Alibaba Group was launched in 1999 by Jack Ma and 18 other individuals (Alibaba Group 2017). These founders believed that the internet would create a levelled playing ground that enabled small businesses to make use of technology and innovation to compete and grow more efficiently in local and international economies. The firm mission is to make it easy to carry out business anywhere. The vision statement is to create future commerce infrastructure to help customers work, meet and live at Alibaba for about 102 years (Alibaba Group 2018a). Since the establishment of its first website (Alibaba.com), small Chinese manufacturers, exporters and entrepreneurs have been aided in selling globally making Alibaba Group a recognised international leader in mobile and online commerce (Kumar and Chandrasekhar 2017, p.3193). With the help of the website, the company links international organisations to Chinese producers.
Currently, the firm and its related organisations operate leading retail and wholesale online marketplaces and businesses in innovation initiatives, digital media, cloud computing, and entertainment (Kumar and Chandrasekhar 2017, pp.3193). The firm has established an e-commerce presence in B2B, B2C, and C2C. It also has a presence in logistics and third party internet payment systems. The company constitutes of 25 businesses and focuses on e-commerce market with its constant innovation and client friendly philosophy (Kumar and Chandrasekhar 2017, pp.3193). From China commerce involving Taobao and Tmall, the company has a revenue of around 86% and from global commerce, that is, Alibaba.com, it has returns of approximately 8.8% (Kumar and Chandrasekhar 2017, pp.3193). The report aims at evaluating the suitability of corporate and business level strategies of Alibaba Group in the current global environment.
A corporate strategy concentrates on what businesses should carry out while managing their operations. The successful corporate approach enables companies to develop a diversification via acquisition and also to add value to shareholders. It is assumed that firms with this strategy should own and control activities in a range of products and markets. The corporate strategy makes use of the corporate portfolio to make strategic decisions by looking across all its operations to determine how to make the most value. To do this, comprehension of how distinct businesses fit and impact each other is significant to maximise processes, human capital, and governance (Machulskyi and Bogomyagkov 2012, pp.11-13).
Alibaba current strategy is to ensure continuous growth through diversification of services to millions of clients. It is through this strategy that the company stabilises its profit thus capable of diversifying its revenue stream to reduce its dependency on services of core e-commerce.
Alibaba Group has recently been in a position of having an abundant cash flow that has been enabling it to be on track and to pursue growth chances such as an acquisition. The recent acquisition timeline of the company began in January 2015 after acquiring AdChina and its late acquisition of January 2017 when it obtained Intime (Rexaline 2017). Based on such acquisition, it is true that the organisation has a sense of dominance in online presence and that it can offer clients with the required needs, preferences and convenience.
Alibaba.com is among the highly expanded and most influential group of online business that has gained greatness within a short period. In the Chinese market, it is the most prominent brand, and by becoming global with numerous expansion and strategic plans, it can help small business entrepreneurs to grow their businesses globally. The global strategy of Alibaba focuses on utilising its vision to enable enterprises to throughout the world. It focuses on winning the clients and the merchants by creating key enabling businesses using integrated solutions and close collaboration with its units.
Alibaba makes use of its unique governance model which is in line with its mission and vision to bring focus to its strategy and partnership system whose role is to make decisions regarding human capital management, leadership succession, social responsibility and business ethics (Alibaba Group 2018b, pp.7-15). In the leadership succession and human capital management, Alibaba’s corporate governance has a crucial role in advising the board in coming up with proper talent management from within and make future plans for succession. As a result, risks of living succession management is minimised. Through annual selection and continuous cultivation, new partners are admitted in the partnership makes it possible to identify talented individuals in the organisation who have the required traits of a leader and exemplify its culture. In the conduction of ethics, the company ensures that customers and workers are addressed with respect for value creation and integrity utilisation to ensure honesty, commitment, and openness.
Alibaba partners are obliged to make a personal contribution of finances and time in solving social challenges in finding solutions to social problems through long-term investments. Some focused areas include women social mobility, environmental improvement, poverty eradication, education and economic development (Alibaba Group 2019). Major CSR initiatives and achievements include the creation of job opportunities, support of rural development in China, environmental sustainability contribution, poverty relief programs, public service, and charitable contributions.
