The Eastern Investigation
Business Case week 3
Erik Schmidt, 21/09/16
Business Case week 3
Erik Schmidt, 21/09/16
1. What are the key moments of the
development of Alibaba as an organization?
Alibaba
has grown into the company with the biggest e-commerce sales in the world. When
it was founded by Jack Ma in 1999 together with 17 other friends, it has grown
into a company with over 36.000 employees[1]
and a revenue of over 15 billion in US dollars at the end of the fiscal year in
2016[2].
But how was this possible? I will discuss some key moments that made Alibaba
what it is today.
After raising over $25 million from investors, Jack ma decided to attract foreign managers to help the company become more global. This was a very important step because in China, at the time, there was little management experience present.
A second key moment was the founding of TaoBao. In 2002 EBay had entered the Chinese market and was planning to take over the market. As a defensive strategy, Jack Ma Founded TaoBao. A C2C website specifically designed for the Chinese market. This turned to be a good move. By 2005 TaoBao overtook EBay in the C2C market[3]. Later on EBay tried to turn this around by investing more, but it would be too late.
The third key moment was the founding of Alipay and Yahoo that handed over its operations to Alibaba. These actions allowed Alibaba to grow exponentially. Basically swallowing up any real competition in its market and becoming the largest e-commerce company in the world.
After raising over $25 million from investors, Jack ma decided to attract foreign managers to help the company become more global. This was a very important step because in China, at the time, there was little management experience present.
A second key moment was the founding of TaoBao. In 2002 EBay had entered the Chinese market and was planning to take over the market. As a defensive strategy, Jack Ma Founded TaoBao. A C2C website specifically designed for the Chinese market. This turned to be a good move. By 2005 TaoBao overtook EBay in the C2C market[3]. Later on EBay tried to turn this around by investing more, but it would be too late.
The third key moment was the founding of Alipay and Yahoo that handed over its operations to Alibaba. These actions allowed Alibaba to grow exponentially. Basically swallowing up any real competition in its market and becoming the largest e-commerce company in the world.
2.
Describe the reasons as to why EBay did not manage to set foot to the Chinese
market.
Alibaba’s strategy when EBay entered the market was very clever. This combined with several mistakes by EBay in the Chinese market led to EBay not being able to enter the Chinese market. The following paragraph will detail all the elements of this failure.
The first step to counter EBay was for Alibaba to create a similar C2C channel for the Chinese market, named TaoBao. Not to make money from this, but as a defensive strategy against EBay. It was applied to the Chinese market and was completely free.
The second misstep was for EBay to focus on the wrong kind of advertisement. EBay focused its advertisements on different internet channels such as: Sina, Sohu and Netease. At the same time it was advertising on busses and subway platforms etc.[4]
Thirdly, the websites focused on different elements. Both were C2C based but where EBay focused mainly on auctions, TaoBao focused on sales. More and longer sales. Because the Chinese market was very inexperienced in auctions and didn’t understand it properly, they used and liked the sales a lot more. TaoBao, On top of that, was more user friendly and customer focused.[5]
Finally, there were several aspects that made doing business on EBay frustrating at times. The servers for EBay were located in the US. Making the website slow down and causing time outs. The maintenance was done at midnight in the US. This was peak traffic time in China. Website change requests were queued and would take very long to fulfill.[6]
All of these things combined with the charismatic and entrepreneurial approach from Jack Ma eventually led to the withdrawal from EBay on the Chinese market.
3. To what extent have social aspects and culture affected the successes or failures of Alibaba until this day?
Alibaba’s strategy when EBay entered the market was very clever. This combined with several mistakes by EBay in the Chinese market led to EBay not being able to enter the Chinese market. The following paragraph will detail all the elements of this failure.
The first step to counter EBay was for Alibaba to create a similar C2C channel for the Chinese market, named TaoBao. Not to make money from this, but as a defensive strategy against EBay. It was applied to the Chinese market and was completely free.
The second misstep was for EBay to focus on the wrong kind of advertisement. EBay focused its advertisements on different internet channels such as: Sina, Sohu and Netease. At the same time it was advertising on busses and subway platforms etc.[4]
Thirdly, the websites focused on different elements. Both were C2C based but where EBay focused mainly on auctions, TaoBao focused on sales. More and longer sales. Because the Chinese market was very inexperienced in auctions and didn’t understand it properly, they used and liked the sales a lot more. TaoBao, On top of that, was more user friendly and customer focused.[5]
Finally, there were several aspects that made doing business on EBay frustrating at times. The servers for EBay were located in the US. Making the website slow down and causing time outs. The maintenance was done at midnight in the US. This was peak traffic time in China. Website change requests were queued and would take very long to fulfill.[6]
All of these things combined with the charismatic and entrepreneurial approach from Jack Ma eventually led to the withdrawal from EBay on the Chinese market.
3. To what extent have social aspects and culture affected the successes or failures of Alibaba until this day?
The contribution of social and cultural aspects has affected Alibaba both positively and negatively. The first and foremost was the support from the communist party in China. This made it a lot easier to get investments, permits etc. On the other hand, The party declined to give a permit to Jack Ma for his first website. It shows that having the support of the party is very important
the second aspect was that Alibaba understood the Chinese culture. The Chinese people love to haggle and Jack Ma designed TaoBao around this. There were sales specifically created on the site for special holidays.
Thirdly, the way Alibaba applied their marketing and advertising shows that they understood the Chinese consumer very well. They advertisement was applied on specific channels and developed in a way that Chinese consumers preferred.
4. What are the fundamental differences you see from an organizational viewpoint between Alibaba and other competitors in the world such as Amazon?
There are several fundamental differences between the business model from Alibaba and Amazon. Where amazon sells goods directly to the consumer, Alibaba acts as a middleman between buyers and sellers.[7] Where Amazon utilizes large warehouses with a lot of moving parts, Alibaba doesn’t need to have this. Where Amazon gets a small percentage over each sale made, Alibaba gets their main source of revenue from advertisers that want to appear higher on the search engine results of the site.[8]
5. Do you see Alibaba setting foot outside of China?
I firmly believe that Alibaba will set foot outside of China. This is based on a number of things.
First and foremost, it is the intention from Alibaba to expand outside of China. Jack Ma has stated shortly after its initial public offering that they hope to become a truly global company. He also stated that they plan to aggressively expand into the United States and Europe.[9]
Leaving Alibaba’s own intentions alone, I believe that with the current business model and revenue stream that Alibaba has, it undoubtedly will expand into the US and Europe. It will simply come down to when it will happen. This combined with the creative and entrepreneurial approach Jack Ma has will make it a tough competitor to deal with.
Source
list
Statista. (2016). Number of full-time employees at Alibaba from 2012 to 2016. Consulted on 21 September 2016, from
Statista. (2016). Number of full-time employees at Alibaba from 2012 to 2016. Consulted on 21 September 2016, from
Statista.
(2016). Annual revenue of Alibaba group from 2010 to 2016 (in million yuan). Consulted
on 21 September 2016, from
Technode. (2009). A brief history (and future) of
Alibaba.com. Consulted
on 21 September 2016, from
Forbes.
(2010). How EBay failed in China. Consulted on 21 September 2016, from
Sanders,
E. (2016). Alibaba & e-commerce in China. Consulted on 21 September 2016,
from
Investopedia.
(2016). The differences between Amazon and Alibaba’s business models. Consulted
on 21 September 2016, from
Guynn,
J. (2014). Is Alibaba coming to America? Consulted on 21 September 2016, from
