Alibaba Group Case Study: Strategies and Governance

This case study provides an executive summary of the Alibaba Group, tracing its evolution from its 1999 founding by Jack Ma to its position as a global e-commerce leader. The analysis covers Alibaba's diverse ventures, including B2B, B2C, and C2C sales, electronic payment systems, and cloud computing. The report examines the company's governance issues, including its initial rejection by the Hong Kong Stock Exchange and subsequent IPO on the NYSE, and the challenges posed by counterfeit goods and competition from rivals like JD.com. It includes a SWOT and Porter's Five Forces analysis to evaluate Alibaba's strategic decisions and international growth. The study also discusses potential measures to combat the ongoing issue of counterfeit products and the overall impact on China's e-commerce landscape, referencing various reports and financial findings.

Ali Baba Case Study

Executive Summary
Alibaba Group was established in 1999 by 18 people headed by Jack Ma. Their only belief
was the power of internet which would help them level the small-time businesses with
assistance of technology and innovation to grow and eventually have a competitive edge in
national and global economy in future. It is China’s and in some measures also world’s
largest dot com company. It’s first venture being Alibaba.com – a simple platform to connect
buyers with China’s small and medium scale manufacturers. It had just 24 items for sale then.
Today, this Chinese e-commerce giant has its hands in C2C, B2C, B2B sales, electronic
payment systems, shopping portals, luxury products site, cloud computing services, online
money transfers, digital media wing (Shih and Qi, 2016), entertainment group etc. Jack Ma
belonged to Chinese city of Hangzhou where he started his career early-first as a tour guide
and then as an English teacher. He wanted to make it big and dissatisfied with the salary, he
started his own translation business after some trips of US, where he learnt about computers,
internet etc. he created the Chinese Yellow Pages and eventually in his tiny apartment started
Alibaba. It is an amazing history of fast paced growth and quickly Alibaba branched out to
various other companies all under umbrella of Alibaba Group. Today, Alibaba has Tmall,
Taobao, AliExpress, Alipay etc. Alibaba, through various mergers and strategic deals has
been dominating the Chinese ecommerce industry. It has always been visionary in its
approach and has been successful in converting the organization into a sustainable ecosystem
in itself.
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In September, 2014, Alibaba came up with largest ever Initial Public Offering. It raised
US$21.8 billion @$68 per share on New York Stock Exchange(NYSE). This is after it was
denied to list itself on Hong Kong Stock Exchange (HKEx) in 2013(Wei and Young, 2015).
This was on the grounds that HKEx did not agree to its request to exempt ‘one share one
vote’ policy (Chow, 2014). That would have allowed all 28 members – former or current
Alibaba managers to have a holding on the process of nominating board members (Burke and
Eaton, 2016).
Alibaba face a lot of adversity in its tenure, first there was threat posed by eBay after its entry
in Chinese market in 2002 just when things had started to look up for Alibaba. Then after
launch of Taobao in 2003, the credibility crisis cropped up after counterfeit goods (Chen,
2016) started surfacing. It plagues Alibaba’s business even today. Threat of new entrants kept
on coming, everybody vying for the lions chunk in new market. Today JD.com stands as the
fiercest competitor for Alibaba in China. Rounds of ‘going public’ and being denied
(Descovich et al., 2017) listing on HKEx owing to governance measures unacceptable by
HKEx made it difficult for Jack Ma, he had to wait for some time more and prepare itself for
entry and listing on NYSE which finally accepted them (Nwogogu, 2016).
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The case report shall briefly outline the case of Alibaba and strategies followed by them. The
report shall try to shed light on the governance issues in Alibaba (Lin, 2017). It shall also
conduct a SWOT analysis and Porter’s five forces analysis for Alibaba which would indicate
us the benefits of altering strategies that Alibaba got, how it eventually assisted Alibaba in its
international growth. The report shall also discuss some of the measures Alibaba could take
up at present to arrest the imminent issue of counterfeit goods (Hu and Guo, 2015). Last of
all, the report shall also discuss counterfeiting scenarios where Alibaba’s fake good problem
has been disturbing for ecommerce of China as a whole and what is ahead for them. For
being able to present the facts and figures to support the views, lots of reports, financial
findings report etc. were referred to which is also attached as appendices for perusal along
with a reference list.