The business level strategy focuses on attainment and satisfaction of clients through offering commodities that meet their needs and increases organisational profits (Machulskyi and Bogomyagkov 2012, p.14). To do so, it concentrates on positioning itself against counterparts and staying current on technological changes and market trends. Alibaba Group has a competitive edge from scale economies which enables it to save costs associated with all its provision for the sales of distinct types of commodities by Single Corporation from similar sales channels. It has two retaining sites namely; Tmall which features all its branded products while Taobao features the unbranded one from small merchants. Many people who shop at TaoBao likes the firm’s provision of a large variety of commoditiesTaoBao.
Strategies in business management are vital, and without proper use of them, resource deployment cannot yield to maximum productivity (Tilles 1963, pp.111-121). A varied strategy leads to growth, profitability, and fulfilment of other organisational objectives. On the other hand, inappropriate one not only results in disaster but also led to failure in the achievement of corporate benefits. Thus by evaluating Alibaba strategy, their degree of competency can be determined. Assessing the suitability of the strategy requires determining its alignment with the environmental aspect (Wu 2010, p.17). Suitability can be evaluated using various criteria which are crucial to the company, and they include expectation suitability, environmental suitability, and capability suitability. These suitability categories are then further categorised to reflect the specific needs of a company.
The PESTLE model can help in the evaluation of external forces to determine suitability by looking at political, economic, social, technological, legal and environmental factors. They are pressures from the external environment that need to be considered when assessing the suitability of a strategy.
These factors relate to the intervention level and nature of the government in the economic and business environment. In the e-commerce ecosystem fostered by Alibaba, taxation policies do impact the company. Decades ago Alibaba tariff gained benefits from lower taxation policies all over the western regions. After China entered the World Trade Organisation, its government has been in support of e-commerce businesses by promoting e-commerce firms like Alibaba to grow further. This has resulted in increased profits and maximisation of investment in research and development. The changing policies brought forth by new states can affect the future e-commerce activities requiring Alibaba to prepare itself for such uncertainties. The existing markets have political stability allowing the company to operate in distinct nations, meaning that it has to make policies which abide by every country it operates based on the specific industrial requirement. The Russian legislation which focuses on taxes, technical regulation, and customer protection did not apply to foreign online companies before (Rui 2018, p.47).
However, in 2018, this regulation changed for the protection of local e-commerce firms, but the market still offers room for foreign players like Alibaba (Rui 2018, p.47). Through its diversification strategy, the company has been able to extend into new markets which are governed by different political factors, implying that for the organisation to increase profitability, abiding with such policies is essential to the firm. The company through this diversification strategy has started to increase revenue more so in cloud computing and entertainment, and this has raised the revenue up to 59% (Chen and Ramli 2016).
Alibaba was receiving excessive competition from within China, and this forced it to expand its market to take advantage of the noticed opportunity. Additionally, the current acceleration of globalisation integration enables the company to meet its e-commerce opportunity through collaboration with overseas companies. Economic development has also enhanced online shopping for modern society. Efficiency and convenience of online shopping develop internet transaction. Alibaba has already made use of this advantage of space and time as a globally leading commercial platform.
By leveraging innovation and technology, the company digital economic world establishes employment chances to many people in society. The company platform also has created more jobs for many merchants, service providers in marketing, logistics, consulting, outsourcing, operations, training as well as other mobile and online commerce experts throughout the value chain. For example, based on the current report from China’s Renmin University, this company has built approximately 36 million jobs opportunities in 2017 from various sectors like an online retailer, manufacturing and logistics, design, and research and development through its retail ecosystem (Alibaba Group 2018b, pp.38).
Moreover, in early 2018, nearly half of its sellers were women in China retail marketplaces. Through globalisation of Alibaba online platform to Eastern Europe and Southeast Asia, there is the creation of more jobs to these areas helping local merchants to do online business. Additionally, People are currently pursuing spiritual life requiring internet market to extend continually hence increasing the number of internet users. Alibaba, an internet market corporation, has already made use of this competitive advantage.
The company possesses e-commerce trading platforms such as B2B, B2c and C2C which help it to collaborate with various banks to create Alipay which is an online payment platform (Pang 2015, pp.12-15). The firm also offers middle and Small Corporations with online software services, search engine, and other additional services which enhance business information and cash flow and logistic systems. Integration of these components creates a giant commercial service empire of commercial service. Hence, Alibaba attains close pays up with a rapid development of information technology to retain advantages and overcome negative scenarios. Thus, its globalisation strategy that offers platform solutions to its customers make it suitable for enhancing services provided to clients.
