Understanding Alibaba’s Business Model: A Strategy For Long-Term Growth

Background of the Research

E-commerce is booming across the globe and it is a significant for the e-commerce companies to evolve in the dynamic environment (Ramcharran 2013). The research aims to find out the efficient business model to achieve long term growth in the international market. Since Alibaba is the market leader and its strategic analysis through the study of its business model would help to decipher the appropriate business model and evolution over the time. In this paper, first chapter would focus on the background, aims and scope of the study, whereas second chapter would provide a brief literature review to understand the theoretical background. Third chapter research methodology design the strategy to conduct the research successfully for obtaining the aim at the end through proper data analysis. 

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Technological innovation and easy access to internet have been enticing the global customers to shop online (Bhaiya 2015). According to a survey conducted by McKinsey, it has been found that China is the fastest growing and largest e-commerce market (Wei Wang, Lau and Gong 2016). In 2015, the online retail market of China reported revenue of 630 billion dollars which is found to be 80% bigger than that of United States. 13.5% of the total retail spending in China is accountable for online shopping (Wei Wang, Lau and Gong 2016). According to the forecast, e-commerce market of China would be bigger than the combined market of Japan, America, France, Germany and Britain within 2020 (The Economist 2013). 

Alibaba is the most dynamic and largest e-commerce company headquartered in China (Capri 2017). It provides the basic technology based infrastructure as well marketing opportunity in order to help small businesses and brands. Alibaba leverages the supremacy of internet to enable the business firms to reach out their customers. The company has a major focus on core commerce, innovation initiatives, digital media and cloud computing. Apart from this Alibaba is also participating in the local service and logistics sector (Alibaba Group 2017).

Global marketplace is experiencing huge growth of e-commerce over the last few years and it is expected to grow at a faster pace in future. Since, Alibaba is the largest e-commerce company of the world; the success potion needs to be understood by considering its strategy and business model. Since the e-commerce market is expected to grow at a rapid rate, the internet retailers should be prepared enough to diversify the product categories, understand the new customer segment and new sales channel (Wei Wang, Lau and Gong 2016). Hence, it is important to understand the business model of the market leader, Alibaba. 

Aims, Objectives and Scope of the Research

This research aims identify and understand the current business model of leading e-commerce company, Alibaba. 

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The primary objectives of the research paper are: 

  • To understand the efficient e-commerce business model through study of  Alibaba
  • To figure out the unique components of Alibaba’s business model
  • To analyse the success factors of the business model adopted by Alibaba 

Scope of the research is limited due to time and resource constraint. This paper will only focus on understanding the business model of Alibaba and reason behind the successful business operations. Due limited access to data, research methodology will be designed by combining primary and secondary research technique. 

E-commerce: An Overview 

E-commerce can be described as a business transaction supported by internet thorough an efficient mode. It has dramatically changed the opportunity for B2B and B2C businesses (Terzi, 2011). Rapid growth of technology and internet has triggered the business society to focus on the development of Software as a Service (SaaS) (Du et al 2013). According to Cardona et al. (2013), information and communication technology is an important aspect of economic growth as well as performance of an organization. Internet retailing offers an alternative channel through which an organization can interact with the new market and its customers. E-commerce has made distance less significant in business and it had led to lower transactional cost along with decrease in the requirement of intermediaries. E-commerce is playing a major role in shaping the future of economy. E-commerce has been offering unprecedented prospect to the developing as well as developed countries. International business backed by the immense support of web technology has enabled millions of people worldwide for buying goods online (Terzi, 2011). Development of internet and communication technology and emergence of e-business are transforming the business operations significantly. Operational strategies pertaining to product development, designing, production, distribution and marketing are redefined in the era of e-commerce. Business organizations are re-inventing their supply chain strategies for sustaining in the competitive international market. E-commerce has made international trade faster, easier and less expensive. Electronic interaction with the consumers has diminished the barrier of geographical proximity. Thus, e-commerce has enormous positive impact on the economy of a country (Einav et al 2014). 

