Taobao China

Executive Summary
According to SAOS, the largest online population in the world is China which is 538
million users till the year 2012 as compared to USA which had 141 million users.
Taobao is the largest online shopping business in China that facilitates business
between the consumers and the sellers who are individuals, retailers and
wholesalers. It was founded in 2003 by the Alibaba group and currently it is the
largest marketplace in China.
Taobao became the largest online shopping website in Asia in 2006 and there were
760 million products on the list by March 2013. There are total of 6 million visits on
the website per day and a total of 500 million members of the website. Taobao is
the major and dominant business in the industry which has almost 83.5% for C2C
market share in the Chinese e-commerce market. Paipai has a market share of
11.5% and other e-commerce websites have 5% of the share. (Tan, 2016)
The expansion of Taobao to a foreign ecommerce industry is analyzed in the
following report and the Porters Five Forces are analyzed. It is found that the few
major competitors are eBay and Amazon but the threat to new entrants is medium
since Taobao is itself an industry giant within China. The threat of substitute
products is also medium as the competitors are offering similar products and
services. The bargaining power of the buyers is low as compared to the suppliers
since the prices are set by the market so buyers do not have much power. There is
existing competition and rivalry in the market but Taobao is a well established
company to compete all its competitors. (Larson, 2014)
To gain a significant market share and make its place in a foreign industry, Taobao
need to work on its competitive strategies. The company needs to become a cost
leader and create product differentiation to attract maximum buyers. The company
needs to define focused market segmentation and improve its pricing strategies.
With these competitive strategies the company will be able to make its position in
the ecommerce industry soon.

A) Introduction
Taobao is the largest online shopping business in China that facilitates business
between the consumers and the sellers who are individuals, retailers and
wholesalers. According to iResearch, in 2013 Taobao is the largest e-commerce
website in terms of total merchandise.
Taobao is a C2C(Consumer to-consumer) platform and the product and services
offered are very high in number. The number of transactions in the year 2007 was
recorded to be RMB 43.3 billion and the market share within China turned out to be
83.9%. There are more than 80 million registered website users. According to Alexa,
Taobao is ranked at number 47 as the most visited web page internationally and
was ranked number 5th within China. Another feature of bi polar color scheme
enables the consumers to see if the seller is online. If the seller is online then the
special search engine let the buyer contact the seller personally through an
integrated IM system, WangWang. WangWang is a communication tool which shares
the user ids of the buyers. (XIAOJUAN, 2009)

Competitors
In China a huge number of e-commerce business has come into play such as
eBay(China), PaiPai and Taobao. The evolution of the Chinese e-market was evident
from years because when eBay invested $30 million in 2002, in EachNet, the
American giant eBay failed to establish itself in China. On the contrary the local ecommerce business of Taobao, which was launched exactly after one year, became
a huge success within China and is also one of the biggest online shopping
platforms worldwide today. The American management of eBay did not consider
Taobao to be a dangerous competitor. But the Americans were wrong. They had
almost 80% of the e-business market worth $30 million with the number of shares
being 33 in the year 2003 and with the successful launch of Taobao in 2003, eBay
with its joint venture with EachNet, had to face huge losses due to which the
company closed its website at the end of year 2006. (Hatoum, 2013)
According to Alexa, eBay (China) was ranked 49,474 th internationally and was
ranked 2,438 within China. Some of the reasons for the failure of eBay were that it
did not show the online status of the seller. (Larson, 2014)

Taobao success as compared to competitors

Chinese culture is very strong and the people adapt its culture thoroughly. The
needs and expectations of the Chinese consumers is also different from other
nations. eBay in this case didnt want to change and rethink its policy and strategy
whereas the Taobao adapted the local culture.

For this purpose the founder, Jack Ma decided to give the website a strong Chinese
identity and make its consumers believe that Taobao is a pure Chinese platform. He
decided that all the members of the administration will choose a nickname from the
famous novel of Jin Yong, Kang Fu. This sent a clear message to all its customers
that the company is a nationalist, just like the Chinese people. (Hatoum, 2013)
Secondly the colors chosen by the company for its website are red and orange
which symbolize the Chinese culture and it represents prosperity and celebration.
(Larson, 2014)
Thirdly the webpage is full of information, color and energy for its customers just
like the real life in China. Jack Mas e-commerce company has been successful in
China due to many reasons mainly because of the best technology and business
foresightedness. (Tan, 2016)

Aim and Objectives

The current aim of Taobao is to expand its e commerce business to foreign
industries. The company wants to enter the Australian ecommerce market and for
this purpose the company has analyzed the threats and opportunities as new
entrant to the market.

