Alibaba Group Strategic Management Analysis

Introduction

Alibaba is a Chinese company that operates various businesses. The company runs a conglomerate industry, meaning there is a combination of multiple business entities operating in different sectors under one corporate group. It is an online market store that specializes in e-commerce retailing that is internet-based technology created by Jack Ma in 1999 (Qin, 2017). Alibaba is a parent company with multiple business entities underneath operating in different industries. The company has three sections, which are Alipay, Taobao, and Aliexpress. The company’s strength lies in its global influence, its position in the market, and its high evaluation. It has a wide scope of functioning and able to target a vast number of buyers and consumers, which makes the organization successful. Besides, the company’s low brand recognition and inefficiency to compete outside China with its worldwide competitors. Alibaba’s weakness includes its inept delivery period, lack of global reach as well as advertising, which makes it more difficult for the company to expand to other countries like the competitors. Our analysis is to come up with recommendations that will help the organization to overcome its problems to be able to have a competitive advantage in the online marketplace with its competitors.

1.0 Mission Statement

A mission statement is a concise description of a company’s underlying purpose. It answers the question, “Why does our business exist?” the mission statement explains the business purpose to both the people or employees in the organization and for the public or other stakeholders of the organization. It gives an in-depth description of the organization’s abilities, analyses and examine possible stakeholders and determine the nature of what the organization must do to continually for its survival. This statement is mostly put together at their strategic management level of the organization. As a result of instability in the order of business, stakeholder preferences, and technology, which leads to competition among organizations, a mission statement of an organization must be revised and redefined from time to time. The Mission statement has three components, thus the mission or vision of the organization, an account of the core values that shape the actions and behavior of the employees and statement of the goals and objectives of the organization. A proper mission of an organization must be executable and achievable.

The mission of the Alibaba Group’s to conduct business at ease globally. Their objective is to build an e-commerce future infrastructure platform. The group envisions that its clients will work, live, and meet at the Alibaba online store. They hope to serve their customer in existence to market for not less than 102 years. We embrace change, teamwork, customer first, passion, integrity, and commitment.

2.0 External analysis of Alibaba

2.1 Porter’s “Five Forces”

The threat of new entrants is Low

Alibaba Group has the advantage of an early start and positioning itself in the e-commerce industry. The group has thus seized from its competitors a golden development period. It is, therefore, has a high degree of remaining in the dominant position within the online market even in the future. Besides setting up a large online market as Alibaba requires a substantial investment, getting manufacturers, which will pay for the registration on the Alibaba platform, requires their trust.

Power of suppliers is Low

The leading suppliers of the Alibaba Group are also e-commerce service providers. To win more market share, Taobao, for instance, should ensure to publish a lot of its information in the Alibaba main pages. This means that Taobao does not have bargain power. However, on matters of technology, like advertising and researches, the company champions these services; thus, it has an advantage over its rivals. In that line, Alibaba’s mere supplier having strong bargain power in its position is the logistics. It is essential to mention that support of business logistics is significant for its growth realization. Logistics quality, as well as efficiency, significantly impact on the experience of the consumers moreso on online buying.

Power of buyers is moderate

Alibaba’s significant customers can be grouped into two: individual buyers and Small Medium-Sized Entrepreneurs (SMEs).  The two categories of customers are very much different from each in the market. Due to their power limitations, SMEs have no choice but to comply with online services for them to perform their transactions. They have a complex as well as diverse e-commerce service demand like warehousing, micro-finance, and marketing. Alibaba Group provides a variety of products and services to meet SMEs’ needs. Several of the customers experience a high switching cost.  This makes their power to bargain low.

Individual online customers are entirely different. Because of the functionality of the internet, buyers may opt for a different platform instantly in case they do not find their intended merchandise on the platform of Alibaba. Some of the primary reasons could be if they question the quality of the products, or else if they are not pleased by payment services as well as service delivery. Unlike SMEs, these customers experience no switching charges, and hence they have high bargaining power.

The threat of Substitutes is High

The traditional commercial model, for example, showcase, as well as store types, provided an expensive service cost with low customer volume as opposed to e-commerce transactions. Though the shoppers can easily have direct exposure with the product on traditional purchases, continuous advancement in technology and eCommerce trends reveals that more people, as well as businesses, have much accepted the online platform services.

