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Analysis of the Key Factors Bringing Success to Alibaba in China

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Table of Contents

  • Unconventional Business model
  • Connect small business with consumers
  • Alibaba’s reliable platform
  • Simple interface and customer satisfaction
  • Business opportunity
  • C2B Model
  • Global Expansion
  • Conclusion

Alibaba was initially founded by Jack Ma’s in his apartment in Hangzhou in 1999, right now it is the largest e-commerce company in the world. Alibaba once generates a combined GMV of $245 billion, that’s more than Amazon and eBay combined. In top listed of e-commerce organisations, Alibaba capitalisation stood next to Google, reaching $200 billion on 2014. While Amazon is still struggling to make break even. What makes it interesting is that Alibaba enjoys growing profit by primary operating in China and it wasn’t also the first e-commerce website in China.

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E-Bay entered into the Chinese market by tying up with EachNet, focusing at the C2C segment. At that point, Alibaba was a B2B company that helped small and medium scale Chinese enterprises deal with foreign importers. Soon after EachNet launched online auction, Alibaba established Taobao as a defensive step. Ten years later, EachNet ceased to exist while and Taobao dominated the market. It provides consumer-to-consumer, business-to-consumer and business-to-business sales services via the internet. Alibaba can be called a conglomerate. In a nutshell, it covers the business of Amazon, eBay, Groupon and PayPal. Further, the following three platforms were introduced as part of Alibaba’s increasing focus on mobile payment: Juhuasuan (a platform for C2B); AliExpress (a global consumer marketplace); and Mobile Taobao App. This essay throws light on the success factors and strategies that Alibaba Group applied to do business in China and achieve great success. It also analyses its competitive advantages in the global e-commerce market by replicating its China strategies in other foreign regions. It’s created a blue ocean in the Chinese market.

The following factors led to the success of Alibaba in China.

Unconventional Business model

Free service gave Taobao a significant advantage over its rivals as it provides free service to its users. Initially, when EachNet came into picture provided its service for free. But due to the rising operating cost, they had to cancel their free services and began to charge sellers fees. Since that point, EachNet faces a dramatic drop in the supplier segment, and with the acquirer of eBay, the fee structure raised furthermore to balance with the global standards. Taobao gained the dominant share of suppliers as there was no alternative. By the end of 2005, EachNet eliminated fees, Taobao continues to lead as. It already built an active group of users. It contributed to a healthy market share made up of loyal customers. Its main profits come from advertisements and displaying sponsored products, which weigh 57% of total profits.

Another source of profits comes from technical services based on big data of consumer behaviours. Sellers can register for free as there are no transitional fees, Alibaba helped to cultivate the online transaction habit among Chinese customers, This helped in changing the entire e-commerce game.

Connect small business with consumers

Alibaba provides services mainly to small enterprises and individuals. China has millions of small enterprises. Before the rise of e-commerce, the merchants had no way to reach domestic market customers. They only export their product for low margins. Taobao created a platform and helped to link these small businesses with numerous buyers around the world. The products on Taobao were for sale rather than auction. By this, the buyer could ensure a fixed price and revenue. Moreover, an auction was more suitable for collectables and second-hand items. Alibaba displays a unique business opportunity by encouraging small enterprises. It opens to a wide selection of products made available to a large variety of target consumer.

Alibaba’s reliable platform

Alibaba provides a robust e-commerce platform for all the sellers and buyers. Sellers go through an online certification test to verify their identity. It minimises the risk of illegal transactions as sellers were supervised at all times. Apart from that, all dealings are recorded and can be traced back by both the parties as Fraud is a severe issue in the online retail market. Taobao developed a service in their website were buyers could hold their money until they receive their product so that they could feel secure. Alibaba further launched AliPay, and it’s a robust integrated payment platform. It provided both the parties a common platform and simple way to handle the money. Alibaba always developed as per the customer point of view. It established a communication tool called AliWangWang. It helped the buyer to communicate regarding the product to the seller, where he could bargain and explain his requirements.

Each net exclude such direct communication between parties. Taobao adopts a free mode, hence did not have to face the same problem and all these factors helped it became so popular and successful. Besides, the system built on a healthy environment where online feedback is highly encouraged. Users were rewarded with discount capons for the reviews. These reviews help to bring in changes and give a picture of experience to other users in purchasing experience, so they don’t have any post-purchase regrets.

Simple interface and customer satisfaction

Alibaba offerings its users a comfortable purchasing environment. Surfing through the home page is as easy as window shopping. A wide range of products are organised and categorially displayed on a single page which was easy to access, unlike other e-commerce websites which were messy and unorganised. Alibaba’s primary focus is customer satisfaction. They offer support services like online business training for sellers and development a communication tool where both the parties can exchange their views and requirements. Their design helped to grab the local customers attention and made it easy to explore new using the window shopping method.

