Would the Investors Optimism About the Alibaba.com be Slipping - Case Study Example

Analysis and conclusion: The stock price of Alibaba.com has halved since its first initial public offering (IPO) in 2007. This shows that investors are less-frenzied about Alibaba.com as they were when Alibaba.com appeared for the very first time in stock market of Hong Kong. Moreover there are also various evidences in the case that elaborate significant threat to investors’ optimism about Alibaba.com. These include the following; Global source -------- A tough potential competitor: ‘Global Source’ is actively encroaching China’s domestic Business to Business (B2b) market. The company has already launched ‘China Global Source Online’ to enable Chinese B2B market accessible to international suppliers. This is a successful venture because China is already in synergy with the Global Source’s media that serves China’s export and import sector. Global source occupies second largest share of online market in China that is equal to 21.2% (Exhibit 10). Global source is actively working on new products and has launched 11 new online market products in 2007. Moreover, Global source is actively penetrating the Chinese market via different strategies that include exhibitions, magazines and research articles. Its exhibitions are making the products of suppliers accessible to hard-to-reach customers. With the increasing trend (around 3% per year) in online market use by Chinese people and due to marvelous market penetration strategies of global source, it’s likely to be a great brand for potential customers of online market. This greatly shows the buyer’s inclination to global source in the future. On the other hand Alibaba.com also caters its existing customers effectively specially Small Medium enterprises (SMEs) by providing them trust rating of suppliers that effectively enables them to choose right trading partners. However global source’s revenues are increasing and it is also working quite hard on the product development for growth. Global source is likely to introduce such service for SMEs to compete with Alibaba.com. Alibaba.com’s spending on advertising and promotion relative to revenue are decreasing as per it financial report given in the case. Promotional expenditures in 2004 were 54.2% of revenue and they are only 32% of revenue in 2007 (Exhibit 9). Alibaba.com’s spending on product development has also decreased from 2004 to 2007. Marketing and product development are key to business success. Curtailing such important expenditures does not seem to be a healthy sign for Alibaba.com. Hence global source is likely to capture more buyers in future due to its heavy marketing and innovative product developments for better catering of customer’s needs. More customers to global source imply heightened revenues to the company that will yield greater profitability and thus the investor’s attention. Hence it implies that investor’s optimism about Alibaba.com is likely to hurt. It is more likely that stock price of alibaba.com would decrease in the future due to intensified competition from ‘Global Source’ and other potential competitors. Declining trend in the growth rate of use of online market by SMEs and customers: Rate of growth in customers entering online market place is expected to decrease. In the fourth quarter of 2006 it was 19.8% that has decreased to 14.1% in the first quarter of 2007. Rate of growth in china’s SMEs is also expected to decrease. In 2007 it is 14.1% and in 2012, declining every year, it is expected to be 7.3%. Moreover use of third party e-commerce amongst the Chinese SMEs is also show declining trend. Such declining trend, in face of professional competitor like global souce, implies lower revenues and thus lower profitability for Alibaba.com in future due to intensified competition. Investors are likely to place lesser value on Alibaba.com’s stock. Retiring Jack Ma: The founder of alibaba.com, Jack Ma, has shown his willingness to quit alibaba.com. This is likely to influence investor’s confidence because so far it’s been jack ma alibaba.com has been capitalizing over. Jack ma’s resignation is likely to shrink investor’s optimism about aliaba.com. Q.2 How could alibaba.com best utilize the proceeds from IPO to scale new heights in B2B commerce and beyond? Analysis and conclusion: Alibaba.com captures the significant share in china’s B2B market. It faces stiff competition from global source and other competitors. It needs to expand its operations in two major areas to ensure sustainable profitable survival. 1) Development of new products: Technology is undergoing a rapid development. Still there is a lot of SMEs that do not involve in online trading. Alibaba.com is having a very charming opportunity in terms of those SMEs. It needs to investigate into the reasons why the SMEs are not involved into online trading as yet and should develop the products that best suit their needs and make them to be investor into Alibaba.com. Exhibit 9 in the case shows declining trend in the product development spending, as a percentage of revenue, by Alibaba.com. Such spending should be thoughtfully increased to combat with the very tough competitor that is Global source. 