Strategic Issues Faced by Alibaba in Relocating to US Retail Market

This report states the strategic issues to be faced by Alibaba while relocating to the US retail market. The report has defined the major strategic issues to be faced while relocating in US. The strategic analysis has been made by undertaking tools/frameworks such as PESTEL analysis, Porter’s five force analysis, SWOT analysis, and VRIO analysis.

Introduction to strategy

Introduction to strategy 1
Executive summary
This report states the strategic issues to be faced by Alibaba while relocating to the US retail
market. Alibaba is a leading e-commerce brand based in China. The company is having a
strong financial position and the sales and revenue have grown at a fast speed in the last four
years. The active users of Alibaba have grown substantially in 2018. The company invests a
large amount each year in research and development. The international expansion is full of
challenges for Alibaba along with the challenges comprising political, technological and
more. After attaining a strong position in the Chinese market the company expects to attain a
significant market share in US. The report has defined the major strategic issues to be faced
while relocating in US. The strategic analysis has been made by undertaking
tools/frameworks such as PESTEL analysis, Porter’s five force analysis, SWOT analysis, and
VRIO analysis.
Finally, it can be determined that it would be a great opportunity for the company to relocate
to the US retail industry mainly for e-commerce.

Introduction to strategy 2
Contents
Executive summary...............................................................................................................................1
Introduction...........................................................................................................................................3
Background...........................................................................................................................................3
External analysis....................................................................................................................................4
PESTEL framework..............................................................................................................................4
Porter’s five forces framework..............................................................................................................6
Internal analysis.....................................................................................................................................8
VRIO analysis.......................................................................................................................................9
Recommendations...............................................................................................................................11
Conclusion...........................................................................................................................................12
References...........................................................................................................................................13

Introduction to strategy 3
Introduction
Alibaba is a renowned e-commerce corporation in China. Alibaba is specialized in retail, e-
commerce, the internet, and technology. It is the foremost platform for international
wholesale trade. The company serves millions of purchasers and suppliers about the globe.
The company has made decision to relocate its headquarter and warehouse to US in order to
grow and attain competitive advantage. Alibaba expects to tap into the robust power purchase
parity of the American consumers. In this whole scenario, Alibaba is conscious of the
competitor’s power in US. The ban on Huawei’s expansion in US has created opportunity for
Alibaba. Therefore Alibaba has decided to thorough analysis and comprehends US as a host
country before setting. This report identifies the issues which can be faced by Alibaba in
relocating to US.
The PESTEL framework has highly recommended the issues to be inhibited by the relocation
of Alibaba in the US. The competitive industry forces have been paid close attention by
explaining Porter’s five forces framework. A framework like VRIO is also helpful in
identifying the strength and resources to establish a position in the host country.
Background
Alibaba was formed in 1999 in China. The company believed that the internet has a great role
in empowering small businesses to power revolution and technology to progress and contend
more successfully in the domestic and international economies. Alibaba transforms the way
business markets by making use of technology. It assists in engaging customers and conducts
operations in more efficient way. Alibaba brings products in more than forty foremost
categories comprising machinery, consumer electronics, and apparel. The company is having
aim to make tranquil do business everywhere.
Alibaba is having business comprising Taobao, Tmall, AliExpresss, Alibaba.com, 1688,
Alimama, Alibaba Cloud, Ant financial and more. Since its launch of the first website,
Alibaba is helping small Chinese exporters and enterprises to retail globally. At present, the
company has developed into an international leader in online and mobile commerce. Alibaba
offers products in more than 190 nations along with exchange of thousands of emails with the
suppliers on the stand on a regular basis.

Introduction to strategy 4
External analysis
The external analysis of Alibaba Group is used as a strategic tool to investigate the macro
environment of the company. The external analysis comprises the PESTEL framework which
has an impact on the macro environment of the organization. The changes in the macro-
environment factors can have a direct impact not only on the Alibaba Group but on the other
retail players as well. The external analysis has been grateful in offering details concerning
operating challenges that the Alibaba Group can encounter in the macro environment other
than the modest forces. It can be highly profitable for Alibaba Group for the strong growth
trajectory (Glowik, 2017).
PESTEL framework
Political factors: the US has enabled the effective rule of law.US enjoys economic and
political influence over the policymaking on the national and global levels. The nation
encounters with global criticism for some of the interventionist policies in certain parts of the
world. The political factors influencing the retailers in US are government policies and laws,
global trade laws, taxation policies, trade restrictions, and environmental laws. The retailers
here depend on government assistance in order to execute distribute and profit. The trade
protectionism in US from Trump administration extorts to the prevailing foreign companies
in the nation. The political stability in US leads to economic stability. The political regulation
in US can result in increasing sales of the e-commerce company (Peery, 2018).
Economic factors: The economic factors have a greater influence on the market conditions of
US. The economic system of US is well developed and attains strength from the
manufacturing and retail industries. The economic stability of US increases the prospect of
the success of Alibaba Group. The better economic conditions of US increase the sales and
profits of the e-commerce organizations. Even in times of recession, the US retail industry
does well. The people in the country are having disposable income which leads economic
trends to benefit the retail industry. The economic factors such as taxation and inflation rates,
unemployment levels, industry growth and changes in the currency exchange rates affect the
growth prospects for the retail industry (Glowik, 2017).
Social factors: Most of the population of the US has a liberal mindset but racial mindset has
become a serious concern. There is also big aging population which creates problems mainly
in the labor supply. The social factors influencing retailers in the US are growing wealth

