Essay On Alibaba Born Again
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Alibaba Born Again
The Alibaba group can be described as one of the leading companies when it comes to the Internet business worldwide, and it covers consumer e-commerce, business to business marketplaces, online payments, and cloud computing. The company was founded in a noble apartment in Hangzhou in China by eighteen people and today the company employs more than 24,000 people in over 70 cities around the world. The company consists of several subsidiaries, of which Alibaba.com, Yahoo! China Alimama and Alisoft are the most important subsidiaries.
Alibaba is China’s and by some measure, the world’s biggest online commerce company. It has three main sites, Alibaba.com, Small and Taobao which has hundreds of millions of users and it hosts millions of businesses and merchants (Erisman, 2005). In fact, it is critical to understand that Alibaba holds more businesses as compared to any other e-commerce company. Alibaba has grown to be one of the most popular destinations when it comes to online shopping, and, in fact, it is still is the fastest growing e-commerce market.
The transactions on its online sites totaled about $248 billion, and this is more than those of eBay as well as Amazon.com combined. Alibaba became one of the most valuable technology companies in the world after it was able to raise around $25 billion from its United States IPO. It is also one of the most valuable Chinese public companies, and it ranks highly in the country state owned enterprises (Yu, 2009).
Today, the Alibaba group has been able to operate a business in a wide spectrum of industries and fact it has grown to be a global leader in online and mobile commerce. The company has been able to experience rapid growth in market expansion as well as diversification.
Regarding the financial picture, it can be argued that indeed Alibaba’s financials paint what can be described as a complicated picture. Alibaba runs an extensive market place and has a colossal customer base, in fact, the amount of business that the site has dwarfed that of any other e-commerce company. However, the downside of the financials of Alibaba is that it earns less revenue as compared to its global peers. This is because the company does not take part in the transactions, but rather it makes money by charging the merchants and businessmen the advertising as well as transaction cost (Erisman, 2005).
The net income has been on an upward trend, and this is expected to continue as more people know about the company. The trend of Alibaba can finally be said to be paying off, this is because the company has been making a lot of profit from its revenue lately. This is because the millions of merchants that are using the platform often rely heavily on the advertisements to stand out from the huge crowd.
Alibaba Group was established on the belief that the Internet would be able to enable small business to leverage innovation as well as technology in order to grow and be able to compete more vigorously and effectively in domestic as well as global markets (Yu, 2009). The company was founded by eighteen people led by Jack Ma, who was a former English teacher from Hangzhou China.
The mission of the company was to make it easy do business anywhere. In fact, it is of the essence to understand that by a large extent the company has been able to fulfill this mission, as it has helped to connect a lot of small Chinese exports, entrepreneurs as well as manufacturers in order to get their products in the international and domestic marketplace in an easier and faster manner.
The company that is Alibaba operates both mobile and online marketplaces in a wholesale and retail trade as well as cloud computing. The company currently employs around 26, 849 people around the world, and it maintains over 90 offices in the Mainland China (Erisman, 2005). The company over the years has warned about the ruthlessness of the capital markets and it has always pledged that indeed the company will try as hard as possible to stay true to Alibaba’s principles, and put the customers before the shareholders.
The current corporate structure of Alibaba lets Mr. Ma as well as other top brass of the company to nominate more than half of Alibaba’s board members (Yu, 2009). In regards to the stock market, Alibaba chose to list in the United States because the Hong King exchange had refused to accept the structure of the company.
There is low bargaining power of buyers in the industry. It is critical to recognize that the Alibaba Group does not have buyers or even suppliers in the traditional sense, and this is because the company only provides a platform for traders to conduct their business.
However, since the company Alibaba generates most of its revenue from advertising, it can therefore, be said that indeed the primary buyers are small business enterprises and third party retailers who have online shops on the site. The SMEs and third party retailers pay advertising fees to the company to promote as well as market their shops (Yu, 2009). The company Alibaba also generates revenue by making sure that it sells more favorable search result positions on their website. There are well over more than seven million merchants who look for favorable search result position, and they pay promotional fees in order to be able to stand out from the competing firms that are located on the sites.
For this reason, it can be seen that indeed these business have low bargaining powers and this is because Alibaba already operates almost all the major online marketplaces, and this makes it difficult for them to switch to a different provider (Yu, 2009).
The industry can be said to have low to the medium bargaining power of suppliers. The platform users, third party retailers, and SMEs can be said to be important to Alibaba as they provide value to the website through their product listings. However, because Alibaba largely dominates the E-commerce market in China, the SME’s in the country have few choices other than Alibaba if indeed they want to create a visible as well as the profitable store.
However, if the vendors want to expand their operation in an international manner, then the vendors often have the choice between Alibaba and eBay, and this will increase their bargaining power as suppliers.
In regards to the competitors in the industry, there is low to medium rivalry among competitors. The company intends to focus on the Chinese operations to leverage its strong market position (Rizzi, 2013). Therefore, in China the treat of rivalry is low, and this is because, in the Chinese market, Alibaba has been able to capture almost 80% of the market. The company after expanding its operation globally faces the threat of other existing competitive companies such as EBay and Amazon.com. These are companies that have been well established and are growing with an increased pace too (Yu, 2009).
The industry has low threats of new entrants. This is because there are large entry barriers such as extensive capital requirements, proprietary product technology as well as the high switching cost of buyers. It is of the essence to understand that the barriers of entry also lie in the critical mass and network effects, as they can reach a large number of customer while at the same time having a large number of SME’s being promoted on their sites.
