Alibaba: Competing in China and Beyond Essay
Alibaba: Competing in China and Beyond
In this paper, we will talk about the most successful and famous e-commerce company in China: Alibaba Group about its competition strategies and its future moving. Alibaba Group was founded by Ma Yun (Jack) and the other 17 people in 1999 in Hangzhou. Jack wants to make the Internet become a universal, safe and reliable tool that would benefit the public. Alibaba Group now is holding by private, it has more than 70 offices in Greater China, Singapore, India, the United Kingdom and the United States, with more than 20,400 employees.
2. History and Development of Alibaba
In 1999, Alibaba was formally established in Hangzhou and it financed from Softbank, Goldman Sachs, Fidelity Investments and other U.S. investment agencies for about 25 million dollars. Three years later, Alibaba’s B2B become profitable. In 2003, China’s first personal e-commerce site Taobao was established by Alibaba, in the same time, it also published the online payment system-Alipay to support their B2B and C2C business. In 2005, Alibaba established a strategic partnership with Yahoo USA; meanwhile, it was in charge of Yahoo China. In 2007, Alibaba founded the business management software company: Ali Software, and Alibaba.com Limited IPO in Hong Kong Stock Exchange. In 2009, Alibaba Cloud Computing established, later in 2010, Taobao Mall started an independent domain name Tmall.com and it became Alibaba’s B2C service website which is focus on quality goods sales. In 2012, Alibaba Group has completed the initial share buyback and restructure the relationship with Yahoo, while, Alibaba.com Limited officially delisted from the Hong Kong Stock Exchange.
Chart 2.1 Overview of Alibaba Group
3. Alibaba’s competition advantages
3.1 Biggest market share of E-commerce in China
We can see from the charts, till the end of 2013, Alibaba has owned the biggest market share in B2B, B2C, C2C and online-payment service. It has already became the top one e-commerce company in China.
Chart 3.1.1 China B2B Market in 2013
Chart 3.1.2 China B2C Market in 2013
Chart 3.1.3 China C2C Market Share
Chart 3.1.4 China Online Payment Market Share
Source: www.NBweekly.com & http://www.chinainternetwatch.com/
3.2 The largest B2B, B2C and C2C website
Alibaba is the world’s largest provider of online trading, and the world’s largest business forum. To December 31, 2012, the platform had around 500 million registered users and more than 2.8 million supplier storefronts, and its websites are available in English, Simplified Chinese, Korean and other languages. It provides professional services for the global business.
3.3 The visibility is very strong
Depends on its Propaganda efforts, almost all over the world have their ads now.
3.4 Better function
Alibaba’s site speed, reasonable softwares, and good service attracted entrepreneurs of all ages around the world.
Also Alibaba had a high reputation in the Asia Pacific region and it always keep innovation, for example, in 2013 it officially published its online chat App called “LaiWang”.
4. The Movement of IPO (Initial Public Offering)
On March, 2014, Alibaba Group Holding Ltd. announced the company will do IPO in New York Stock Exchange; the estimated time will be in quarter three of 2014. The IPO scale is considered to be between $150~200 billion (USD) (Chen, 2014). If the plan is actually executed, it will be one of the biggest IPO scales in the history. To do IPO, from the obvious perspective, it is for arranging the global market. However, it has been 15 years since Alibaba was founded in 1999, why the company decided to do IPO now? What is the reason behind and trigger this movement? It is worth to look into the meanings behind and analyze the reasons. There are two major reasons behind this huge action. One is keeping the control right inside the partnership; the other is competing with the main and biggest competitor Tencent in China.
4.2 Maintaining the control right
The first reason is to maintain the control right inside the partnership. For the founder of Alibaba, the core idea of managing the firm is to keep the company culture and the innovation power. Based on this idea, he developed the special partnership structure for the firm. The special partnership structure is meaning CEO needs to be chosen from Alibaba’s partners. And, to become the partner, the staff needs to be the core manager in the department and work in Alibaba group at least five years. The meeting of choosing partners will run one time per year, the nominee needs to get at least 75% votes from the existing partners, then he/she can become the partner.
Now the boards of directors are formed by 2 seats of Alibaba, 1 seat of Softback and 2 seats of Yahoo. It is dangerous for the founder and managers that they can be replaced or take away the control right suddenly. The shareholding structure of Alibaba now is around Yahoo has 23%, Softbank has 31.9%, the founder has 7.4% and managers/other shareholders have 37.7%.
According to the agreement between Yahoo and Alibaba in 2012, if Alibaba can do IPO before in the end of 2015, then Alibaba can repurchase the half of holding shares which Yahoo takes now, also Yahoo will give up one seat in board of directors. Therefore, doing IPO is not just a simple global strategy, more with the implicit intention behind.
4.3 Rising competition
The second reason is to compete with Tencent in China. Alibaba is the biggest B2B and B2C e-commerce company in China; it has leading position for past years. However, the situation has changed in recent 3~4 years, more and more users access the internet including buying goods and services via cell phones. It is the benefit access for the competitor Tencent to grab the market from Alibaba. Especially, Tencent just bought a large stake of JD.com (Gittleson, 2014). JD.com is the second biggest e-commerce site in China and in B2C market; it is also the second place right behind Alibaba.
The competition intention with Alibaba is obvious. The recent competitions between two parties can refer the below Table 4.3.1. Both companies also start to make acquisitions in small areas and ready for a head-to-head competition (Gittleson, 2014). Tencent doesn’t need to worry about the money since the company did IPO right early in 2004 in Hong Kong Stock Exchange; the stock price is HK$578 on 18th, March, 2014 which is 156 times more compared to 10 years ago (Yu, 2014). Hence, Alibaba needs to find the money support and start this” one of the most expensive competitions in online history.” said by Kim Gittleson from BBC news.
E-commerce platforms in B2B,
B2C and C2C markets.
(Taobao, TMall, Alipay)
Instant message platform.
1. During Chinese New Year, Tencent launched a mobile payment service that users can send or receive the money of red packet on line; it gave a warning to Alibaba’s Alipay (Gittleson, 2014).
2. The competition in mobile app for calling taxis (Alibaba’s Kuaidi v.s. Tencent’s Didi). The app not only can call cabs but also can tip for the ride. It is estimated that both parties pay more than $3 billion to subsidize it (Tong, 2014). 3. In the end of 2013, Alibaba launched one messaging application called “LaiWang” and tried to compete with Tencent’s “WeChat”
As we can find out from the previous chapters, Alibaba is a market leader and dominance Chinese e-commerce markets over ten years. Due to its large market share, innovation power and strong website function, no one is able to challenge its leading positions. However, in recent years, internet users start to change their using ways via the booming mobile phones. It benefits another giant company Tencent to penetrate Alibaba’s existing markets.
Even though Alibaba has the first-mover advantages in the market, the competition from Tencent doesn’t stop even getting aggressive. From the IPO movement of Alibaba, it can see Alibaba take this competition serious and doesn’t want to lose. Two giants battle for the leading place. The tough and expensive competition with Tencent just started. But, now Alibaba not only need to concern about the domestic competition but also need to make careful actions in global markets due to the IPO. The future of Alibaba is becoming more uncertain since the global markets are adding into the plan and the sever competition keeps going on.
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