Alibaba’s Evolution Stages in China
Alibaba Group Holding Limited founded in the year 1999 and it does C2C, B2C and B2B sales service through web portals. In e-commerce, Alibaba primarily does the business as B2C (Business-to-Consumer) which enables the businesses to ship their products to the consumers avoiding all the supply chain in the middle. In addition, Alibaba enables many small suppliers to supply the products to other businesses which make the different final product procured as profit (Martinroll.com 2018). The whole supply chain is managed by the suppliers, not Alibaba. Alibaba Group is holding company and it includes AliExpress, TaoBao, Alipay, AliPictures, AliCloud and AliMama. Alibaba uses the business model which is simple and precise as in the e-commerce section, they take the commission on sold goods. This commission constitutes major revenue for Alibaba. Three major web-portals provide core business to Alibaba, such as Alibaba, TMall and Taobao. These are all e-commerce websites and they connect sellers and buyers and Alibaba Group just acts as the middleman. However, target consumers of all three websites are different which leads to the higher revenue. Merchants list their products on Alibaba website for free; however, it has 2 types of subscriptions; first one is free where the sellers can list their names in free; they need to pay commission after generating sales and the second one is Gold seller where sellers have to pay fees to be ranked higher up (Dongwei 2017). Alibaba cannot make money based on the products sold through e-commerce as the sellers sell the products at lowest price. Therefore, the e-commerce does not provide high-margin services and to counterbalance this, the service side of Ali comes to rescue this. The CEO of Alibaba Group Jack Ma and Ant Financials control major companies. These service-based companies (AliExpress, TaoBao, Alipay, AliTrip, AliPictures and AliCloud) get high investment, decent return and high margin contribute huge money in the business model of Alibaba Group.
In the Chinese market, Alibaba developed the company in five steps in the last 14 years. In the first stage, Alibaba brought information to the suppliers when entering the market and during that period, the trade market of China made little progress which was circulating on the internet. Jack Ma wanted the SMEs of China must enter the electronic market by accessing the online services. The second stage of Alibaba came after 2002 after inventing the reliable certification TrustPass. In this web-portal, Jack Ma guaranteed that the consumers would get the products without deceit and fraud. The third stage of Alibaba came around 2004 when Alibaba created TaoBao exceeding the US eBay. Alibaba also purchased Yahoo China in the year 2007 (Alibabagroup.com 2018). In the fourth stage, Alibaba also made its one of the largest IPO and two main shareholders of the organisation are Softbank (36.7%) and Yahoo Inc. (24%) (Chiu et al. 2014). During the fifth stage, Alibaba opened its Taiwan office and Switzerland office. Alibaba management always thinks that this business model is B2C as the total numbers of business registered has increased with the time. Alibaba understood that sales channels are inadequate for local small businesses. Alibaba used economic growth and economic reform of China and many of the SMEs were looking for expansion of the business. Therefore, Alibaba brought its e-commerce portal to the SMEs so that they can enrich and Alibaba provides communication through the blogs, forums and groups to the businesses (Forbes.com 2018). In the Chinese market, Alibaba gathered two sources of profits, first from advertising costs and the second source is the value-added services of the customers. Alibaba has always been using a competitive pricing strategy.
Alibaba’s Success in China
As stated by Bowen et al. (2015) diversification strategy involves in widening the scope across the different market sectors and product. Alibaba Group has taken the strategy of Conglomerate diversification where they always launched new services that have no prior relation to the current offering. Alibaba adopts this strategy to appeal to all new-group of the customers and this provides higher return-on-investment in the new market segment. Alibaba Group has TaoBao which is B2C and C2C focused portal that enables small businesses and individuals to open stores online. TMall makes money through offering branded products across the world to attract Chinese growing middle class. TMall charges fee and commission on the transaction from merchants (Alibabagroup.com 2018). AliPay is a third-party payment platform, AliMama is an online marketing platform and AliCloud is cloud computing arm of Alibaba.
Alibaba is successful in China because of the unique business model through providing diversified consumption selection for the customers. Alibaba Group has three core businesses and they create e-commerce eco-system. Alibaba’s business model mainly focuses on SMEs and Alibaba handled the transaction of CNY 3 billion in 2017 (Cnbc.com 2018). Another core factor of success of Alibaba Group is an unconventional profit model as the profit comes from seller listing, advertising, keyword bidding. Technological services provided by Alibaba Group give the profit of 25% based on Big Data. Alibaba removed intermediate fees and they allow Chinese sellers to register free on Alibaba. In China, Alibaba has 500 million registered sellers. Another factor of Alibaba Group’s success is accurate credit model which helps to improve trustworthy reputations. Alibaba asks the sellers to pass the online certification test so that they must not do any illegal transaction. Alibaba provides excellent support services for satisfying the customers and its web portal provides positive online experience and comfortable buying environment (Shenkar et al. 2017). Alibaba does special coding system to have instant communication tool and they reimburse the money within seven days if any refund required. The sensitivity of any business opportunity is another reason behind the success of this group. Jack Ma excelled at identifying and capturing the business opportunity through positioning itself as a leader in developing the loyalty of the customers. Alibaba Group always challenged traditional transaction patterns and they explore new ways to establish more value to the customers based on their needs. Alibaba has developed the C2B and Online-to-Offline transaction. Finally, Alibaba Group strives for better service quality by introducing an easier way to do the business. Alibaba expands the business in many fields and in different domains making an integrated eco-system.
