Comparative Analysis of Alibaba Group and Amazon - Case Study Example

COMPARISON OF TWO MULTINATIONAL FIRMS Students Name: Institutional Affiliation: Department: Course: Date: Executive Summary The essay expresses the comparative analysis of two multinational companies from different countries that compete in the same market. It heightens on the analysis is on the firms’ ownership and control structures, and how their differences influence the priorities of the companies. The paper examine how the difference in contexts have affected the ways in which the firms have internationalized with regard to their location of key assets, the length of time that a company has operated abroad, the nationalities of board members, the structure of the company, and the power of foreign subsidiaries. Content Contents Executive Summary 2 Content 3 Introduction 3 Ownership and Management of the Firms 4 Alibaba 4 Amazon 5 Comparison 6 Institutional Framework of Home Countries 8 Leadership techniques 9 Institutional frameworks 10 Critical analysis 11 Conclusion 12 References 13 Executive Summary 2 Content 3 Introduction 4 Ownership and Management of the Firms 4 Alibaba 4 Amazon 6 Comparison 7 Institutional Framework of Home Countries 8 Leadership techniques 10 Institutional frameworks 10 Critical analysis 11 Conclusion 12 References 14 Introduction Alibaba was established in 1999 by a group of 18 people led by Jack Ma in Hangzhou, China, with an aim of levelling the playing ground to enable small enterprises to develop and participate in the domestic and world markets (McGregor, 2014). Alibaba Group, uses mobile and online marketplaces to facilitate trade in both wholesale and retail. They also offer cloud computing and other technologies and opportunities that facilitate buyers and sellers to engage in e-commerce at www.alibaba.com. Amazon offers a similar platform that seeks to provide clientele with a virtual place where sellers can sell and buyers can find / purchase virtually any item that they wish to buy (www.amazon.com). Amazon’s offices are located in Seattle, USA. Started by Mr. Jeff Bezos in Seattle, USA, Amazon currently has sites in China, Germany, Italy, France, Japan, Spain, Canada, and United Kingdom and another good number of fulfilment centres all over the globe (Amazon, 2015). Amazon has about 51,300 employees around the world. Amazon comprises seven departments (Amazon, 2015). Ownership and Management of the Firms Alibaba Jack Ma was the Chairperson and CEO of Alibaba since its inception to 2012 (Tan, Pan & Huang, 2009). He was able to raise a credit of over $25 million from investors within a year of operation and started realizing profits from the year 2002. In 2003, he launched Taobao.com and Alipay. He led Alibaba into partnership with Yahoo in 2005 and assumed control over China Yahoo. Under his stewardship in 2007, the Hong Kong Stock Exchange featured Alibaba, and in 2008, he launched Tmall.com, a business to consumer online shopping platform focused on well-known brand name goods. In 2014, Alibaba had its IPO (McGregor, 2014). In structure, Alibaba Group acts like a partnership. It was founded by 18 partners, though the number has now grown to 30. New partners are admitted each year, a measure thought to enhance excellence, innovation and sustainability. The offer to join as partner is open to individuals who have been working in the company for more than 5 years. New partners are nominated and then elected by existing partners. In principle, this process of roping in new partners promotes accountability, and since the partners will have been working in the company for over 5 years, they will already be owning or have been awarded a meaningful equity incentives. The partners will thus be expected to handle the business as their own enterprise because they have a stake in it. The partners in Alibaba double up as managers of the firm and other allied companies. Under such a kind of governance structure, the executives, who are part owners, are able to focus on the long-term goals of the firm, collaborate and override bureaucratic hierarchy (McGregor, 2014). The Alibaba Group management structure also includes a Partnership Committee, which comprises of at least five members elected from the Alibaba Partnership. The board of directors currently consists of nine members, and the Alibaba partnership is entitled to nominate two additional directors. Using a simple majority vote, the partners in the Alibaba Group nominate and elect the members of the board of directors. If a person who has been nominated to become partner does not win the election at the AGM, the partners are then expected to appoint another individual to serve in interim capacity as the director until the subsequent AGM during which time the process of nomination and election will be repeated (Alibaba Group, 2014). After the IPO in 2015, the annual shareholder letter was set to come from the partners, who would take turns writing it. The chair’s delegation of this important task to the partners gives a glimpse of what his kind of leadership is. He is the type of leaders who gives every player a chance to showcase his skill for the good of the team. Amazon At the helm of the Amazon is the CEO, whose duties include developing and implementing strategies based on financial analysis reports; meeting shareholders’, customers’, employees’, and communities’ requirements, as well as keeping track of the financial market. Amazon’s founder doubles up as chairperson, chief executive officer and president of the firm. Next is the director, whom the shareholders elect, even though in certain circumstances the employees are allowed to elect the director. The Director takes part in meetings of the firm’s Board of Directors, develops financial statements and facilitates the formation of new alliances as well as