Founded just before the turn of the millennium in Hangzhou, China, Alibaba Group has to date become the largest online retail website worldwide in the planet, its total transactions surpassing the sum of both Amazon and eBay’s (Erickson, 2013). The report explains its business and operation model and market strategy, before moving to explore the reasons for Alibaba Group’s success such as its established market share in the large market of Mainland China and its efforts to promote the perception of the reliability and security of e-commerce.
Comprising of its future plans in logistics improvement, expansion into developing nations, integration with social networks, venture into mobile commerce, and also, industries beyond, the report then ends with suggestions for future possibilities that the Group could explore. Outline of Alibaba Group Set in a fast moving, highly pragmatic e-commerce sector, Alibaba Group has never been shy of its ambition which comprises to top Walmart to become the largest retail company worldwide within the next 3 years (Hong, 2013).
Alibaba Group has stakes in not only e-commerce platforms but also in cloud computing, group purchasing, payment processing, cloud computing, and even instant messaging. With its strategic position in a developing China, strong presence in the e-commerce sector and far looking management strategies, Alibaba Group might just be able to achieve its ambitious goals. Business and Operational Model With a mission to make it easy to do business anywhere, Alibaba Group focuses mostly on providing cheap and efficient e-commerce platforms for Business-to-Business (B2B), Business-to-Customer (B2C) and Customer-to-Customer (C2C) transactions.
Promoting domestic and foreign trading, Alibaba. com (B2B) not only introduces Chinese manufacturers who are known for their low-cost goods to international buyers but also supports the services between international and Chinese businesses. Tmall, its B2C site allows renowned brands to sell their products directly to consumers, while Alibaba’s major revenue contributor, Taobao provides C2C services, allowing small businesses and individual entrepreneurs to set up online retail stores to reach out to members of public. Customers are both the sellers and the buyers and they are able to post and advertise their products or needs.
For the case of Alibaba. com, suppliers are able to post their products on the site and interested buyers will submit a request for quotation (RFQ). To maintain the standard of its site, Alibaba. com’s industry specialist will ensure that the returned quotations comprises of supplier’s company and contact information, quality and production details and more if applicable to ensure quality leads. Buyers also undergo the same workflow. Posting requests can also be made through AliSourcePro with convenience, where the company’s industry specialists will match relevant quotes to the interested buyer based on their specified RFQ.
Taobao, on the other hand, comprises of smaller sellers, and customers will pay via Alipay, Alibaba Group’s online payment platform. Purchases will be sent to a forwarding agent’s warehouse before being sent to the buyer. In order to survive the international crisis and adjust to the world trend, Alibaba Group also employ a concept of “One Company” that combines its subsidiaries together (Zhao, 2013), focusing on the collaboration among consumers, channel distributors, producers and e-commerce providers.
It is important to note that while Alibaba. com is often compared to Amazon, there is a marked difference between the two companies where Alibaba Group is still largely confined within the e-commerce box and its platforms. Most of its revenue comes from paid advertisements from sellers to stand out on sites such as Taobao and Tmall, while its secondary revenue comes from the charging of value-added services such as listing fees, subscriptions fees and transaction fees.
While Taobao charges no listing and transaction fee, Tmall earns deposits from authorized distributors of renowned brands upon listing, and a small commission for each successful transaction (Osawa, 2013). As for Alibaba. com, it earns secondary revenue through its Gold suppliers accreditation which promises reliability. Though Alibaba Group is famous for its primary site Alibaba. com, its first business now accounts for only a small part of its portfolio (Osawa, 2013), and is often dogged by criticisms from the finance world, notably referred to as “the worst asset that [Alibaba Group] has” (CNBC, 2012).
On the other hand, Amazon sells its own products such as its Kindle and offers additional services such as streaming (Rayburn, 2011). It also deals with web design for external companies looking into e-commerce (Layton, n. d. ). Market Strategies 1. Differentiation Strategy The reason behind Alibaba’s success is its ability to tap into markets that its competitors struggle with by providing special services that target strategic needs of the Chinese population and its potential trading partners.
