In this report I will examine the case “Alibaba: Competing in China and Beyond.” Alibaba under the leadership of Jack Ma, its founder has transformed into one of the most successful e-commerce companies in China. In the 2000s Alibaba had emerged as the largest e-commerce company in China. The company tailored its strategies to meet the needs of the customers and made a mark because of its understanding of the Chinese language and culture. However, some experts have also raised doubts over the sustainability of Alibaba’s business model.
In my report I will critically analyze the factors that led to Alibaba sustaining its leadership position in the Chinese e-commerce market. I will Discuss the rationale behind Ma establishing Taobao.com. I will examine the factors that led to Taoboa’s success in the Chinese online auctions market. Furthermore, with Baidu’s entry into the e-commerce market, I will discuss the challenges that Alibaba faces with regard to sustaining its position in the growing e-commerce market in China.
Finally I will critically examine Alibaba’s business model, possibilities of global expansion and the overall sustainability of the company.
One of the most significant factors that lead Alibaba Group sustaining its leadership positioning in the Chinese e-commerce market was its ability to understand the Chinese market itself. Jack Ma, Alibaba Groups founder understood that Chinese consumers and their preferences distinguished them selves from those in other countries. Other companies such as eBay did not appreciate the local market circumstances in China; instead, they were using the strategies that were working in the United States.
I believe for this reason Alibaba Group was able to sustain its leadership position.
Many of the competitors lacked understanding of the Chinese language as well as the culture. Moreover, Alibaba.com made its services extremely easy for its customers to use. Ma, himself, was a non-technical person and this helped him keep the websites more user-friendly. In the article Ma refers to this stating: (Deresky, 2010). “If you follow Google’s way, you always be a follower… We have to make the Yahoo! Search engine more human, more interactive… something for the 1.3 billion people in China who aren’t technology-oriented, who don’t know how to ask the right question to a search engine — for people who are like me.” (p.320)
An added factor is the services that Alibaba.com offered. The company believed that the first thing to do was to build a devoted customer base. Therefore, before adding any charges, a lot of the services were free of charge. Alibaba.com offered many services such as email and listings of products/services free of charge. In addition, e-commerce was vulnerable due to the fact that sellers and buyers did not trust the idea of sending money before receiving their products and the sellers wanted the money before they shipped their products.
For these purposes, Alibaba.com launched Alipay in 2004, which was an online payment solution that allowed the users to make money transactions in an easy, quick and safe way. All and all Alibaba.com basically concentrated greatly on increasing costumer satisfaction even on the expense of not gaining maximum profitability. The company made its customer and getting to know what customers want its number one.
Jack Ma established Taobao.com in May 2003 to enter the profitable e-commerce market. Taobao.com also symbolized a part of Ma’s Alibaba.com business model of joining SMEs, customers together, and helping SMEs grow. Taoboa’s goal was to generate an online trading platform for both B2C and C2C models. Several factors lead to Taoboa’s success over the rival eBay in the Chinese auctions market. First, Ma managed to raise a substantial investment of 56 million dollars from Softbank and teamed up with Masayoshi Son the founder and CEO of Softbank who had previously helped to defeat eBay in Japan (which lead to eBay leaving Japan in 2002). Also again Ma decided to build a loyal customer base before really attempting to make a profit; he did this by offering free listings as opposed to eBay, which charged for listings (Deresky, 2010).
A major factors in Taoboa’s success was Alibaba Groups better management of the trust factor involved in e-commerce trading and better understanding of the local Chinese market. eBbay positioned its standard business model that was used in the United States and other countries. Taoboa, instead, established its own payment escrow service. With AliPay buyers paid into an escrow account that did not pay the seller until the buyer noted he had received the product; therefore, making the transaction thrust worthy since the money was in escrow until the transaction was completed (Deresky, 2010).
Furthermore, Taoboa offered e-mail and chat services between users unlike eBay, which concealed identities and only had an offline messaging system. Taoboa also advertised aggressively through websites and billboards in major population areas something eBay did not do. The final steps of defeat for eBay was when Taobao offered three years of free listings and when Taoboa launched its B2C services in 2006. Moreover Taoboa had a large list of companies supporting it and also Alibaba.com members that could join easily. Overall Taoboa’s success over eBay has been attributed its ability to know the local Chinese market and adapt to it as opposed to eBay’s strategies of using a inefficient model that could not adapt to the Chinese market (Deresky, 2010).
However, now Taoboa is facing competition from a company that knows the Chinese market very well. Taoboa’s main competitor Baidu, is the largest search engine market share holder in China. Baidu has a large, loyal customer base to work with and has ability to advertise and link its own ecommerce website. Taoboa will have many challenges facing the competition from Baidu. Never the less Alibaba Groups strong and evident presence in the Chinese e-comercial market signifies the company’s ability overtake its competitors by combining all services and maintaining the user-friendliness of its services in B2B, C2C and B2C markets.
Absolutely it is sustainable. As Alibaba Group now further develops and expands its various web services, it must also additionally develop the various products within each website. Alibaba Group should have one department focusing one website development aspect and another department focusing on product development aspect. The company can still capitalize on his legacy sites that have millions of monthly subscribers. The intention for the company should be to find a way to raise the monthly run rate on each customer on a yearly basis, this would allow Alibaba Group to use these profits to fund the company’s efforts to expand.
In my opinion Alibaba Group should focus on moving into Russia first, using their political ties to their advantage. Russia has many raw materials but few factory centers like China. If they could move into Russia, this would effectively provide geographical access to the Middle East and Northern Europe in the future. However, after Russia, I would mainly focus on expanding through Southeast Asia all the way down to Australia. This would fundamentally provide an ecommerce solution that can link B2B, C2C, B2C, sales across the entire Eastern part of the world.
After reading the case and answering to the questions it seems like the case is too good to be true. Even though Jack Ma had proven his capability of being a good leader and business man it is impressive how he started from scratch and was able to gather good people around him and develop this successful multinational company. I truly believe that Ma’s and Alibab Groups key to success were the founder people in the company. Overall I see Alibaba Groups story as a big success. It is truly a inspirational story. In the words of Ma’s business partner Masayoshi Son: (Deresky, 2010).
“If there’s a company outside of America that can introduce a new business model to the world, it is Alibaba.” (Founder and CEO of Softbank Corporation, in Japan 2005.)
Deresky, H (2010). International Management: Managing Across Borders and Cultures. 7th ed. Pearson Boston. 310-322.