Alibaba Group Case Analysis
Introduction
Over recent years, Alibaba has grown to become an e-commerce giant with its headquarter situated in Hangzhou, China. The company uses the internet to market, sell, and promote different brands. Despite its tremendous growth, the company remains limited to China, and it is still struggling to extend its operation in the international market. A large percentage of the company’s revenue is derived from e-commerce business. For instance, in 2018, e-commerce businesses accounted for 82% of the company’s revenue (Wu & Gereffi, 2018). However, Alibaba faces a significant challenge as the company is still struggling to expand its global market coverage while at the same time trying to explore new revenue channels. Alibaba operates in China, a very highly populated country that translates to a high consumer or customer base. China is also the second-largest world’s economy, thus acting as an advantage for the growth of Alibaba. Other strengths that have fueled the continued growth of the company include healthy relations with the Chinese government, strategic partnerships, the escalating demand for wholesale and retail businesses, and broad product portfolio. However, overdependence on the Chinese economy, the use of an organization structure that limits expansion, and limited international presence are some of the company’s major weaknesses. This paper is solely dedicated to analyze Alibaba’s internal and external environment and conduct a comprehensive PESTLE and SWOT analysis of the company.
PESTLE analysis
PESTLE analysis seeks to assess the external environmental factors such as social, environmental, political, economic, technological factors that affect Alibaba’s growth trajectory, business model, and market strategy. Politically, Alibaba has received immense support and protection from the government over the past years. Support by the government has significantly helped enhance Alibaba’s market penetration in the world’s second most growing Chinese economy. By the aid of government interventions, Alibaba has come up with an e-hub for trade clearance and logistics in Malaysia, thus facilitating cross-border trade with China and the broader Southeast Asia through a partnership with government entities. Even though most of the government policies work in favor of Alibaba, the company has faced a series of US lawsuits on controversial counterfeiting. Such unfavorable judgments against Alibaba can damage the company’s brand reputation and also attract hefty fines. The company has struggled to deal with counterfeits, but its efforts have not been successful. Don't use plagiarised sources.Get your custom essay just from $11/page
Additionally, China’s dense population and rapidly growing economy have positively impacted Alibaba’s operations. The increasing number of small and medium enterprises has increased the stream of products and services in the market, thus leading to demand expansion. Furthermore, Alibaba’s business model is appropriately streamlined to ideally fit in the current social and cultural sphere where individuals are shifting towards online shopping. Technological advancements have also helped the company and its subsidiaries operate in B2B, e-commerce, and C2C business segments.
SWOT Analysis of Alibaba Company
SWOT analysis translates to the evaluation of the strengths, weaknesses, opportunities, and threats of a business based on its internal and external environmental factors (Sarsby, 2016). In SWOT analysis, strengths depict all elements that help a company remain competitive in the market. On the other hand, weaknesses mean a collection of all factors that negatively hinder the growth of a business. Opportunities represent all aspects that help a business to defeat or outweigh its competitors, whereas threats are internal or external factors that may hinder business’ growth. SWOT analysis is used to track, assess, and foresee the sustainability of a business as well as its progress. For instance, a SWOT analysis would help Alibaba look for better or effective ways of improving the company’s operations, improving its products, and also enhancing competitiveness. The company’s strategic planner develops a strategic plan by analyzing Alibaba’s internal strategic factors, such as strengths and weaknesses and evaluating external strategic factors like opportunities and threats (JIANG, 2019). Critical analysis and review of SWOT analysis have helped Alibaba maintain its prominent position in the e-commerce market domain. To conduct a comprehensive SWOT analysis, the company must work collaboratively in coordination with various departments such as finance, strategic planning, operations, management information systems, and marketing.
Strengths of Alibaba
Various strengths have helped Alibaba thrive in the market place, making it one of the leading e-commerce players in the industry. These strengths have enabled the company to expand its market share in the existing market as well as explore and penetrate new markets. Some of Alibaba’s strengths include a high level of customer satisfaction. The company has a very consumer-centered and dedicated customer relationship management department that has enabled it to achieve a high level of consumer satisfaction. To ensure consumer satisfaction, individuals from Alibaba’s customer relationship management department analyzes the consumer needs and assess their buying behavior.
Technological innovation is another crucial strength of Alibaba. The company’s tremendous e-commerce growth and the growth of its cloud business are attributed to its focus on research and innovative approaches to doing business. Alibaba invests heavily in research and development with the intent to increases the company’s competitiveness. The company has partnered with technology firms in recent years to build and expand a reliable supply chain.
Alibaba has a well-segmented product portfolio that fuels its sustainability and growth. The company deals with broad-spectrum products and services that are supplied on the basis of demand. Such products and services range from agricultural products, household goods, textiles, food, automobiles and parts, electronics, and much more services on the online retail and wholesale market place covering more than 200 countries across the globe. Through Alibaba’s logistics services offered in the Cainiao network, the company has managed to leverage the supply chain between retailers/wholesalers and consumers.
