Background and History of Alibaba

Alibaba, the Chinese e-commerce giant was founded in 1999. Its founder Jack Ma, after securing loans from overseas banks and facing many hurdles was finally successful in founding the organization (Tan, 2016). It eventually grew to be the largest e-commerce based organization in China and also the largest in the world (Tse, 2015). In September 2014 Alibaba received an initial public offering (IPO) on the New York Stock Exchange during which the company was valued at an unprecedented $231 billion (McCarthy, 2014).

However, it also marked the time when Alibaba started facing various odds in its market. Its profit helved in the first quarter of 2015 and it also started facing fierce competition in the domestic market from JD.com. Considering the precarious condition, the organization was in, the then CEO was fired and the chair was offered to Daniel Zhang in May 2015 (JOHNSON et al. 2017).

The aim of this assignment shall be to carry out a detailed analysis of the condition of Alibaba in the context of its present situation in the market. Both internal and external conditions of the organization shall be given weightage in carrying out the study. It shall be a multi-pronged approach where first, Porter’s five forces model shall be used to determine Alibaba’s position with respect to the competition in the market. It shall also form the basis for further carrying out the SWOT and PEST analysis which would help in revealing the opportunities that are open before the organization and the necessary course of action that it can take in the present and in the future.

Furthermore, Porter’s generic strategy analysis shall provide a conclusive idea about the strategy that the management of Alibaba can formulate and implement that shall be appropriate with regard to Alibaba’s current market position. Besides, the VRIN framework shall help in carrying out a study of the resources available at the disposal of Alibaba and it can be known whether they are sustainable in nature. Finally, Ansoff’s framework shall lay the foundation of the strategic decisions that can be taken by the managers and executives of the organization. It is hoped that the current study shall provide valuable insights into the problems that Alibaba is facing and subsequently recommendations shall be provided in order to overcome the same.

Analysing Strategic Opportunities and Threats

In order to determine the next course of action that an organization can take it must have to be known whether it is in a vulnerable or advantageous position in the market. Its strengths and weaknesses have to be rationally categorized and weighed against one another in order to understand the nature of strategy that the management shall have to adopt. The following sections shall contain the Porter’s five forces model, SWOT analysis and PEST analysis for Alibaba

Porter’s Five Forces Model

Competitive Rivalry (High)

Alibaba is currently experiencing high competitive rivalry both from international and domestic e-commerce organizations. With respect to the international organizations like Amazon and EBay, Alibaba has successfully surpassed them but at present the competition faced by domestic giants is stiff. JD.com is especially giving a lot of trouble to Alibaba. JD has a far better delivery network compared to Alibaba which uses China’s governmental postal service (Alibaba.com, 2018). Customer’s wishing for quicker delivery of their products are often opting for JD.com.

Porter’s Five Forces Model Assessment

Threat of New Entrants (Low)

The threat of new entrants within the e-commerce sector is relatively less. Establishing an e-commerce company requires a lot of investment and resources which cannot be easily acquired. Moreover, with the existing companies in the market where their reputation still stands strong, there can only be a thin possibility of new entrants emerging in the market.

Bargaining Power of Suppliers (Low)

It needs to be known that Alibaba’s international network creates an opportunity for retailers in China to sell their products overseas which accounts for a substantial portion of their revenue and compared to Alibaba their sizes are relatively small (Dongwei, 2016). Therefore, these retails cannot afford to lose their relationship with Alibaba as this would mean a huge loss for them. Thus, the bargaining power of suppliers is low.

Bargaining Power of Buyers (Moderate)

Previously, when there were not many sites like Alibaba where one could access various kinds of products that could be ordered in lots, the bargaining power of buyers was very low. However, specialized e-commerce sites have started emerging in various countries in the world (Mangiaracina et al. 2015) which has marginalized the position of Alibaba to a certain extent. However, Alibaba still offers much lower prices compared to the competitors in order to maintain customer satisfaction. Therefore, it can be observed that the bargaining power of buyers is moderate.  

