Alibaba Case

Executive Summary

Founded just before the turn of the millennium in Hangzhou, China, Alibaba Group has dominated the internet retailing in China and rapidly become one of the largest online retail website worldwide in the world, its total transactions surpassing the sum of both Amazon and eBay’s (The Economist, 2013). After a successful IPO, the company was preparing to strengthen its competitive position in China and also to provide tough competition to other internet and e-commerce companies in the global arena.

This essay discusses how the company’s innovation strategy is an essential ingredient to the business and operation model. It explores the reasons for Alibaba Group’s success such as its established market share in the large market of Mainland China and its efforts to promote the perception of the reliability and security of e-commerce. Comprising of its future plans in logistics improvement and customers loyalty, expansion into developing nations, venture into mobile commerce, and also, its likelihood of success in comparison to the approach of its main competitors.

Introduction

Alibaba, founded by Jack Ma, is an online business to business (B2B) marketplace which allows buyers and sellers all over the globe to engage in electronic business transactions. Alibaba’s approach as a blue ocean strategy played a major role in bringing the internet revolution to China. Ma achieved this by capturing the demands that came from small and medium-size enterprise (SME) in China to benefit from cross border trade through Alibaba website.  He saw the opportunities that was fuelled by the absence of communication tools and the limited geographic presence of SMEs in China that made restrictive exposures to prospect customers.  Alibaba established itself when the Chinese internet industry was still in its infancy stage (First mover advantage).

Alibaba.com offered basic features and services to all registered users free of charge. It made its revenue from suppliers who paid annual subscriptions that provided them with priority placement of storefronts and listings in the Alibaba’s.com directory and search results. Over time, it was able to generate revenue from alternative streams and increase revenue as the willingness of the users to pay for additional services increased (Alibaba.com case).

With a mission to make it easy to do business anywhere, Alibaba strengthened its position in the e-commerce domain. According to Alexa.com, Alibaba.com was the most visited website in the e-commerce and international business and trade categories. In addition of its B2B services, Alibaba group also launched Tmall, its Business to Customer (B2C) site and Taobao, its Customers to Customers (C2C) site.

Alibaba’s innovation leadership in the Chinese e-commerce market

Broadband penetration in China picked up from 2004 and as of 2007, with 162 million users, stood second in terms of internet users after the US (Alibaba.com case). The penetration rate is growing at around three percentage points annually and it was expected to grow even more in a rapid rate (Alibaba.com case). With the growth of high-speed broadband, the e-commerce market in China also grew.

Alibaba saw the growth in China’s e-commerce market as a huge opportunity and took advantage of the potential within the budding e-commerce market. Alibaba concentrated on providing B2B services to SMEs that were new to the traditional trading system in the Chinese market. Through this breakthrough innovation, Alibaba gained first mover advantage and become the innovation leader to the Chinese e-commerce business.