Current State of E-Business and Alibaba.Com - Case Study Example

Contents Introduction and Background…………………………………………………………2 1 Business model………………………………………………………………………….2 2 E-business dynamics…………………………………………………………………...2 1.2.1 Barriers to entry…………………………………………………………………2 1.2.2 Buyer bargaining power……………………………………………………….3 1.2.3 Supplier Bargaining Power…………………………………………………...3 1.2.4 Availability of substitutes……………………………………………………..3 1.2.5 Competition……………………………………………………………………...3 1.3 Current state of e-business and Alibaba.com……………………………………..3 2. E-marketing……………………………………………………………………………….4 3. Web-design……………………………………………………………………………….5 4. Business-to-business…………………………………………………………………..5 4.1 Growth strategy………………………………………………………………………….5 4.2 Differentiation strategy…………………………………………………………………6 4.3 Pricing strategy………………………………………………………………………….6 5. Mobile commerce……………………………………………………………………….6 6. Conclusion……………………………………………………………………………….6 7. Recommendations……………………………………………………………………...7 8. References……………………………………………………………………………….8 1. Introduction and Background Alibaba is a Hangzhou-based leading e-commerce and mobile commerce company, which is the worlds largest online company both local and international trade in China (Crunchbase.com, 2014). It makes it possible for over 50 million registered users who are buyers and sellers in over 240 countries and regions to trade (Graphics, 2014). It was founded by Jack Ma, an English teacher. It operates five e-commerce sub-companies such as Taobao.com, china’s largest C2C auction site, Alipay, China’s largest online payment gateway and Yahoo! China, China’s leading search engine (Lim, 2015). It provides a platform where Importers, exporters, manufacturer, wholesalers and customers carry out transactions. It also provides services such as mini-websites for small-sized companies since they can advertise and showcase information about their companies (Zhao,Wang, & Huang, 2008). Alibaba ensures trading of a diversity of products online (Alibabagroup, 2015). 1.1 Business model Alibaba provides a business-to-business platform where sellers meet suppliers on a global scale (Linda, 2010. It offers two platforms, one for in Chinese for Chinese businesses, and the other in English for international customers. Alibabas revenue sources are mainly from advertisements and payments made by its members. Firms that want to sell their products through the platform must register to be members and pay for it. Advertisements also fetch high profits. Its revenue model is mainly advertising-based. Its cost drivers are essentially fixed and semi-variable costs. Variable costs are rare, and they include material costs. Fixed costs include operation, research and development costs, and revenue costs. Semi-variable costs include the costs of selling such as advertising costs. 1.2 E-business dynamics Dynamics of the business can be analysed using the Porter’s five forces analysis which includes: 1.2.1 Barriers to entry Alibaba’s high returns in the B2B market have drawn many firms. This has resulted in other companies entering the business resulting in reduced profits. Many websites try to imitate the business style of Alibaba.com. However, Alibaba still wins due to its popularity. 1.2.2 Buyer bargaining power The customers of Alibaba.com are small-sized companies with little ability to build their websites. This results in them having little power to determine costs, in this case, low costs, as Alibaba.com decides all costs. However, with increasing of other B2B websites, they could choose other platforms creating an opportunity to negotiate more rights with Alibaba.com. 1.2.3 Supplier Bargaining Power Alibaba.com does not require suppliers of materials since it is not a manufacturing firm. However, it requires providers of the advertisements that are firms such as magazines since it largest cost is the cost of selling. Since the suppliers are not a union and prices are not market-based, it may be impossible for buyers to demand higher prices. Supplier bargaining power is, therefore, limited. 1.2.4 Availability of substitutes The availability of close alternate products increases the tendency of customers to change alternatives when prices rise. Large companies have their self-websites that the companies may easily prefer instead of Alibaba.com when trading with those large companies. 1.2.5 Competition The competitor firms of Alibaba.com are search websites such as Baidu.com and Google.com and Tencent. Potential customers may choose to search using the other free and simpler sites and forego the B2B platform. 