new deals with both business liaisons and clients. Heading each segment is a vice president who is directly answerable to the CEO. The seven segments of the company are business development, seller services, web services, worldwide digital media, worldwide operations, international retail and North American retail. To help in coordination and supervision of activities, Amazon has a code of conduct and ethics that guides each and every member of the business organization. The company has a team that handles complaints and audit of financial records. Under the Vice presidents of various segments, are the managers of various sections. The CEO is a hands-on person, who likes to handle things personally. He has a public email, where members of the public can email him, and he makes a point of responding to relevant mails. He follows up on problems himself; for instance, summoning erratic employees to his office. Comparison Both companies are the largest internet trading companies in their countries. Alibaba is the largest internet trading company in China while Amazon is the largest such company in America. Both of their founders quit some form of employment in order to begin the companies. Jack Ma was employed as a teacher, Jeff Bezos as a corporate Vice President in a Wall Street firm. Both Alibaba and Amazon have the founders steering them, supported by a team of experienced and qualified employees. Although both firms have shareholders being part of its organization, the leadership selection and steering of the company is very much in the hands of the company CEOs. Similarly, both firms have a team of equal managers under them, Alibaba’s 30 partnership team and Amazon’s team of 7 vice presidents. Both CEOs inspire and motivate their workforce. Amazon CEO inspires his workforce using a company mantra “Just do it” while Alibaba’s CEO inspires his workforce through ancient Kung Fu tales, nick-naming each of his employees as an ancient Kung-fu character with similar virtues. Amazon awards innovative employees with a Nike shoe labelled “just do it.” additionally, Alibaba rewards the employees by granting giving them shares in the company. . Both of the CEOs are college graduates who have hands on leadership techniques. Resolving issues, addressing employees and making new ventures is normally decided upon solely by the company leaders. Academically, both Jack Ma and Jeff Bezos were very good. Jeff Bezos was the best student in his primary school, while Jack Ma, though not good with algebra, was excellent in English. Institutional Framework of Home Countries Management practicse used by the firms are affected by the institutional contexts of the hosting countries (Liberman & Torbiorn, 2000). Chow (2006) has argued that organizations are “social entities that seek approval for their performance in socially constructed environments” (p.11). That China is a socialist republic seems to have had influence on the formation and growth of Alibaba. First, it was founded by a team of 18 equal individuals, riding on the idea of oneness. Similarly, the capital for the start-up was raised largely through contribution – a fundraising method informed by socialist ideals. A socialist state is differentiated by the undivided political power, state ownership of key elements, and bureaucratic coordination. Thus, businesses set up under the regime had no need to have laws, since organizations were part of the governing body. Much of Alibab’s management practices, such as leadership, communicating to shareholders, and the business structure also mirror a socialist approach. For instance, the partnership seems to have its way with the choosing of Director, in spite of whom the shareholders might prefer. Alibaba endears itself to the employees by granting long-serving ones company shares once they have served for a stipulated period of time. This ensures that, as an employee rises up the corporate ladder, he/she will safeguard the interests of the business as their own, because they have a stake in it. Amazon has no such programs for its employees, being left content with the salary package offered. The sellers are free to sell as they please. When the CEO grants shares as incentives to long serving employees, and when he proffers a mass wedding for its employees, he is basically engaging in tenets that spring directly out of socialism. However, this socialist orientation has helped Alibaba grow to become the giant that it is today. Within a socialist setting, it is expected that any influence will spread fast. Online users of Alibaba number millions per month due to large socialist population and the ripple effect arising from the way those with a socialist orientation will share information. Irene (2006) clearly points out that firms adopt similar intra-industry structures to that of their country due to mimetic intention. In the eyes of socialists, their system of governance is successful, and they will set up their firms in conformity with it. In addition, Alibaba owes much of its success to the Chinese government. First, the Chinese government had banned the Western social networks from operating in China (Chow, 2006). This gave Alibaba a headstart and ensured they were venturing into an unchartered territory of online marketing without having to face stiff competition from the outside. Unlike the socialist republic of China, America is a capitalist nation that allows for much more freedom of expression and ownership of property. Jeff Bezos moved to set up Amazon because of the freewill in the country and the opportunities the region offered. Entrepreneurial activities are often distributed according to the way a society is organized. Seattle was also an ideal location for Amazon because of its strategic location to access international market through water transport, and to get access to skilled