Alibaba Group A Case Analysis
Submitted By: CABABAT, Zoreyn SAJULGA, Jason VALMORIDA, Kareem VILLEGAS, Glorenze Louise YOUNG, Kris Pauline
Submitted To: Mr Eliel Daang
I.
COMPANY BACKGROUND
Alibaba Group (NYSE: BABA) is a Chinese e-commerce company that provides consumer-to-consumer, business-to-consumer and business-to-business sales services via web portals. It also provides electronic payment services, a shopping search engine and data-centric cloud computing services. The group began in 1999 when Jack Ma founded the website Alibaba.com, a business-to-business portal to connect Chinese manufacturers with overseas buyers. In 2012, two of Alibaba’s portals handled 1.1 trillion yuan ($170 billion) in sales. The company primarily operates in the People’s Republic of China (PRC), and at closing time, on the date of its historic initial public offering (IPO), 19 September 2014,Alibaba's market value was measured as US$231 billion. In September 2013, the company sought an IPO in the United States after a deal could not be reached with Hong Kong regulators. Planning occurred over 12 months before the company's market debut in September 2014. The Alibaba Reuters Instrument Code is "BABA.N", while the pricing of the IPO initially raised US$21.8 billion, which later increased to US$25 billion, making it the largest IPO in history. However, buyers weren't purchasing actual shares in the group, since China forbids foreign ownership, but rather just shares in a Cayman Islands shell corporation. Alibaba's consumer-to-consumer portal Taobao, similar to eBay.com, features nearly a billion products and is one of the 20 most-visited websites globally. The Group's websites accounted for over 60% of the parcels delivered in China by March 2013, and 80% of the nation's online sales by September 2014. Alipay, an online payment escrow service, accounts for roughly half of all online payment transactions within China. Alibaba is planning to enter India and was in talks with Snapdeal in September 2014. Alibaba has also reported a sale of more than $9 billion on China's Singles' Day in 2014.
II.
SITUATIONAL ANALYSIS
The Alibaba Group burst into the global e- commerce division with Alibaba.com. It is a web service which advances B2B (business to business) trade all over the world and to became one of China’s first online businesses. Alibaba has grown excellently from its early beginning as a broad e-market to a giant e-marketplace. Most buyers and suppliers consider Alibaba as a grand B2B dating site. Businesses can upload specific products that they are looking for in the hope to match it with potential suppliers. They can also effectively search Alibaba for business customers who have already registered their searches; it is like they have this memory for every detail of transaction. The 4p’s of their marketing strategy contributed to Alibaba’s success. First is the Product, products that can be marketed which includes physical goods, service, places or in the deeper sense the product they offer is not just any physical item but the perception of the consumer. Alibaba also offers a broad variety of services; they made sure that they can establish trust and safety in their online payments and other
transactions in order to maintain customer loyalty. Second is the Pricing, competition pricing is setting a price in comparison with competitors. Alibaba Groups uses competitive pricing so that the price they offer does not have an extreme difference with its competitors. The company gives low prices and ensures good quality products so that it can attract the targeted market. This pricing method increased the sales of the company. Third is Promotion, they promote their services through the use of the internet, media advertising and sponsoring events. Alibaba uses the internet promotion strategy because internet is the best in terms of how cost effective it isand it’s also the fastest promotion tool in the market place. The presence of the Alibaba company profile in major search engines like Yahoo gives the company a global exposure and creates awareness among buyers/importers effectively. The availability of internet banners about Alibaba that take the searchers direct to their main website. Fourth is their distribution or Place strategy, Alibaba uses the internet as their channel intermediary to geographically promote their products across the online world, Alibaba Groups has several online B2B marketplaces that potential buyers and suppliers from around the world can obtain its products and services. Apart from Alibaba, the Alibaba Group has diversified its efforts with other e-commerce sites such as Taobao, Alipay and etc. These web services expand the Alibaba Group’s business portfolio to include services like retail websites, and business management solutions, making it one of the largest and most comprehensive providers of internet retail and B2B services. Aside from having a race in the market with its competitors, Alibaba juiced an advantage from this; it is to carry out cooperation from competition to generate potential ideas and be beneficial to each other.
III.
STATEMENT OF THE PROBLEM
How will Alibaba Group get by in the market as the company becomes more exposed to greater competitions. IV.
OBJECTIVES
To be able to compete with international giants such as Amazon and E-Bay in terms of their branding, market share, as well as in their pricing. To be able to do extensive market research and analysis as their goals of expanding means that they will be dealing with new markets that involves different customs and a way of life – they must identify this in order to foresee problems and threats and be ready if ever. To be able to maintain the effectivity of their initial business model as a long term model in building a solid foundation for business-to-business forms.
V.
AREAS OF CONSIDERATION
VI.
