Alibaba - Case Report

Name: Helder Jorge Dias Faria Gomes

ID: w21161311005

Wednesday, December 21, 2016

Table of Content
1.

Introduction ............................................................................................................................. 3

2.

Case Analysis .......................................................................................................................... 4

2.1.

Organization and management ............................................................................................ 4

2.2.

Time-span ............................................................................................................................ 6

a.

Foundation of the company ..................................................................................................... 6

b.

Development and changes ....................................................................................................... 6

c.

Acquisitions ............................................................................................................................. 6

d.

Divestments ............................................................................................................................. 7

e.

Human resources ..................................................................................................................... 7

f.

Business Model........................................................................................................................ 8

g.

Alibaba.com Features and Benefits ......................................................................................... 8

h.

Performance ............................................................................................................................. 9

2.3.

Strategic Analysis .............................................................................................................. 10

3.

Recommendations ................................................................................................................. 11

4.

Conclusion ............................................................................................................................. 12

1. Introduction
Electronic Commerce or e-commerce, virtual commerce or non-person selling, is a commercial
transaction (with or without profit purpose) made especially through electronic equipment such
as, computer, tablets, and smartphones with access to the Internet. The facilitation of trading in
products and services that this type of transactions allows, made it plays an important role in the
Global Market. This is because buying online has become part of our daily life. The reasons
behind are: is easy to engage, provides faster and cheaper delivery of information, generates
quick feedback on new products, access global audience, levels the field of competition which
improves the quality of customer service, and supports electronic data interchange (EDI) with
both suppliers and customers. Statistical data shows that e-commerce will increase significantly
in the years to come. In the United States was estimated an increase to 200 million in 2015.

China, according to CNNIC (China Internet Networking Information Center) June 2016, had 448
million online shoppers, an increase of 34.48 million or 8.3% over the end of 2015. In November
2016 (Team, 2016) Chinas online retail sales of goods and services were 4,599.0 billion Yuan,
increased by 26.2% Yo Y. However there are still great potential customers in Chinese online
shopping market (Fan & Liu., 2015).

2. Case Analysis
2.1.

Organization and management

This company was launched with the vision to serve the small and medium enterprises in China
and across the world. Nowadays, Alibaba.com Corporation is the worlds largest on-line B2B
trading platform designed for small businesses and also the worlds largest online B2B
marketplace for both imports and exports. Besides focusing in the B2B e-commerce Business
Model, it focuses also in C2C (Consumer-to-Consumer) and B2C (Business-to-Consumer). It
has also a presence in the strongly competitive web search market. All these events were due to
the explosion in information technologies in China.

Type

E-Commerce

Industry

Internet

Headquarters Hangzhou, Zhejiang, China

Owner

Jack MA (6%)

Services

Online Shopping

Employees

46,228 (June 2016)

Net Income

CN71.289 billion (2016)

Website

www.alibabagroup.com

Table 1 - General Information of Alibaba.com

Alibaba Group is the worlds biggest e-commerce company and has six subsidiaries and one
Affiliate Company:

Alibaba.com the primary company of Alibaba is the worlds largest online business-tobusiness trading platform for small businesses.

Taobao Is Chinas largest consumer-to-consumer online shopping platform.

Tmall.com online retail platform which serve to complement Taobao C2C portal.

eTao also launched bay Taobao, is a site that offers search results from most Chinese
online shopping platforms.

Alipay is a third-party online payment platform with no transactions fees.

Alibaba Cloud (Aliyun) it aims to build a cloud computing service platform, including
e-commerce data mining e-commerce data processing, and data customization.

AliExpress is an online retail service made up of mostly small Chinese businesses

offering products to international online buyers.

China Yahoo! focuses on internet services like news, email, and search.

All of the companies listed above are part of what, (Hannan & Freeman, 1977) called
organizational ecology where we can find a large number of participants in a loose coupling, and
the interdependence forms the basis of the ecosystems stability, productivity and creativity.
Consumables of one species is the output of another species, thus greatly improved the
utilization ratio that species can save energy to focus more on output and may be completed the
target which cannot achieve before.
According to (Fan & Liu., 2015), the development of Alibabas ecosystem is not plain sailing
because of the changes of 2013 that significantly reversed the original structure to maintain the
innovation of the enterprise.

2.2.

