The late 1990s saw the establishment of Alibaba Group in Hangzhou, China, which has now become the largest global online retail website. According to Erickson (2013), Alibaba has surpassed both Amazon and eBay in terms of total transactions. This report aims to examine Alibaba’s business model and market strategy while analyzing the factors that have played a role in its success. These factors encompass its strong presence in Mainland China’s market as well as its dedication towards improving the trustworthiness and safety associated with e-commerce.
Alibaba Group has set a goal to surpass Walmart and become the biggest retail company worldwide within the next 3 years. Their ambitious strategy includes improving logistics, expanding into emerging economies, integrating with social networks, venturing into mobile commerce, and exploring new industries. The report presents several potential avenues for Alibaba Group to explore in the future.
Alibaba Group operates in multiple sectors, such as e-commerce platforms, cloud computing, group purchasing, payment processing, and instant messaging. Due to its significant presence in China’s growing market and the e-commerce industry, as well as its forward-looking management strategies, Alibaba Group is positioned favorably to accomplish its ambitious objectives. The company utilizes a business and operational approach that focuses on delivering cost-effective and efficient e-commerce platforms for seamless interactions between businesses (B2B), businesses and consumers (B2C), and consumers (C2C).
Alibaba.com (B2B) strives to enhance domestic and global trade by acting as a platform for introducing Chinese manufacturers, renowned for their affordable goods, to international buyers. It also facilitates services between international and Chinese businesses. Tmall serves as the B2C site of Alibaba.com, enabling well-known brands to directly sell products to consumers. Conversely, Taobao is Alibaba’s main source of revenue and offers C2C services, allowing small businesses and individual entrepreneurs to establish online retail stores and connect with the general public. Within this platform, customers can function as both sellers and buyers while having the ability to post and advertise their products or needs.
Suppliers on Alibaba.com can post their products on the site and interested buyers will submit a request for quotation (RFQ). Alibaba.com’s industry specialist ensures that the returned quotations include the supplier’s company and contact information, quality and production details, and other relevant information for quality leads. Buyers also go through the same workflow. Posting requests can also be made through AliSourcePro, where the company’s industry specialists will match relevant quotes to the interested buyer based on their specified RFQ.
Taobao is made up of smaller sellers and customers use Alipay, Alibaba Group’s online payment platform, to make purchases. The items are first sent to a forwarding agent’s warehouse before being delivered to the buyer. To adapt to the global crisis and align with the current global trend, Alibaba Group has implemented a “One Company” approach, bringing together its subsidiaries. This strategy emphasizes the collaboration among consumers, channel distributors, producers, and e-commerce providers (Zhao, 2013).
Both Alibaba.com and Amazon are frequently compared, but there is a notable difference between these two companies. While Alibaba Group primarily concentrates on e-commerce and its platforms, Amazon has a wider variety of business activities. Alibaba generates the majority of its revenue from paid advertisements on websites like Taobao and Tmall, as well as value-added services including listing fees, subscription fees, and transaction fees.
While Taobao does not charge any fees for listing and transactions, Tmall earns deposits from authorized distributors of well-known brands upon listing, as well as a small commission for each successful transaction (Osawa, 2013). In the case of Alibaba.com, it generates additional revenue by offering Gold suppliers accreditation, which ensures reliability. Despite Alibaba Group’s renowned primary site being Alibaba.com, it now only represents a small portion of its overall business portfolio (Osawa, 2013) and is often criticized by the finance world as “the worst asset that [Alibaba Group] has” (CNBC, 2012).
Amazon, on the other hand, sells its own products like the Kindle and provides services like streaming, as noted by Rayburn (2011). Additionally, Amazon also offers web design services for external companies interested in e-commerce, according to Layton (n. d.). Alibaba’s success can be credited to its differentiation strategy, which involves offering specialized services to address the specific needs of the Chinese population and potential trading partners.
Alibaba specifically caters to small to medium sized businesses, providing an accessible and cost-effective advertising platform. Unlike other brands, these businesses can be discovered on Alibaba by companies searching for specific products. Alibaba sets itself apart from competitors by offering escrow services, giving it access to markets that others cannot reach. In terms of pricing strategy, Alibaba offers low-cost value-added services that benefit its suppliers. For example, the Gold Supplier Premium Membership provides exclusive benefits such as unlimited product listings and a credibility certification for a monthly fee of just US$250.
Alibaba’s Gold Supplier Premium Membership offers unique advantages compared to non-paid membership. Non-paid members are limited to a listing cap of 50 and do not receive a certification of reliability. Customers have shown overwhelming support for the low-cost paid membership, recognizing its value. Being listed as a Gold supplier on Alibaba.com often leads to high profits and strong customer loyalty. Additionally, Alibaba employs a promotion strategy.
Alibaba has adopted two main promotion strategies: strategic use of the internet platform and sponsoring events. On the internet platform, Alibaba.com utilizes major search engines like Yahoo and internet banners to gain exposure. These methods aim to directly redirect potential customers to Alibaba’s webpage. Additionally, Alibaba sponsors high profile business events, such as the Australia-China Business Week, which serves as their inaugural sponsorship in Australia. Through these event sponsorships, Alibaba can generate publicity and establish relationships with new businesses. (UKEssays, 2003)
The Chinese e-commerce scene is mainly dominated by local players, with around 65% of the market share held by the top 10 e-commerce sites. Among them, Alibaba Group stands out as it has a larger market share compared to competitors like Dangdang and 360buy.com.
