Going global means new frontiers Essay
Going global means new frontiers
On the 19th Sep. 2014, the world’s largest initial public offering (IPO) was successfully completed in the New York Stock Exchange (NYSE), U.S., and the total IPO amount has reached up to $25 billion (Chen. Mac. Solomon. 2014). Alibaba, the miracle creator, used only 15-year’s development to take the seat in the Wall Street and build an e-commercial empire. The NYSE’s IPO is the signal to tell global investors and competitors that Alibaba is ready to join the global market competition. For Alibaba, going global means new frontier, however, the new frontier could be either a barren cliff or cornucopian grassland. In this essay, we will mainly discuss that why Alibaba want to expand global markets, and how Alibaba is going to make the global strategies to against global competitors in overseas market. by avoiding direct competition, targeting similar market as China and increasing firm size in the global market environment to step into a “grassland” market for persistent development.
Alibaba — the world’s largest online and mobile commerce company, was established in 1999 by the group of 18 people led by Jack Ma in Hangzhou, China. There are three main sites in Alibaba China, including T-mall, Taobao and Alibaba.com along with numbers of other companies to support Alibaba’s ecosystem development. Moreover, Alibaba also has Alibaba.com and AliExpress.com to provide worldwide online shopping services (Pressman 2014). Until 2013, Alibaba has more than 2 million merchants across more than 190 countries and regions. In 2013, there was amount of $248 billion transactions went through Alibaba’s online sites which is more than the total of eBay and Amazon. Furthermore, after the NYSE’s IPO, Alibaba’s market cap has reached up to 215 billion dollar, which only followed behind Microsoft, Google and Apple among the global tech firms (Lajoie & Shearman. 2014).
Global Market Expansion (convention path: from domestic to overseas) Why Alibaba want to expand global market? Alibaba is a typical Multi-national corporation, since Alibaba set up the headquarter in the China and operate e-commerce businesses in other countries. in As a typical multi-national corporation, going global to exploit new distant market, to merge into larger and more efficient units and to exploit better social capital is an irresistible process for Alibaba. As the dominator in the China’s online shopping market, Alibaba has already controlled 80% of the market share, thus Alibaba needs new distant markets for persistent development. Moreover, For Alibaba, both the internal capabilities and external environment allows Alibaba to make the global market expansion decision.
For the internal capabilities, Alibaba is a mature Internet corporation, which has controlled 80% of the China’s online shopping market. China’s market profits could constantly provide enormous capital support for Alibaba’s long-term market expansion. Moreover, after the NYSE’s IPO, Alibaba has won the trust from global investors and acquired sufficient capital for early market expansion. However, the challenges always exist during the process of the market expansion, especially from the local e-commercial corporations. Despite of the competition, high cost for setting up facilities, cultural shock, and different government policies would also be main concerns before the decision was made. Thus, I have listed three main strategies below to demonstrate Alibaba’s global market expansion.
Avoiding direct competition
Instead of “face to face” competition with those locally dominant e-commercial corporations, Alibaba decided to operate their business around the market edges and move partial of e-commercial businesses to cross-country trade. In 2004, The America’s largest e-commercial corporation–eBay entered the Chinese market by merger with a Chinese e-commercial corporation—EachNet. In order to against eBay, Alibaba decided to launch Taobao, one of the main sites under Alibaba for C2C (customer to customer) business model, compete with eBay. Because of Taobao’s preponderant business model and domestic advantages, eBay finally failed in China’s e-commercial market expansion (Wang, 2010).
Right now, Alibaba faced the same challenge in the America’s market, but Alibaba will not make the same mistake as eBay did. In order to avoid direct competition with eBay and Amazon, Alibaba has launched AliExpress for cross-country trade wholesale by offering quality products at factory prices. As the advantages, Chinese products have unbeatable prices to attract American customers; also Chinese customers have strong demands for American high quality products (like Cherry Farmers and Fisherman). Although it’s too earlier to claim the final result of Alibaba, to avoid direct competition is always a good way to enter a new market without too much pressure from local competitors.