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Table of Contents
CHAPTER 1: INTRODUCTION 6
CHAPTER 2: CASE BRIEF 10
CHAPTER 3: PROBLEM STATEMENT, PLAN OF ANALYSIS 14
CHAPTER 4: ANALYSIS & FINDINGS 22
CHAPTER 5: RECOMMENDATION 28
REFERENCES 33
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Chapter 1: Introduction
The case study ‘Alibaba goes public’ is a presentation of journey of Alibaba from its modest
beginnings to opening the largest IPO offering in US of about US$21.8 billion (Chen et al.,
2015). In the year 2014, Alibaba got its much-awaited debut on the New York Stock
Exchange, crafting not only the largest IPO in record but this original aspiration to list on the
Hong Kong Stock Exchange was refuted owing to the firm's request to reserve its colleague's
power over verdict privileges.
After working as an English tour guide and a teacher in city of Hangzhou, China, Jack Ma
realised his entrepreneurial dream of opening a venture of his own in year 1999 along with 17
others. He had a vision of a global e-commerce company that would survive a 102 year.
Alibaba was born. Ma trusted in his tactic to form a prosperous commerce in the Chinese
setting – universal image, native victory. Dissimilar to numerous other Chinese
businesspersons who modified effective U.S. internet business models that managed
Business-to-Consumer (B2C) and Consumer-to-Consumer (C2C) transactions, Alibaba
shaped its individual commercial prototype. It fixated on the Business-to-Business (B2B)
segment and linked small and medium sized firms with several others and opened it for the
world to communicate with these Chinese manufacturers.
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The Alibaba’s ethos is around supporting small businesses. They have created a functional
ecosystem where everyone who participates, such as, – customers, dealers, third-party facility
benefactors and others – have a break to flourish (Romagnoli and Garbelli, 2017). Alibaba’s
proclaimed six values of doing business are (Tsui et al., 2017):
Customer First - The welfares of society of consumers and vendors. This is their first priority.
Teamwork – This is where they acknowledge the employees who come next to customers.
Alibaba encourages a good team culture and believe that through proper teamwork, miracles
could happen.
Embrace Change – Alibaba acknowledges the fact that change is constant and one must be
flexible enough to adapt and quickly change the situation as a favourable one. Only the fittest
could survive.
Integrity - Alibaba appreciates integrity and encourages its employees to hold this at the core
of every transaction. They should strive to do the right thing and not take up unacceptable
measures.
Passion – Alibaba encourages all its members to keep doing work with a fire within and not
give up hope.
Commitment – Employees are always rewarded with recognition and other perks to keep up
their motivation level
Alibaba could be rightly explained as a combination of Amazon.com, eBay and PayPal with a
trace of Google tossed in, all with some distinctively Chinese personalities. Alibaba has
always worked as an intermediary, unlike Amazon. It simply connects buyers and sellers
while simplifying businesses among them. This is similar to character of eBay except that it
is not an auction organization.
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It competed with eBay to finally overthrow and compel it to exit from Chinese market by
introduction of Taobao (Valero, 2016). Unlike eBay, the only money that TaoBao took from
its sellers was for advertisements and merchant bidding for keywords for routing through
search results. It also introduced its own escrow service which was fee-free called Alipay to
arrest the trust issues between buyers and sellers. Soon, it became plagued with issues of
counterfeit goods and premium brands wanted to detach themselves from such a platform
(Ransom et al., 2014). That is how Tmall came into existence. Yue bao came into existence
on a need basis but eventually catapulted itself as a money parking station which provided
interest rates much more than Chinese banks. TaoBao’s mobile app became very successful
and accounted for 86% of sales in Chinese market through mobile app (Ma, 2016). Alibaba,
after getting its first funding and initial partnership with Yahoo in 2005, had made lots of
changes and has had ownership issues. In preparation of getting itself enlisted in HKEx, it
opted for internal strategies to evade denial of enlisting but all failed (Chan and Ho, 2014).
Finally, after much wait, it took its IPO to New York and Nasdaq. It met with much
objections with many governance experts outright criticising and showcasing pitfalls but
finally Alibaba did have what it sought (Petry, 2014). Their governance measures were
accepted by both Nasdaq and NYSE and the rest is history (Lin and Mehaffy, 2015).
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There are certain questions here so as to - Why did HKEx turn down the e-commerce giant
like Alibaba? How come it denied the dual-class shares or deny its partners to have the rights
of nominating board members? Thereafter despite warnings from governance experts, how
did the governance measures came to be accepted by the American stock market?