Alibaba.com was one of the few companies in China that did not copy existing business models in the US or Europe It provides a platform for buyers and sellers, and proposes news, analysis and timely price lists, and development team works research new technologies and functions to support their website which help to enhance their service and reduce operation cost and obtain large profit. Its business model aims to structure an efficient, flexible and responsive structure in front of a demanding customer demand and information society opportunities. Its network of partners for creating, marketing and delivering value and relationship capital to one or several segments of customers under B2B in order to generate profitable and sustainable revenue streams with its business model
SWOT ANALYSIS
STRENGTHS:
-The company's primary target is to maintain its great market share there in china,because mainly china has the largest population worldwide.
-Customers/consumers prefer online shopping which is trustworthy, of course, who would want to waste or give away their hard earned money? -Customers would feel the security of their transactions through the third party payment of www.Alipay.com -alibaba group of companies formed a business web or e-commerce ecosystem to miximize profit.
WEAKNESSES:
-Customers/consumers who haven't tried or experienced online shopping would question the reliability of Alibaba. -Entrepreneurs who aren't risk takers would have second thoughts of having transactions with their clients through Alibaba.
OPPORTUNITIES:
-Having ranked and known as a reliable e-commerce site, customers from different parts of Asia would prefer Alibaba as their provider of online goods because of the less risk for the package to be delayed the distance of the ocean is not quite far. -Alibaba group of companies found a way to maximize their aces, the payments of their clients are funneled to Alipay THREATS:
-The inevitable delay of transactions caused by the weather -Alibaba profits mainly in China, but China b2b business environment has constrained the further development of Alibaba, such as a sound law, loopholes in online payment security, not so good infrastructure in some cities, which will hold back the development of Alibaba. -B2B business site model, not only in the last few years with the rapid development of the world, and gradually formed a trend - e-business alliance - that is, the trend of mergers and cooperation, which will lead to more competition
-The infrastructures in China is not yet fully developed to support the development of Alibaba.
VII.
ALTERNATIVE COURSES OF ACTION
Boost domestic competitiveness. Alibaba Group of companies must first focus on being competitive in the domestic market before they venture into a wider scope which is the international market.
Advantage: Being competitive in the domestic market, in their own country first, will help the companies under Alibaba Group acquire more useful strategies that can help them overcome the threats they will be facing once they try to venture outside of their current market. Disadvantage: If the company decides to focus more on their domestic ventures and activities, it might be possible that venturing outside of the country and their current scope will prove to be more of a challenge as international relations and markets are very different waters compared to what they have to deal with domestically speaking.
Alibaba group of companies should participate outside of China and take risks in order to further their market share.
Advantage: Because of their record of success and reliability in China, trying to expand on their current market and to penetrate the rest of the world will be a little bit easier although still quite a challenge. They already have the reputation in China and the funds to support their expansion. Disadvantage: Because they have only been active domestically, it is also quite possible that even with their popularity and success in China, it will be quite hard for people to distinguish them, especially since they have yet to become familiar with their neighboring countries, even in their own continent.
The company must create another business outside the internet sphere where they will put up stores wherein customers could physically witness their product displays.
Advantage: The company will be more visible, especially if they set up these retail stores in other places they are not as active in and even in new countries so that they can increase awareness and recognition for their company.
Disadvantage: Alibaba is composed of many manufacturers seeking to find buyers for their products. The problem with setting up a physical store would be that it would simply be too chaotic and some suppliers might not be able to participate, thus the competitiveness – price-wise – will lower, not giving buyers more choices and opportunities.
VIII.
CONCLUSION AND RECOMMENDATION
The group highly recommends the second option. Alibaba group of companies is a successful business-to-business web service. They allow manufacturers and suppliers to put their products on their website, using it as a platform to find interested buyers and consumers. They are already highly popular in China and now their next challenge is to advance out of their home country. The company’s second recommendation is for Alibaba to venture out of China and try to take risks in investing and in expanding their services to other countries. They are very much trying to work on finding ways in order for them to advance and penetrate the global market so that they can compete with the likes of eBay but before they do that, they must first establish themselves in other foreign countries. The group sees the disadvantages of this course of action but the advantages weigh heavier compared to it. By choosing to take risks and further their services to their neighboring countries, Alibaba will be ensuring their growth and increase awareness on their company, especially if they choose to focus on Asia first before tackling on the rest of the world.
IX.
BUSINESS MODEL CANVAS
A. KEY PARTNERS Alibaba disclosed 27 partners in their initial public offering. B. KEY ACTIVITIES * Company has its own website for Payment Gateways (that is Customer Oriented) * Aliexpress - for sale/purchase through their Own Gateways * They are establishing Few Banks in Collaboration with Government * They have a major stake in "Sina Weibo" (China's micro-bloging website like twitter) * They have stakes in Other Companies as well and Rules the entire China Online Market Place.
