Alibaba Group in the Marketplace of China - Case Study Example

? Alibaba Group Case Study The paper focuses on rapid development of Alibaba Group in the online marketplace of China. Over the years, Alibaba Group has successfully developed corporate advantage over other competitors and has made a strong position in e-commerce market. It has been observed that there is high level of competition for Alibaba Group in the market. Alibaba Group has incorporated a number of new businesses and it is recommended that the CEO, Jack Ma should use centralization approach in the organizational structure to control the business activities efficiently. In order to reduce the burden of increased span of control, Jack Ma can create a position for Chief Operating Officer (COO) which can help him to focus more on important aspects of the business. Table of Contents Table of Contents 3 Question 1 4 Question 2 8 Question 3 12 Question 4 17 Conclusion 22 References 23 Introduction The case describes the corporate strategy of Alibaba Group, one of the leading e-commerce international organizations. The company was started in the year 1999, and since then it had grown rapidly and grasped the e-commerce market by their business approaches. Despite the financial turmoil in global business environment, Alibaba Group had placed itself strongly in the market and beset the difficulties to progress further. The aggressive growth strategy had helped the organization to achieve the competitive advantage (Wulf 2010). Question 1 How Does The Alibaba Group Create Corporate Advantage? (Why Are The Business Under One Roof?) Is This Corporate Advantage Sustainable? Overview of Pertinent History and Facts In the period of rapid growth of e-commerce sector in China, Alibaba Group had successfully created a leading position in the market by creating corporate advantage. In China, there were in excess of 40 million small businesses which performed in a fragmented market with restricted communication networks and inappropriate information resources. Jack Ma, the Chief Executive Officer (CEO) of Alibaba Group had recognized this opportunity and developed an easy online business platform which was aimed to assist the small producers in China to communicate with the shoppers, the merchants, the trading organizations and the other downstream producers. The company started providing basic facilities to its users and increased its customer base (Wulf 2010). Problem Statement The creation of corporate advantage at Alibaba Group has been discussed in this segment. It also deals with the fact that if the corporate advantage thus created is sustainable. Alternative Solutions and Approaches to the Problem The main strategy which provides Alibaba Group with corporate advantage is its series of growth movements. Alibaba Group had expanded its market reach rapidly by the introduction of Taobao in the year 2003, which is an internet shopping platform. Jack Ma understood the prospects in the e-commerce sector and accordingly had taken possible steps to achieve higher market share. The keyword bidding was becoming beneficial in China therefore Taobao launched “Zhi Tong Che” service in the year 2008 which provides people to bid for keywords in exchange of special advertisement status. As trust is one of the vital factors for performing business in China, Taobao had introduced “Alipay” service in the year 2004. Through this service the company successfully eliminated the settlement risk of payment which had assisted to generate faith among sellers and customers. In the year 2005, Alibaba Group had acquired “China Yahoo!” in order to strengthen its market presence. This strategy lets Alibaba Group to integrate and join resources for development (Wulf 2010). The other strategy of Alibaba Group included investing in the international market to attract more customers. In the year 2006, the company had invested on “Koubei.com”. Besides, the company has also started joint business with “Softbank Corporation” in Japan. These strategies helped the company to elevate its position in the international market place. The growth strategies of Alibaba Group through developing new services, acquiring new organizations and investing in foreign countries helped the company to achieve higher market share and gain corporate advantage against other competitors such as “eBay.com” (Wulf 2010). Evaluation of Alternatives The businesses of Alibaba Group are under one roof because smaller businesses are vulnerable to credit market and higher investment is affordable only if they stay under one roof. A smaller size of business possess lower brand image on major aspects which make it more challenging to get the attention from recognized investors. Meanwhile, there are additional expenses that a company needs to bear if businesses are separated from one roof. For instance, expenditures with respect to management, research and development and advertising among others may cause redundant budgets without raising the overall incomes. In case a business splits into small independent units it might lose the cooperation from other units which can reduce the corporate advantage in the market (Mergers and Acquisitions: Break Ups 2011). Recommendation The corporate advantage of Alibaba Group is sustainable. With its competitive strategy the company has successfully developed itself as one of the leading e-commerce businesses in China as well as in the whole world. Presently, Taobao is considered as one of the biggest consumer e-commerce platforms with users of approximately 100 million. Alibaba Group has successfully managed all challenges through its effective strategies. The company has successfully developed trusts with the shoppers and the merchants. The company had taken advantages of internet penetration growth among Chinese people and thus developed sustainable corporate advantage through launching “Alipay” which provides customers to pay by using internet safely, by implementing “BIG-IP GTM” in the portal of Alibaba Group which had enhanced the reliability and speed of delivery and also had decreased the high load on server. The acquisition