E-commerce
in China has rapidly developed over the last decade and no wonder that it goes
hand in hand with one of the largest online retailing giants called Alibaba.
This is a leading e-commerce company in China with a share of 7%, while on the
global scale its value share made 14% in 2015. Recently the company has
announced that it aims at reaching US $1 trillion in gross merchandise volume
and two billion customers across all of its platforms (Alibaba Group Holding
Ltd in Retailing (World), 2016). Such goals sound very ambitious and
encouraged curiosity to find out what stands behind the success of this
company, how it deals with its competitors and what are the company’s plan for
the near future.
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| Source: fortune.com |
Speaking
about the key moments of Alibaba’s development as an organization, there are a
few aspects that should be mentioned. First of all, its success in China can be
explained by an early entry into the internet retailing market back in 1999 and
the big size of the Chinese market itself. These two factors together with a
rapid internet penetration in China gave a push to a company with ambitious
goals and a long-term vision.
Unlike
other companies, Alibaba from the very beginning put customer in the center of
its reason of existence. Not money-making, but serving customers and small
entrepreneurs by connecting them through an online marketplace was the main
goal of the company. Of course, it was not profitable from the beginning and
has gone through very tough times of failures and disappointments, but the
leader of the company managed to keep the team spirit high and lead the company
to success (Erisman, 2012).
Another
important aspect of Alibaba’s development is its continuous focus on creating
seamless and unique customer experience. The company wanted to go beyond simple
online shopping and created a whole system of platforms like AliPay, Ali Wang
Wang, AliMama, Alibaba Cloud etc. expanding
its core business into the other areas (Alibaba Group Holding
Ltd in Retailing (World), 2016). All these platforms make a kind of synergy,
contributing to a successful operation of each other and expanding the product
portfolio in general.
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| Source: adafruit.com |
On
top of that Alibaba is famous for its aspiration towards innovative practices.
Recently, for example, it launched a few e-commerce points in the remote
villages giving rural population an access to the vast range of products,
removing bottlenecks related with a weak regional retail infrastructure and low
availability of products. Moreover, Alibaba is working now on bringing virtual
reality into the shopping experience. It will enable users to virtually inspect
products before making a purchase by putting on wearable devices. Experimental
VR Lab is already launched in Hangzhou, inviting visitors to experience new
shopping reality (Zhang & Zhou, 2015).
It
goes without saying that behind a success of any company stands a strong and
confident leader. All these developments of Alibaba would be impossible without
Jack Ma, a man who established a company from scratch and managed to build a
whole empire. His charisma, motivation and different way of thinking helped him
to build a very cohesive team around the company who trusted Jack and was ready
to work just for an idea at the beginning. To my mind this social aspect plays
a very important role in a successful running of the company up to this day.
The Alibaba team does not consider itself to be just a bunch of colleagues with
a 9-till-5 mindset. They see themselves as a family the members of which share
joys and sorrows together. Alibaba people, as they are often called, share the
vision of their leader and believe in the mission of the company.
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| Source: businessinsider.com |
The Chinese
culture of collectivism and the importance of community as opposed to
individual interests have contributed, I believe, to the building of a strong
and unbreakable teamwork spirit. Besides, as was mentioned in the Crocodile in
the Yangtze movie, Jack Ma spends a substantial budget on improving of the working
environment and training of employees to make them feel comfortable and fully
integrated into the corporate culture (Erisman, 2012). Once Jack Ma said: “If we are a good team and
know what we want to do, one of us can defeat 10 of them” (D'Onfro, 2016).
Apparently
with this quote Jack Ma meant beating its competitors, Ebay and Amazon seem to
be the most obvious one. While the latter holds strong position on the global market,
Ebay seems to go through tough times for quite a while already. As can be seen
from Figure 1, Amazon and Alibaba experience growth in value sales, while Ebay
is in stagnation since 2014
Figure
1. Alibaba Group: value sales growth vs other top six internet retailers 2011-2015
(source: Euromonitor International, 2016)
Once
Ebay has already tried to set foot on the Chinese market, however it failed due
to the number of strategic mistakes. First of all, it tried to transfer the
US-based business model into the Chinese environment, underestimating the
importance of customization. Simply by copying the website design without
adding special features important for the Chinese (e.g. messaging service,
haggling option etc.) already confused customers, not taking into account the
trading of the second hand goods which by itself was not a common thing in
China. Second, after acquiring EachNet by Ebay, the spirit of the Chinese team
was down because they were ruled by the American managers who had very vague
idea about the local culture and team building relationships. Third, marketing
and ICT departments were located in the USA which led to slower website
loading, maintenance during peak hours, blocked pages and long waiting time for
minor website changes to be implemented (Sander, 2016). Add the commission that was charged (unlike on
Taobao platform which was set as free for the first 3 years) and it is no
wonder that merchants were far from satisfied. On top of that it was too late
when Ebay realized the importance of transparent, easy and trustworthy payment
system that must be convenient for the Chinese people. As Jack Ma said in the Crocodile
in the Yangtze movie, the Ebay’s main goal was just to buy the market and make
money instead of serving to the Chinese people (Erisman, 2012). That was their big mistake and neither big
investments nor well-known brand name helped Ebay to set its foot in China.