Besides, TV purchase has emerged as a significant efficient form of performing business activities. Similar to e-commerce, Television is as well a virtual form of purchases. However, the type of transaction involved is a bit more secure since ordering is done through the wire, and the customers have more contact with products; hence they see more details of the item they want. Besides, many television applies membership systems making their customer groups stable. They exercise a hybrid of the traditional form of purchase. The authenticity of shopping in television mode may lure customers since they have positive feelings. The shoppers exercise a reduced risk since, at times, product descriptions on the online platform may be very different from the real item.

Rivalry in the industry is high

Competition in the e-commerce industry has grown more intense with recent advancements in the technology. There is no room for monopolization in the online market as the services, as well as products provided by the dealers, are relatively the same. The uniformity set a continuous rivalry among these businesses as they try to be unique from the other. This has been a significant challenge for Alibaba Group. Tencent Group, Amazon.com, JD.com, suning.com, eBay, and Shopify are major e-commerce competitors of Alibaba group. Competitive rivalry is a strong force that pushes the company to put a strong strategy and to change its decisions.

2.2 PESTEL Analysis:

Political

 According to the general pattern of the country, the “Five-Year Plan” mainly clarifies the national strategic intent. The signals it releases still consider the most important political factor in China. The “12th Five-Year Plan” mentioned that upgrading the industrial structure and promoting the service industry is one of the most critical parts of the next period of economic development. He also suggested that we should improve e-commerce based on SMEs and promote the construction of a support system such as credit service, online payment, and logistics. The goal is to dramatically enhance e-commerce service provision to customers and develop businesses as well as global reputation e-commerce brands. On May 26, 2011, Alipay obtained the first admission of the third-party payment service from China Central Bank (Qin, 2017). With the advanced e-commerce industry, the laws and regulations of the sector are improving as quickly. As the most famous e-commerce company in China, it is inevitable that Alibaba Group will benefit from the political environment. However, he should be alarmed at the influence of upcoming laws and regulations.

Economical

 Since 2016, the global economy is recovering very quickly (Berthier, Monfort & Stoliaroff-Pepin, 2017). Western countries, in particular the United States of America, are gradually getting rid of the evil influence of the subprime crisis in 2008 (Berthier, Monfort & Stoliaroff-Pepin, 2017). Other economic indicators have slightly increased. Since the adjustment of the industrial structure is the main point, according to the “Five-Year Plan,” electronic commerce could play an important role, mainly by helping to reduce the cost of trade, to promote the use of social resources, by offering vast amounts of job postings and leading economic restructuring. As the leading provider of e-commerce services in China, its strategy needs to change as the domestic and global economic environment evolves.

Social

The continuous change in the consumer’s attitudes, as well as the social structure, has a considerable impact on the e-commerce industry (Duffett, R. G. (2017). Global urbanization, as well as countryside development, has rendered increased consumers access to e-commerce. Further, young generation couples are more loyal consumers of  Alibaba group. The two categories of consumers are Alibaba’s key target groups. It is important to note that e-commerce is significantly changing consumers’ habits. Unlike some decades ago, there is a high likelihood of the customers accepting newly introduced products on the internet. Considering the domestic consumption as well as demand stimulation, the Alibaba Group has taken the opportunity by organizing activities like the “double carnival of shopping.” The adoption intends to lure customers as well as create social effects, necessary for promoting the entire business development.

Technological

Increased advancement of information technology provides new and more opportunities for the e-commerce industry (Kaur & Gupta, 2019). The consumer’s interaction with the platforms saves time. The enhanced application reduces the time gap for product searches through online platforms. The development of internet services offers a friendly experience to online buyers. Internet improvements create a more comprehensive and potential market for the e-commerce industry.  Such services include cloud computing as well as big data mining, which highly promote e-commerce services (Wang, Shen & Pu, 2019, December). They have made it easy to advertise and reach the intended target group of consumers. E-commerce growth is closely linked to the growth of internet users and mobile clients. It is worth noting that smartphones are increasingly replacing the use of PC; hence it will recently become the main online buying channel. It is thus necessary for Alibaba to closely link its business to the information technology for the future of the company is offering better customer services.