of ‘Yahoo China’ was a right step for Alibaba Group which helped it to achieve a high market share as Yahoo is a renowned organization. Presently, ‘Yahoo China’ has millions of users and provides regional information through 2000 metropolises in China. Summary Considering the change of customers’ preferences, maintaining the sustainable advantage is difficult for Alibaba Group. There is need to continuously recognize the trends of customers regarding e-commerce and accordingly adjust to the changes of their preferences in order to maintain the sustainable corporate advantage (Case Study | Alibaba Group 2009). Question 2 Is The Degree Of Competition Among Business Units Appropriate? Do You Think Jack Ma Should Encourage Cooperation? If So, How? Overview of Pertinent History and Facts From the case study, it can be observed that the business units of Alibaba Group compete with each other. The main motive for internal competition is to “bring the best in the businesses” so that it can attract more customers. But to some degree, the internal competition within business units can conflict with each other. For instance, the key goal of Alipay is to strengthen its customer base in the e-commerce payment processing system. Problem Statement The point of contention is if the business units of the group should have cordial relation and cooperative ambience among each other or should they keep on competing to increase their individual share and the role that Jack Ma should play in this regard. Alternative Solutions and Approaches to the Problem In this regard, Alipay can compete directly with Taobao to expand the customer base. Besides, when internal competition creates conflicts among business units of Alibaba Group, the organizational culture is inclined to be in favor of subsidiary companies over the parent company. As a result, it can impact on overall organizational culture of Alibaba Group. The internal competition only becomes beneficial when organization requires rapid reactions to the available secondary opportunities. For instance, eBay needs almost nine months to implement any modification to the business, even for altering a term, because each modification needs to go through the technical development group of the headquarter. On the other hand, business organizations under Alibaba Group are comparatively fast with respect to fulfilling customers’ demands which is vital to survive in this industry. As it is completely unknown to anyone that when and how competitions arise, competition among business units is appropriate to be prepared for any kind of changes in the market and respond quickly. Due to internal competition, the suppliers will frequently arrange their delivery system to compete more efficiently with the services of rival organizations. No competitor will desire to keep the profit margin high except the situation when it sells more with respect to those higher margins. Due to internal competition if any conflict arises among subsidiary companies than the corresponding heads are liable to resolve them (Marvel 2009). Evaluation of Alternatives Cooperation among business units is essential as too much competition can result in ineffective business performance. In this rapidly emerging business environment cooperation among business units can add value for the end users. Generally, value can be added through expansion of service offerings which requires cooperation between subsidiary corporations. Different business units are focused in dissimilar tasks which differentiates them from each other. The interdependencies between them should be accomplished which can help to generate high quality services. Through coordination among business units, an organization can attain mutual objectives, which in turn helps to satisfy potential customers. Therefore, besides competition, Jack Ma should encourage coordination between the business units of Alibaba Group. According to the business environment the organization can use four modes of coordination among business units which are planning, direct supervision, mutual adjustment and standardization of business procedures (Lavikka et al. n.d.). Recommendation Jack Ma can develop mutual adjustment as a coordination method for Alibaba Group’s business units. It can be accomplished by providing training to the employees and the managers of different subsidiary units. Increased competition without coordination can generate conflict in business reporting which in turn negatively impacts on the efficiency of business. In order to encourage cooperation among business units, Jack Ma needs to reward the employees and change the remuneration structure of the organization. Providing reward according to performance can help employees to feel that their worth is appreciated and they will be more cooperative. The business units need to be taught carefully about the mission and the objectives of Alibaba Group and the way to accomplish those objectives. Developing a group organizational culture within business units of Alibaba Group can help to raise coordination within organization. It is the duty of Jack Ma to direct and manage the actions of its business units. Without appropriate regulation system, Alibaba Group can fail to develop and apply business level strategies successfully. There must be enough independence for separate business units to develop their business performance but there must be some sort of commercial mechanism which can encourage coordination among them. Moreover, inducing the development of business in Alibaba Group requires Jack Ma to manage good associations among the business units which can help to accomplish higher economies of scale and develop a strong corporate image in the market. Jack Ma can use several mechanisms such as developing mutual determination, understanding and moral, allocating joint projects, establishing inner communication as a part of encouraging cooperation among business units of Alibaba Group. Summary The positive relationship between business units can help to generate new ideas and thoughts and as a result Alibaba Group and its subsidiary companies can provide