To continue being the competitive, constant investment in technological innovation to offer greater information accessibility to partners is crucial while enhancing their experience with increasing speed. As a global business, the company utilises low production and service costs and to retain this flexibility, restructuring the supply chain to meet the cost structure and clients’ needs is vital. Moreover, empowering the supply chain partners through a shortened product life cycle technology, the company has enabled the suppliers to develop new products rapidly thus keeping them happy through the promotion of diverse product range (Pang 2015, pp.12-15).
There exist distinct laws and regulations required before entering the international market. Alibaba abides by intellectual property rights by use of its corporate structure which it adopts while engaging in foreign investments. It makes use of the trust virtue which is vital in ensuring commitment to intellectual property right protection, data protection and cyber security which makes partners, regulations, consumers, and merchants to rely on it (Alibaba Group 2018b, pp.18-23). Thus, trust is congruent for the health and sustainability of the company. Organisational accountability for data classification and collection is enhanced at the company business group level, the group management level and business unit level.
The current world is focused on the sustainability of the environment, and this is made possible by the help of the national government. Alibaba focuses on environmental sustainability through a joint foundation which focuses on environmental improvement. Its initiatives concentrate on leveraging all the societal resources. For sustainability purposes, the company ensures that it contributes to such functions through program initiation and education because it is not an industrial manufacturing company. However, it recognises that every organisation has a responsibility in reducing environmental impacts. Hence by its core business practices and long-term strategies, the organisation aim at sustaining environmental through its initiatives. To minimise carbon footprint and conserve energy, the company invest sufficiently in energy efficient data centres and the servers making its environmental sustainability approach suitable (Alibaba Group 2018b, p.45). It abides by environmental norms while concentrating on product innovation. To survive in the future, making plans to adhere to such regulations should be considered.
This is a powerful tool that can help in determining the competitiveness of the business environment and the strength and suitability of the Alibaba business strategy. It helps in determining the profitability of the strategy used in the organisation.
Setting up e-commerce is a not a difficult task in China although it requires a lot of money and global distribution channels. They also need advanced technologies which are expensive. Alibaba has a strong reputation due to the use of advanced technologies like cloud computing which has increased its profit for a long time (Adamkasi 2017). Thus, the threat of new entrant is low.
Customers of Alibaba’s products and services are consumers themselves and businesses across the world. Its use of cost leadership strategy and a strong distribution network enable the company to keep its prices low thus reducing the chances of customers switching to competitors (Adamkasi 2017). The number of clients in Alibaba is proving that its strategy is suitable since it attracts many customers into its ecosystem. Alibaba offers superior client value and services at an affordable cost online, and this increases the client base and results in sustainable growth in competitive China. However, recently, the online marketplace has started gaining many rivals who focus on specific segments hence grabbing the market share from Alibaba and thus the bargaining power of buyers is moderate.
Alibaba’s suppliers are the manufacturers which are part of its selling pages. In each product category, Alibaba has a wide range of suppliers. As a result, it has a strong reputation. Moreover, the membership fee paid increases its income revenue, thus revealing a strong partnership with these suppliers making the partnership strategy suitable for gaining a competitive edge in the local and global market (Adamkasi 2017). Therefore, the supplier bargaining power is low.
Alibaba’s substitute is many, and they offer low price commodities. Some suppliers are also distributing products to customers directly. Others sell via social websites, and others have even started their own retail sites just like Alibaba thus saving the cost of membership, and this threatens Alibaba’s future since the substitution rate is high (Adamkasi 2017).
According to Adamkasi (2017), Alibaba Group faces intense competition from its rivals from within and outside its home country, for instance, eBay and Amazon. Other competitors include Yayvo and Daraz in Pakistan. In the Chinese market, the most potent competitors include Yiqu.com and Paipai.com. These competitors threaten the competitiveness of Alibaba leading to loss of profit. However, the company offers a wide range of products to distinct customers giving it a competitive edge since no other platform offers this facility.