Alibaba’s services are specifically catered to small to medium sized businesses(Liquori, 2009), by being an easily accessible advertising platform that is also cheap to set up. These small businesses can be discovered by other companies who search Alibaba for specific products rather than by brands. Furthermore, the escrow services offered by Alibaba in which its competitors are unable to provide, differentiates itself from the rest in the market. As a result, Alibaba is able to reach into markets which its competitors have less access to. . Pricing Strategy Alibaba has a pricing strategy that is advantageous to its customers – the suppliers in particular, through which it provides low-cost value-added services. One such example would be the Gold Supplier Premium Membership. With a membership fee as low as US$250 a month, suppliers get to enjoy exclusive benefits such as unlimited listing of products and a certification of credibility which gives its buyers confidence (Liquori, Benjamin & Barbu, 2009).
Such special benefits are in stark contrast to the privileges of a non-paid member where the company’s listing will be capped at 50, and no certification of reliability is issued. Alibaba’s Gold Supplier Premium Membership has been receiving overwhelming support from its customers as they understand the value of this low-cost paid membership. Most companies who are listed as a Gold supplier on Alibaba. com earn for themselves high profits and strong customer loyalty. 3. Promotion Strategy
Strategic use of the internet platform and sponsoring of events are the two main promotion strategies that Alibaba have adopted. Alibaba. com uses internet platform to gain exposure by being placed in major search engines such as Yahoo and internet banners which lead potential customers directly to their webpage. Sponsoring of high profile business event such as the Australia-China Business Week, which constitutes Alibaba’s first sponsorship deal in Australia, create opportunities for Alibaba to gain publicity and establish relationships with new businesses. UKEssays, 2003)
Comparative Advantage 1. Market Share While the Chinese e-commerce scene is contested by various major players both local and international, the top 10 e-commerce sites are dominated solely by local players, with the control of approximately 65% of the market share. In the face of stiff competition, Alibaba Group’s major competitive advantage is its larger market share in the e-commerce industry compared to its competitors, such Dangdang which initially began as an online bookstore before branching out to e-commerce, and 360buy. om which deals mainly with electronics and home appliances.
Often referred to as the market leader in China’s e-commerce sector, Tmall owns approximately 40% of the market share based on revenue (“E-commerce in china,” 2013). The wide customer base feeds a cycle, attracting sellers who will approach Alibaba Group to list their products, which in turn attracts buyers, and the chain continues, increasing their primary and secondary revenue, helping to maintain its stronghold. 2. Geographical Location
With a population of 1. 35 billion people and more than 42% of its citizens having access to the internet (though lesser than that of developed countries), China is a goldmine of business opportunities that many foreign business aim to enter, and many have failed, such as Google. With its business set in an e-commerce industry that has an annual growth of 23 and 38% in China (TMO Group, 2013) and chinese online buyers estimated to double from its 2012 numbers to reach 423. 4 million by 2016 (“E-commerce in china,” 013), Alibaba’s established stronghold as mentioned in its established market share is doubly advantageous, fuelling its plans of expanding overseas.
3. First- mover security push In 2010, to address consumers’ concerns about security and to lay the groundwork for increased revenue, Alibaba Group “established a 100 million yuan fund to payback users in the event of a transaction dispute with any of the online merchants” (Kan, 2011). The move was effective in creating a change in public perception, contributing to a doubling of Taobao users that year.
Its online payment platform Alipay that has captured approximately half of the market share (“E-commerce in china,” 2013) utilises an escrow service, unlike its Western counterparts. Payment is only released to the supplier upon the buyer’s receipt of the product, providing additional security as their credit card details and deposits are withheld till the product reaches them. Similarly, it also helps suppliers to ensure that payment is promised, with the ability to track the delivery of their shipment.
Also, Alibaba. om ensures security for buyers in the form of Gold suppliers accredition through stringent criteria checks such as Authentication and verification (A&V) check for foreign suppliers and a stricter Onsite check for Gold Mainland suppliers. This not only provides additional reassurance especially with China’s known track record of frauds, but also confidence in the Alibaba brand. While Alibaba’s initial push for confidence in e-commerce has benefitted itself , it will inevitably spillover to profit its competitors.