Threat of Substitutes (High)

There is currently a high threat of substitutes. Apart from competing e-commerce sites, consumers can also buy goods at cheap prices from retail stores. Also, with the emergence of convenient and fast international delivery systems, many manufacturers in China are shipping their products directly to the customers (Fang et al. 2016). Therefore, consumers will not access Alibaba to buy the same products by paying higher prices

SWOT Analysis

Strengths:

• Scale of operations:Alibaba was one of the first e-commerce websites in China and has great hold on the Chinese market. Further, China being the most populated country offers a huge base of operation for the company.
• Market Share:Alibaba has the highest stake in the China market at level of 58%, while the immediate competitors hold enjoys around only 22% of Chinese market. This has been possible due to restrictions on the business operations of overseas e-commerce sites.

Weakness:

• Huge number of sellers:At present, 8.5 million sellers are selling over Alibaba and the number is ever increasing without proper control on the seller details and things that they are selling. Fortune fake or illegal substances are sold at Alibaba (The Guardian, 2015). This has resulted in curbing on the operations of the group by the Authorities. Further reputed brands are slowly withdrawing their products from Taobao and Tmall (the two websites managed by Alibaba)
• High discount: Alibaba force its sellers to give high discounts at it prefers customers over sellers and investors. This is degrading the overall relation with sellers as they cannot make sufficient profits.

Opportunities:

• Rising demand of e-commerce services and development of portals:China, being not open to foreign entrants in the market, Alibaba has high scope and space to operate in the market with large number of buyers. Even Amazon sells through Alibaba in China.  Alibaba, being a well-known brand, also offers high competition, thus, developing new portals and serving to e commerce needs of customers (Tsai, 2016).
• Experience of operations in China:The company has huge experience of operating in China. Thus, it can easily give tough competition to other rivals and easily penetrate the markets of Europe and America. It has already penetrated a 40% of the ecommerce market in India.

Threats:

• Year 2015 has seen the rise of JD.com in China:After facing attacks from American e-commerce site eBay, year 2015 has seen huge rise of JD.com with spreading its distribution network across 43 big cities of China and being second after Alibaba, causing a threat to it (JOHNSON, 2017).
• Slower economic growth in China: At present China’s economic growth has decreased to 7% from double digit figures. This has also crashed the growth of ecommerce industry, thus posing threat to the company.

Political Factors:

• Time and again, Chinese authorities have taken steps to counter the fraud and illegal substances sold to Alibaba. The company has suffered prohibition on operation due to the political party in operation (Qin, 2017).
• The push for digitalisation in China by the current political people in power has encouraged the company to carry out its activities extensively.  

Economic Factors:

• Globalisation, being a force in most of the markets, Alibaba has got ample opportunities to take entry and carry on with operations in the foreign markets.
• However, fall in economic growth in China has on the other hand limited the growth, operation and profitability of Alibaba in the domestic market (Alibabagroup.com, 2018).

Social Factors:

• The aging of Chinese population has opened some scope for the company. The aged people prefer to order all things and get delivered at their doorstep. This opportunity is harnessed by the company (Tse, 2015).
• Effective CSR activities: Apart from operations, Alibaba offers many essential and lifesaving commodities at very cheap prices. Further it takes many programmes for development of less developed areas in China. These kind of activities helps in raising its overall reputation.

Technological Factors:

• Technical advancements in core operations has facilitated Alibaba to procure the products and reach out to customers easily (Chaffey, 2015). Furthermore, use of smartphones for purchasing by customers has also facilitated the company and increasing its sales.
• Development of big data driven and artificial intelligence guided user experience, buyers are being able to easily communicate and buy things of their choice. This has also facilitated the company (Tan et al. 2015).
• Industry Timeline: Now and the Future

Presently, there are several issues that Alibaba is facing from various avenues which are directly or indirectly affecting its ability to sustain its business. However, there are certain substantial strengths which can be used to increase its profitability and productivity in the long run. In order to achieve the desired levels of production and subsequently, generate sufficient revenue, a suitable strategy has to be devised that shall integrate the various diverse aspects of the organization which have to function in a coordinated manner towards the attainment of a common goal. It is hoped that the new CEO Daniel Zhang shall be capable enough to face the challenges that are ahead of him.