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| Source: lockerdome.com |
On
the other hand, there is Amazon, another global rival of Alibaba. Both
companies are considered to be top global retailers and direct competitors,
though their business models are somewhat different. First of all, unlike
Alibaba which is purely an online marketplace connecting buyers and sellers,
Amazon also performs the role of a direct seller. It maintains its own
warehouses with goods. Besides, Amazon has resale margin and charges for being
listed, while on Taobao, for example, the listing service is free (but
standing-out service is paid) (Battaini, 2014).
Unlike
Amazon, which runs its own logistics department, Alibaba uses third party
services for delivery of goods. Currently Alibaba is experimenting with the different
delivery methods (like drone-based deliveries) in order to improve customer
experience and delivery time. On the other hand, Alibaba has its own payment
system called AliPay which resolved the problem of trust between sellers and
buyers while making online transactions. Amazon does not have its own payment
system and relies on partner services (Battaini, 2014).
In
my opinion, the tension between two retail giants has not yet reached its peak
because they operate and dominate in different geographical regions. While
Amazon is an undeniable leader in many developed e-commerce markets such as US
and UK, Alibaba’s dominance is stretched over the Asian region where the
presence of Amazon is not yet that strong. Both companies, however, are focused
on long-term growth possibilities and expansion. Sooner or later, I believe,
the tension will increase when both companies will make an endeavor to
penetrate each other’s core market territory.
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| Source: businessinsider.com |
While
Chinese market still provides possibilities for growth, at some point it will
reach saturation anyway. Taking into account its ambitious goals, Alibaba
definitely understands that apart from the Chinese market it should also focus
on international expansion. It is quite obvious for me that Alibaba has already
tried to set foot outside of China by developing cross-border commerce and by
acquiring some businesses outside of China. That was a trial and error route
though. Let’s take its endeavor to enter the US market by launching 11main.com
in 2014. It was a B2C platform offering high-quality branded products for US
consumers. Apparently, it appeared to be unsuccessful because in 2015 it was sold
to another e-tailer and no reports or figures were released by Alibaba (Alibaba Group Holding Ltd in Retailing
(World), 2016).
In
2016 Alibaba shifted its focus to Southeast Asia region and acquired Lazada, a
Singaporean e-commerce company that is active in 6 big Asian marketplaces
(Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam) (Alibaba Group Holding Ltd in Retailing
(World), 2016). As this purchase is quite recent, it is too
early to judge about its success. However, the prospects seem to me quite positive
as Alibaba got access to new multiple markets and great opportunity to expand
its customer base.
On
top of that, according to Euromonitor International, in 2015 Alibaba made 15
investments overseas in Israel, Hong Kong, Germany, India, Singapore, Japan and
the US. One of these investments includes Jet.com, Amazon.com’s newest rival in
the US (Alibaba Group Holding Ltd in Retailing
(World), 2016).
All
these activities indicate the growing interest of Alibaba in internationalization.
I assume it will continue to expand and will try to penetrate into other
regions like Latin America or Africa where the competition is less fierce.
Summing
up, I would like to say that Alibaba is indeed a phenomenon of the modern
e-commerce world which managed to establish a strong competitive position
despite all the struggles and failures it faced in the past. Nowadays Alibaba’s
prospects look quite optimistic, so let’s see if its wheel of fortune will
choose the same path.
References:
Alibaba Group Holding Ltd in
Retailing (World). (2016, August 15). Retrieved from Euromonitor International:
http://www.portal.euromonitor.com.saxion.idm.oclc.org/portal/analysis/tab
Battaini,
F. (2014, August 14). Alibaba: Ready to Conquer the Far West? Retrieved from
Euromonitor International:
http://www.portal.euromonitor.com.saxion.idm.oclc.org/portal/analysis/tab
D'Onfro, J.
(2016, July 1). 15 quotes that show the strange, relentless genius of
billionaire Alibaba founder Jack Ma. Retrieved from Business Insider:
http://uk.businessinsider.com/alibaba-founder-jack-ma-quotes-2016-6?r=US&IR=T/#on-not-giving-up-today-is-cruel-tomorrow-is-crueler-and-the-day-after-tomorrow-is-beautiful-1
Erisman, P.
(Director). (2012). Crocodile in the Yangtze [Motion Picture].
Sander, E.
(2016, September 13). Alibaba and E-commerce in China (PP presentation).
Zhang, Y.,
& Zhou, Y. (2015). The Source of Innovation in China: Highly Innovative
Systems. UK: Palgrave Macmillan.