Furthermore, despite facing stiff competition, Alibaba has established a firm recognition in the Chinese market. The company’s e-commerce business has dominated the Chinese market, where it enjoys a considerable market share compared to its competitors. Alibaba’s brand has focused on customer convenience, service quality, and, most importantly innovation, which has immensely contributed to the company’s growth. The world’s ever-changing market trends and growing demand for marketing services have significantly helped keep Alibaba at the helm of the e-commerce industry. The tremendous growth of the company’s revenue can be attributed to increased online services, which also positively influence online marketing inventory. The rapidly expanding customer base for Tmall, which is the largest B2B arena for trading goods imported to China, has substantially affected Alibaba’s growth and continued operations. In recent years, the company has focused on Taobao and Tmall, which, to a greater extent, has stirred its growth in popularity and also increased consumer base in China (Glowik, 2017). Additionally, having Jack Ma at the helm of the company is a qualitative strength that gives it a competitive advantage. Jack is a very iconic and visionary leader, and his popularity and visions have helped keep the brand in the market.
Finally, the growing cloud business has also acted as the strength of Alibaba Group. In recent years, cloud business has substantially contributed to the faster and impressive growth of Alibaba. Between 2018 and 2019, the company recorded a 76% revenue growth derived from cloud business. Sources indicate that the company’s cloud business derived revenue scaled-up to a whooping RMB 7726 million in 2019 from RMB 4,385 million in 2018 (Ter Chian Felix Tan, Tan, & Pan, 2016).
Weakness of Alibaba
Notwithstanding a myriad of strengths, Alibaba’s operation is also faced with several flaws. One such weakness is its limited presence in the international market space and overdependence on the Chinese market. When Alibaba attempted to go public in the New York Stock Exchange, the results were very impressive in the first quarter of its operations. This was followed by an all-time revenue and stock price downfall, forcing the company to shut down all its businesses in New York. China serves as Alibaba’s primary and main market, with the company having very limited penetration outside China. Even though the Chinese market has reported steady growth over recent years, it would still be essential for the company to expand its operations overseas. Alibaba has also faced stiff competition as a major impediment to its growth. Since the company was founded in 1999 by Jack Ma, a former English teacher, there were already more than 8.5 million competitors. Since then, the number of competitors has been growing with the emergence of companies like eBay. When eBay joined the marked, Alibaba feared that it would allure consumers; thus, the later launched Taobao as the company’s defensive strategy (Glowik, 2017). Taobao acted as a better option since it offered free listing and transactions for sellers, whereas EachNet charged for the same. However, the free services provided by Taobao failed to destroy and win EachNet’s loyal and trusted consumers. Unfortunately, the U.S. platforms provided by eBay did not offer features that would help EachNet remain competitive in China. Online data had to pass through the Chinese firewall before reaching another country across the border. And also, the speed at which EachNet web pages were loading significantly slowed, forcing frustrated EachNet users to turn back to Taobao, thus hindering eBay’s operations in China.
Alibaba’s Opportunities
The rising investments and demand for e-commerce and digital marketing services are one of the company’s most significant opportunities. Recently, Alibaba has recorded steady revenue growth attributed to increased demand for online marketing services (Tan, 2015). Online marketing has added a whopping 450 million online active users to Alibaba’s consumer base in China. Through a digital marketing platform, the company can extend its international penetration by attracting more consumers online. Additionally, stable free cash flow is also an opportunity for the company to expand its investments in new technologies and venture into new product segments.
Threats faced by Alibaba Group
Among the stumbling block to Alibaba’s growth is stiff competition from e-commerce giants like Amazon and eBay. If at all, Alibaba intends to extend its operations to India, the biggest threat would be the strong presence of Amazon and Flipkart in that country.
Conclusion and Recommendations
With the company’s increased investment in R&D, in the future, Alibaba might record significant growth in the cloud business. Although Alibaba has reported substantial growth in the past years, the company should invest more in R&D to stay on par with its competitors. The company must, therefore, focus more on technological advancements to deal with competitors like Amazon. Its strategy determines the competitive edge of a company. For eBay and Amazon to thrive in the Chinese market, they must seek to adopt form strategic partnership. This strategy will require eBay or Amazon to partner with an already existing Chinese brand, such as Alibaba. The Chinese brand will help them explore and understand the Chinese market as well as address the knowledge gap.
References
Glowik, M. (2017). Global strategy in the service industries: dynamics, analysis, growth. Taylor & Francis.
JIANG, W. R. (2019). Analysis of Alibaba Website by SWOT. DEStech Transactions on Economics, Business and Management, (ssemr).
Tan, B. (2015). Alibaba. com. Managing Organizational Complexities With Digital Enablement In China: A Casebook, 13, 1.
Ter Chian Felix Tan, Tan, B., & Pan, S. L. (2016). Developing a Leading Digital Multi-sided Platform: Examining IT Affordances and Competitive Actions in Alibaba. com. CAIS, 38, 36.
Wu, X., & Gereffi, G. (2018). Amazon and Alibaba: Internet Governance, Business Models, and Internationalization Strategies. In International Business in the Information and Digital Age (pp. 327-356). Emerald Publishing Limited.