Time-span

a. Foundation of the company

Alibaba was established in 1999 when the Chinese Entrepreneur Jack Ma decides to bring
eighteen people together in his apartment in Hangzhou - China to explain his vision.

b. Development and changes

Because of the strict IPO regulations in Beijing, Alibaba was registered in Hong Kong. At the
same time Ma started to look for investors for his company. Because of the novel concept of the
business, a group of investors lend $5 million to the venture. Later Ma convinced Softbank to
invest $20 million more.

The headquarters of Alibaba was moved from Hangzhou to Shanghai and concentrated on small
and medium-sized Chinese firms which aspired to go international in a cheapest way.
The period between 1990 and 2000 the internet was not very popular in China and the banks
were not networked, Credit Card was limited and logistics service in the country was difficult.
As a result, Alibaba limited its business model in connecting buyers and sellers. Ma put efforts
to make Alibaba.com very simple to use and manage to convince the SME of the safety of online
payments. He made use of the argument that all the transactions were managed in partnership
with a leading bank in China. In 2001, Alibaba achieved profitability.

c. Acquisitions
In July 2010, Alibaba.com bought U.S. e-commerce site Vendio Services Inc., making its first
major U.S. acquisition. In November 2010, Alibaba.com is a founding partner of
Globaltrade.net, a new marketplace for the international trade service providers. Third quarter
2010 profit of Alibaba.com stood at 366 million Yuan, up from 236 million Yuan a year ago.

d. Divestments
From its history, we can say that Alibaba Group has focused more on acquiring and establishing
strategic partnerships with companies that strengthen its Business Ecosystem. Few divestments
were made, except the US shopping site 11 Main which Alibaba announce to sell to Open Sky,
an on-line market-place operator based in New York.

Figure 1 - Alibaba Group Evolution Story

e. Human resources
We can say that the success of Alibaba is not only a result of the evolution of e-commerce in
China but also by the people involved in the development process of the company. Alibaba
group starts with a group of 18 people as a small online retailer. Thanks to the culture of
teamwork the company managed to thrive in the business world and continue its evolutionary
process. Nowadays the company has more than 46,228 employees. It counts with Mr. Jack Ma as
Chairman, Daniel Zhang as CEO, and Joseph Tsai as Executive vice-chairman.

f. Business Model
Alibaba doesnt compete directly with merchants. Instead, it works with them and provides a
platform for dual profits. It seeks to innovation and thrives and, has no specialty in one area. That
means it create online ecosystem rather than focus in one niche.
To understand their business model we should consider their three major web portals that make
up the core of Alibabas business: Alibaba, Taobao, and Tmall. These three E-commerce
websites connect various types of buyers and sellers, wherein Alibaba acts as a middleman.
Taobao is a business-to-consumer or consumer-to-consumer focused which Alibaba makes
money from through advertising and other services that help the merchants stand out on the
website as boost sales.
Tmall on the other hand, is focused on large companies such as multinational brands like Nike,
Apple. Inc. (AAPL). Alibaba makes money from Tmall through charges on merchants, an annual
fee and a commission fee on transactions.
The US shopping website 11 Main.com charges a percentage of sales on almost 1,000 merchants
he host.
In addition to its leading e-commerce portals Alibaba Group created an ecosystem of companies
to compliment them such as Alipay, Alimama, China Smart Logistics and Aliyun.

g. Alibaba.com Features and Benefits

-

Helpful online forum to give advice;

Online guides to teach consumer the basics;

Find suppliers in foreign countries;

Import products at lower costs;

Make greater profit margins;

.

h. Performance
The focus on investments, strategic acquisitions and increasing investment as well Alibabas
focus on long-term performance and maintaining the health of their ecosystem may negatively
affect their margins and net income.

Figure 2 - Annual revenue of Alibaba Group from 2010 to 2016 (in million Yuan)

The chart above shows the evolution of Alibaba in financial terms. We can see through the
successive increase in profits the efficiency of the business model adopted and the strategies
delineated by the company.
In the fiscal year ending March 31, 2016, Chinese e-commerce corporation Alibaba recorded
consolidated revenues of 101.14 billion Yuan, (Satista, 2016). This translates to approximately
15.69 billion U.S. dollars, an increase of 26% and 193%, respectively, from fiscal year 2015 to
fiscal year 2016. Although they experienced significant growth in their profit margins and net
income, its uncertain if Alibaba is going to maintain the growth rate at the same level. In their
financial report they states a declination of their operating profit of 7% and net income only grew
4% from fiscal year 2014 to fiscal year 2015. However, because of strategic investments and
acquisitions they expect to produce long-term benefits in order to defend the interest and
strengthen their ecosystem participants. Some example of these investments are related to

entertainment, international expiation, cloud computing and big data, logistics services, local
commerce, category expansion, e-commerce marketplaces, health care and new technologies.

