Alibaba in the Global Ecommerce Market
11ALIBABA IN THE GLOBAL ECOMMERCE MARKET
Alibaba in the Global Ecommerce Market
Alibaba in the Global Ecommerce Market
Alibaba has proven to be among the largest ecommerce company in China (Doland, 2014). The company has made it easy for people and organisations to buy and sell things through the internet. The company over the years has offered business opportunities for both small and large enterprises to leverage to online technology and compete successfully in the ever-changing business environment (Alibaba.com, 2014). The overall mission of the company is to build a strong business and profitable customer connection not only in China but across the world. The company has a transaction of about US$248 billion in 2014 that was equal to the transaction of eBay and Amazon.com combined (Doland, 2014). Alibaba offers B2B, C2C, and B2C through the internet portals. Lately, the company is expanding its operations outside China with an aim of being profitable across the nations (Alibaba.com, 2014). This paper will discuss how Alibaba was able to operate in China and acquired success. It will also analyse the possibility of replicating China’s strategies to other countries in order to achieve competitive advantage for Alibaba Corporation.
Part A. How Alibaba Group has made it easy to do business in China and hence achieved a great success?
Alibaba Group adapted the “freemium” business model in China that worked successfully (Mourdoukoutas, 2014). This model was based on free services for the company’s retailers who were interested in marketing their products and services. The “freemium” business model was effective because; the country has a fragmented retail landscape (Pris, 2014). Chinese retail market is considered very diversified and fragmented and its economy is unbalanced as some people may earn as much as American’s counterparts and others will earn less than $1000 a year (Mourdoukoutas, 2014). In addition, there is no national retail chain in China (Mourdoukoutas, 2014.
The existing retailers’ accounts for about 8.7% of the total retail goods sold to customers (Mourdoukoutas, 2014). The highly fragmented conditions suggest that retailers in China lack scale and skills to beat the challenges brought about by online retailers. Retailers in China are small in size; lack enough capital and manpower to be able to market their products online. This has worked to the benefit of Alibaba Group and has increased its sales (Leong, 2013). In addition over the years it has been proven that free is a strong strategy in China. Free service worked to the advantage of Alibaba since buyers and sellers chose to access free services offered by the company and forgo the charges from the competitors.
The mission of Alibaba is to simplify the potential to do business everywhere. Before Alibaba was founded, the sales channels in China were insufficient for small and medium-sized enterprises (Alibabagroup.com, 2014). The trade fairs and exhibitions that were conducted to launch and demonstrate new products were very costly for business enterprises. The method also could only reach few customers. Nevertheless, many small and medium enterprises seek to grow as the Open Policy has open doors for investment in foreign countries (Walreven, 2009). What Alibaba has done is to offer China’s SMEs a large market through ecommerce.
The ecommerce opportunity offered by the Company has assisted in reducing the transaction costs and has given buyers and suppliers accurate and germane information (Mourdoukoutas, 2014). Transaction cost is termed as the exchange of property rights in fiscal assets. Transactions often increase wealth by maximizing the values of products and services. Transaction cost theory accounts for the cost of outsourcing production including search costs and transaction costs (Klaes, 2008). It illustrates the make versus buy decision involving organisation. Ecommerce services by Alibaba reduce the cost of outsourcing production.
In addition to offering free online ecommerce services for its customers, Alibaba Group also has introduced pay-per-click advertisement campaign that has enabled the suppliers to grow and expand their businesses (Chen, Solomon and Mac, 2014). Alibaba has also reduced the cost of the suppliers by combining all the interested suppliers in different Trade fairs (Chen, Solomon and Mac, 2014). Alibaba has captured the value shaped to people who are price sensitive in China. In addition to this, Alibaba has founded a payment method in China referred to as Alipay that has partly led to its success on the country. Many suppliers in China have proven to be insecure to ship goods to different buyers in different countries until the buyers have settled all their payment (Chen, Solomon and Mac, 2014).
Nevertheless, when Alibaba launched Alipay, this credit instrument has reduced the risk of e-transactions and has lessen the concerned raised by the sellers on failure of payment (Shih, 2014). Alipay has raised the trust between the buyers and sellers in China. Trust is important in organisations. According to trust theory, trust can be at the interpersonal and inter-organisational level. The sources of trust include the process-based, character-based and institution-based (Klaes, 2008). Trust ensures there is long-term relationship and this leads to success. Alibaba’s move to create trust between sellers and buyers yielded positive results.
Alibaba has not only developed the Alipay credit system but has come up with a sound evaluation system that gives chance for both the sellers and buyers to offer their feedbacks about the services and goods they purchase(Shih, 2014). These feedbacks and comments appear on each other’s website and assist in creating better and stronger references for next potential partner. Comments as well as businesses are essential as they reduce dishonesty and make transactions consistent and trustworthy. Alibaba online payment system has been secured using Escrow especially for international enterprises (Shih, 2014). This has assisted in protecting the privacy of buyers as they are able to pay steadily and their personal details are not exposed. Alibaba has ensured there is institution-based trust in order to safeguard against opportunism as well as reduce the disclosure of private information. Opportunism encompasses self-interest seeking and many sellers are considered opportunistic (Klaes, 2008). Alibaba has protected its clients from opportunistic sellers and buyers who could manipulate people through the internet.