Tmall, which dominates the e-commerce industry in China, holds approximately 40% of the market share in terms of revenue (“E-commerce in China,” 2013). With a vast customer base, sellers actively seek out Alibaba Group to list their products, thus attracting more buyers and boosting both their primary and secondary revenue. This strategy contributes to Tmall’s continued stronghold. 2. Geographical Location
Although China has a population of 1.35 billion people, only about 42% of Chinese individuals have internet access, which is lower compared to developed countries. Nonetheless, foreign companies find China’s business prospects appealing. TMO Group (2013) reported that the e-commerce industry in the country has experienced impressive annual growth rates of 23% and 38%. It is predicted that the number of online buyers in China will reach approximately 423.4 million by 2016 (“E-commerce in china,” 2013). Despite unsuccessful attempts by companies like Google to enter this market, Alibaba holds a dominant market share and is well-positioned to take advantage of these opportunities while expanding globally.
In 2010, Alibaba Group responded to consumers’ security concerns by creating a 100 million yuan fund to reimburse users involved in transaction disputes with online merchants (Kan, 2011). This initiative successfully improved public perception, resulting in a doubling of Taobao users that year.
Alipay, a leading online payment platform in China, differentiates itself from Western competitors through the inclusion of an escrow service. This unique feature ensures that payment is only transferred to the supplier once the buyer has received the product, providing an additional level of security. Moreover, buyers have the option to retain their credit card information and deposits until they physically obtain the purchased item. Furthermore, suppliers benefit from shipment tracking capabilities and the assurance of receiving timely payment.
Alibaba.com offers security to buyers by accrediting Gold suppliers through rigorous checks like Authentication and Verification (A&V) for foreign suppliers and stricter Onsite checks for Gold Mainland suppliers. This not only gives reassurance, especially considering China’s history of fraud, but also instills confidence in the Alibaba brand. Although Alibaba initially aimed to build trust in e-commerce for its own benefit, it will ultimately benefit its competitors as well.
In addition, internal efforts will be made to maintain the brand name, even though escrow services can also be easily replicated. Alibaba Group has future plans including improving logistics in order to elevate China’s logistics standard to that of its foreign competitors. This move will benefit Chinese entrepreneurs as a whole, considering Alibaba already has more daily transactions than Amazon and eBay (Excapite, 2011).
The launch of the China Smart Logistics Network (CSN), valued at 100 billion yen, aims to become the backbone of China’s $190 billion e-commerce market (Shu, 2013). With the ability to enhance efficiency and eliminate bottlenecks, the extensive warehousing networks in China’s new logistics infrastructure will meet the demands of modern businesses, resulting in increased sales and 24-hour product delivery within China. CSN will also offer third-party couriers, warehouse storage, shipping, analytics, and other services to help vendors improve shipment speed and lower costs (Shu, 2013). Additionally, the network plans to expand its operations in developing nations.
Alibaba Group initially partnered with Infomedia India Limited to support its global expansion strategy and target the potential market in India, following its success, the Group is now also considering implementing a similar approach in other countries with limited internet usage. To reduce reliance on Chinese suppliers for Alibaba.com, the Group has taken steps to diversify its supplier contacts through trade shows.
Alibaba Group utilizes Alipay’s escrow service to expand into emerging economies with weaker consumer protection laws. By establishing a presence in these new markets, Alibaba is able to avoid the intense competition from giants like Amazon and eBay, who dominate developed economies. Additionally, in its efforts to enhance customer loyalty, Alibaba has developed the Laiwang instant messaging app to compete with Tencent’s popular Wechat. They have also acquired the social music site Xiami.om and obtained an 18% stake in Sina Weibo, a major micro-blogging platform in China, to increase advertising opportunities.
Alibaba Group’s foray into social networking is a strategic move in China, a country where over 40% of online shoppers read and post reviews (“E-commerce in china,” 2013) and approximately half of the country’s 1.35 billion population use social media (Millward, 2013). This move holds clear benefits as proper integration of acquisitions and ventures can lead to increased customer loyalty and revenue. Additionally, considering the rising popularity of Mobile Commerce and the widespread use of smartphones, China leads the Asia Pacific Region with the highest percentage of internet users making purchases via mobile phones in Q4 2012 (“China, south korea,” 2013). Recognizing the potential in this emerging field, Alibaba Group has assigned more engineers to the company’s mobile division (The Economist, 2013) and has invested approximately $1 billion in acquiring key mobile services and technologies (Vincent Lara-Cinisomo, 2013).
Alibaba Group may have an advantage in the M-commerce field in China since there are currently no established players. They are diversifying their business beyond e-commerce by expanding their cloud computing sector through acquisitions and collaborations with companies and governmental agencies, such as Kanbox, a leading Chinese cloud provider (Lee, 2013).
By expanding its activities beyond e-commerce, Alibaba Group can broaden its operations and mitigate risks while also boosting profits. The future holds great potential as the number of Chinese citizens accessing the Internet is poised to increase, resulting in a surge in e-commerce. This trend will be advantageous for Alibaba Group due to its dominant position in China’s flourishing economy.
Considering Alibaba Group’s newest acquisition of Auto Navi, China’s leading online mapping company (Custer, 2013), along with various other acquisitions, partnerships, and developments, it is essential for the company to create a mobile application. This application can utilize its abundance of customer information and take advantage of its recent acquisitions to explore location-based marketing. Simultaneously, while focusing on improving logistical efficiency promises long-term benefits, Alibaba Group should also prioritize enhancing the customer experience and evaluating the significance of delivering goods within a 24-hour timeframe.