2) Marketing and promotion Global Source poses great threat to Alibaba.com’s almost monopoly in Chinese B2B market due to its heavily effective marketing and promotion. It has adopted various strategies like exhibitions, magazines and research articles to create its brand awareness amongst Chinese people. It reaches hard- to- reach buyers with the products from different suppliers. Such strategies from global source are likely to win ‘Global Source’ the potential B2B customers that it reaches right now. Alibaba.com should invest into promotional campaigns and other marketing and relationship management activities especially with the SMEs and customers that are not the part of online market as yet. Alibaba.com already enjoys sufficient goodwill in china. The promotional activities are likely to result in the alibaba.com to be the first choice in the growing Chinese online market. This will ensure sustainable investor’s confidence and profitability. Qno 3. Would it be able to emerge from the shadows of it totemic founder and mature into an international conglomerate? Primarily alibaba.com is online marketplace for B2B market. It has got sound rooting in the industry and is effective in catering its users’ needs effectively. Horizontal integration is what has given a very strong value to Alibaba.com’s overall worth. However going for conglomerates (backward integration) is not without risks for alibaba.com. Backward integration requires an overall different model of business with different strategies. Possible conglomeration for alibaba.com could be to become the supplier of specific commodities on alibaba.com or to be the buyer itself. Alibaba.com specialize in third-party B2B services. Any conglomeration would require strong specialization in entirely a new industry requiring sizeable investment and risk. In the given circumstances where alibaba.com is under stiff competition with global source its more likely to invest and attend to its principle business. Conglomeration is the function of years of continuous investment and strategic success. Alibaba.com’s mission to be amongst the largest company in B2B market requires it to be genuinely focused on its current business to achieve it the planned heights. Hence it can reasonably be concluded that still a large B2B market remaining to be captured, it’s not feasible for alibaba.com to go for any successful conglomeration. In fact it cannot without surpassing its principal business model. Qno 4. Would alibaba.com thrive under the rising Chinese economy or, would its success will last for “one thousand and one nights”? Analysis and conclusion Alibaba.com is a mature and stable online marketplace. Its largest market share in China’s B2B market and growing international operations worldwide provide a strong evidence of Alibaba.com’s absolute credibility in the eyes of investors. Moreover Alibaba.com is a user-focused company that works closely with the users and develops the products that best satisfy their needs. It continuously seeks feedback from its customers and uses them to take new moves. Instant messaging, email and many other services were provided on the needs of customers. This shows a great customer-orientation and is likely to result in the customer loyalty. Alibaba.com, being a billionaire company, is able enough to undertake strategies to curb the possible threats from competitors. It enjoys sufficient economies of scale that is evident from its decreasing cost of revenue relative to revenue in exhibit 9. SME, being its target market, Aalibaba.com caters their need in the effective way. By providing trust ranking of suppliers it greatly reduces the risk of fraud and unfairness in trading that is the major force resisting SMEs to enter online market. Acquisitions, mergers and joint ventures are evidence that make Alibaba.com’s sustainability is more likely. Moreover the recent price-competitive package move that is to be introduced is another lucrative factor for SMEs to be the part of alibaba.com. The new package would combine standard package features and premier package features with just a nominal increase in price. The new package will cost US$ 6717.00 per year however standard package and premier package collectively now cost US$ 13434 per year. Considering the above mentioned strengths of Alibaba.com its reasonably sound to conclude that alibaba.com is likely to go a long way of success. It has got resources enough to curb possible threats from ‘Global Source’ and other competitors. With the substantial customer-focused staff, it is likely that Aliabab.com would retain its current users and will also attract the potential users of its services. Alibaba.com is likely to thrive in the growing Chinese economy. Read More