better quality services to the customers and strengthen their market position (Furrer 2010, p. 93). Question 3 As Alibaba Develops New Businesses, How Should The Firm Incorporate Them Into The Organizational Structure? What Are The Benefits And Costs Of Having New Businesses Report Directly To Jack Ma? Overview of Pertinent History and Facts E-commerce business heavily depends on the organizational structure as it allows organizations the flexibility which is required to cope up with the necessities of market. Every organization should design and implement businesses or entities to the organizational structure. The immediate effect of new business on organizational structure can be observed in advertising and marketing divisions. Problem Statement Large organizations such as Alibaba Group need to define the correct organizational structure for handling large–scale web operations. This segment deals with the procedure of inculcating the new business segment directly in to the existing organizational structure. It also deals with the benefits that the group can reap if the businesses directly report to the CEO. Alternative Solutions and Approaches to the Problem In order to develop new businesses and strategies, Jack Ma should consider the type of procedures and plans which are required to be implemented in the present organizational structure. There is also need for considering the immediate impact of new businesses on e-commerce and key business areas such as marketing, sales and distribution among others. Incorporating new businesses requires deciding on the business strategy and issues which are crucial for accomplishing the strategy. The company needs to decide on which marketing and sales aspects call for development. The performance of organization after incorporating new businesses can be measured through sales conversion rate, average income, and cost measures. In the next phase, Alibaba Group has to decide the level of alteration required as well as possible in the present organizational structure (Kalakota & Whinston 1997, p. 28). Evaluation of Alternatives As Alibaba Group has functional organizational structure, incorporating new business units will require adding extra functional divisions under the CEO Jack Ma. The level of integration needed and possible should be decided. There are several kinds of integration in business such as data transfer integration which lets an organization to share general information such as sales information and product brochures among others within several departments of organization; workflow integration which lets an organization to observe and manage the actions of employees and finally the user interface integration which allows dissimilar systems to co-exist within similar organizational system and also allows distinct point of access to diverse applications. Incorporating new businesses require customization in the organizational design. The way job responsibilities, work flows and management of work flows are distributed; those need to be customized for the best benefit of Alibaba Group. Recommendation Alibaba Group can take centralization approach for customizing the organizational design. In this approach, majority of decisions will be taken by the top organizational hierarchy of every business unit and every decision will be directed towards the vision and the objectives of organization. But the level of centralization should be optimized carefully so that Alibaba Group can be responsive to the requirements of market. It will help Alibaba Group to develop cost competencies and avoid creating excessive difficulty in the organizational structure. There is also an issue of technology while incorporating new businesses in organizational structure. Individual users and nations are key components for increasing businesses in large corporations such as Alibaba Group. The technical system of new businesses must be capable of coping up with marketing approaches, technical surroundings and communication structures of Alibaba Group (Kalakota & Whinston 1997, p. 28). Reporting of new businesses directly to Jack Ma can provide several benefits. Since he will have the complete knowledge about the occurrences in the company, he can keep accurate control over the resources and the products and also certify that no unsafe plans are commenced without notifying him. When every report will go directly to the CEO, it is less likely that Alibaba Group will overspend the money on business operations which in turn ensures higher efficiency. As Alibaba Group has large number of employees, reporting directly to Jack Ma will ensure that significant decisions are taken by the experienced personnel and employees are always under direct supervision of him. The e-commerce business is becoming highly competitive as several players are entering and developing their businesses and thus, any missteps of new businesses in this competitive environment can have negative impact on the performance of Alibaba Group. Therefore, when decisions are taken under direct observation of Jack Ma, it can ensure that every business unit acts effectively and also it will help to avoid any kind of disruption and miscommunication. Summary Reporting through hierarchy can lead to increased cost rather than benefits. It can bring more complexity to the organizational structure for unnecessary bureaucratization. Besides, it can also hamper the decision making procedure and delay the necessary measures of business units. Delay in necessary measures can result in cost of men hours and also interruption in business performance which can impact on the efficiency of Alibaba Group. Therefore, direct reporting to Jack Ma can be a preferred solution in this regard (Kalakota & Whinston 1997, p. 28). Question 4 What Should Jack Ma And His C-Suite Be Concerned About? Should Jack Ma Centralize More Functions To The Corporate Level? If So, Which Ones? Should Jack Ma Create A Chief Operating Officer Position? Overview of Pertinent History and Facts As the businesses of Alibaba Group are expanding and the company is employing more employees, several organizational