History of Alibaba Group
Alibaba Group’s origin dates back to the late 1990s. Jack Ma who was initially an English instructor in Hanzhou established the Alibaba Group in the late 1990s together with almost 20 other members. They had a common conviction that small companies had the ability to influence expertise and novelty via the internet to develop and rival more efficiently in the local and international markets.
The company launched its website, Alibaba.com that assisted small Chinese entrepreneurs, manufacturers, and exporters to sell their products on the international market. Over the years, the firm has grown into a world leader when it comes to mobile and online commerce (Liu & Forsythe, 2010). It had a successful IPO in the US that turned out to be the largest in the history of IPOs (Thomas & Barreto, 2014).
The company runs its basic operations from China. As of September 2014, it had a market value of 231 billion US dollars. Its website is also among the twenty websites that have the highest online traffic in the world accounting for a significant portion of parcel deliveries to China.
The website is also responsible for over two-thirds of China’s online sales (Liu & Forsythe, 2010). The firm is currently planning to establish businesses in India, which is one of the world’s most populous countries in its expansionary plans. India provides one of the largest markets in terms of consumers.
One of Alibaba’s greatest innovations is Alibaba.com that accounts for the huge profits that the company enjoys. The initial Alibaba.com website listed thousands of China’s factories that offered manufacturing outsourcing services for numerous sectors within the Chinese economy.
The website enabled foreign firms and businesses that were looking for manufacturers of the right kind to produce the products they needed. The innovation made the orders placed for the production of goods by the Chinese run into thousands of units.
Another great innovation by the Alibaba Group is Taobao, which is an online consumer portal that is closely similar to the United States’ eBay.com (Yang, 2006). Taobao is a consumer-to-consumer portal that enables clients to trade between or among themselves. However, Taobao was unique in some aspects. It was able to tap into Alibaba’s existing database of manufacturers and producers.
Taobao made it possible for factories and farmers to have a direct link with customers. Taobao allowed both consumers and producers of commodities to transact directly without the need for intermediaries via its order fulfilment services and centres. Taobao has been proved a powerful economic engine.
When this innovation is combined with the emerging middle class in China that is made up of at least 400 million potential consumers, the results are incredible. This innovative consumer-to-business model has completely changed the way businesses operate. The producers have taken up the roles that were initially played by businesses, thus making them improve on their profits.
This situation has necessitated the need for manufacturers to come with customised options for the goods they offer to their clients. The situation applies with intermediaries who go to the extent of repackaging and/or mixing the product to come up with a product that meets the specific needs of their customers.
Digital distribution is also an incredible innovation by the Alibaba Group. With this innovation, it is now possible to consume products such as movies, music, video games, and series over the air without necessarily having to purchase the hardcopy components.
With virtual deliveries of goods, unlike the traditional items, much of the overhead costs are eliminated. Digital distribution does away with physical storage or shipment of such items with no accompanying reproduction costs (Premkumar, 2003). This distribution innovation has inspired other innovative business models such as SaaS (software as a service).
With SaaS, users are able to test software free of charge and/or buy additional features via micro-transactions. SaaS is a model that is becoming popular in gaming (Cusumano, 2010). It is widely adopted by business-to-business start-ups that provide basic services to their clients cheaply while finding other means of charging the top-tier accounts.
To ensure success, the free trial model usually means that a developer of a given game is able to deliver frequent updates of his or her game content, including new characters, new powers, features, and levels. The company believes that to guarantee an increase in revenues, it has to lend a listening ear to its existing audiences and find out whatever it is that they desire next in relation to a given line of products.
SaaS has changed the handling of customers for the better (Cusumano, 2010). Initially, during the product era, shipment of the final iteration took place without the customers having any real say on the products on offer.
Organisational Approaches to Drive Innovations
Alibaba Group has a three-pronged organisational approach when it comes to innovation. Firstly, the firm explores the desirability of a given innovative product to its consumers. The reason for this step is to ensure that it does not invest heavily in products that eventually turn out to be obsolete within a very short time due to their inability to satisfy specific customer requirements.
Another reason for checking out for the desirability of the product among its consumers is to ensure that the company does not suffer a taint to its image that currently portrays it as one of the world’s largest e-commerce company (Fan & Huang, 2007). A disastrous innovation may serve as a steppingstone for some of its competitors who may be trying to catch up with it.
Even though the firm may institute some recovery measures to revamp its image in a case of any ruin, the damage done to the firm in terms sales may be far-reaching and almost irreversible. This human-centred approach has been responsible for driving much of Alibaba Group’s evolution.
The second consideration in warming up to innovations is viability. Any innovation that Alibaba Group considers must be in line with its business strategy. The firm prioritises technologies that are compatible with its business model. It has to enhance it to realise unprecedented growth rates.
This certainly informed the firm’s decision to buy AutoNavi, a mapping company, whose value to the company’s operations appeared strategic. AutoNavi has the potential of channelling more customers to the firm’s Taobao and Tmall (Guo & Hu, 2012). As such, it avails a complement for Alibaba Group’s core business.
It will also avail much more innovation relating to consumer preferences and whereabouts through its tracking services that will supplement offline data to online data that Alibaba Group has in its possession. Such online to offline (O2O) cohesion raises switching costs, consequently strengthening the network effects. In addition, AutoNavi will assist Alibaba Group in diversifying into mobile consumption.