The report shall also lay focus on researching strategies that could be adopted by Alibaba in
their international growth strategies. First the report shall present the findings from the case
study such as the positives and negatives in terms of strategies taken up by Alibaba. There is
a section of SWOT analysis (over various timelines) and Porter’s five forces analysis
conducted for Alibaba which highlights challenges faced by Alibaba at different timelines
and examining the strategies adopted for further growth. Alibaba is almost always associated
with fraud imports of fake products. Despite buyer protection programs (Yu and Shen, 2015)
and verified sellers (Sun, et al., 2017), fake products do end up on Taobao website. While
other countries take stringent action in this regard and organizations are pretty protective of
their image, Alibaba’s approach, on the other hand, is not protective at all. The counterfeit
good issue is quite old and has been tormenting them from many years. However, the actions
taken are half hearted what with only 2 lawsuits in 2017. The report shall also discuss the
counterfeit issue faced by Alibaba and what measures it could adopt.
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Chapter 2: Case Brief
E-commerce giant from China, Alibaba got enlisted on New York Stock Exchange (NYSE)
and Nasdaq after being rejected to be listed on the Hong Kong Stock Exchange (HKEx) (Lee,
2015) in 2013. This was following a dispute between Alibaba’s existing governance structure
and the regulations in HKEx. They stressed to support stockholder parity in publicly listed
companies (Nwogogu, 2015). However, the 28 partners of Alibaba wanted their control
‘only’ in nominating the board members in majority. Even though they held a collective
marginal shareholding of minus 15 per cent in the business. This was the controversy. The
HKEx mechanism of an essential public procedure requires that all listed companies’
shareholders must have parity. Hence, the dual share classes as required by Alibaba was not
permitted by Hong Kong Stock Exchange (Hein et al., 2016).
This is totally different to how things function in United States. The US policy for listing
permits dual share classes. There, a group of equity shareholders would have the power to
nominate as well as remove directors if they choose to. This could be done by them when
they need to ensure compliance with severe reporting necessities. Certain organizations even
consider restructuring their management arrangements as well so as to reap the advantages of
dual class policy existent in US (Xiao Hung, 2016). Alibaba is not a sole example, earlier
even Manchester United avoided listing on Hong Kong Stock Exchange and chose New York
Stock Exchange instead.
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Due to the dual-class equity ownership structure existent in US, leading to insider control.
Tech giants like Google, Facebook, both listed on Nasdaq, also take benefit of the two classes
of stocks. that lets insiders retain control. As is evident, US is more favourable for
organizations who may be interested in exclusive commercial arrangements proposing certain
regulatory entitlements (Xiao Hung, 2015).
Now let’s discuss the point of keeping 28 people at the wheel of Alibaba by Jack Ma.
Alibaba has a 28-man conglomerate arrangement, containing exclusively of forefathers of the
business and important older administrators. These 28 people do not sit in board of directors,
however; they could easily nominate most directors with their bestowed powers. They make
the nominations but all stockholders could vote for or against the nomination as their
holdings of the shares. Together, the 28 members own less than 15%, 13% accurately of total
shares of Alibaba. Whereas, Yahoo! Inc.(Yahoo!) and SoftBank Corporation (SoftBank) hold
24% and 37% correspondingly. The residual shares are detained by separate individual
smaller shareholders. Now, whenever the nominations are rejected by the shareholders, the
members could further nominate other people. This would continue till the board of directors
is complete. Jack explains that this is how he ensures that the organization is operated only
the group of people who are passionate about Alibaba and work towards materializing the
vision of the company.
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Joe Tsai, Group Executive Vice-Chairman, also openly supports this view. He deems the
conglomerate arrangement supports to preserve the enterprise's inventive ethos even if the
original creators depart from the firm (Li, 2015), ensuring the firm of a long-term tactical
emphasis rather than bigoted or short-term profits. Just weeks after application submission to
HKEx, in September 2013, Alibaba’s plea got rejected. Negotiation did not help the situation.
As discussed this was owing to HKEx’s mandate to provide parity to all shareholders - “one
share, one vote” code. Alibaba’s proposal for listing provided the 28 partners with extra
power to nominate board of directors. HKEx asserts that such a framework would provide
shareholders who collectively hold a small margin of shares more powers. Charles Li, CEO
of HKEx, strengthened this stance by clarifying that HKEx does not approve of a structure
like DCS except in exceptional cases. He also insisted that just for one applicant rules could
not be bended.
The prerogative of this research report is to investigate the choices make by Alibaba in opting
for NYSE. How is it going to chart its path of further future growth. What are the challenges
in environment for Alibaba at present and what are some recommendations it could follow.
The report shall also attempt to conduct a SWOT and PESTLE analysis for Alibaba and
deduce actions that could be taken by it.
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