Introduction to strategy 5
inequality, growing consumerism and amassed online buying habits. The higher disposable
income has great role in improving the latent revenues of the e-commerce companies. Add
on, an enhancing degree of consumerism generates prospects for growing e-commerce
businesses in US (Hong and Xu, 2019). The young generation in US is equally fanatic and
crazy for online shopping and internet access has increased this ratio.
Technological factors: innovation and technology lead to the cornerstones of the US
economy. The US always leads when it comes to adapting and applying technology. In spite
of facing competition US continues to retain technology control over the competitors. The
technology is implemented in the US economy in the form of producing, distributing and
marketing goods. There is existence of technological factors like rapid technological
obsolescence, enhancing efficiency of IT resources and increasing rates of cybercrimes. The
retailers can avail opportunity in US to enhance performance relied on the rapid increase of
IT resource efficiencies (Romagnoli and Garbelli, 2017). It can even help the companies to
attain competitive advantage. The technologies offered by the US government can exploit
online retail efficiency and reduce operational costs.
Environmental factors: The US economy is more conscious of the pollution which causes
carbon footprint. The US has an exciting diverse climate, geography, and wildlife. The
company will have majorly online business and the operations will be subjected to the effect
of the natural environment. Alibaba is required to follow environmental laws and eco-
friendly practices along with the technology to regulate pollution (Peng, et al. 2016). The
factors to be considered by Alibaba are raising interest in the environmental programs,
business sustainability, and low carbon lifestyles. Alibaba has prospect to enhance its
environmental influence in retort to the increasing awareness in environmental programs
(Saha, Sarmah, and Modak, 2018).
Legal factors: the US is having regulations for consumer protection along with the new laws
for the liberal trade. There is a distinct legal team in US to supervise the legal matters and
encounters faced by the retailers. US have even offered health and safety guidelines,
consumer rights along with the ethical standards for the conduct and advertisement. Alibaba
can influence the legal factors in US like increasing product guidelines, varying import and
export rules and progressing environmental protection guidelines (Qin, 2017). There are also
several consumer privacy acts that generate a threat to Alibaba such as California Consumer

Introduction to strategy 6
privacy act, 2018 and will be effective from 2020. The company will be required to update
users regarding the type of data gathered and the way data will be shared or used.
Porter’s five forces framework
Competitive rivalry
Alibaba is having a strong force against the competitors. Alibaba will get to compete against
robust competitors. The five forces framework handles the effects of the company on each
other (Anwar, 2017). In the case of Alibaba, the external factors liable for the robust strength
of the competition in the retail industry of the US will be:
 High aggressive of the companies- strong force
 High obtainability of the alternates- strong force
 Low switching costs- the strong force
The retailers in the US are usually aggressive in the US and there is robust competitive force
against each other. Alibaba will get to face compete against Amazon, Walmart and more as
these companies have substantial and intensifying e-commerce websites (Tanda and Schena,
2019).
Bargaining power of the buyers
The vision and mission statement of Alibaba indicates the customer-centric approach of the
e-commerce business. The external forces which will influence consumers in US e-commerce
and retail industry are:
 High quality of information- strong force
 Low switching costs- the strong force
 High availability of the substitutes- strong force
The bargaining power of the Alibaba in the US retail industry will be of the strong force. The
consumers in the US have entrée to high-quality information concerning the services of
online retailers. The external forces to influence Alibaba in US estimated to be capability of
the customers to discover substitutes for the company. The low switching costs make tranquil
for the customers to switch to other businesses. For instance, in spite of purchasing on the
website of Alibaba, a customer can easily switch to Amazon (Havinga, Hoving and

