets globally. For example, in markets such as those in India, the conditions there are favorable for Alibaba’s business model. This is because the Indian market comprises a considerable populace, a sturdy increase in GDP, an emergent middle class, a significant boost in the amount of Internet customers and low dependence on credit cards. Furthermore, Alibaba can also initiate strategic alliances such as mergers and joint ventures with local firms within the respective market in order to have adequate knowledge regarding the market (Austin, 2010). Additionally, within developed nations, Alibaba can ensure that it uses its business model but since most clients in developed nations demand quality over cost, then Alibaba can ensure that it integrates value in service provision.
Conclusion
Indeed, Alibaba.com Organization is an organization that dominates the Internet globally and locally. Its start as a small E-commerce firm in China facilitated its growth in the country. Despite facing numerous challenges from external threats such as reluctance by SMEs, government regulations and competition from giants such as Baidu and eBay, Alibaba, through the development of a concise business model, employed strategies that ensured a competitive edge as well as loyalty from the Chinese people and thus, stemmed a global domineering presence in the world of E-commerce.
References
Austin, J. E. (2010). The Collaboration Challenge: How Nonprofits and Businesses Succeed through Strategic Alliances. Hoboken: John Wiley & Sons, Inc.
Faheem, H. (2008). Alibaba: Competing in China and Beyond. Hyderabad. ICMR Center for Management Research.
Lai, L. S.-L. (December 01, 2010). Chinese entrepreneurship in the Internet age: Lessons from Alibaba.com. Proceedings of World Academy of Science, Engineering and Technology, 72, 405-411.