1.3 Current state of e-business and Alibaba.com E-business is currently dynamic, growing rapidly and highly competitive. This has made it possible for e-commerce companies such as e-commerce to exploit the opportunities that come with the creation of wealth through e-business. Alibaba is the leading e-commerce company in China and a target of most Wall Street investors. It recorded a strong year in 2014. It filed a successful $25 billion IPO (Alibabagroup, 2014), an over 50% surge in its stock price from its initial listed value and an over-subscribed sale of $8 billion worth of bonds (Graphics, 2014). Alibaba has grand ambitions and a dominant Chinese e-commerce market. Its current position can be measured through the SWOT analysis. Strengths Well-known and faithful reputation. Effective growth strategy. Power strategic alliances with industry leaders. It has a successful mobile payment system. It is the world’s largest E-commerce company. Matured international organization structure. Weaknesses It mobile payment system is limited to the Chinese market. It is labor intensive. Low profitability growth. Low level of own technology support. Opportunities Several large banks in China are to participate fully in e-commerce creating opportunities. Business opportunity in the American market. There is a strong internet base. Speeding up of e-commerce. Threats Loopholes in online payment security and inadequate infrastructure. Increased competition. (Linda, 2010) 2. E-marketing Alibaba’s e-marketing creates a platform involving Business-to-Consumer (B2C), Consumer-to-Consumer (C2C), online procurement­ (B2B) and online auction. It includes an independent e-marketplace that is usually a B2B platform that a third party operates for buyers and sellers of a particular industry. It also includes a buyer-oriented marketplace in which distinct consumer groups operate the e-market. Concrete supplier groups operate a supplier-oriented marketplace. Alibaba operates major businesses online through their affiliated companies. Taobao.com is Chinas largest shopping destination that provides a wide range, value, and convenience. It also includes the Mobile Taobao App, which is a popular commerce app. Tmall.com provides a premium shopping experience for the sophisticated Chinese customers. International and Chinese brands are traded here. Juhuasuan is used for online group buying and offers quality products at discounted prices. Aliexpress targets consumers worldwide most of whom are in Russia, Brazil, and the United States. Alibaba.com serves millions of buyers and sellers globally. Small businesses can trade with companies in other countries. 1688. Com is a leading wholesale marketplace in China which serves as a wholesale channel for merchants trading on Alibaba retail markets to obtain products from local wholesalers. Alimama offers sellers online marketing services for both personal computers and mobile devices. Cloud computing provides cloud computing services to support all participants of Alibaba group’s ecosystem. E-marketing strategy of Alibaba includes the Porter five forces analysis as explained in the introduction and background section (Alibabagroup, 2015). 3. Web-design Alibaba’s websites are designed in such a way that they are usable, desirable and provide a real brand experience. The Alibaba.com website is interactive where through surveys, users can request changes in the sites. Project managers then request the changes that then go through thorough review processes to determine if it will have a significant impact or not. A design framework is then determined which is illustrated in a wireframe or Photoshop. Users are the engaged in the design process to detect problems within the concept and to make sure they understand it. Based on the results, the websites design is improved, and the prototype changed. Evaluation is done again to ensure that the website is usable for the users. The design process requires interaction between product managers, interaction designers, view designers, researchers, content managers and front-end developers. Once the design is satisfactory, it is implemented. A/B testing is done, and the best version of the website picked. Alibab.com has about 500 employees on the engineering team and around 70 on the user experience team to facilitate web design. Alibabas quality web design enhances its use by manufacturers, suppliers, exporters, importers, buyers and wholesalers. Its appearance and usability, therefore, increase its usage thus increasing Alibabas profits (Alibabagroup, 2015). 4. Business-to-business It involves transactions between businesses such as those between manufacturers and wholesalers. Alibabas success in the B2B market is due to its efficient strategic management. Its strategies include the fruitful growth strategy; competitive differentiate strategy and the profitable pricing strategy (SUCCESS, 2015). 4.1 Growth strategy This could be done by expanding its global market and attracting clients from other countries. Making alliances with international banks could increase chances of expansion. Another way of growing is through lengthening its operating range. This involves taking advantage of the large global consumer base using value-added methods such as Ali-institute, Ali-express, and Ali-pay. The B2B market is also made to grow through making the business easier. Alibaba uses this long-term strategy to make business convenient to customers. For example, the transaction process is made easier using more convenient payment tools (Success, 2015). 4.2 Differentiation strategy Its huge and loyal customer base enables Alibaba to be the leader of the B2B market. Through this, it has become very competitive. Being located in the largest manufacturing base in the world provides opportunities to import and export through its online platform. The free membership that Alibaba offers to consumers makes it more competitive. It also creates more business opportunities for Alibaba (Success, 2015). 