Generic Strategy Analysis

Porter’s Generic Strategies:

Generic Strategies:	Details
Cost leadership	Alibaba makes sure that the prices it provides are the lowest in the market. It is one of the major reasons for the organization’s increasing popularity in the market despite various flaws in the delivery system. As opportunities, it has further growth opportunities worldwide being one of the oldest ecommerce companies (Alibabagroup.com, 2018). As threats and weakness, it will suffer from uneven pricing and low quality of good and hampering profitable relations with the different sellers in their sites. Thus while lowering prices, it should be kept in mind that quality of goods are maintained and  prices should be fixed.
Differentiation	Alibaba is dominating in its home market because of the unavailability of organizations of its size and scale. However, the ecommerce sector is an imitable one and the number of competitors are on the rise. It is already facing huge competition from JD.com which is already providing stiff competition through innovative delivery system. It has the opportunity to reach out to global buyers and has the strength to expand and employee innovation in its business functioning (Tu and Shangguan, 2018). As threats it has and shall have power rivals and as weakness and it already has bad reputation in selling low cost unreliable products. Thus, quality needs to be improved here and prices should be balanced in order to be able to deliver unique products and services.
Focus	Alibaba’s primary strength is that it is also dealing in B2B concerns unlike other ecommerce sites. Therefore, sellers from around the world are also customers to Alibaba. In context of strength, Alibaba has the resources to target customers and make sales to them by employing its distribution channels, offering high quality product s as competitive prices (Alibaba.com, 2018). This shall open up global opportunities for it. This if applied properly shall help it eradicate threats from its rivals and weakness of suffering from bad reputation of selling below standard products.
Industry wide offering	Alibaba has most of the time tries to cover wide markets segments and this has harmed it quality of offering and reputation (Sfenrianto et al. 2018). This form has not at all offered it such advantages as needed to make it more sustainable in the long run.

Choosing the right strategy: As the best strategy, product differentiation should be chosen over Cost Leadership and Focus should be chosen over industry wide offering. This shall help it to creating standardized suppliers, be the leaders among the rivals in innovation and quality product offering at competitive prices. It shall also be able to threat of substitution and new entrants in the markets by securing a fixed and differentiated position in the industry.

SWOT Analysis

Evaluation of Strategic Capabilities

The VRIN framework serves as an important tool for the analysis of the resources and the capacities of the organization with respect to the larger strategy that it wishes to implement. The framework categorizes the resource or capability under four heads in order to determine its sustainable competitive advantage namely, value, rarity, imitability and non-substitutability. The following table shall demonstrate the VRIN framework of Alibaba:

Resources and competencies	Value	Rarity	Imitability	Non-substitutable	Value Creation
Brand and reputation	Yes	Yes. Unmatched potential.	Yes. Difficult to imitate service.	Yes. Leading brand in the market.	Long-term competitive advantage.
Organizational culture	Yes	Yes	Yes.	Yes.	Long-term competitive advantage.
Human resources	Yes	No	Yes	Yes	Long-term competitive advantage.
Capital resources	Yes	Yes	Yes	Yes	Long-term competitive advantage.
Leadership	Yes	Yes	Yes	Yes	Long-term competitive advantage.
Delivery system	No	No	No	No	Disadvantageous. JD.com has better distribution network.
Technology	Yes	Yes	Yes	Yes	Long-term competitive advantage.
Material resources	Yes	Yes	Yes	Yes	Long-term competitive advantage.