Business opportunity

Alibaba seizes business by capturing users loyalty. There is a certain period between Chinese National Day and Christmas and most of the users usually sidestep from shopping during that period, but Alibaba seizes the opportunity by bringing in offers and effectively transformed that day into a whole shopping celebration.

C2B Model

Alibaba has come up with the C2B model to diminish costs in the supply chain network and abbreviate the time gad for merchandise turnover, satisfying users requirement. Alibaba brings together scattered users with similar needs to generate purchase power that can procure the product at a discount cost. Alibaba has established a loyal customer base in China, and growing international is the next big step to expand their business growth globally. Moving forward in being a global company is a striking accomplishment, but not every organisation can encounter the global challenges. Alibaba has to consider a lot of factors before they market their products or services in another country. For instance, replicating their China strategies elsewhere, may or may not be sufficient enough to achieve a competitive advantage in the global e-commerce market. As the organisation would face language and cultural barriers, tax code and compliance issues.

The functionality can be in the slow face due to the local competition and lack of regional knowledge. Finding the right partnership, meeting the due diligence can be a challenge and lack of customer base in the global market makes it harder. A product or strategy what might work or sell in their home country may not necessarily have the same appeal elsewhere. Hence, Alibaba has to consider a lot of other factors and strategies rather than completely replicating its China strategies in the distant region they will be entering.

Global Expansion

Alibaba can replicate a part of its China strategies to expand into other countries, but to achieve competitive advantage, it has to adapt to unique regional approach and criteria to gain a competitive advantage in the global e-commerce market. These strategies differ from region to region. To expand into the Indian market, Alibaba has a long-term strategy. It entered into the Indian market by investing in the local companies like Paytm which is a similar service like Alipay, Its India’s largest mobile payments company and has amassed users base. After seeing success with the Paytm, Alibaba invested in Paytm Mall Service. A Paytm Mall is an online retail branch of Paytm Group. It is projected to grow in faster phase handing a gross merchandise volume of three billion in 2016and targeting to reach ten billion by March of 2019. In between Alibaba invested in Snap deal. It is the third most prevalent internet business retailer app in India. Further, Alibaba invested in Xpressbees. It’s a logistics firm in the e-commerce industry. Alibaba later put its funds into BigBasket’s, an online groceries channel and during the same period, it invested in Zomato, lifestyle channel. T

The main reason Alibaba investing in there firms is that it plans to implement its China strategy to create a smart app that would bring together all of its various assets. Which could be similar to the successful design of Tencent’s. Alibaba strategically planned with the comfort of the e-wallet channel Paytm, Alibaba has expanded its capacity into different fields such as media, entertainment, logistics, online gaming, food, and we services- all business sectors that exist in the Chinese application Tencent’s.

Alibaba aims to recreate the Tencent success by partnering with the local firms. Despite India’s potential as an e-commerce market, it will not be easy to expand or grow market share due to the existing competition. Like its competitor, Flipkart stays strong with steady income growth on an annual basis, but they also experienced losses swell over the same period. It is not going to be easy for Alibaba to gaining market share and being successful in the Indian market as the market doesn’t mature often. But over time if the demand grows, then the entire game would change, and massive income will automatically lead to attaining of competitive advantage. Coming to the other regions Alibaba plays different strategies and it is likely to have a disruptive effect on entering in Australian retail market. As it mainly looking to bring Australia’s companies global. It is executing development strategies which focus on Chinese tourists flying to Australia. Further, it focuses on developing cloud services and bring in Alipay and associating with regional businesses to provide a seamless Chinese tourism experience in Australia. It also on expanding its logistics network between the two counties to enable better B-B trade. Alina can create a competitive advantage in a few untapped, but it’s not easy to develop a complete competitive advantage when it plans to expand into reasons with existing completion.

Conclusion

The Success of Alibaba is mainly due to its sound local knowledge. It has studied and understood the needs and requirements of the local buyers and sellers and was able to implement and perform better than its competitors. Thought I wasn’t the first Chinese e-commerce firm it managed to achieve noticeable market size beating Amazon and eBay. They have developed strong channels in their field that protect them from most other competitors. They always innovated and met the consumer needs. It made profits in innovative ways which let it be successful. Alibaba is aspiring to be one of the global forces. It is continuously expanding its reach around significant parts of the untapped retail online world’s. It has vast opportunity and risks in foreign investment, global expansion, and global partnerships. It can replicate its China strategies in the untapped market to be successful but it can a challenge to achieve competitive advantage initially in the worldwide e-commerce market due to existing competitors.

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