2.3.

Strategic Analysis

In this section we take a closer look at the strengths, weakness, opportunities and threats of
Alibaba through the SWOT matrix.
SWOT Matrix

Slow delivery time of items

Large Chinese culture influence
Low brand recognition
No mass advertisements

- E-commerce industry growth in

-

China
EBays subsidiary poses threat
Global economic crises
Competition
among
rival
websites

Positive

External
Factors

Largest online trading website W

TrustPass.com reliability
Strong place in global market
Positive cash flow
Large group of online
companies
Market share possibility in T
U.S.
Large
untapped
market
segment
Increasing profits is possible

Internal
Factors

2.3.1.

Negative
Table 2 - SWOT Matrix of Alibaba

We can say that the major strength of Alibaba is that it now offers a wide ecosystem for all the
participants consumers, merchants, third-party service providers and others. There is a wide of
service provided by Alibaba such as: financial products, highly scalable platforms for cloud
computing and data management, and logistics information platform which provides real time
access to information for both buyers and sellers. However, theres still exists a large gap
between urban and rural household incomes in china and increasing over time. This represents an

opportunity which Alibaba is planning to take advantage by cooperating with other companies to
sell inexpensive smartphones with applications pre-installed in smaller cities and rural areas.
Despite the huge opportunities related to e-commerce in China, the government controls the
access to internet and the communist party runs most major businesses in China, either through
direct control or by fiat. Besides the kind of government support on e-commerce space, political
risks may become Alibabas biggest financial threat. Alibaba can overpass this threat considering
a possible further expansion scenario beyond China borders. But there it will face strong
competitions from Americans giants such as Amazon, eBay and Walmart, the main competitors
of the Chinese company.

3. Recommendations
Before starting with the recommendations its important to point out that, in the future people
will have more and more access to smartphones, the shipping of products is becoming faster and
free, with globalization businesses are being done without frontiers, marketing content is
becoming essential, the customer is demanding personalized service and brand recognition
becomes an important factor in purchasing decision.
Because of all these changes it becomes crucial for Alibaba Group to take these opportunities
and invest in a foreign based web-company to expand beyond China borders and create global
marketplaces.
According to (CayenneApps, 2016), an Ipsos poll conducted for Thomson Reuters showed that
88% of Americans had not heard of Alibaba in 2014. A week after the company went public, the
number had fallen, but remains at a high 76%. This shows the importance of investing in Mass
advertisements through all over the internet by Alibaba.
Like said before, brand recognition becomes an important factor in the purchasing decision
which becomes harvest from sticking to differentiation. Thats why is important to Alibaba to
take part in sponsoring activities to gain recognition worldwide in consequence of its strategy of
strengthen its global presence.

4. Conclusion
The world is moving away from self-contained national economies toward an interdependent,
integrated global economic system. Technology advancement is one of the key factors of
globalization. It helps businesses in various aspects such as reducing time and cost and Ecommerce is the right strategy to do business without any trade barrier.
Alibaba Group is the worlds biggest e-commerce company providing online business-to
business trading platform for small businesses. Alibaba offers a transaction-based wholesale
platform, which serves smaller buyers seeking fast shipment of small quantities of goods. It
claims it had more than 50 million registered users in more than 240 countries and regions.
Alibaba could be the vanguard of a new era in the western economy. A visionary leadership
allied with a keen sense of opportunity catapulted the company to globally recognized heights.
However, to be successful globally, it will have to pay continuous attention to the environment in
which it pretends to develop its activity, from the national policy, to the humanities and the
historical and culture environment, which constitute the key factors for the particularities of all
kind of markets.

References

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https://www.statista.com/statistics/225614/net-revenue-of-alibaba/
CayenneApps. (2016). CayenneApps. Retrieved December 19, 2016, from
http://blog.cayenneapps.com/2015/05/19/alibaba-swot-analysis/
DERESKY, H. (2012). INTERNATIONAL MANAGEMENT: MANAGING ACROSS BORDERS
AND CULTURES. HONG KONG: PEARSON.
Fan, J. a. (2015). "An Analysis of a New Business Model: A Case of Alibaba-Ecosystem.".
INTERNATIONAL INTERDISCIPLINARY BUSINESS-ECONOMICS ADVANCEMENT
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Hannan, M. T., & Freeman, J. (1977). The population ecology of organizations." American
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