1. Brand and Reputation:Alibaba already is an established name in the market of China and is becoming popular abroad as well. It is known to be the largest e-commerce site in the world paralleled perhaps only by Amazon, internationally (The Economist, 2017).
2. Organizational Culture: Alibaba has a systematized organizational culture which is facilitated by the use of modern digital communication systems and trained employees that make sure that work progresses smoothly.
3. Human Resources: Alibaba has a very productive and competitive workforce but there are certain avenues that shall require intervention by the management.
4. Capital Resources:The organization has a huge reserve of capital resources and it is being put to varied uses with the aim of increasing the organization’s overall competitiveness (Blystone, 2018).
5. Leadership:While there were certain problems with the previous leadership, the new CEO Daniel Zhang is an able leader and it is hoped that he shall the company shall be able to recuperate under his leadership.
6. Delivery System:The delivery system of Alibaba is substandard. It is characterized by delays and therefore, people are opting for JD.com which ensures faster delivery. Alibaba has to use the services of a private courier organization in order to ensure better delivery speed. In fact, it has collaborated with Starbucks in order to introduce a special delivery system for certain product lines (Wee, 2018).
7. Technology:Alibaba is incorporating the latest technology in its business operations in order increase efficiency and productivity. It also has a dedicated research and development wing which specializes in the development of groundbreaking technological innovations that cannot be imitated by competitors (Zhong, 2018).
8. Material Resources: Alibaba has a huge amount of material resources that it can use to further increase its scale and expand internationally.

Growth Strategy

Ansoff’s Framework:

• Market Development: Alibaba operates in the ecommerce market and is the largest organization in its niche. Therefore, it already has a highly popular market under its control. However, it was recently facing competition from other domestic concerns like JD.com. However, Alibaba’s global popularity is also on the rise.It can easily employ all of its resources in order to push sale of all the existing products by reaching out to new countries and competing with the rivals (Shi, 2016).
• Diversification:It can be said that Alibaba is one of the oldest e-commerce website organizations in the world as well as in China. It already covers almost the whole part of the domestic market and a considerable part of the global market. Alibaba’s name is already a unique and distinct one in its area of operation and there are few companies that sell products to sellers. Thus, there is no further need to search for new market in order to sell new kind of products. As the products sold by it are quite well received by the customers due to their diverse and cheap price offering, they do not need to develop new products in order to be able to cover new markets (Dong et al. 2016). This shall also be much risky for them and thus, it should be avoided by them.
• Market Penetration:Alibaba, by offering cheap prices and good quality products is already an established name in the ecommerce sector. Therefore, it is needless to mention that it has been successful in penetrating the market. It enjoys a lot of popularity among customers both domestic and international.
• Product Development:This segment can also be said to be more suitable for Alibaba.com. Alibaba has a huge option in order to sell new kind of products and services in the existing market area in which it is functional (Jain Palvia, 2013). Alibaba has been selling a diverse range of products that are unavailable with other companies. This accounts for the acclaim that Alibaba has in the present market. It has been noticed that many of the products and services are not sold by the other mainly due to inconvenient or low profits. Alibaba can be unique and can offer these kinds of products and services in order to gain more reputation and make a huge customers base. This shall help it in getting competitive advantage over the others. Thus, it should sell new products and services with the rivals in the existing market areas.

Suggestions:

It can be suggested that the company should stay in the market development segment or the product development segment. It can sell new products in the existing markets or existing products in the newly found and developed market. These two segments shall be most profitable for it. The diversification shall be too risky for it and the market penetration shall not be much profitable to it due to the presence of huge number of rivals in the global as well as domestic markets.

Conclusion

It can be concluded that Alibaba has to bring in huge changes in its overall strategy and line of actions. The products and services offered by it has to be of good quality, the sellers have to be more reputational and more goods and services have to be included by it. It should have developed such a balanced competitive pricing strategy so that it may be able to offer quality goods and services at prices equivalent to its rivals. The better and unique products shall not only help it to gain better reputation but shall also offer competitive advantages over all of its rivals in the market.

For analysing the overall position of the company in the market, its resources and scope, different kinds of analytical tools have been used. In order to devise better strategy for it, PEST, Porter’s five forces and SWOT analysis has been conducted. For devising strategy based upon them, generic strategies have been defined and the most effective ones has been chosen on behalf of the company. VRIN analysis also has been conducted and the best solutions for the company have been discussed. It can be said that if these strategies are properly followed it can offer enormous positive results to the company.

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