Growth of E-commerce Across the Globe 

According to the The United Nations Conference on Trade and Development (UNCTAD), the value of global electronic market is 22.1 trillion dollar and China is the largest business to customer (B2C) market of internet retailing across the globe (Economic Times 2016). It has been reported that the e-commerce is accountable for around 8.6% of the total retail spending in 2016 and it has fetched around 1.91 trillion dollar. In the last year China dominated the internet retail market by pulling 899.09 billion dollar where United States grabbed the second position by pulling in 423.34 billion dollars (Lazar 2017). 

Literature Review

According to a report published by Ernst and Young, in the year 2013, 300 million online buyers were accountable for 8% of the retail transaction in China. Though internet retailing is found to be more developed in United Kingdom, United States and Canada, emerging markets are having higher opportunities in this area (Ernst & Young 2014). It has been reported that the growth of e-commerce market in China is much better than that of the developed economies. In 2010, almost 23% of the urban Chinese population chose online shopping and the figure almost doubled in 2015. Survey conducted by McKinsey has depicted that e-commerce market of China is focusing on uptaking the e-commerce among the customers in the low tier cities (Wei Wang, Lau and Gong 2016). 

It has been found the convenience is the major reason behind choosing online shopping services. Other factors include discounts and shopping experience such as greater choice.  

E-commerce business models can be classified into four groups that are commonly adopted by the e-commerce companies. 

Business to Consumer- This is the most common e-commerce business model where a buyer directly gets a chance to communicate with its seller irrespective of their geographical location. It helps to reduce the operational cost and better convenience to the consumers. 

Consumer to Consumer – This model helps to communicate and sell the consumers to other through a common online platform. Individual consumers can sell out their used or unnecessary products through this business model. Revenue model is dependent upon the transaction fees (Laudon and Traver 2017, p.98). 

Business to Business – B2B business model links the users and enables them to share their products through a common platform. The manufacturing and wholesale industries have been adopting this business model due to rapid change in the distribution system (Columbus 2016).

Internet business scenario is rapidly changing with the innovation of new technology. E-commerce is sweeping the world and in order to sustain and grow in this market, the business organizations need to evolve their strategies over the time. Business organizations are focusing on reaching out more number of customers through enhanced visibility on online platforms. Four major strategies have been adopted by the e-commerce companies in China. 

Pioneers’ Strategy – The internet retail giants such as Alibaba, YHD are the prime channels for purchasing product since they are offering greater convenience, low price along with good service level (Reeves, Zeng and Venjara 2015). This strategic direction majorly focuses on innovation in order to compete with its market rivals in terms though improved delivery options, better coverage and enhanced customer support. 

Fast Movers’ Strategy – This group can be referred as the scalable retailers that take aid from the third party platform in order to sell their goods. Most of the time, these companies seek help from the e-commerce giants. Thus the business model is transformed to a digitally sound strategy. Here, the brand communication is also managed by the third party online platform provider (Ernst & Young 2015). 

Slow Movers’ Strategy – Slow movers can be referred to the traditional big retailers or organizations which have own website to sell their goods and services with very limited options for delivery. These groups are focusing on re-designing their strategy through enhanced capacity in marketing as well logistics (Ernst & Young 2015). It requires upgrading their present e-commerce platform. Basically it is using a hybrid model that consists of a brick and mortar store, online presence along with a third party platform. 

Non-Movers’ Strategy –  This group is consisting of the goods or service providers that offer luxury brands or have food chains where customer experience is the most important factor. Here, social media presence and other digital strategies are used for attracting the potential customer base (Ernst & Young 2015).

Literatures provide an overview of the current position of e-commerce and its future. It helps to understand different business models adopted by the online business companies. Moreover the above literature review has described the different strategies adopted by Chinese e-commerce companies. However, the major aim of this study is to find out the business model of the international market leader Alibaba and the rationale behind choosing the same. A comprehensive study needs to be conducted to analyze the current business model of Alibaba through development of a case study. 

Research methodology is a systematic approach that conceives the route map of the entire research procedure. A competent research strategy is designed on the basis of research philosophy. The research strategy directs the data collection method to achieve the desired goal. This section pays attention to delineate the research procedure through brief outline of the research philosophy, research approach and data collection method.   