Introduction to strategy 7
Swagemakers, 2016). Alibaba is required to deliberate robust bargaining power of the buyers
in order to address the business challenges.
Bargaining power of the suppliers
The bargaining power of the suppliers for Alibaba is deliberated to be of modest force. The
suppliers in the US industry are in the condition of controlling the availability of the supplies
which will be required by Alibaba. The external factors which are deliberated to be
experienced by Alibaba in US industry are:
 The small population of suppliers- the strong force
 Modest advanced integration- moderate force
 Modest size of suppliers- moderate force
The small population will inspire suppliers to enforce a robust force on Alibaba’s trade
(Thakur, 2018). For instance, the variations taking place in the prices of equipment from a
small number of great suppliers can influence the online operational costs of the company.
Threat of substitutes
Alibaba will get to compete with the substitutes in the online retail market of the US. The
external forces assisting the robust force of the threat of substitution are;
 Low switching costs- the strong force
 High availability of substitutes- the strong force
 Low cost of substitutes- strong force
The company will be required to know the strong force of substitutes in the US retail industry
threatening to the performance of the company. The low switching costs indicate that thee
consumers can effortlessly switch from one company to another. For instance, the customers
can easily switch to Amazon or Walmart as an alternative to buying from Alibaba. The high
obtainability of substitutes in the US can increase the influence of substitutes (Wu and
Gereffi, 2018).
The threat of new entrants

Introduction to strategy 8
The new entrants in the US industry can reduce the market share of Alibaba in online retail.
Alibaba will get to face the weak strength of the threat of new entrants in the US industry.
The company can experience weak intensity of the threat of new entrants on the basis of the
following external factors:
 Low substituting costs- the strong force
 The high cost of brand development- the weak force
 High economies of scale- weak force
The customers can effortlessly switch to the new companies so the new companies execute a
robust force in contradiction of the company. It is because of the low switching costs.
Internal analysis
Strength
Alibaba is having a 58% market share in China. The company is having market dominance in
China with the backup of solid manufacturers who are proficient in producing at mass levels
and supplying worldwide.
Alibaba is having a robust relationship with the partners. The company offers an encouraging
atmosphere to all those participating in scripting the success of the company.
Alibaba is a leading e-commerce player. The company is searching for other markets other
than China to make expansion (Khan and Sagar, 2015).
Weaknesses
Majorly Alibaba is having operations in China and has a limited presence other than the
home country. There are sufficient growth opportunities still the company is required to
expand overseas in order to make an impression worldwide.
Alibaba is having a dependence on core business which is e-commerce. In order to attain
advance profits, the company is required to rely on other segments as well (Zhang and Yang,
2017).
Opportunities

Introduction to strategy 9
Alibaba has attained the opportunity to make international expansion in the form of revenue
growth and increasing customer base overseas. It will be equally important to the company in
reducing reliance on the home market.
Technological innovation indicates important opportunities for the growth of the company.
The investment to be made in the research and development helps the company to grow
competitive advantage (Oh and No, 2019).
Threats
Alibaba is having intense competition in the international e-commerce industry. The
dominance of Amazon can pose a threat to the expansion in the US.
The increasing tensions in US-China relationships pose the main threat to Alibaba. It can
even create significant trade barriers (Kim, 2018).
VRIO analysis
The VRIO analysis helps to view internal resources that offer a competitive advantage. The
analysis mentions at each stage in order to know whether resources can be improved to offer
a better competitive advantage. Finally, the resources are summarised to know whether they
provide temporarily, unused or sustained modest advantage, competitive equality or modest
disadvantage (Zhang and Wang, 2017).
Valuable
 The financial resources of Alibaba are greatly valuable as these are useful in financing
external prospects that arise. The financial resources help the company is contending
with external threats.
 As per the VRIO analysis, the local foods are considered valuable resources because
these are greatly distinguished. It creates high apparent value for the customers. It is
even valued more than rivalries by the consumers because of the differentiated
products (Indartono and Wibowo, 2017).
 Alibaba believes that employees are an appreciated resource to the organization. A
substantial part of the personnel is well trained which creates productive output for
the company. The retention level is also high.

