Introduction
There has been an increased level of business competition in the business environment as a result of the highly dynamic nature of the current world, as well as the rapidly changing customer needs. The advancement in technology has also been a factor that has contributed to the increase in the level of competition.
Organizations find themselves under pressure because they need to maintain their high performance, despite the stiff competition facing them (Hill and Jones 10). They strive to emerge the most competitive or get the highest share of the market to maximize their sales and profitability.
A business organization that needs to be in a position to compete favorably is required to have a strategic plan that is usually developed by the strategic managers. Strategic management usually constitutes the formulation of the primary objectives that a company wants to achieve in a specified period (Hill and Jones 11).
The plan outlines how the objectives are to be achieved, given the available resources, internal, as well as the external environment in which the business is operating. Strategic management typically provides direction on how the organizational goals will be achieved.
It also generates policies and guidelines on how the available resources should be allocated to maximize the company’s potential.
In business, there could be business level strategies that generally guide the operations of that specific company. This essay will focus on the business level strategies of Alibaba. Alibaba is a company that is based in China, and it provides online business services to its clients.
E-commerce has become increasingly common in organizations following the current advancements in technology. Technology has led to the establishment of organizations like Alibaba, whose core business is e-commerce. The company has adopted a generic strategy, as well as a grand strategy that has been guiding its business activities.
Alibaba’s Generic Strategy
The generic strategy that the company has adopted is cost leadership. It is a strategy whereby the company sells its goods at a low price. It is also a strategy that normally targets the mass market. Most customers are willing to buy goods at the lowest possible price, but they want quality products at the same time (Kozami 32).
Alibaba has been able to lower its costs of operation through the use of technology. As mentioned earlier, the company’s core business is based on e-commerce. It means that technology is the major factor towards the success of Alibaba’s business.
It is imperative to note that technology has been essential in the cost reduction of many organizations across the world. Alibaba is a company that sells goods at a relatively small price. First, it has been able to reduce its operations costs because the costs that are related to stock are either not incurred, or they are very low.
The company does not need to have warehouses for storing finished goods. Instead, the goods are displayed on the website, whereby the customers can view them online and make the purchases through the online purchase methods that have been provided on the Internet by Alibaba.
Operating as an online business contributes to huge reductions in the cost of holding stock, ordering costs, and other stock related costs. Secondly, the company does not have physical shops or outlet stores. It means that Alibaba does not incur costs like rent for the stores or lease costs.
Therefore, Alibaba can cut down its operation costs significantly, as well as other expenses that the company is either able to eradicate or reduce significantly by virtue of being an online business. The benefits are reflected in the selling price of goods and services that the company offers.
One important point that should be noted is that the primary objective of the company is to provide a basis through which the Chinese manufacturers can link up with customers from overseas. It means that Alibaba does not actually have its stock, which reduces the operational costs.
The buyers from the international market can search for goods manufactured in China through the help of the shopping search engine that is provided by Alibaba. They also can make orders online from the Alibaba website. From the other end, the manufacturers can see the orders and organize deliveries.
However, Alibaba charges a small fee for the service.
Alibaba enables the manufacturers’ goods to be viewed by many people, thereby increasing the chances of making high sales for the manufacturers. The costs are, therefore, low on the side of the customer.
It should be noted that the customers of Alibaba are the manufacturers or companies whose goods are available on the website, as well as the overseas buyers. The international customer does not have to travel all the way to China to make a purchase or view the goods.
Therefore, the buyer can reduce costs significantly. On the other hand, the manufacturer does not have to open stores overseas for displaying goods. Therefore, the manufacturer can reduce the operations costs because they are not necessarily required to open stores.
The reduction of costs reflects on the selling price of the company’s goods because they are relatively low-priced. Alibaba’s strategy is based on cost leadership; therefore, it aims to lower the operating costs as much as possible. It also targets the mass market where many people can access the website.
Alibaba’s Grand Strategy
The grand strategy is more or less the same as the corporate strategy of a business. It is a strategy that guides the operations of an enterprise organization and shapes the business, in general. Grand strategies help a business to achieve its long-term goals and objectives.
Therefore, in its grand strategy, a business organization should plan all its operations right from its product design and development to liquidation. Different business organizations have different grand strategies, based on the nature of the business and their surrounding situations.
The major factors that are notable in grand strategic planning are market growth, product development, strategic alliances, organization development, and turnaround strategies, among others (Kozami 169).
The grand strategy of Alibaba is market growth. The company looks into a future whereby it will have more people seeking its services. It wants to expand its services such that users will be in a position to find whatever they want in the website.
According to Mr. Joe Tsai, who is the executive vice chairman of the organization, Alibaba wishes to stretch its services to banking, entertainment, education, and travel, among other areas of operations (Carsten and Miller par. 3).
The company also wishes to develop a mobile application whereby customers will be able to purchase mutual funds from Alibaba using their phones. In addition, the company aims to offer insurance services whereby customers will be able to safeguard their homes using insurance cover that will be referred to as the Alibaba Insurance.