Research onion helps to present a systematic view through categorization of different dimensions of a research. The outer layer of the research onion is research philosophy taht needs to be selected first – positivist or interpretivist. Next, the approach of the research should be decided either deductive or inductive. Research strategy being the third layer adopts a method that synchronizes with the chosen philosophy and approach. Thereafter, strategy for gathering data is settled (Toloie-Eshlaghy et al 2011).

Research philosophy helps to explain the principal assumptions regarding the way world is viewed. These aids in underpinning the research strategy and methodologies adopted for the research. Positivism philosophy is widely accepted by the researchers and it generalizes the observation as a law like conclusion. However, positivism approach is not appropriate for business research since the business world is too complex to theorise by certain law. Interpretivism philosophy focuses on gathering data by conducting research among people. Interpretivist approach is suitable in constantly changing business environment since it considers the perspective from the point of view of the individual organization (Wahyuni, 2012). Hence, interpretivism philosophy would be appropriate for understanding the online business model of Alibaba. 

Research approaches define the direction of the research either through development of a hypothesis and confirmation or development of a theory through observation. There are two common approaches – deductive and inductive. In this study, deductive approach needs to be chosen through study of academic literature, deriving a theory or model out of that. Thereafter observations need to be done in order confirm the theory or model (Gale 2013). In this particular research, literature review would be conducted to figure out different e-commerce business model and then primary research would help in confirming the business model adopted by Alibaba. 

Research design helps to understand the strategy adopted by the research to reach the aim. Several techniques can be followed based on the nature of the research such as survey, case study, field experiment etc. Case study helps to observe the phenomena in a natural setting, especially for a single organization. Here, it is important to consider the recent changes in the dynamic business world and hence, case study would be advantageous in this research. If manipulation or control of several variables needs to be conducted in a research study, case study would not suffice the purpose. However, in this research the business model of Alibaba would be investigated in the context of global e-commerce market along with its success factors.  

Data collection method is crucial to any research since it would be the base for reaching the conclusion. In this study, telephonic interview would be conducted with 5 managers of the chosen company Alibaba so that basic information regarding the business strategy can be understood. Thus, the primary data would be collected. Secondary data collection would be done through extensive literature review that will help to get an overview of the current e-commerce market and business models (Creswell 2012). 

Since the primary data collected would be qualitative in nature, it is obvious that qualitative data analysis method would be conducted (Ormston et al 2014). On the basis of the telephonic interview, the verbatim of the managers would be analyzed in context of the research aim and objective. At the end, conclusion would be drawn by the researcher by considering the primary research result and its relevance to the secondary data. 

It is important to ensure that the research activities are conducted by following ethical procedure. The managers of Alibaba would be interviewed after receiving consent. Moreover, personal details and information shared by the managers would be kept confidential. Under no circumstances, the information would be leaked to others. All the gathered information would be used for academic research purpose. 

Following chart shows the expected time for conducting each activity involved in the research project. 

Activity

Week 1

Week 2

Week 3

Week 4

Week 5

Week 6

Selection of the research topic

Background of the study

Development of research aims and objectives

Scope of the research

Literature review

Designing methodology

Gathering primary data

Data Analysis

Conclusion

 (Source: Created by Author) 

Conclusion 

In order to understand the business model of Alibaba secondary research is conducted to develop the basic theoretical concept. In this study, interpretivism philosophy is considered. The research would be based on deductive method and case study would be developed on the basis of primary data gathered from telephonic interview. Qualitative data analysis method would be considered for achieving the research objective. 

Reference List 

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Bhaiya, A. (2015). E-Commerce Sales Sweep the Globe: Here’s How to Get in the Swing. [online] The Huffington Post. Available at: https://www.huffingtonpost.com/amit-bhaiya/ecommerce-sales-sweep-the_b_6903028.html [Accessed 24 Apr. 2017].

Capri, A. (2017). Alibaba: Can A Chinese E-Commerce Company Save The American Dream?. [online] Forbes.com. Available at: https://www.forbes.com/sites/alexcapri/2017/01/12/alibaba-can-a-chinese-e-commerce-company-save-the-american-dream-trump-jack-ma/#b3bde972fe3c [Accessed 24 Apr. 2017].