work force that was needed by the company. The CEO has always insisted on getting highly qualified people to be part of his team. Leadership techniques In his leadership techniques, Jeff Bezos applied an element of capitalism. He is approachable through mail by the public, and he makes it a point of reading all his mail. He applies a hands-on form of leadership, setting expectations and letting employees strive to meet them. He deals with mistakes and errors immediately and strictly. In a research undertaken by Sagiv and Schwartz (2000), it was found that the cultural setting of a society has nine variations, America was found to incorporate three: future orientation, performance orientation and assertiveness. This means that individuals in America are free to confidently venture into business and seek to grow. Institutional frameworks Within an institutional context, institutions provide the activities and structure that stabilize society. The structure is in the form of family units, economic, political, educational and religious systems. America is a very stable country institutionally, with no political, academic, religious or family turmoil. Under such an environment, a business such as Amazon can find it easy to thrive without the risk of failed institutions. In interacting with the society, the firm must interact by setting up wages and working conditions, skill requirement of the employees, employee interactions and capital raising. In a capitalist society, all these measures favoured the growth and development of Amazon. All these factors, in America, are responsible for the resultant liberal market economy that focuses on individuals. Institutional frameworks also influence the way the firms in question deal in their wares. The socialist-capitalist difference between Alibaba and Amazon respectively is ultimately reflected in the way each conducts its business. Alibaba is just a host for businesses and clients to sell their products, while Amazon sells the products itself. This presents a challenge for Alibaba where the sellers defraud buyers, and the blame lands on the firm. Amazon brokers its commodities from suppliers, markets and delivers them to consumers, having deducted the profit and delivery fee. Alibaba charges sellers to advertise and sell their products. Even though we have argued in this paper that the contexts that host the two firms differ significantly, we point out that a point of convergence exists: the two firms are premised upon the neo-corporatist approach and what Hall & Soskice (2011) term as ‘social systems of production’ that emerged as a result of global technological changes (p.3). Thus, given the virtual nature of their businesses, both firms focus on flexibility and on firm behaviour. Critical analysis With regard to internationalization, both firms had the goal to internationalize from the outset. However, in terms of market share, Alibaba remains comparatively local brand when compared with Amazon. This is possibly informed by the country frameworks too. As already mentioned, the Chinese government cushioned Alibaba and other local organizations from competition. On the contrary, the capitalist approach in the US meant that Amazon had to fight to survive. Perhaps the fate of Alibaba would have been different if the Chinese government had encouraged outside investors early on through Foreign Direct Investments. Even though they are operating globally, both Alibaba and Amazon hardly have international representation in their boards of management and that each has located their key assets in their home country. From among a nine-member board at Alibaba, only two members are nationalities other than Chinese, and one of them represents Yahoo with whom Alibaba entered into a merger recently (Alibaba Group, 2015). Similarly, a recent report shows that Amazon’s employees and managers are mostly whites. Hispanics and Blacks each constituted 4% of the management at Amazon while Asians constituted 18% (Mac, 2014). This implies that even though both firms have gone international in the search of markets, their management remains local. The location of assets of both firms also remains localized to their contexts. Conclusion In this paper, it has been demonstrated that firms undertaking similar business can be quite similar even though they may be located in different parts of the world. It has been shown that Alibaba and Amazon share similarities, especially in their management structures. According to Hall and Soskice (2001), “the firms located within any political economy face a set of coordinating institutions whose character is not fully under their control” (p. 15).With each institution comes a given array of opportunities that the firms operating within them would need to harness by designing their own policies accordingly. As has been demonstrated in this paper, differences in context can result in variation in the firms, for instance the firms analyzed have shown variations that can be directly related to the institutional frameworks of their home countries. Thus, although the two firms show a great deal of similarity in terms of management approach, subtle differences exist in the way things are done and how resources, including the workforce, are mobilized. These differences are informed by the national frameworks that anchor the business, with China being socialist and America being capitalist. Even though the markets of the two firms are global, other internationalisation indicators show that both firms are yet to internationalize fully. References Alibaba Group, 2014. Alibaba Group Holding Ltd - 424B4 – Registration Statements [Online]. Available at: http://finance.delgazette.com/filing/424b4/0001193125-14-347620/cik-1577552/ [Accessed 18 April 2015]. Alibaba Group, 2015. 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