Finding similar market as China
Alibaba’s global strategies are more likely targeting the large and potential e-commercial market as China’s market. For instance, Brazil, as one of the largest developing economy in the world, the economy status and e-commercial structure in Brazil is really similar as in China. ALthough, eBay and Amazon has already settled down in the Brazil’s market, it’s always not too late for Alibaba overtakes the dominance. In 2013, Alibaba set up a Portuguese e-commerce site to allow Brazil buyers directly purchase goods from Chinese wholesalers. Just in a year, Alibaba has became the third largest e-commercial website and took 20% of market share after Ebay and Amazon.
In this July 12 millions of Brazilian customers visited the Alibaba.com, which is ten times than last year (Sciaudone, 2014). Moreover, in Brazil’s market, Alibaba wisely used the local sub-contractor to reduce investment and improve service quality, which subcontracted the online payment services to Boleto and delivery services to Brazil’s state-owned postal service (Pressman, 2014). To make it even better, Brazilian President Dilma Rousseff and Chinese President Xi Jingping have signed the agreement to open the “Green Channel” to support Alibaba’s business between two countries (Chao, 2014). All in all, the success in the Brazil’s market indicated that to find the similar market is a feasible strategy for future development.
Increasing the firm size
As a typical multi-national corporation, Alibaba effectively applied the law of increasing firm size, ‘which have rapidly growth in the representative size of the firm, culminating in the MNC, and the parallel growth in organizational complexity’ (Hymer, 1970). E-commercial is the fundamental business for Alibaba’s long-term development, but not the only business Alibaba does or will do. As the range of investments show below, Alibaba made plenty of investments in smart phone, video websites, telecommunication and so on.
Some of them are complement businesses to support Alibaba’s e-commercial, like Juhuasuan, Alipay and Alibaba pictures; and some of them are potential businesses for long-term development, like Kabam, Peel, and Tango. Like Jack Ma has said in the Stanford Business School’s presentation, Alibaba would always follow the market’s path, where is the market, where is the Alibaba. Alibaba believed those investments are the future market and opportunities. On the global market expansion, Alibaba’s strategy is to pursue dynamic, diversified, sustaining development.
Impacts on global market and host region
With the development of Alibaba, the global e-commerce businesses will absolutely more competitive than before. There will be more and more cheaper and quality products flow into global market from China. Other e-commercial corporations, like eBay and Amazon, have to find the way out to against Alibaba’s expansion. On the other hand, Alibaba’s global market expansion will provide more opportunities and channels for China’s manufactories and factories to enter into a larger market. As Alibaba’s mission said, ‘to make it easy to do business anywhere.’ Alibaba help China’s merchants to do business much easier and more efficient.
It is indeed that Alibaba made a great success in 15-year development, but some concerns still exist from investors. Some investors even thought it’s possible that Alibaba is too big to be expropriated by Chinese government (Crovitz, 2014). However, It’s a totally misunderstanding, Chinese government always encourage and support China’s corporations to exploit overseas market and welcome foreign investment. Furthermore, investors also consider the instability to an Internet company. Unlike other industries, such as auto or manufacture industry, Internet Company is highly volatile. Internet Company could create billions of fortunes overnight, but also could lose everything instantly. In this case, it’s a significant mission for Alibaba to keep investors’ trust and faith. Up to now, Alibaba’s steady-state growth and expansion is the best response to investors’ trust and support.
For 15-year development, Alibaba completely followed the conventional path from serve domestic market to operate businesses overseas. Eventually, Alibaba has successfully built an e-commercial businesses bridge between China and overseas market. Alibaba will continue to grow, and it will continue to change China and change the world. As William Kirby, and expert on Chinese business in Harvard’s business school, demonstrated that Alibaba is ‘a private company that has done more for China’s national economy than most state-owned enterprises (Economist, 2013).’
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