International Expansion of Alibaba
Alibaba arranged 11/11 Singles’ Day sale on the global platform and it grabbed over $14 billion on the company platform in 24 hours. Alibaba Group made a team with more than 20,000 non-Chinese retailers to sell products on Taobao and TMall platforms (Frobes.com 2018). Alibaba wants to go to the US, Malaysia, Singapore, Malaysia, Canada and Australia. Alibaba is pushing to make a 50% profit from just the international market as Jack Ma accepts the fact that the Chinese economy is slowing down and Alibaba’s user registrations have also slowed. International expansion of Alibaba is of two-folds, bringing the non-Chinese brands in Chinese market and home country’s products can be exported to different country (Forbes.com 2018). Alibaba wants to replicate the same core strategies to overseas in order to grab the success. Alibaba is making formalised relationship so that they can make globalise its product base.
Jack Ma wants Alibaba to hit $ 1trillion gross merchandise by the end of 2020 and Alibaba want to tough 2 billion customers by 2036. Therefore, Alibaba Group wants to replicate Chinese business model in overseas markets as well. Alibaba is not well-known company in the overseas market as the international services are limited to e-commerce. Alibaba is expecting to be listed on NYSE and it will provide global attention (Cnbc.com 2018). Alibaba is not just limited to the e-commerce site as it has AliPay. It is online payment unit and it has big role in maintaining the huge customer base to connect the shoppers to the businesses. Alibaba wants to make the same operation in overseas market as well where they want to start an integrated ecosystem to be available with all the services along with e-commerce. Alibaba Group has already made arrangements by talking to Japan’s Yahoo Shopping and Lotte.com of South Korea to tie up with AliPay. The strategy of talking is to allure the overseas customers and firms to make registered on Alibaba sites. Alibaba also made partnership With Global Blue, an international sales tax refund company which would help AliPay to refund the money of the consumers in global arena (Cnbc.com 2018). AliPay will provide the benefits of providing access to almost 5,000 retailers in other markets and Europe.
In overseas markets, Alibaba Group wants to replicate the same strategy of diversification of the business. This diversified offerings of services would minimising the risks of loss in overseas market. This integrated ecosystem of Alibaba will attract more consumers where the customers will have profit and save more by choosing all the services. Alibaba Group can preserve capital as diversification of business can protect the savings. Diversified offerings of Alibaba Group can generate high returns. The competitive advantage of Alibaba Group is the integrated ecosystem as the customers can use all the services to save more as one service is associated with another (Perlmutter 2017). Alibaba can secure online payment method of customers by introducing AliPay and the customers will be more loyal. The customers can trust the brand Alibaba Group when they will find that Alibaba itself a bigger brand. Alibaba Group will be trusted by the customers as integrated ecosystem of Alibaba can act as the platform binding all the highly fragmented market in China. Alibaba Group will have the competitive advantage of Economies of Scale as in overseas market Alibaba will have many customers, suppliers, retailers and vendors (Dongwei 2017). Therefore, superior customers’ value, unique business model and profit model from integrated business ecosystem can protect Alibaba from competitors.
Future Goals of Alibaba Group
Economic feasibility of Alibaba Group will help to analyse the identifying profit for the investment in overseas market. Cost and time are the most significant factors of overseas market. Offering diversified services is the strategy of Alibaba Group to reach large numbers of customers. Alibaba Group is larger than combined with E-Bay and Amazon; therefore, it has enough financial strength to invest in the financial market. Operational feasibility is the measurement of the problems and identified opportunities of the organisation (Scarborough 2016). Alibaba Group has enough potential to be successful in overseas markets as well as they have financial power, leadership quality, operational efficiency and e-commerce integrated ecosystem to offer to the customers. Chinese strategy of business model, accurate credit model and profit model can be applied to the overseas market as well. This model is different from Amazon or E-Bay as well. Alibaba’s strategy of making presence in the mega-markets like cloud computing, e-commerce, payment gateway and entertainment will be supported by the wholesome infrastructure of Alibaba. In addition, Alibaba has the experience of operating in the Chinese market with 1.4 billion populations.
Reference List and Bibliography
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Bowen, H.P., Baker, H.K. and Powell, G.E., 2015. Globalization and diversification strategy: A managerial perspective. Scandinavian Journal of Management, 31(1), pp.25-39.
Chiu, C.M., Wang, E.T., Fang, Y.H. and Huang, H.Y., 2014. Understanding customers’ repeat purchase intentions in B2C e?commerce: the roles of utilitarian value, hedonic value and perceived risk. Information Systems Journal, 24(1), pp.85-114.
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Forbes. 2018. Available at: https://www.forbes.com/sites/forbesasia/2018/07/25/how-china-out-innovates-a-chat-with-alibabas-strategy-chief-ming-zeng/ [Accessed 20th Sept 2018]
Forbes.com. 2018. Alibaba Global Ambition. Available at: https://www.forbes.com/sites/ywang/2017/07/02/can-alibaba-realize-its-global-ambition/#2b87f32b62dc [Accessed 20th Sept 2018]
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Perlmutter, H.V., 2017. The tortuous evolution of the multinational corporation. In International Business (pp. 117-126). Abingdon: Routledge.
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