Columbus, L. (2016). Predicting The Future Of B2B E-Commerce. [online] Forbes.com. Available at: https://www.forbes.com/sites/louiscolumbus/2016/09/12/predicting-the-future-of-b2b-e-commerce/#274a26881eb9 [Accessed 24 Apr. 2017].

Creswell, J.W., 2012. Qualitative inquiry and research design: Choosing among five approaches. Sage publications.

Du, J., Lu, J., Wu, D., Li, H. and Li, J., 2013. User acceptance of software as a service: Evidence from customers of China’s leading e-commerce company, Alibaba. Journal of Systems and Software, 86(8), pp.2034-2044.

Economic Times (2016). Global e-commerce market is worth $22 trillion: UNCTAD – The Economic Times. [online] The Economic Times. Available at: https://economictimes.indiatimes.com/industry/services/retail/global-e-commerce-market-is-worth-22-trillion-unctad/articleshow/53274475.cms [Accessed 24 Apr. 2017].

Einav, L., Levin, J., Popov, I. and Sundaresan, N., 2014. Growth, adoption, and use of mobile E-commerce. The American economic review, 104(5), pp.489-494.

Ernst & Young (2014). EY Strategic Growth Forum China – Winning eCommerce in China. [online] Ey.com. Available at: https://www.ey.com/cn/en/services/strategic-growth-markets/ey-strategic-growth-forum-china-ilabs-winning-ecommerce-in-china#.WP4VWhN97IV [Accessed 24 Apr. 2017].

Ernst & Young (2015). E-commerce strategy and must-haves in China. [online] Ernst & Young, p.14. Available at: https://www.ey.com/Publication/vwLUAssets/ey-ecommerce-strategy-and-must-haves-in-China/$FILE/ey-ecommerce-strategy-and-must-haves-in-China.pdf [Accessed 24 Apr. 2017].

Gale, N.K., Heath, G., Cameron, E., Rashid, S. and Redwood, S., 2013. Using the framework method for the analysis of qualitative data in multi-disciplinary health research. BMC medical research methodology, 13(1), p.117.

Laudon, K. and Traver, C. (2017). E-commerce: Business, Technology, Society. 5th ed. Boston: Pearson, p.98.

Lazar, M. (2017). Ecommerce Technology Trends That Will Take Center Stage This Year. [online] The Huffington Post. Available at: https://www.huffingtonpost.com/michael-lazar/ecommerce-technology-tren_b_14665416.html [Accessed 24 Apr. 2017].

Ormston, R., Spencer, L., Barnard, M. and Snape, D., 2014. The foundations of qualitative research. Qualitative research practice. A guide for social science students and researchers, pp.1-25.

Ramcharran, H., 2013. E-commerce growth and the changing structure of the retail sales industry. International Journal of E-Business Research (IJEBR), 9(2), pp.46-60.

Reeves, M., Zeng, M. and Venjara, A. (2015). The Self-Tuning Enterprise. [online] Harvard Business Review. Available at: https://hbr.org/2015/06/the-self-tuning-enterprise [Accessed 24 Apr. 2017].

Terzi, N., 2011. The impact of e-commerce on international trade and employment. Procedia-Social and Behavioral Sciences, 24, pp.745-753.

The Economist (2013). E-commerce in China The Alibaba phenomenon. [online] Economist.com. Available at: https://www.economist.com/news/leaders/21573981-chinas-e-commerce-giant-could-generate-enormous-wealthprovided-countrys-rulers-leave-it [Accessed 24 Apr. 2017].

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Wahyuni, D., 2012. The research design maze: Understanding paradigms, cases, methods and methodologies.

Wei Wang, K., Lau, A. and Gong, F. (2016). How savvy, social shoppers are transforming Chinese e-commerce. [online] McKinsey & Company. Available at: https://www.mckinsey.com/industries/retail/our-insights/how-savvy-social-shoppers-are-transforming-chinese-e-commerce [Accessed 24 Apr. 2017].