C. KEY RESOURCES It has a list of companies and affiliated entities namely Alibaba.com, Taobao, Tmall.com, Juhusuan, eTao, Alipay, Alibaba Coud Computing, AliExpress, China Yahoo!, Aliwangwang, and many others. Sales for 2014 are estimated at $420 Billion. In 2012 sales were $170 Billion. This dwarfs Amazon, its closest competitor, with reported sales of $74.4 Billion for fiscal 2013 while EBay reported sales for fiscal 2013 of $16 Billion, less than one-tenth Alibaba’s 2012 sales. They employ over 25,000 workers to service the clientele. The value of the enterprise is peg at about $143 Billion based on a 12 analyst consensus valuation. That implies the offering will be around $17 Billion. That is about $1 Billion higher than the Facebook offering.
D. VALUE PROPOSITIONS •
Personalization or customization of storefront
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Reduction of product search, price discovery costs
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Facilitation of transactions by managing product delivery
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Payment transaction through Alipay, one of its companies
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Easy accessibility over the internet , promoting convenience
E. CUSTOMER RELATIONSHIPS Alibaba aims to only provide the best of what it can give to the customers through the cooperation of its group of companies. Alibaba was also a privately held company but is now open to the public because through the years it has dominated all over China and extended across the other part of the world. It also has developed through the years its user interface among its companies making their websites uder friendly and easy to use and understand.
F. CUSTOMER SEGMENTS Alibaba claims to have 300 Million customers summed up all over the world. The customer segmentation depends on the website they are in. For example, companies sell directly to the public (Tmall) and enable members of the public to sell to each other (Taobao). Also, because of the many retail online companies that Alibaba owns, it would provide or cater to distinct or diverse customer segments therby having a wide scope of market.
G. CHANNELS •
Factories
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Trading Companies
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Importers
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Distributors
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Retailers
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Consumers
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Internet
Marketing and Distribution Strategies:
The company offers variety of services such as trust and safety, online payment, listing solutions, protection and authentication, instant messaging, member reputation and after sales services such as warranty programs. Their customers online payment is secured with Escrow, with Escrow the privacy of the buyer is guaranteed, buyers are able to pay securely without exposing their details and payment is only released upon delivery conformation. It also offers an about me page, where as suppliers can express themselves through their own personal page. Alibaba.com has after sales services such as a warranty program whereby buyers get up to a one year warranty in case of a breakdown, this mostly refers to the electronic products.
Alibaba Groups uses competitive pricing so that the price they offer does not have an extreme difference with its competitors. The company gives low prices and yet good quality product so that it can attract the targeted market. They use the internet promotion strategy because internet is the best cost effective and fastest promotion tool in the export/import market place. The presence of alibaba.com company profile and product/services in major search engines like yahoo gives the company a global exposure and creates awareness among buyers/importers effectively.
There are various types of channel intermediaries; they use the internet as its intermediary. The internet has a geographically disperse market therefore niche products will be able to reach a wider audience. They has several online B2B marketplaces that potential buyers and suppliers from around the world can obtain its products and services. They also use the direct distribution channel to deliver its products and services. It has a number of outlets in countries like China, U.S.A and UK. Services like gold membership, customer complaints and so many more are handled in these outlets
X.
REFERENCES
Bhowmik, R. (2012). Analysis on the Business Model. Retrieved from http://www.slideshare.net/ronibhowmik/analysis-on-the-business-model Cheng, R. (2014). Alibaba discloses 27 partners In IPO, Updated Financials. Retrieved from http://www.cnet.com/news/alibaba-discloses-key-partners-inipo-jump-in-revenue/ Liu, W., Ransom, E., Wan, Q., Yu, J. (2014). Case Synopsys for: Alibaba Group. Retrieved from http://www.sfu.ca/~sheppard/478/syn/1147/Group_D.pdf Loeb, W. (2014). 10 Reasons Why Alibaba Blows Away Amazon and Ebay. Retrieved from http://www.forbes.com/sites/walterloeb/2014/04/11/10reasons-why-alibaba-is-a-worldwide-leader-in-e-commerce/
Prawiro, U. (2014) Alibaba Group Corporate Overview Jan. Retrieved from http://www.slideshare.net/UtomoPrawiro/alibaba-group-corporate-overview jan-2013 The Alibaba Group Company Analysis. Retrieved from http://www.ukessays.com/essays/marketing/the-alibaba-group-companyanalysis-marketing-essay.php Wright, C. (2014). So What Is Exactly Alibaba? Retrieved http://www.forbes.com/sites/chriswright/2014/09/16/so-what-exactly-isalibaba/
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