The third factor in Alibaba Group’s innovation approach is feasibility. The company evaluates its ability to handle and implement certain innovations. Focus here is on the availability of the human resources that are needed to implement such innovation.
Technological advancements usually carry with them certain minimum requirements in terms of accessibility to complementary facilities and resources, some of which may not be readily available in the market. Implementation of a technology in the absence of the necessary structure can have adverse effects on a firm since this situation incredibly increases the chances of failure.
In cases where Alibaba Group does not have the required structures, it tries to explore the possibilities of sourcing for them. At times, the firm is forced to scout for talent in various areas of innovation in which it is not well endowed.
All the three organisational approaches to driving innovations have guaranteed the firm success in the launch and implementation of various innovations (Qinghe, 2013). This situation has made it possible for the firm to experience unprecedented growth without any major setbacks that might have had the effect of cutting back on the already-achieved milestones.
For Alibaba Group, being in possession of large amounts of extra cash does not mean it invests in just any kind of innovation without getting deep down into detailed information regarding the innovation’s feasibility, desirability, and viability. According to Jack Ma, success lies in being thorough in whatever one adopts to minimise the impact of setbacks that may come along the way.
Alibaba versus its Global Competitors
Alibaba Group’s main competitors in the e-commerce sector are Amazon and eBay. Alibaba Group has performed incredibly well in the face of stiff competition from both eBay and Amazon, with statistics and published reporting intimating that the Alibaba Group’s revenues surpass the combined earnings of Amazon and eBay.
Sales records for Alibaba indicate that the firm’s e-commerce business is growing faster than that of its two closest business rivals for the first and second quarters of 2014 (Fan & Huang, 2007). Moreover, the gap that separates its growth from that of Amazon and eBay seems to widen fast. This observation is a clear indication of how the leadership role that Alibaba Group plays is taking shape in the e-commerce Market (Filson, 2004).
However, there is a variation between Alibaba Group and its competitors when it comes to market dominance. For instance, Alibaba Group’s dominance is in the Chinese market where it controls an estimated 80% of the online market, especially with its Alipay and Taobao components (Shen, 2012). On the other hand, Amazon controls much of the North American market where it competes closely with eBay.
Judging by the nature of their dominance, it is rather obvious that real head-on competition between Alibaba Group and these two competitors can only take place outside their strongholds. Therefore, these firms will be targeting new markets that have not been explored much and/or where no firm has an established presence.
Alibaba Group has an added advantage over eBay and Amazon due to some of the facilities it enjoys. One of them is that it has the Chinese government’s support behind it (Qian, 2012). China is seeking to move away from manufacturing as the main economic activity into consumerism. It is counting on eBay as one of the ways out in achieving this vision.
Additionally, Alibaba Group enjoys a huge market base back home compared to Amazon and eBay. This advantage serves as a good foundation in its growth and expansion plans. With efficient plans in place, Alibaba Group does not have anything to worry about competition from its close competitors.
Competition in terms of Innovation
When it comes to innovation-based competition, one needs to consider various aspects to analyse the position of Alibaba Group in relation to its competitors. First, Alibaba Group seems to have copied Amazon’s business model.
However, to make its product better and more attractive, it has included some extra innovative components to its models as a way of customising its products to have a more desirable response to customer needs and requirements of manufacturers and other producers of commodities.
In the view of these facts, it becomes a bit challenging to come up with a clear position on this issue. If one chooses to ignore the allegations of copying on part of Alibaba Group, it is easy to say that the firm is bound to maintain dominance due to its timely and relevant innovations.
Alibaba’s Entrepreneurial Model
Alibaba Group’s entrepreneurial model is a great one. It has won the envy of other firms in the e-commerce industry and other industries as well. The company has a diversified model that consists of three main sites that run the different aspects of its business. Each site is tasked with ensuring creativity and innovativeness on its part.
Tmall deals with online sales of goods that are branded such that they focus on China’s middle class that is among the fastest growing portions of the population (Guo & Hu, 2012). Taobao is the second site that focuses on shopping.
The third site is Alibaba.com that helps in linking firms all over the world with Chinese exporters who host millions of businesses and merchants with many users. With the addition of Alipay, Alibaba Group has a big stake in the online market and hence huge growth prospects.
Conclusion: The Degree of Alibaba Group’s Success in its Approach to Innovation
Alibaba’s approaches to innovation have had great degrees of success upon judging by growth in sales and the market base that the firm has gained over the years. Some of its creative business models have introduced new concepts into the market. Such concepts have helped in terms of simplifying its business.
For instance, alibaba.com was the first website in the world to enable foreign firms to connect directly with manufacturing firms that are located in China. It made it easy for them to outsource the production of goods at low costs without having to go through intermediaries that cause the prices of various goods to go up.
Many firms have been attracted to do business with China. The result is an immense increase in the number of orders that are received by Chinese firms. In terms of financial innovation, Alipay has had a great success by attracting millions of subscribers (Shen, 2012). Alipay is currently offering great competition to PayPal.
Alibaba Group was able to outstrip Amazon of its status as the preferred e-commerce service provider in China. It has rose to become China’s preferred online transactions firm that controls more than 80% of the country’s online business. Considering the degree of success that Alibaba Group has recorded over the years, it is clear that it is headed for greater heights.
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