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Alibaba

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Chelsea Murfitt

on 20 May 2014

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Transcript of Alibaba

'Taobao Villages'
Despite China’s vast urbanization process that has propelled millions of Chinese into the middle class, one of Alibaba’s e-commerce sites, ‘Taobao’ (which is primarily aimed towards C2C like eBay) has been targeting thousands of rural villages. Villagers with traditional skills such as straw weaving or furniture making have been encouraged to use Taobao to sell their commerce, resulting in the coinage of the term ‘Taobao villages’ which is used to describe an otherwise impoverished, backwater village
that has benefited from the
e-commerce services of Taobao.
How does Alibaba compare to other
e-commerce companies?
In the 2013 calendar year, Alibaba had net income of $3.56 billion on revenue of $7.95 billion. That translates into a profit margin of roughly 45 percent. In comparison, eBay mustered a 17.8 percent margin. Alibaba facilities B2B selling as well as B2C and C2C. Alibaba Group's sites account for over 60% of the parcels delivered in China.
Their first public listing on the US stock exchange
Despite their dominance in the Chinese market – which could be argued as a monopoly – as of the 25th September 2013, Alibaba put themselves forward to float on the US stock exchange, meaning they were opening themselves up to foreign investment. When it makes its debut on the New York Stock Exchange or the Nasdaq market, Alibaba is also expected to have a share price that could value the company at roughly $200 billion — more than the market value of Facebook, Amazon.com or eBay, although still trailing that of Google or Apple.
Who is Alibaba Group?
Alibaba is a privately owned e-commerce business, located on the East coast of China in Hangzhou, one of the largest metropolitan cities known for its coastal logistics links and its thriving industrialism. In 2012, two of Alibaba’s portals together handled 1.1 trillion yuan ($170 billion) in sales, more than competitors eBay and Amazon.com combined, which could make a good case for it being the market leader in the e-commerce retail sector.
Alibaba Group plc
Link: Chapter 9
Analysts have predicted it to be the biggest ever listing
in history, ranging from $115bn to $245bn. This large
variation in predicted capital raised by the company’s IPO demonstrates the degree of uncertainty surrounding their decision to float, making many potential shareholders question whether Alibaba is a safe, worthwhile investment. This could link well with Chapter 9 with Ansoff’s matrix. Essentially, Alibaba are entering a foreign market (the US) in order to sustain the same level of growth. However, doubts regarding the quality of Alibaba’s products ave been raised by potential investors, referring to the proliferation of counterfeit goods. Arguments could be made for and against their market development strategy, using examples of US companies that have failed to localize their strategies in China as a way to challenge whether or not Alibaba will be able to
compete with the likes of Amazon and
Ebay - even with the
help of public American investors.
Recent news and events...
Is Alibaba a risky investment for new US shareholders?
How will Alibaba's stategy of market development be influenced by compeition and localisation?
Link: Chapter 28
This could also link well with Chapter 28 on leadership in BUSS4, as the strategy of Alibaba may undergo major changes influenced by potential new shareholders that own a major percentage of the company. After their first IPO, Alibaba are planning on increasing the number of executive directors from 4 to 9, influencing a range of factors such as: organizational structure and HR strategy, operational strategy influenced by location and distribution, as well as the overall corporate strategy of Alibaba Group which is bound to be affected by the goals and opinions of it’s new leaders.
Link: Chapter 25
Chapter 25 on the relationship between business and the competitive environment can also be considered, relating Alibaba’s US rivals Amazon and Ebay to Porter’s Five Forces. Currently, Alibaba’s revenue (more than eBay and amazon), however the threat of substitute products is of course very high. EBay and Amazon both offer services and products that Alibaba do, however Alibaba has wider operating profit margin than both Facebook and Google (50% versus 37 and 28). The threat of new entrants is relatively low, due to the established names having large control over the market. Buying power in this market is very high - particularly with B2C e-commerce sites, however Alibaba tends to act as an intermediary so this may not be as much of an issue due to their enormous market share.
Link: Chapter 9
This could be argued to be a case of market development from Alibaba, linking in to Chapter 9 with Ansoff’s matrix. Unlike Alibaba Group’s high risk decision to enter the new US market, their more low risk strategy of entering rural markets with a pre-established service has gained the interest of investors - most likely because in some villages, such as Wantou, revenue gained from Taobao has added up to
1m, employing 10% of the village population.
Link: Chapter 23
This story could be linked to Chapters 23: The relationship between business and the social/ethical environment. By encouraging rural consumers and private traders to utilize Taobao, Alibaba has managed to support rural villages and provide jobs and boost local economies as a result. That’s not to say Alibaba has done so as part of it’s CSR policy - however, the implications of such a huge impact on communities is likely to attract
investors and the support of
consumers.
Full transcript