B) Porters Five Forces

Threats of new Entrants
According to Steve Noble, a top e-commerce analyst, the online retail business in
Australia has come into the phase of continuous growth and evolution. Few of the
most successful e-commerce websites in Australia are eBay, Amazon, Gumtree, OzBargain and JB. These are a few dominant firms in the industry but the threat of new
entrants into the market is at a medium level. New entrant to the industry always
brings in competition along with resources and new opportunities.
Analysis
Taobao is a well established business and the company will have to make its space
in the market but its not a very difficult task for them. A sufficient capital
investment and marketing strategies according to the nature and culture of the
people is an important factor as a foreign client.

Threats of Substitute Products

The competitors to Taobao are high in Australia such as Distrify, Google Cloud
Storage, China Cache and CDNsun etc. The substitute risk is high in case of Taobao
and the other important ones are the original websites of large companies. Another
substitute is the traditional way of shopping and TV shopping brands. These

substitute products can anytime become attractive to the buyers with their new
products and services and might become a potential threat. (Tan, 2016)
Analysis
The consumers generally do not switch to new brands and new entrants into the
market if they are satisfied with the existing brands. Taobao needs to target the
consumers by offering them products and services which are new and more
attractive to the customers than the existing brand offerings.

Bargaining power of Buyers

The main buyers, according to the neto, are of the household items, travel business,
electronics and discount deals. The people of Sydney are bigger shoppers than the
people living in Melbourne. The average transaction is recorded to be around $280.
The busiest shopping days are Tuesdays and the peak shopping hours are from 6pm
to 9pm when people are back from work at home and relaxing while shopping
online. (Ryan, 2015)
Analysis
Customers always want a good product and service from the company and it affects
the profit of the companies. Buyers dont have much bargain power in case of
Taobao since the customer base is huge in number. Millions of buyers from different
interests and demographic backgrounds exist and it does not hold a considerable
bargain power.

Bargaining power of Suppliers

Taobao is an e-commerce service and not a manufacturer. The main suppliers are
some famous advertisement brands and websites. The suppliers in case of Taobao
have a little bargain power as compared to the buyers since they have a variety of
buyers from different backgrounds and interest who may buy the product
Analysis
The suppliers have a limited bargain power because the price is set by the market.

Existing Competition and Rivalry in the Industry

E commerce business market of Australia is ranked number 10 worldwide in the
year 2014. E-commerce industry has grown in Australia by 22% since the last year
due to greater convenience to the consumers. It is expected that the e commerce
industry will reach $10 billion by the end of the current year offering huge
opportunities for new entrants in the ecommerce business. (Ryan, 2015)
Few of the most successful e-commerce websites in Australia are eBay, Amazon,
Gumtree, Oz-Bargain and JB. These are a few competitors of Taobao in the

Australian market. The growth in the industry is at a fast and large rate but it comes
with a lot more opportunities for the new entrants as well.
Analysis
The competition in the ecommerce market is of medium intensity as there are a few
ecommerce business giants like eBay and Amazon but the implications for Taobao
are to prove their individuality and compete the market by gaining the a
considerable market share.

c) Competitive Strategies
The competitive strategy is the way a company competes with its competitors in a
market.

Cost Leadership
Taobao needs to work hard to achieve the lowest costs for its products and services
to beat itys competitors in the market. As a foreign entrant into the ecommerce
market in Australia the company need to lower there prices than the competitors to
gain a significant market share.

Differenciation
The company will need to create a difference in their product line and service type.
The marketing strategy should be of high class to become a leader in the industry.
Consumers are generally attracted to new products with lower costs. With a clever
market strategy the company will soon be able to aquire the market share.

Focus Group
The focus group of Taobao will be consumers for the departmental stores or
electronic items mainly. This can be people from ages between 24-40 years. The
individuals might be shopping simply for home items and groceries or it can be
multinationals for the corporate equipment. The company needs to focus these
market segments and advertise appropriately to gain popularity in this market
segment. (Fletcher, 2013)

Pricing Strategy
The pricing strategy must be low in case of Taobao because the buyers are
interested in the low cost products. the company must keep the initial prices low to
attract the buyers and then can gradually increase the profit margins. To make its
space in the market and gain the market share the company need to set the pricing
very intelligently and carefully. (Tan, 2016)

d) Recommendations
Taobao is a well established ecommerce business in China and has significant
market share and assets to step forward internationally. The company must expand
and move to foreign ecommerce markets. The competition will be tough with a
number of competitors in the Australian ecommerce market but with appropriate
competitive strategies suggested in the report will help gain a considerable market
share in the industry.
There are certain areas where the Taobao need to focus such as the pricing of its
products and services. Also create product differentiation because the online buyers
are attracted with new useful products with low price. Focus on a particular market
segment also increased the market share as the market segmentation is important
and identifying the appropriate buyer group will help increase the profits.
With the rise in the mobile technology in Australia the buyers can shop anytime and
from anywhere. In the past one year the 30% of the online purchase was carried out
from the Smartphone. The mobile e commerce market is expected to grow rapidly
and by the year 2017 it will be worth $720 million or more. The company must have
the best mobile technology to meet this challenging opportunity. (Ryan, 2015)

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