Alibaba Case Study Essay Example
Alibaba Case Study
1) Why are these businesses under the same roof?
Initially, Alibaba group was organised into five different subsidiaries which included the following: Alibaba.com, Taobao, Alipay, Yahoo! China and Alisoft (Wulf 2010, p. 3). All these businesses are organised under the product or divisional organisational structure in which each subsidiary operates independently from the central headquarters and seeks to attain leadership in its particular market segment. Under this type of organizational structure, each business unit operates as an independent subsidiary; thus allowing the decision making process to be completely decentralised (Daft, Murphy & Willmott 2010, p. 113).
Although the subsidiaries are operating separately in different markets, they remain under the same roof as subsidiaries of the Alibaba group. This is because of the fact that they are based on serving the Chinese market by providing e-commerce services. Operating under Alibaba group strengthens brand loyalty and visibility. This helps new subsidiaries to gain a competitive advantage in new markets. Also, operating as subsidiaries of Alibaba group allows the different subsidiaries to access technical and strategic cooperation among themselves. This enables them to gain synergy in terms of operations and strategic advantages in their different markets. Lastly, remaining as part of the Alibaba group simplifies coordination between the subsidiaries, thus allowing significant growth without loss of control.
2) Degree of competition between Alibaba’s subsidiaries – what are the competitiveness of Alibaba in the industry (please use Porter’s 5 model to illustrate)
According to Porter’s model of 5 competitive forces in an industry, the success and profitability of a business within an industry depends on the interaction of five forces within the industry as follows: the competitive rivalry within the industry, the threat of substitute products, threat of new entrants into the industry, the bargaining power of customers and the bargaining power of suppliers (Porter 2008, p. 8).
The competitiveness of Alibaba within the e-commerce industry in China can be analyzed using Porter’s model of five forces the industry as follows. In essence, the company has gained market leadership by influencing the factors of the competitive environment in the e-commerce market in China. This has been done by different subsidiaries of the group using different and new business models when introducing new products and services in the market. Also, the company has gained competitive advantage by utilising first-mover advantages in the market for particular services.
The competitive rivalry within the industry
This is based on changes in terms of development within a specific sector, diversity and the existence of barriers to entry. It is also a function of the number of competitors, their products, brands and evaluation of their general strengths and weaknesses (Porter 2008, p. 9). For the case of Alibaba, the company has managed to achieve a leading position in all the sectors its subsidiary businesses engage in. For instance, at the time of launching Taobao, the online shopping market in China was dominated by eBay, which controlled 85% of the market share (Wulf 2010, p. 4). However, by capitalising on the new model of building a critical mass of users first before focusing on revenue generation, the company has managed to get a dominant market position in the Chinese e- commerce sector. Also, the high competitive rivalry in the e-commerce sector for Alibaba is intensified by low brand loyalty for the different services offered by the subsidiaries of the business and low consumer switching costs from one e-service provider to another.
The bargaining power of the customers and the suppliers
Alibaba’s businesses focus on serving the needs of both small businesses and consumers of e-commerce services. In all these businesses, the customers have a high bargaining power which is reflected in the need to create trust between vendors and the buyers in the case of Alipay, creating the right environment for online shopping in the case of Taobao and the need for small companies in China to use enterprise management software for the case of Alisoft. Also, since the concentration of buyers in the industry is high in relation to the number of suppliers, the bargaining power of consumers in the industry is demonstrated by developments such as a shift in consumer behaviour towards using search boxes. This fundamentally affected the revenues of China Yahoo, Yahoo, Baidoo and Google (Wulf 2010, p. 5).
Threat of new entrants
In general, the e-commerce industry is characterised by low initial capital investment, easy access to distribution channels and reduced consumer switching costs. These factors make the industry highly competitive since new entrants can easily enter into the market, thus enhancing the level of competition. For instance, the rapid expansion in the use of smart phones opens up the potential of large internet businesses to enter into the Chinese mobile marketplace before Alibaba does (Wulf 2010, p. 11). However, one advantage that the company has is that its services are already established in the market. This provides it with a high level of brand awareness and customer loyalty in both the Chinese and international markets. Also, Alibaba group gains a competitive advantage in the industry because there are few threats from substitute services.
Daft, R L, Murphy, J & Willmott, H 2010, Organization theory and design, Cengage Learning, Hampshire.
Porter, E M 2008, Competitive advantage: Creating and sustaining superior PERFORMANCE, Simon & Schuster, New York.
Wulf, J 2010, Alibaba Group, Case study authorised for use in MGMT 3101 – International Business Strategy, at University of New Wales, from August 2013 to February 2014.
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