Additionally, Alibaba’s rates are less than the rivals due to it being a Chinese corporation which reduces customers’ trust. However, in Russia, the company has market opportunities which have been made possible through internationalisation strategy (Rui 2018, p.47). Its internet penetration rate in Russia continue to increase rapidly, meaning that the company has a chance of gaining a dominant position in the areas. Furthermore, despite the fears rivalry from the competitors, the firm can capture a larger market share due to innovative and clients centric strategy.
Good partnership: Alibaba offers a conducive atmosphere to all its participants, for instance, consumers, merchants, and third-party leaders who get access to cloud storage, scalable platforms, financial schemes and real-time retrieval of information (Bhasin 2018). As such, it has become an unattractive ecosystem for more partners to join.
Well segmented product portfolio: the company offers a wide range of services internationally based on geographical demand. It provides food, textile, agricultural products, automobiles, and electronics among other products in more than 200 nations (Bhasin 2018). It also offers corporate government, merchants and start-up the cloud computing services. Marketing services are offered through Alimama that plants the customers’ commodities on third-party apps and websites for a reach of the more significant market. Logistic services via Cainiao network to facilitate supply chain between clients and merchants at a larger scale. It offers financial assistance to micro and small firms via Ant financial. Through this diverse portfolio, the company remains a top leader in this segment.
Extensive customer base: with the help of Tmall which is a B2C internet platform, the organisation sells premium commodities across its borders thus strengthening its presence in areas like Australia as the demand for nutritional and health supplement continue to intensify in China. Through this platform, annual service fees continue to rise based on the product category sold leading to a strong growth in retail and wholesale business. In 2017, Alibaba revealed an international revenue growth which was strong when compared to 2016 (Bhasin 2018). It contributed to 72% of the revenue. Data technology offered to clients had a lot of active buyers which attributed to the positive change of annual expenditure. Consolidation of AliExpress and Lazada also raised the revenue which led to increased investment in R&D that aided in localisation and expansion (Bhasin 2018).
Too many sellers: Alibaba has led a wide range of sellers to partners with it leading to the online competition of these sellers. Some firms have not yet tasted success, and they are forced to withdraw from it, and the pulling out of these sellers result to decreased profitability of the organisation especially from the products sold on Tmall and Taobao (Bhasin 2018).
China experience: Alibaba has an in-depth comprehension of e-commerce operation giving it a chance to tap other markets like Russia (Bhasin 2018).
Aggregator based model: the firm utilises cost leadership strategy, and this may help the organisation minimise cost while keeping its activities lean. It may use this model as an opportunity to gain a presence in other markets.
Stiff rivalry in e-commerce: the company faces stiff competition globally and domestically in e-trade and e-commerce activities reducing its competitiveness in areas like India which is concerned with the manufacturing sector (Bhasin 2018). To remain a reliable provider of high-quality business product and services, it must intensify its quality, delivery, and pricing in this area to translate to value proposition.
Increased regulations: the Chinese government is intensifying regulations over market activities exposing Alibaba just like other companies to accounting regulations. Fortunately, its diversification strategy can help the firm in searching for other areas to invest in to curb the risk (E-Commerce Nation 2018).
Table 1: Alibaba SWOT Analysis
|Strengths Good partnership Well segmented product portfolioGrowing customer base
|Weaknesses Too many sellers
|Opportunities Aggregator based modelChina experience
|Threats Stiff rivalry in e-commerceIncreased regulations
With the help of the resource-based view, analysing a strategy is made possible since it provides knowledge regarding the resources potential to create a competitive edge. Combination of external and internal perspectives originating from an approach can help determine its suitability based on the factors like competitiveness, core competencies and profitability (Paiva et al. 2008, pp.118-119). Creation of an imitable value (as seen in table 2 below) in commodities from the current internal inputs is what reveals the suitability of a strategy.
Alibaba’s first capability is seen in its connectivity which is made possible by internet based and technology-based online interphase which allows suppliers and clients to link up and carry out their business with reduced intervention from the third-party. Transactions of the company are based on the technology and information that is powered by it, offering clients real-time offline and online options from its portfolio and other decisions to engage in trading activities with ease. For example, the company’s trading platform interphase that provides participants a utility service that manages their product requirement, listing, and internal websites. This interphase offers a wide range of trading options and functions like real-time negotiation, online options and internet category hosting via a trade manager (Balaba n.d., pp.7-8). Such services can be accessed without the involvement of human resources from Alibaba.
