Alibaba is a profitable, e-commerce company that has transformed China’s Internet economy.
Generic Strategy
Competitive advantage
Alibaba strives to achieve competitive advantage in the Internet economy through various differentiation strategies such as the use of technology, low-cost or no listing fees for some business units.
Alibaba has relied on technology to differentiate itself and create competitive advantage in the market. Being an Internet-based company in the world’s largest Internet market, Alibaba has used technology to enhance customers’ purchasing power of products from different parts of the world. Therefore, consumers have a wide variety of choices because of Alibaba’s technology.
Alibaba has also created a network of dealers. For Alibaba, the expanding network of both sellers and buyers create a significant competitive advantage for the company. A large network of customers and buyers creates valuable opportunities for different parties involved. This is a form of a ‘collective entrepreneurship’ between Alibaba and suppliers in its network. The platform to market and sell products from different suppliers is important for the company’s relationship with external parties.
Technology has helped Alibaba to locate several suppliers and customers throughout the world. Today, many small suppliers rely on Alibaba’s platforms to find market.
The company’s market scope
Alibaba pursues a broad market strategy through its business model. The largest network created by the Internet has ensured that the company can focus on different suppliers, customers and diverse market segments.
For instance, Alibaba provides different platforms such as Alipay (e-commerce transaction), Alibaba International (international trade community), Alibaba China (domestic market), Taobao and (consumer-to-consumer) among others to meet needs of its customers. This broad strategy creates economies of scope and scale for Alibaba. The company saves costs because it can provide a platform for sales of different products. In addition, larger volumes of sales generate huge incomes for the company.
Strategic Issues
Currently, Alibaba’s strategic approach has worked so well. In fact, the company’s IPO showed that it was the best e-commerce company in China. Alibaba has gained a reputation of success and growth for the past few years. The revenue sharing model rather than listing fees allows many suppliers to join Alibaba. A large network of merchants ensures that suppliers and customers benefit from immense traffic.
Although the strategy has worked, many critics say that it cannot be sustained in the end because of market and regulation dynamics. First, the model has no listing fees and warehouses, which makes it susceptible to replication by other companies. Second, it relies on the Chinese government goodwill. Third, the Chinese Internet economy has become extremely competitive because of emerging competition and ease of entry. These factors will erode the company’s operating margins.
Current performance problems based on internal analysis
The current strategy has not driven Alibaba beyond China despite its global recognition. For instance, Alibaba is rarely used in the world’s largest economy. In addition, it is difficult to understand Alibaba’s profitability from all its several affiliates. Alibaba must also use technology to reduce costs of running its operations.
External analysis
How the strategy helps or hinders the company in addressing the strong forces in its industry:
Currently, China’s Internet economy has become highly competitive. The company is unable to control new entrants because of ease of entry in the e-commerce industry. As a result, its operating margins will continue to decline.
The government regulations on the Internet, and Alibaba’s reliance on both the government and the Internet could affect its operations. In fact, Alibaba can hardly influence these external factors.
The threats and opportunities relevant to Alibaba’s future
The growth of China’s e-commerce industry will definitely affect the company’s future. This is a major threat for Alibaba. In addition, low barriers for new entrants have created opportunities for other e-commerce companies.
On the other hand, the company also has opportunities to explore new markets. Globally, there are new emerging markets. At the same time, Alibaba can explore opportunities in the US Internet economy.
Environmental trends or changes that may affect the future success
Alibaba has low brand recognition outside China. This is a serious weakness, which could affect the company’s future expansion strategies. Moreover, its e-commerce technology is highly fragmented under several platforms.
It is not clear how Alibaba will compete in the future as the rate of competition increases from new entrants. Moreover, changes in technological environments have exposed the company to other external threats. The company’s future and vision could be unsustainable if the government goes against it.
The major strategic issues that are facing the company
- It is not clear how Alibaba will face the threats from new entrants and competitors
- The company’s has low levels of technology
- It has extremely high operational costs because of well compensated thousands of employees
- The future potential and profitability of Alibaba remains unknown
- The company’s sustainability could be difficult to ascertain because of its free listing model and reliance on the government.
- Overall, the company’s sources of current competitive advantage may not be sustainable in the future
Strategic Options
Viable strategic options for Alibaba
Many viable strategic options are available for the company to implement. Alibaba must focus on the US market share. It can only do this by acquiring a strong company in the US.
Alibaba must also strive to acquire technology companies that can strengthen its IT departments and operations.
The company must also improve its differentiation strategies.
Alibaba has remained unknown in other global markets other than China. As a result, it is imperative for the company to focus on global marketing initiatives.
One major drawback notable in these strategic options for Alibaba is that some of them could be expensive for the company. These may include acquiring new technology companies, global promotion and marketing in new markets and developing differentiation strategies. These options would allow Alibaba to grow in the global market and maintain its competitive advantage.