4.3 Pricing strategy Alibaba’s revenue is acquired from primary sources that are through advertising and from secondary sources (Yazdanifard, 2014). Secondary revenue is from listing fees and subscriptions and from charging customers for the value-added services. The fee-paying clients are provided with opportunities such as being listed first in directories and front search results. The Gold Supplier Premium membership enables supplier companies to post unlimited products online. This certification also makes an organisation credible (Success, 2015). 5. Mobile Commerce Through services such as Taobao e-commerce app and the Alipay mobile payments service, mobile commerce is Alibaba’s powerhouse (Lim, 2015). Alibabas cloud computing service is used by mobile developers to host their apps and offer other database services. Alibaba made up to 86.1% of all mobile retail Gross Merchandise Volume in China, worth $71bn in the last quarter of June 30, 2014. Taobao and Tmall have 132 million and 14 million Monthly Active Users (MAUs) respectively. Jingdong has about 13.5 million MAUs. Alibaba faces harsh competition from Tencent, which is the developer of WeChat, Chinas dominant mobile chat app. Its partnership with Jingdong poses a threat. However, WeChat is a social service while Alibaba deals with commerce. Evolution of social interaction to commerce could be difficult for Tencent (Lim, 2015). 6. Conclusion Ultimately, it is evident that the internet era keeps on growing tremendously. This provides a platform where e-commerce can develop. Alibaba, therefore, has an opportunity to grow and continue to take advantage of the pool of loyal customers. Alibaba should continue taking advantage of its strengths and strive to limit its weaknesses. As a global leader in e-commerce, it should make sure it penetrates to the global market. It should take advantage of potential developing markets such as the Indian market. Alibaba has been known to show remarkable performance in strategic management in its B2B market strategies such as the growth strategy; the competitive differentiate strategy and the pricing strategy. It is through these strategies that it stays at the top. However, if it wishes to remain there, it should concentrate on its technology support and make its ways of obtaining revenue less simple. 7. Recommendations To improve performance and overall profitability Alibaba should: Sustain its already acquired domestic market. In order to succeed in international markets like the local market, it must not forsake its domestic market but should continue serving it to earn loyalty. Even after expansion, China would still be the largest market, thus it cannot survive without it. They should penetrate into the developing countries. Developing countries such as India which are fast-growing could provide Alibaba with incredible opportunities for their business. If Alibaba were to partner with the large, powerful local corporations in such countries, it would boost its prosperity and survive competition It should also pay closer attention to developing the vast potential of its American market. If it were to play its cards right, it could take a huge market share of the American market and surpass Amazon, E-bay and its other competitors. Enhancing its technology support through R&D team could give Alibaba a competitive edge. This will avoid outsourcing internet infrastructure from third-party companies and exposing its strategies to the public. Alibaba should increase profitability through cutting on unnecessary costs such as promotion costs in the domestic market as they are already very familiar and known. More convenient and smart search engines could ensure an increase in sales volume due to increased use. It would also enhance efficiency. Word count (1972 words) 8. References Zhao, J., Wang, S., & Huang, W. V., 2008. A study of B2B e-market in China: E-commerce process perspective. Information & Management, 45(4), 242-248. Linda, S. L. L. (2010). Chinese Entrepreneurship in the Internet Age: Lessons from Alibaba. com. Success, T., 2015. The Review Of Alibabas Online Business Marketing Strategies Which Navigate Them To Present Success. Academia.edu. Available at: https://www.academia.edu/9300161/THE_REVIEW_OF_ALIBABAS_ONLINE_BUSINESS_MARKETING_STRATEGIES_WHICH_NAVIGATE_THEM_TO_PRESENT_SUCCESS [Accessed 1 May 2015]. Alibabagroup, 2014. Alibaba Group. Available at: http://www.alibabagroup.com/en/ir/financial [Accessed 1 May 2015]. Alibabagroup, 2015. Alibaba Group. Available at: http://www.alibabagroup.com/en/about/businesses [Accessed 1 May 2015]. Alibabagroup, 2015. Alibaba Group. Available at: http://www.alibabagroup.com/en/about/overview [Accessed 1 May 2015]. Lim, J., 2015. Alibabas Mobile Commerce Dominance Secures $9.3B Singles Day Victory. Forbes. Available at: http://www.forbes.com/sites/jlim/2014/11/12/alibabas-mobile-commerce-dominance-secures-9-3b-singles-day-victory/ [Accessed 1 May 2015]. Crunchbase.com, 2014). Alibaba | CrunchBase. Available at: https://www.crunchbase.com/organization/alibaba [Accessed 1 May 2015]. Yazdanifard, M. T. H. L., 2014. The Review of Alibaba’s Online Business Marketing Strategies which Navigate them to Present Success. Global Journal of Management And Business Research, 14(7). Read More