Environmental

It is every business initiative to take care of the ecosystem responsibly. Traditional industries are prone to high waste product, which has an extraordinary impact on the environment due to pollution. Unlike the conventional sector, thanks to e-commerce characteristics, as it is not involved with any processing that can result in environmental pollution. Nevertheless, it is vital for relevant measures to be taken as the same industry are suppliers of online e-commerce stores. Changes can probably influence the supplying industries in the ecosystem. However, these problems may be solved by the application of the “Green IT” (Bıçakcıoğlu, Theoharakis & Tanyeri, 2019).

• Legal: this the last PESTEL model’s factor of consideration. Due to improved labor law, labor cost is shooting (Alesina, Battisti & Zeira, 2018). This is more evident in the traditional form of industries, as they require more human resources. Considering that e-commerce is an online service industry, it requires less workforce, and hence it is less affected by labor law changes.

3.0  Internal Analysis of Alibaba

3.1.1 Tangible assets

 According to the NASDAQ on 19^th  Dec 2018, the market capitalization of Alibaba was $352.28 billion (Moghaddam, Moghaddam & Esfandyari, 2016). Alibaba group is thus among the top ten well-established and valuable companies worldwide, including Amazon, Microsoft, Facebook, etc. At the start of 2018, Alibaba emerged the second company in Asia to hit the $500 billion value mark, next to its rival Tencent. In 2018  the company was ranked at 9^th of the Alibaba highest world value (Tang, 2019).

3.1.2.  Intangible assets

Alibaba Group is an online mobile marketing platform, both wholesale as well as retail, cloud computing service provider, and many other business operations. The company offers technological services to allow consumers as well as merchants to perform business in its platform. Alibaba manages Taobao Marketplace, Tmall, Juhuasuan, Alibaba.com, 1688.com, and AliExpress.

3.1.3. Organizational capabilities

The availability of financial and human capital, as well as the competent management of Alibaba, creates chances to have useful organizational skills. Alibaba mostly focusses on big data, fin-technology, finance, and supply chain management. For example, in 2018, the business had 576 million active users that are higher than the whole US population (Yuan, 2018). Following that, it was 58% of all retail sales in China (Yuan, 2018). Because of that, they focus on the big data that earns customers and keep them to be active with the company. It should be noted that to support its high devotion, and it has created an educational institution – Alibaba Global Initiatives, which involves senior executives, business leaders, and entrepreneurs that teach employees first-hand experience via practical fields.

3.1.4. Financial situation; According to NASDAQ, the total revenue of Alibaba on 31/03/2018 was 39.777B, and the cost of revenue was above $ 17.014B (Moghaddam, Moghaddam & Esfandyari, 2016). And the gross profit, according to this information, became around $ 22.76B.

Formula: Gross profit=Total revenue-cost of revenue;

Alibaba’s annual revenue in value was billion (B) at 31/03/2018

(Yuan, 2018)

As far as we see from the table, Alibaba’s revenue shows a sharp rise from 2015 to 2018. From 2015 it shows total gradual growth till 2016 from $ 12.292billion to 15.638 billion. However, starting from 2016 to 2017, total revenue reached $ 22.965 billion. And also, from 2017 to 2018 increased 73% that the rate of total revenue reached 39.777B.

One of the biggest rivals of Alibaba is Amazon. Alibaba and Amazon perform their business rightfully all the time. Each of the two companies has its formulas and approach of succeeding that have brought hefty revenues to their shareholders.

Alibaba’s’ shares have grown 63.97% within the past period of twelve months and 146.15% in the last two years, while Amazon’s shares have increased 67.76% and 121.44% within the same time (Qin, 2017). It means that Alibaba is growing at high speed. If the company continues like this, the company definitely will become more significant than Amazon after a few years.

3.2. Core competencies; It should be noted that by the company’s mission, “To make it easy to do commerce everywhere,” the company makes its products and services to be readily available for the customers through the world and also provides an opportunity for everybody who wants to be a seller. Today, as we see, Alibaba is one of the top 10 successful companies globally. Alibaba’s new competencies in the existing market are delivery speed, international delivery reliance, and creating diversification with skills and rate of payments, lower prices, and product offering (Qin, 2017). Also, in the new market, their new competencies are disruptive technology and forward integration into smartphones, while old competencies are entering international markets and physical trading commodities.