aspects generate concerns for Jack Ma and his C-Suite. One of the major concerns for Jack Ma and his C-Suite has been the span of control. Problem Statement The segment deals with the concern of the CEO. It deals with the possibilities of centralization as the solution. Also, this part checks the necessity of the position of COO. Alternative Solutions and Approaches to the Problem With the rapid development of new businesses in Alibaba Group, the span of control of Jack Ma has also increased radically. In the year 2008, he had almost eight persons who directly reported to him. The span of control includes the presidents of the subsidiary organizations and functional divisions of Alibaba Group. The wider span of control necessitates extremely experienced executives and subordinates. With the increase of span of control, there is a risk of overburdening, due to augmentation of number of tasks. It will be difficult for Jack Ma to manage large number of people effectively due to high overburden (Ghuman 2010, p. 251). The other concern for Jack Ma and his C-Suite is human resource activities. As the incomes of Alibaba Group rises and employees and geographical range extends, its businesses would become gradually complex. Managing the huge number of employees is a serious concern for Alibaba Group as it is they who are the crucial assets for the organization. Thus, the leadership strategies need to be developed so that organization can operate more effectively. Without strong leadership, the progress of Alibaba Group will be hampered and organization can lose their approach of conducting businesses. In order to manage the employees, Jack Ma needs to convey the vision to the associates of the organization. In order to imbibe the entrepreneurial and innovative spirit in the organization, Jack Ma needs to recruit personnel who have strong leadership abilities and shared values, and are innovative and can work with employees. As Alibaba Group is becoming global the requirement of cultural sensitivity becomes significant. It can enhance the cross cultural relationships among employees and develop a healthy working environment (Mills 2005). The satisfaction of customer is the other concern for Jack Ma and his C-Suite. Customers only adopt an e-commerce site if they realize that the services will fulfill their expectations. As customers do not have any direct interactions with organization in e-commerce, the most crucial factor to provide them satisfaction is through improvement in product as well as service quality. Alibaba Group needs to respond rapidly with the requirements of customers such as trend in purchasing methods and payment modes among others, which can help to add more value to the business. In the e-commerce environment, customers have several alternatives and solutions thus without proper understanding of customers’ experiences and converting those experiences into enhanced business practices, it will be difficult for Alibaba Group to maintain its strong position in the market. Jack Ma must develop a solid linkage within organization at every point so that customers experience a smooth association (Pasmore 2011). Evaluation of Alternatives There is no need for Jack Ma to centralize more functions to the corporate level. As the organization expands its businesses and differentiates their services, it will be more complex for senior executives to develop all the decisions which can expressively affect the performance. As Alibaba Group is a big company, it is required to decentralize certain operations such as marketing decisions, logistics and supplying chain management activities, as decisions regarding these functions need to be prompt according to requirements of customers. Delay in these functions can hamper the business operations, thus Jack Ma should not centralize these functions to the corporate level, and rather he can centralize functions such as production, financial decisions and decisions regarding changes in organizational procedures or policies as it can impact on the overall vision and the objectives of Alibaba Group (Mcshane & Glinow 2006, p. 238). Recommendation A Chief Operating Officer (COO) is beneficial for Jack Ma in the Alibaba Group. The reason is that it can reduce the work burden of Jack Ma by providing some authority to COO. As a result, Jack Ma can concentrate more on functions such as leadership and business strategies in the future of Alibaba Group. COO can monitor on the regular business operations of Alibaba Group’s businesses and report directly to Jack Ma so that it will be easier for him to take appropriate measures when needed. Summary Jack Ma and his C-Suite should be more concerned about the increasing span of control along with managing the increasing number of employees and maintaining customer satisfaction. Jack Ma can create a position for a Chief Operating Officer (COO) in the organization for effective performance of business operations and strengthening their market presence. Conclusion Rapid business expansion requires several measures in order to create corporate advantage. Alibaba Group has successfully developed itself as one of the leading e-commerce companies. It helps several people to conduct business through internet. As the market of e-business increases, Alibaba Group has also improved its services through introduction of several business units and through acquisition strategy. The company has also invested on international market to attract more customers. In order to survive and maintain its position, Jack Ma as a CEO of Alibaba Group will need to devise more strategies so that the company can differentiate its services and provide more satisfaction to customers. References Case Study | Alibaba Group 2009, F5 Networks, viewed 08 December 2011, Furrer, O 2010, Corporate Level Strategy: Theory and Applications, Taylor & Francis, United Kingdom. Ghuman, K 2010, Management: Concepts, Practice & Cases, Tata McGraw-Hill Education, India. Kalakota, R & Whinston, AB 1997, Electronic Commerce: A Manager's Guide, Addison-Wesley Professional, Boston. 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