Introduction to strategy 10
 As per the VRIO analysis, the cost structure is not a valuable resource. It is because
methods of production often result in higher costs than the competitors. It puts an
impact on the overall profitability of the organization.
 The research and development of the company are not identified as a valuable
resource. It is because the research and development cost more than the assistance
accessible in the form of innovation. The company is recommended to cut costs for
research and development to improve the teams (Zhang and Wang, 2018).
Rare
 The financial resources of Alibaba are identified to be rare. As per the VRIO analysis,
robust financial resources are controlled by only a few organizations.
 The local food is not realized rare through the VRIO analysis of Alibaba. The local
food is easily offered by the competitor companies in the market. it reflects that the
rivalries can make use of these resources in an alike way as Alibaba and attain
competitive advantage (Zheng and Laurin, 2018).
 According to the VRIO analysis, the employees of Alibaba are a rare resource. Such
employees are skilled and well trained which is not always possible in other
organizations. Enhanced compensation and work environment make sure that the
employees are retained for a long time in the organization (Juliá-Igual, Cervelló-
Royo, and Berné-Lafuente, 2017).
 The distribution network of the company is rare because competitors necessitate a lot
of investment and phase to come up with an enhanced distribution network than
Alibaba’s.
Imitable
 The financial resources are quite costly to reproduce according to the VRIO analysis
of Alibaba. It is because such resources are accomplished by the company by means
of prolonged profits. The newcomers and rivalries will necessitate the same amount of
profits to accrue amount of financial resources.
 The local food products are not costly to imitate. Such products can be attained by
rivalries as they spend a substantial amount on research and development. It even
does not necessitate a year’s long experience (Li, Frederick, and Gereffi, 2019).
 It is not costly to imitate the personnel of Alibaba as per the VRIO analysis. The
competitor companies can train their employees in order to enhance their skills. The

Introduction to strategy 11
competitor companies can even hire personnel from Alibaba to improve the skills of
the workers.
 The patents of Alibaba are quite tough to imitate because it is not officially permitted
to imitate a patented product. Add on, it is a costly process to develop similar
resources and get a patent.
Organization
 The financial resources of the organization are planned to seizure value as
acknowledged by the VRIO analysis. The financial resources are utilized intentionally
to invest in appropriate places by making use of the opportunities. Such resources are
proving to be source of competitive advantage for the company.
 Alibaba’s patents are not properly organized as recognized by the VRIO analysis of
the company. It reflects that the company is not making use of these patents up to full
capability (Naidu, et al. 2019). The idle competitive advantage exists which can be
transformed into a sustainable competitive advantage.
 The distribution network of Alibaba is organized according to the VRIO analysis. The
company makes use of this network in order to reach customers by making sure that
products are accessible on all of the outlets. Consequently, such resources are
demonstrated to be a basis of competitive advantage for the company (Jin and Hurd,
2018).
Recommendations
Alibaba is one of the leading players in the online retail market. Alibaba has indicated spirit
regardless of increasing competition with companies like Amazon. The PESTEL analysis of
Alibaba acknowledged the significant issues which are acute to the long term success of the
company. The recommendation is to expand operations in the US as there is rapid economic
development along with the high e-commerce growth prospective. Alibaba should address IT
security matters by enduring and improving current policies for IT security and reliability.
Such issues can encourage customer’s confidence along with the stability of Alibaba’s
external macro-environment. Add on, as per the PESTEL analysis, it is recommended to the
company to enhance its brand power by CSR (Corporate Social Responsibility) strategy to
address the current matters to be faced in the US retail industry.

Introduction to strategy 12
Alibaba is recommended to address the major powers of the competition based on Porter’s
five forces analysis. Alibaba should address the robust force of the competitive rivalry by
focusing on the competitive advantage along with the strengths. Alibaba should continue
improving its brand image which is toughest in the retail industry. The organization can
address external factors associated with the robust force of the bargaining power of buyers by
concentrating on the service quality. The counterfeit reduction can enhance experience of the
customers by making use of the e-commerce website. The threat of substitution can be
counteracted by offering a more appealing service. On the other side, Alibaba is required to
give more advantages to strengths, weaknesses, opportunities, and threats in order to assess
the performance of the company in the new marketplace. Add on, Alibaba is recommended to
aim at enhancing competitiveness and prospective for the long term success in the US online
retail industry.
Conclusion
The report has successfully stated the strategic issues which can be faced by Alibaba after
relocation in the US retail industry. As per the PESTEL framework, political stability in the
US leads to economic stability. The political regulation in US is effective in increasing sales
of the e-commerce company. The economic system of US is also well developed and attains
strength from the retail industries. Alibaba can avail opportunity in US to enhance
performance relied on the rapid increase of IT resource efficiencies. This way, it represents
growth opportunities for the company.
The low threat to the entrants in the US economy represents a huge opportunity to relocate
and enable more US sellers to give the option to sell products on the e-commerce platform.
Alibaba is already a renowned company in China, so it is already known face when it comes
to relocating in US. Further, the company will be made the investment in the research and
development as it will help company to grow competitive advantage. The VRIO analysis
summarises the resources to know whether the company will be able to provide temporarily,
unused or sustained competitive advantage, competitive parity or competitive disadvantage.

Introduction to strategy 13
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Introduction to strategy 14
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