Strategic Recommendation
- To enter the US market, Alibaba should acquire a strong US company. This would be effective mode of entry into the US market.
- The company should buy technology companies to boost its IT operations. This strategy would ensure that Alibaba acquires IT resources and technical expertise from the purchased company.
- Brand recognition must be strengthened globally. Alibaba must improve its marketing and promotional efforts. Effective marketing campaign will create awareness and drive the company’s profitability significantly. The company must pursue this strategy if it wishes to be recognized as a global brand.
- Alibaba requires massive financial and IT resources to support its future operations as new challenges and external threats emerge.
Implementation – Functional Policies and Processes
Production/Operations
Alibaba should revamp its operations with new IT technologies. The company’s operation would remain redundant if it cannot acquire new technologies and expertise to create competitive edge in the e-commerce industry. As previously mentioned, the company can acquire small technology companies to support these efforts.
Marketing
Alibaba lacks global brand recognition. Therefore, the company’s processes should focus on promotional and marketing activities. A good marketing strategy would expose the company to global suppliers and customers. This could be an important step in improving Alibaba’s profitability and brand recognition.
Accounting and Finance
The department should provide and demonstrate how profitable Alibaba is. The company has several small affiliates that contribute to its growth. The department should provide financial projections to indicate the future of the company and the required resources to meet some growth objectives. In addition, shareholders should also understand Alibaba’s dividend policies on long-term basis.
Research and Development
R&D constitutes a critical part of the company’s future operations. The IT department should be highly innovative in terms of robust IT platform developments and service improvement. As new threats emerge from competition, Alibaba must focus on improving its current model, services and business platforms. Otherwise, it will not survive due to threats from the e-commerce industry.
Human Resource Management
Alibaba must introduce a policy to support acquisition and retention of talented employees from any parts of the world. In addition, human resource management policies should aim to create competitive advantage for the company.
Acquisition
For any IT company with financial resources, acquisition of small emerging technology companies has become the latest practice. Alibaba must develop its acquisition policies. Such strategies should be strategic with the aim of supporting the current business model and resources required. For instance, acquiring other small e-commerce companies in China would promote Alibaba’s presence.
Implementation – Structure
The company has many divisions such as B2B, C2C, search engine, advertisement and online payment among others within its e-commerce platform. These subsidiaries show how Alibaba’s internal structure is fragmented under various divisions. The structure should create synergy and provide economies of scale and scope for the company to save costs and maximize revenue generation.
How the current structure supports the implementation of the recommended strategy
Given these several divisions of Alibaba, it would be difficult to find a single solution that meets all unique needs of various subsidiary companies. Nevertheless, Alibaba can use its current structure to implement cost-saving strategies and promote all its subsidiaries under one brand.
How the current structure hinders the implementation of the recommended strategy
The current structure is highly fragmented because of several subsidiary companies. Alibaba may not run effective promotional campaigns or find a solution that meets all diverse needs of these subsidiaries. In addition, its free listing model may not sustain revenue growth as required in a competitive e-commerce market.
Recommended changes in the company’s structure to facilitate the implementation of the recommended strategy
Alibaba should review its acquisition and global promotional strategies to support highly fragmented subsidiaries. This approach would allow the company to leverage on resources, acquire strategic subsidiaries and partnership and gain global recognition, which would create competitive advantage and drive profitability.
Implementation – Culture
Alibaba’s business strategic culture has focused on achieving enormous growth within the e-commerce industry in China. Specifically, it strives to comprehend, exploit opportunities and lead the trend in e-commerce opportunities. As a result, the company has grown in the last decade significantly.
How the current culture supports the implementation of the recommended strategy
Alibaba has continued to identify areas of potential growth in the Chinese market and other regions. The company’s focuses on expansion, particularly after its biggest IPO. It is believed that Alibaba will continue to grow its e-commerce business by exploiting new opportunities.
How the current culture hinders the implementation of the recommended strategy
The company has not been able to maximize its revenue and profit potential because of its free listing approach. Alibaba must review this culture in order to implement a new business model that is competitive and profit-oriented as the industry becomes highly competitive.
Changes in the company’s culture to facilitate the implementation of the recommended strategy
Alibaba should review its profit strategy culture against operation expenses. The company needs a profit-oriented culture. Alibaba is now a publicly traded company with many shareholders, who will demand for returns from their investments.
Implementation Issues
Any changes to be implemented in Alibaba must be evaluated and their potential impacts identified. These changes must be implemented over time.
Processes
Improving business processes will be critical for the survival of the company. IT solutions should be used to improve processes and any difficulties must be noted and solved.
Structure
The company’s fragmented structures should be made linear to facilitate acquisition and investment in poorly performing areas. Any changes to the current structure will require massive resources, which could affect operations and returns.
Culture
Culture change in the company could be challenging, specifically adopting a more profit-oriented culture. For a long period, Alibaba has promoted free listing rather than a fee-based approach to support revenue growth.