Likewise, while escrow services can also be easily duplicated, internal efforts will work to uphold the brand name. Alibaba’s Future Plans 1. Logistics improvement Already with daily transactions more than that of Amazon and eBay, Alibaba Group hopes to increase the standard of China’s logistics to that of its foreign competitors, in a move that will benefit Chinese entrepreneurs as a whole (Excapite, 2011).
Launching the China Smart Logistics Network (CSN) that has a net worth of 100 billion yen, CSN aims to “become the backbone of he country’s $190 billion e-commerce market” (Shu, 2013). With the capability to improve efficiency and reduce bottlenecks, the new logistics infrastructure of vast warehousing networks in China will be able to keep up with the needs of its 21st century business, increasing sales and delivering products to customers within China in 24 hours. CSN will also provide third-party couriers, warehouse storage, shipping, analytics, and other services to help vendors improve shipment speed and reduce costs (Shu, 2013). 2. Development into developing nations
Alibaba Group began with a partnership with Infomedia India Limited to compliment its global expansion plans to tap on India’s value as a potential market of which success has also prompted the Group to consider extending the new model to other countries with relatively low Internet penetration (Walraven, 2009). Unable to rely solely on Chinese suppliers to fill up the majority of its supplier contacts on Alibaba. com, Alibaba Group has also worked to spread out its risk and diversify its portfolio through trade shows.
Alipay’s escrow service also allows Alibaba to enter other emerging economies with weaker consumer laws. By planting its roots in new emerging markets, Alibaba Group is able to avoid large competitors such as Amazon and eBay that have already established huge market shares in developed economies. 3. Incorporation with social networks Alibaba Group, in its bid to increase the stickiness of its customers, has not only developed an instant messaging app, Laiwang, in a bid to compete with Tencent’s wildly popular Wechat, acquired popular social music site Xiami. om (Millward, 2013), but also acquired a 18% stake in Sina Weibo, a leading micro-blogging platform in China in an attempt to increase its advertisements (Ghosh & Ramakrishnan, 2013).
Alibaba Group’s venture into the social networking is a calculated move in a country where more than 40% of China’s online shoppers read and post reviews (“E-commerce in china,” 2013) and approximately half of China’s 1. 35 billion population utilising the social media (Millward, 2013). The benefits are obvious- if its acquisitions and ventures are properly integrated, it would contribute to increased loyalty, and an increased revenue. . Mobile commerce With the inevitable rise of Mobile Commerce in conjunction of the increasingly widespread use of smartphones, China has the highest percentage of internet users making a purchase via a mobile phone in Q4 2012 within the Asia Pacific Region (“China, south korea,” 2013). Alibaba Group has noted the potential of the relatively new grounds of e-commerce, with its assignment of more engineers into the company’s mobile division (The Economist, 2013). In addition, Alibaba has also spent roughly $1 billion recently to acquire key mobile services and technologies (Vincent Lara-Cinisomo, 2013).
With no established player in the M-commerce field in China currently, Alibaba Group would stand to gain a first-movement advantage if it strikes early. 5. Going beyond e-commerce Perhaps with the reference of the operations of its competitors, Alibaba Group is slowly moving away from its sole reliance on its e-commerce business, and expanding its cloud computing sector through acquisitions of companies such as Kanbox, one of China’s leading cloud providers to target at consumers and collaborations to target at companies and governmental agencies (Lee, 2013).
By diversifying its operations beyond that of its stronghold e-commerce, it will be able to widen its operations and diversify its risk while simultaneously increasing profits. The way ahead The percentage of Chinese with access to the Internet is surely set to grow in the near future, which will undoubtedly lead to a rise in e-commerce with its ubiquity and information density, benefitting Alibaba Group with its established market share in China’s developing economy.
With its recent acquisition of Auto Navi, China’s top online mapping company (Custer, 2013) and its slew of acquisitions, partnerships, and developments, Alibaba Group should develop a mobile application that will not only harness its wealth of customer information but also ride on its new acquisitions to venture into location based marketing. Likewise, while the push for efficient logistics will set to benefit the company in the long run, Alibaba Group should also work to improve its customer experience and evaluate its priorities, such as the importance of delivering goods within 24 hours.