Another core competency is the broad-based yet focused segmentation of the company that addresses distinct business needs of diverse local and international markets so that there is a solution or a service for every business challenge or opportunity. For instance, a customer can purchase on Tmall or TaoBao (Huh et al. 2015, p.8). Global clients can purchase from AliExpress, and international wholesalers can purchase on Alibaba.com (Balaba n.d., pp.7-8). Presence of Alibaba in local and global markets also give it the ability to attract a talent pull from these markets to build on innovative and localised products, and this offers it a definite competitive edge. Lastly, Alibaba provides a seamless solution for online transactions by providing infrastructure and interphase for conducting trade and negotiations while ensuring payment for distinct payment modes while providing delivery services within its things schemes.
Table 2: Alibaba VRIO Analysis
|Short-term competitive edge thus requiring constant innovation for sustainability.
|Local and international presence
|Offers a strong competitive advantage.
|Position among wholesalers and retailers
|Sustainable competitive edge.
|Talent attraction capability in various local and international markets
|Provides a definite competitive edge.
Alibaba Group CSR development focuses on shareholders, workers, and customers. The firm creates value for clients to bring more profit to the shareholders while the value for customers is created based on the hard work, happiness and professional capabilities of employees. As a result, Alibaba enhances workers’ effort through its philanthropy management model which ensures that the true value of online products is created. Alibaba workers are encouraged to search for innovativeness in creating value and being accountable for clients and their families to enhance greater workplace happiness. Through the company’s training and development systems, new staff undergoes training while others undertake continuous on the job development so that a clear career path is set (Yang and Huang 2015).
Moreover, competitive salary and welfare management systems are utilised to provide money for disaster purposes, for instance, interest-free loans. Clients, on the other hand, are essential stakeholders in the firm’s corporate culture. Alibaba offers clients with the most efficient platform of carrying out businesses at lowered prices. Small enterprises can make use of cloud computing to gain capabilities of large firms for innovativeness. Industry partners are the other stakeholders that Alibaba concentrates on. It focuses on meeting their interests so that positive impact is reflected in the whole industry, the business partners and the shareholder (Yang and Huang 2015). Through risk management strategies such as privacy protection and intellectual property protection, Alibaba ensures that information and its location s secured to prevent illegal activities.
The report aimed at providing an evaluation of the suitability of corporate and business level strategies of Alibaba Group in the current global environment. Review of the company’s corporate strategy revealed that the firm utilises distinct types of organisational strategies such as diversification, acquisition and merger, multinational strategies, corporate governance, and corporate social responsibility. The company also used business level strategies such as cost leadership to reduce operating cost. Through PESTLE analysis, suitability of Alibaba’s strategies was revealed in technological, environmental and social factors.
Additionally, Porter’s five forces revealed that the company’s business strategy suitability occurred in suppliers’ bargaining power, the threat of new entrants and moderately in buyers’ bargaining power. The SWOT analysis showed areas that needed improvement and those that needed to be avoided. The core capabilities revealed that the company had a substantial competitive advantage in its local and international presence and talent attraction capability. Therefore, it can be concluded that Alibaba Group has managed to retain its strategic suitability although further improvement is necessary.
For Alibaba’s strategies to sustain suitability, the formation of an international alliance for expansion in the market is crucial. The firm should move to foreign markets using various strategic alliances with growing and effective firms so that value can be added to show their development competencies. Therefore, they can opt for a joint venture, partnership, franchising or engage in acquisition and merger. Use of any of this strategy will help the organisation to grab a strong market position from where it can continue to grow and develop. Additionally, Alibaba Group should engage in continuous research and development to increase innovation for expansion purposes (Chen 2015). This should be made possible through the development of teams through training and development to add value to their strategic decision making, ideation, and brainstorming activities.
Moreover, the company should also focus on team synergy to help it gain a competitive edge and sustainable development in the new market in the future. Team synergy can also help it minimise competition in the marketplace. Such innovative ideas may help the organisation to build its brand as a global enterprise. The company should use its segmentation strategy appropriately to penetrate new marketplace and grab to itself a suitable position where active customers are available. This will help the organisation to gain a competitive edge while extending into the global market since effective and successful client segmentation is an important aspect. Lastly, the organisation should focus on enhancing its strategic human resources management to guarantee that diverse team members with intellectual capabilities are used to make up the strategic human resource team for maximum productivity.
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