3.3. The barriers to imitating (isolating mechanisms) the core competencies; According to the core competence of the company, there are two main barriers for other competitors: fast delivery speed and lower price and product offering. Nowadays, as far as we know about online markets, there is a lot of problems for customers to wait for their orders because time is costly in our life and Alibaba does it with high speed. And also, the company provides products and services for its customers at a lower price. That’s creating an opportunity for all types of customers to use their services and products at a lower price.

3.4. Competitive advantage

 One of the first and the main competitive advantages of Alibaba is the location of the company. Headquarter of the company is in the Hangzhou, Zhejiang Province, China. It should be noted that China is the world’s largest internet market; hence Alibaba has a large pool of domestic customers into which it can be tapped (Glowik, M2017). Another competitive advantage of Alibaba is the business model; that’s a network of many business people who provide products sold on the platform.  Alibaba simply facilitates the trading process and charge commissions for this. The Company’s business model attracts more sellers to the network, and this benefits from increased customer traffic. Also, Alibaba uses the Alipay payment wallet for e-commerce transactions in the local market as well as the on-local market.  The strengths and weaknesses, as well as the opportunity and  threats related to the performance of the company in a competitive environment, are presented in the following table (SWOT Analysis):

3.2 SWOT Analysis

4.0 Business and corporate-level strategy for Alibaba

4.1 Business Level Strategy:

Cost Leadership; Alibaba has so far reached economies of scale and has become a leading market player in the industry. This, in turn, has led to its business expansion and coming up with more opportunities for the business. Alibaba has enabled Small Market Enterprises, and merchants get a reliable platform to sell their products, making it easier and more cost-efficient for them to reach their customers. The company as a group has designed a series of pricing strategies such as:

The product line pricing

Alibaba has a variety of similar products with different prices as each supplier has a different price for their product. Suppliers usually offer a range of products that are similar at a competitive price to provide a wide choice for those that want to purchase the products (Li, Webster, Mason & Kempf, 2019).

Discounting

This is a method that stimulates sales as well as promoting customer retention. The discounts are offered to customers when buying products in bulk and during festival seasons. Some suppliers also use the buy one get one free method.

4.2 Corporate-Level Strategy

            Diversification Strategy

The company has a large and diverse market place to attract a wide range of buyers and sellers (Glowik, M2017). Some of its markets include Taobao, Tsmall.com, and Juahuasuan.com to attend to the needs of their target customers. Also, they have AliExpress to draw in and absorb foreign customers. Further to that, they also diversify the business by making available mobile applications, cloud computing, and online payment solutions. The principal characteristic of the market is the extensive use of technology and diversification to increase revenue and market share.

5.0  Recommendations for Strategic Change

Market share

Proper management determines company success or failure. There are many ways in which Alibaba can increase its sales and position in the nearest future. Alibaba needs to create more job opportunities, support a lot of profitable businesses on its platforms to become a global business in the most real sense,

Innovation

Alibaba is an innovative company that needs to take new innovative business styles and techniques to survive. If it can create 100 million jobs,  which is higher than the capability most of the bigger states, it needs to support more people to 10 million profitable businesses on its platform to increase its position in the near future

Strategic Alliances

 Alibaba Group should be proactive in the future strategic alliances. They should partner with the related business for successful cooperation. The equitable strategic partnership is capable of providing the company a chance to acquire more competencies.

Lower pricing

Alibaba must lower their pricing to beat competitors, Concentrate on low-cost strategies as well as low-pricing to compete healthily with the existing manufacturers. More employees need to be employed to increase the workload and expansion of the company. The company needs to adapt to various business as well as cultural constraints within the different parts of the world.

5.1 How can change in Alibaba be  implemented

Alibaba needs to convert nearby stores into fulfillment centers so that it can enable packages generated through Alibaba platform to be delivered every day in the future. Improvement of more social media marketing apps is as well necessary to make it relevant in the market.

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