There also high exist cost for the new entrants, and this is because they must take the considerable resources as well as effort to be competitive in the industry. Currently, the industry is dominated by Amazon, Alibaba, and EBay and it is difficult to steal the market from these large companies.
It is low to the medium threat of substitute products. There are very few substitutes to online transaction as the only option that is available is selling at physical stores or even using company websites in order to sell the products directly to the customers (Rizzi, 2013). However, it is critical to understand that selling through physical stores is extremely costly as the SMEs must often purchase shelf space and, for this reason, they are often forced to compete with the large firms.
The direct sales to customers off the company sites can be problematic as most SMEs do not have the adequate technology that is needed in order to effectively provide a secure marketplace for which customers can be able to shop adequately.
Globally, the biggest competitors of Alibaba can be said to be Amazon and Ebay. Both of the companies were able to skyrocket without any considerable competition and this lead to a rapid growth when it came to their business markets. Both companies have been able to have a similar mission, which is to promote global trade as well as make trading easier. These companies have been able to effectively dominate the E-Commerce industry and have seen extreme growth given the fact that they have not been in the industry for more than 20 years.
The company enables entrepreneurs to overcome the psychic distance as it gives them an online platform where they can be able to post their goods. The company has been able to grow over the years and it has given smaller companies the ability to understand the market places and be able to compete with large competitors (Godement & European Council on Foreign Relations, 2014).
The entrepreneurs no longer have to worry about the distance as their customer base can come from any part of the world. The site is accessed by millions of people, and therefore they can see the products that are being sold. The online platform that Alibaba gives the entrepreneurs is, therefore, important as they can effectively trade their goods.
In one way, Alibaba was able to go through a contrary internationalization process. When the company was founded in the year 1999, the Chinese market at the time was very small. As a consequence, the founders of the company decided to concentrate on foreign markets (Liu & Avery 2009). Alibaba was a success in the overseas market, and when the Chinese Internet market started to grow, the company decided to concentrate on the domestic market (Erisman, 2005).
However, it is of the essence to understand that the services of Alibaba are available in nearly every country of the world. The company in its foreign activities has decided to focus mainly on the emerging markets of Latin America, Africa as well as the rest of Asia.
The concurrence in America and Europe has been too hard, and this is because the company has had to compete with the already established companies such as EBay and Amazon. Entrepreneurship and innovation can be described as the main drivers of the big success as well as the rapid growth of Alibaba internationally (Godement & European Council on Foreign Relations, 2014). With its innovations, the company has been trying to meet the customer needs as well as the future trends of the markets.
Another internationalization strategy that Alibaba has used is the expansion into different countries by hugely investing in mobile as well as e-commerce start-up firms. This can be seen in North America, where the company invested about 215 million dollars in the messaging App Tango as well as about 170 million in Fanatics, which is an online sports memorabilia retailer. Further, through its IPO in 2014, the company was able to expand its market into the United States, this has made Alibaba to be the fourth biggest technology firm in the world after Apple, Google and Microsoft (Godement & European Council on Foreign Relations, 2014).
All the internationalization strategies of the company have been entirely successful. The company has been able to look effectively at the different ways in which it can be able to improve its services, and before it makes a strategy, there is often large pilot projects that are involved. The IPO was a huge success and, in fact, it has been described as one of the biggest IPOs in the world. The company’s investments in Northern America have also borne fruit as the start-up E-commerce have been growing at a rapid pace (Liu & Avery 2009).
Strategies for Alibaba to grow
Alibaba Group should try to gain substantial competitive advantage from building businesses in a massive scale. It is critical to understand the economies of scale will enable the company o expand market opportunities, and this will give Alibaba the ability to satisfy the market needs from various sectors. It also provides SEMs, as well as third-party brands as well as retailers with cost-effective platforms that can be used to market and sell products.
Further, the company should try to attract buyers and sellers through a diverse marketplace. The three major marketplaces of Alibaba should try to be more diverse and integrate into different cultures to attract and retain foreign buyers. The company is also in need of diversification to enable cloud computing, logistics, online payment solutions, information platform, and mobile applications. Alibaba’s businesses can be said to be related to the different technological platforms, and this defines their level of diversification that are related and linked. In short term, Alibaba should concentrate on the Chinese Market and ensure that makes phenomenal growth in this sector, however, in the long term, Alibaba should seek to develop cross-border commerce opportunities (Liu & Avery 2009).
The company should try as hard as possible to target more global consumers and with the IPO in the United States, the company should start to invest heavily in the United States. This is because although there exists competition from EBay and Amazon, the market is mature. Therefore to sustain its competitive advantage in the global market, Alibaba should continue to build its brand as well as capture market opportunities through the establishment of strategic alliances with global partners such Google and Apple.
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Erisman, P. (2015). Alibaba's world: How a remarkable Chinese company is changing the face of global business.
Yu, D. J., & Li-Hua, Dr Richard. (2009). China's Highway of Information and Communication Technology. Palgrave Macmillan.
Erisman, P. (2015). Alibaba's world: How a remarkable Chinese company is changing the face of global business.
Rizzi, C. (2013). E-commerce law in China: The functioning of E-commerce in China and the influence of the EU model. Alphen aan den Rijn: Kluwer Law International.
Godement, F., & European Council on Foreign Relations,. (2014). China's expanding cyberspace. London, U.K: European Council on Foreign Relations (ECFR.
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