External Environment For Target Company - Research Paper Example

External Environment for Alibaba Name Institution External Environment for Alibaba PESTLE Analysis Political Factor China is said to have a strong and enhanced political system which has boosted its economy. Currently, several rules and regulations have been passed in the country which has assisted in strengthening the power and economy of China (Zhidao, 2014). The country is considered among the few countries with effective and operational policy that favour investors who invest money in different sectors of the country. The government also has invested a lot of capital and time in developing e-commerce that is beneficial to Alibaba (Zhidao, 2014). The government is also committed to ensuring businesses in the country flourish and production of different products increase. Every industry sector in China has a strong and operational political support which has enabled many companies in China to flourish. Alibaba has huge political support and is visited by government officials regularly to ensure the development of the enterprise which is the largest ecommerce business in the country (Baidu, 2014). Economic Factors In the recent years, the economy of China has flourished and has increased the growth rate of GDP (Allen, Qian and Qian, 2005). The country has a remarkable rate of saving, skilled manpower and extensive export business that add up to the success of the country. The already experienced economic development can have a positive impact on Alibaba. The GDP increase is adding value to the people in China and is aggregating the consumer purchasing power (Allen, Qian and Qian, 2005). Alibaba is also benefiting from the available cheap labour. Although China has an excellent economic growth, it is faced with high inflation rate, high interest rate as well as increases prices of properties (Zhidao, 2014). In addition, the reserves of banks in the country are high which negatively affects the operations of companies (Allen, Qian and Qian, 2005). Social Factor China is known to have a literacy rate of about 90% which has brought about a positive economic growth of the country (Lu et al., 2008). In addition, China has a population of about 1.3 billion which makes the country overpopulated. The country has tried to control its population by executing strict birth limitation policy (Allen, Qian and Qian, 2005). The population size supplies an abundant workforce which is beneficial to companies like Alibaba. In addition, the government of China recently increased the minimum wages that has brought about challenges to employers who are required to pay their workforce more than before. This brings about a decrease in business profit (Lu et al., 2008). In addition, Chinese people have accepted online shopping model. More and more people prefer shopping at the comfort of their homes. As an ecommerce business, Alibaba has benefited from increasing online shopping which has led to its growth (Zhidao, 2014). Technological Factors Technology is one of the major factors that have produced organisational change in Chinese Companies (Zhidao, 2014). In China due to the growth of e-commerce, consumers prefer to do shopping online such as the use of online sites like Taobao, the latest e-commerce in the country. E-commerce in China has changed the behaviour of consumers as they prefer getting their desired products at the comfort of their homes (Zhidao, 2014). However, China is faced with a huge problem. It lacks a safe and secure online payment system which brings about uncertainty to the consumers and long-term orientation. In addition, the Chinese market is said have a low-slung credit card penetration. This has affected the operations of Alibaba (Wenku, 2011). Environmental Factor Companies in China are bound by regulatory scrutiny from Environmental Protection Agencies concerning the conduct of their services (Lu et al., 2008). The development and advancement of technology in China has made it easy and speedy to protect the environment. The increase in the use of e-commerce by Alibaba has helped a lot as people do their shopping at the comfort of their homes and avoid using many vehicles to go visit physical shops (Allen, Qian and Qian, 2005). This has reduced air pollution which can have an adverse effect on the environment. Legal Factors As e-commerce is blossoming, there are new legal frameworks in place to guide the operations of companies. In order to encourage foreign investments, China has established a new law system (Allen, Qian and Qian, 2005). The government has issued a number of rules that guide the establishment, operation and termination of companies. Some of the rules governing companies like Alibaba include the Law on Wholly Foreign-Owned Enterprises, the Income Tax Law and Laws on Foreign Investment among others (Allen, Qian and Qian, 2005). In addition, China has the most attractive tax incentive array in Asia. This has promoted the operations of Alibaba and has led to its success. However, companies are faced with strict tax laws and regulations which require them to pay the full amount in time (Allen, Qian and Qian, 2005). Porter’s Five Forces Analysis Threat of New Entrants In order to promote foreign investment in the country, China has favourable entry regulations in the ecommerce industry. Foreign companies can enter the Chinese market without any huge restrictions (Answers, 2014). This may be a challenge to the existing ecommerce enterprises. However, the threats of new entrants are at its minimum since Alibaba is well-established in the market. Alibaba operates in big cities such as Shanghai and Beijing while small ecommerce enterprises are found in rural areas (Wenku, 2011). New entrants face a huge competition since Alibaba Company has invested a lot in marketing of its products. Alibaba also enjoys other benefits such as established brand and customer loyalty. As a result, Alibaba dominates the market share than the other new entrants (Wenku, 2011). Power of Buyers Buyers have an effect on organisation’s profit level as a result of their ability to negotiate for better prices or products and high-quality service (Answers, 2014). Total buyer volume, purchasing power, amount of disposable income and bargaining leverage may give a buyer power to affect the profit level of companies. Due to economic growth and GDP growth, there is an addition of value to the people in China. GDP growth is aggregating the consumer purchasing power (Allen, Qian and Qian, 2005). In addition, since Alibaba is considered an ecommerce network service company, it offers services to small and medium-sized enterprises (Answers, 2014). Therefore, the bargaining power of buyers does not affect the external environment of Alibaba. Threat of Substitutes Two companies may offer the substitute products to customers and this may lead to intense competition. The services offered by Alibaba may be faced with substitution from engine