It will also create an Alibaba credit card that will facilitate the ordering process and speed up delivery of the ordered goods.
Alibaba wishes to reach as many customers as possible in the future. It wants to expand its market in any area that will be effective in increasing the number of users that will be visiting the website in the search for various services.
Once the company can expand its market, it will be in a position to increase the sales and revenue it gets from the services it offers. There are a number of advantages that are associated with the grand strategy that Alibaba has sought to adapt.
The market growth strategy is a strategy whereby the company bears a very low risk in relation to other grand strategies. The company can decide to expand its market through expanding the market niche of its products.
It means that Alibaba will not have to invest in research and development or create new products; this lowers risks significantly. On the other hand, the company can decide to develop new products with the aim of expanding its market.
Expansion should come after a comprehensive market feasibility study to determine what the market needs. If the company conducts the market feasibility study, then it lowers the risks as it is sure of what the market needs before developing or producing the same.
In the case of Alibaba, it does not need to establish links with various manufacturing and service companies. Consequently, it will be able to provide the various services to the different customers and expand its market growth. The company will face very small or no risks in executing this strategy.
How Well Alibaba’s Current Strategy is working and the Major Strategic Issues that Management Needs to Address
Having been established in the year 1999 and grown to become one of the largest e-commerce companies in the world, it is an indication that Alibaba’s strategy is working in its favor. It is an approach that has enabled Alibaba to achieve its objectives, both in the short-run and in the long-run.
The cost-leadership generic strategy has helped Alibaba acquire many customers, thereby maximizing its sales and revenues. Alibaba helps in simplifying the process of buying goods sold through its website without compromising the quality.
The simple process of purchasing items on the website could, probably, be the major factor that has led to the company achieving the success it has acquired today. It is expected that pursuing this strategy will lead to more success in the future.
On the other hand, the grand strategy of Alibaba is to expand its market in the future and get as many users as it can. It is also a strategy that is highly viable. It puts Alibaba in a prime position for success in the future by the virtue of it being a low-risk strategy.
It is important to note that managers of organizations are always looking for ways that can increase the business performance, but maintain as little risk as possible at the same time. Managers aim to maximize returns at the lowest risk possible (Kozami 34).
Through its current grand strategy, Alibaba will be able to reduce the risk and at the same time increase its users and its performance. The strategy is working for the company, as Alibaba has been engaged in various additional services, such as the venture into the entertainment industry, among others.
The only major strategic issue that the management of Alibaba should, probably, address is the market growth strategy. In the growth strategy, Alibaba’s management might need to invest in more research and development.
The company may need to understand the current market trends, the changing needs of customers, and the varying demands of goods and services. In doing so, it will be in a position to offer products and services that the market needs, rather than offering many services that may not be required by the customers.
The market research should consider the fact that the needs of clients are changing rapidly, thereby calling for organizations to be highly dynamic. Organizations that fail to evolve with the needs of the clients stand a high chance of being rivaled.
Strategic Options that Seem Viable for Alibaba
First, it should be noted that the current generic strategy best fits Alibaba. Moreover, it may not be feasible to adopt other generic strategies. For instance, it might be difficult to adopt the differentiation strategy, given the fact that Alibaba does not produce goods on its own. Moreover, it would be difficult to influence the quality of products.
In addition, it would not be easy to limit the availability of the website to specific classes of customers. Therefore, the cost-leadership strategy could be the only viable generic strategy for Alibaba to adopt.
On the other hand, Alibaba has a viable option in its grand strategy. It can opt to adopt strategic alliances as a grand strategy. This is a strategy that will more or less serve a similar purpose as the current market growth strategy.
In the strategic alliance strategy, the company will seek to collaborate with other organizations that have goods or services that will boost its operations.
Strategic Recommendation(s)/Conclusion
Alibaba has been able to achieve great success in its operations over the years. It is an indication that Alibaba has a strategy that has been working well. The cost leadership strategy has been highly successful for the company.
In fact, this could be the only viable generic strategy that the company has because the others, differentiation and focus strategies, might difficult to even integrate or establish in its operations.
The grand strategy has also been successful and helped the company achieve its objectives. However, I would recommend that the company should combine its market growth strategy with the strategic alliance strategy.
Although either of the two strategies would achieve good results, a combination of the two would increase the magnitude of success because the company would be able to expand its market growth. At the same time, it would also be able to create alliances with other business organizations that would boost it in its strategizing activities.
Alibaba would collaborate with organizations that would complement its operations. This would have an enormous impact in terms of organizational growth and development, as well as goal achievement.
Alibaba, therefore, does not need to change its current strategy, but it may opt to combine the two strategies, which are market growth strategy and strategic alliances for better results.
Works Cited
Carsten, Paul, and Matthew Miller. Alibaba’s Grand Vision for E-Commerce Empire Includes Insurance. Wells Media Group, 2014. Web.
Hill, Charles W. L., and Gareth R. Jones. Strategic Management. Mason: Cengage Learning, 2012. Print.
Kozami, Azhar. Business Policy and Strategic Management. New-Delhi: McGraw-Hill Published, 2005. Print.