In addition, Alibaba offer additional services such as blogs and forums at its Alibaba.com and taobao.com websites which offer a means by which customers can communicate openly and freely and give their feedbacks (Osawa, 2014). This is unique for Alibaba as the competitors do not have these services. In reference to the resource-based theory, these services act as valuable resources for the company which has enabled them gain sustainable competitive advantage in China. Such services have enhanced communication and have made it more effective to all customers and sellers. Moreover, the company offer to its client communication tools including Alitalk, Taobao as well as Yahoo messages that enable them discuss business at any time (Osawa, 2014). Using these communication tools customers have a chance to receive updated information about supply and demand immediately. Clients of Alibaba can also communicate with sellers at any time through the Trade Manager platform. Alibaba offers membership package for its clients according to user’s preferable features and services (Osawa, 2014).
Alibaba uses a collective entrepreneurship model that emphasizes on sharing of profits between the company and the different merchants that join its networks. This platform is for merchants that offer products to Alibaba clients. This platform relies on profit sharing and not listing fees that is used by many ecommerce companies (Mourdoukoutas, 2014). Collective entrepreneurship model has attracted many merchants who participate in Alibaba network. The larger the network of Alibaba, the greater the profits shared between the two parties as it attracts a large volume of sales (Mourdoukoutas, 2014). Furthermore Alibaba Group has established a good relationship with the Chinese government which is the gatekeeper of the country’s economy (Mourdoukoutas, 2014). This has led to its enlisting as one of the companies to join the e-banking section of banks that are owned by the government.
Part B. Can the company replicate its China strategies elsewhere as it expands into other countries and achieve competitive advantages in the global ecommerce market?
Alibaba is aiming to maintain its domestic market while venturing into global market. Alibaba is striving to expand its operations in different countries such as India, United State among others (Dalby, 2015). Expansion of Alibaba’s operation outside China will be faced with challenges such as the high customer’s loyalty towards competitors such as Amazon, and different customer’s behaviour and preferences. The market of China is different from markets of other countries such as the United States (Schmid, 2014). The expectations of customers are different and thus it is almost impossible to replicate Alibaba China’s strategies in other markets.
For instance, Alibaba has been faced with challenges when trying to replicate its China’s operation strategies to North States (Shi, 2014). This went sour and they decided to sell this business entity to 11Main.com (Mourdoukoutas, 2014). The company misjudged the United States market and did not understand the expectations and the needs of the customer in the new market. American market is e-savvy and is used to food e-commerce experience (Shi, 2014). They are not price sensitive as China; they expect two-day delivery and trust the online transaction without any issues.
Despite its innovation and success in China, it is very difficult to expand in other countries simply because the success of the company is highly attributed to the size of China and the population it has of more than 1.3 billion people (Shih, 2014). Thus, it is not enough for the company to take over the western market by storm. While it is almost impossible for Western companies to operate in China, Chinese companies also face challenges operating outside their country with exemption of foreign merger and acquisition.
It is unlikely that Alibaba will achieve competitive advantage in other markets due to the sophisticated competition and the availability of new and different market (Peltz, 2015). Resource-based theory highlights that every organisation has unique character in terms of resources and capabilities (Helfat and Peteraf, 2003). These enable them to compete in the market place. The basis of competitive advantage depends on the rarity, imitability, substitutability and value of the resources and capabilities (Helfat and Peteraf, 2003). In order for Alibaba to defeat its competitors in the global market, it should ensure that it acquires resources and capabilities that cannot be imitated or substituted by the competitors (Helfat and Peteraf, 2003).
According to transaction theory, transactions have features including frequency, uncertainty and transaction-specific investment (Klaes, 2008). In any organisation, the transactions are internalized. An organisation is made up of both the implicit and explicit contracts and operates and survives as a result of transaction cost. Organisations should aim at achieving the greatest transaction-specific investment when aiming for global market. Alibaba should focus on achieving the highest level of internalization with the greatest transaction-specific investment (Gigernzer, Gerd and Selten, 2002).
One strategy that is important in achieving competitive advantage by enhancing transaction-specific investment is merger and acquisition. Mergers and acquisitions is the way to go for Alibaba Company as it will combine the company’s creativity and technological know-how to successfully establish international distribution network that would boost its competitive advantage. Merger and acquisition involves the purchase a well-known organisation in order to enhance success chances overseas. Merger refers to when two companies – which are about the same size – come to an agreement to move forward as a single company rather than remain separately owned and operated. On the other hand, acquisition refers to one company purchasing another and is often congenial and hostile.
It is hard for Alibaba to expand in other countries using the strategies used in china as they will be dealing with different market made up of customers with different expectations and needs. It is evident that if a company is foreign and is late in the market, it is at a disadvantage (Dalby, 2015). The only way to enter the already saturated markets of ecommerce is to use acquisitions or signing local management. The advantages of acquisition are that it is quick to develop a foreign presence, it is less risky, pre-empt the competitors and it is easy to implement strategic change.
In conclusion, Alibaba has become the largest ecommerce corporation in the world. Its success is attributed to the strategies it uses in China. In order to succeed in China, Alibaba has established a “freemium” business model to target the market that is full of middle and low class individuals. In addition, it ihas developed Alipay that has reduced the risk of e-transactions and has lessen the concerned raised by the sellers on failure of payment. It has established communication tools that offer a chance for the clients to offer feedback and concerns about transactions. Collective entrepreneurship model has increased merchants in its platform and has increased sales overtime. However, in order for the company to succeed overseas, it should come up with new strategy to tackle the new markets. The strategies used in China cannot result to Alibaba’s success. Due to different customers demand and preferences, it is hard for the company to replicate its successful business strategies used in China to overseas markets.
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