providers such as Google, Baidu, Wal-Mart as well as Sohu (Answers, 2014). Badu is one of the biggest companies in searching engine industry in China. The company occupies more than 65 per cent of the market share and its presence can be felt by Alibaba. In order to beat Baidu, Alibaba acquired Yahoo China to expand in the searching engine field. Another company that offers substitute services and products is Wal-Mart (Answers, 2014). Wal-Mart has grown to be a huge threat for Alibaba. The company has integrated their supply chain in order to offer their products and services to down-market customers. If Wal-Mart could shift their shopping model to ecommerce, they would have a huge impact on Alibaba (Answers, 2014). Bargaining Power of Suppliers The bargaining power of suppliers relies on their input to companies. Their power to negotiate for prices increases if they have the ability to produce what the buyers want and if they are only few of them who can do this (Answers, 2014). In order to be competitive in the ecommerce industry, Alibaba need to buy large amounts of software and hardware products. Alibaba may rent or purchase their hardware products from so many providers in the industry. This reduces the bargaining power of the suppliers. As for the software, the company source them from their own research and development department (Baidu, 2014). Therefore, the bargaining power of suppliers is not a big threat for Alibaba. In addition, the threat of onward integration is also low from suppliers since it requires huge capital to develop hardware manufacturing plant making the threat of suppliers very low (Answers, 2014). Competitive Rivalry The major rivalries in the ecommerce industry are Globalsources.com, Hc360.com and eBay among others (Answers, 2014). Blobalsources.com is a huge global competitor of Alibaba. The company is very competitive in overseas countries. However, in China, Alibaba has a greater market share than them. Recently, Alibaba acquired financial support from the government and other institutions in order to expand its operations overseas. This has increased their prospects due to capital foundation and has given them a competitive edge over its rivals. Hc360.com is a B2B ecommerce company operating in China (Answers, 2014). For years, it has been a major competitor of Alibaba but in 2004, the company lost their market status due to wastage of advertisement capital. Alibaba acquired some percentage of Hc360.com market shares which has led to its growth. Therefore, from the analysis above, it is obvious that competition in the ecommerce industry is not enough to replace Alibaba as the market leaders (Answers, 2014). Recommendations for Alibaba Ecommerce industry is faced with intense competition (Answers, 2014). In order to remain competitive in the ecommerce industry, Alibaba should expand into new markets. One important strategy Alibaba should implement is merger and acquisition. Merger refers to when two companies – which are about the same size – come to an agreement to move forward as a single company and acquisition refers to one company purchasing another. Therefore, Alibaba can merge with an overseas searching engine company and can form a company that offers searching engine and ecommerce services to its customers. This diversifies their products and services therefore creating a large share market. Without merger and acquisition, it is unlikely that Alibaba will achieve competitive advantage in other markets due to the sophisticated competition and the availability of new and different market (Bernard et al., 2007). Another way the company can achieve their objectives is through offering individuation services to its customers. When enterprises enter Alibaba ecommerce platform, they are faced with many enterprises totally similar with them with similar website decorations and features (Wenku, 2011). Therefore, Alibaba should offer different services to its customers in line with different domain of industry. In addition, the company should also provide diverse decoration models for customers according to their tastes and preferences. In addition, in order to strengthen their capabilities and enhance their competitiveness, Alibaba should train and develop their employees. Training and development can affect employees’ attitudes, expertise and skills to enhance individual, team and organizational effectiveness (Bernard et al., 2007). There are different training methods that can be used by Alibaba in order to increase employee knowledge and customer service. Examples of training methods to be used by Alibaba are on-the-job-training, customer service training and communication skills training. The principle of B2B is information service between buyers and sellers. Alibaba should strengthen their information service (Baidu, 2014). Even if the company updates information fast in its website, the information needs to be more reliable. Customers Company need to search for information since it’s not automatic. The company should therefore enhance their information service in order to give flexibility to the customers. Mission Statement The mission statement of Alibaba will be to create a strong ecommerce business and increase the market share not only in China but across the world as well. Recommended Objectives Diversify and expand its portfolio of products and services through partnership, creativity and innovation Build on the company’s core capabilities among the employees through training and development as this will enhance productivity and performance. Reduce the cost of its operation through strategies such as merger and acquisition and foreign investment. Optimise company’s performance through the implementation of appropriate management, leadership and ownership structures. Continue to reinstate and build the relationship existing between the company and the customers in order to boost its competitive advantage. This can be done through continuous quality improvement, effective customer service and product and service innovation. References Allen, F., Qian, J. and M. Qian. (2005). Law, Finance, and Economic Growth in China. Journal of Financial Economics , 77(1): 57-116. Answers. (2014). Five forces. Retrieved 13th Sept. 2016 http://www.answers.com/topic/porter-5-forces-analysis Baidu, B. (2014). Introduction of Alibaba. Retrieved 13th Sept. 2016 http://baike.baidu.com/subview/2296/4818544.htm?fr=aladdin Bernard, A. B., Jensen, B., Redding, S. J. & Schott, P. (2007). Firms in International Trade. Journal of Economic Perspectives, 21(3): 105-130. Lu, F., G. Song, J. Tang, H. Zhao, & L. Liu, 2008, “Profitability of China’s Industrial Firms (1978-2006)”. China Economic Journal, 1(1): 1–31. Wenku, A. (2011). The enterprise strategy of Alibaba. Retrieved 13th Sept. 2016 http://wenku.baidu.com/view/d46ff58e6529647d2728526d.html Zhidao, B. (2014). PEST Analysis. Retrieved 13th Sept. 2016 http://zhidao.baidu.com/question/2196487.html Read More