Alibaba Group Strategic Management Analysis: Business Growth Study

This case study provides a strategic management analysis of Alibaba Group, a Chinese conglomerate specializing in e-commerce. It begins with an introduction to the company's mission and its various business segments like Alipay, Taobao, and Aliexpress. The analysis includes an external examination using Porter's Five Forces, assessing the threat of new entrants, power of suppliers and buyers, the threat of substitutes, and industry rivalry. A PESTEL analysis further explores the political, economic, social, technological, environmental, and legal factors impacting Alibaba's business. The internal analysis touches upon Alibaba's tangible assets and market capitalization. The study aims to identify Alibaba's strengths and weaknesses and provide recommendations for enhancing its competitive advantage in the global online marketplace. Desklib is a platform where students can find similar solved assignments and study tools.

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Alibaba Group Strategic Management Analysis
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Alibaba Group Strategic Management Analysis
Introduction
Alibaba is a Chinese company that operates various businesses. The company runs a
conglomerate industry, meaning there is a combination of multiple business entities operating
in different sectors under one corporate group. It is an online market store that specializes in
e-commerce retailing that is internet-based technology created by Jack Ma in 1999 (Qin,
2017). Alibaba is a parent company with multiple business entities underneath operating in
different industries. The company has three sections, which are Alipay, Taobao, and
Aliexpress. The company's strength lies in its global influence, its position in the market, and
its high evaluation. It has a wide scope of functioning and able to target a vast number of
buyers and consumers, which makes the organization successful. Besides, the company's low
brand recognition and inefficiency to compete outside China with its worldwide competitors.
Alibaba's weakness includes its inept delivery period, lack of global reach as well as
advertising, which makes it more difficult for the company to expand to other countries like
the competitors. Our analysis is to come up with recommendations that will help the
organization to overcome its problems to be able to have a competitive advantage in the
online marketplace with its competitors.
1.0 Mission Statement
A mission statement is a concise description of a company's underlying purpose. It
answers the question, "Why does our business exist?" the mission statement explains the
business purpose to both the people or employees in the organization and for the public or
other stakeholders of the organization. It gives an in-depth description of the organization's
abilities, analyses and examine possible stakeholders and determine the nature of what the
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organization must do to continually for its survival. This statement is mostly put together at
their strategic management level of the organization. As a result of instability in the order of
business, stakeholder preferences, and technology, which leads to competition among
organizations, a mission statement of an organization must be revised and redefined from time
to time. The Mission statement has three components, thus the mission or vision of the
organization, an account of the core values that shape the actions and behavior of the
employees and statement of the goals and objectives of the organization. A proper mission of
an organization must be executable and achievable.
The mission of the Alibaba Group’s to conduct business at ease globally. Their
objective is to build an e-commerce future infrastructure platform. The group envisions that
its clients will work, live, and meet at the Alibaba online store. They hope to serve their
customer in existence to market for not less than 102 years. We embrace change, teamwork,
customer first, passion, integrity, and commitment.
2.0 External analysis of Alibaba
2.1 Porter's "Five Forces"
The threat of new entrants is Low
Alibaba Group has the advantage of an early start and positioning itself in the e-
commerce industry. The group has thus seized from its competitors a golden development
period. It is, therefore, has a high degree of remaining in the dominant position within the
online market even in the future. Besides setting up a large online market as Alibaba requires
a substantial investment, getting manufacturers, which will pay for the registration on the
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Alibaba platform, requires their trust.
Power of suppliers is Low
The leading suppliers of the Alibaba Group are also e-commerce service providers. To
win more market share, Taobao, for instance, should ensure to publish a lot of its information
in the Alibaba main pages. This means that Taobao does not have bargain power. However, on
matters of technology, like advertising and researches, the company champions these services;
thus, it has an advantage over its rivals. In that line, Alibaba's mere supplier having strong
bargain power in its position is the logistics. It is essential to mention that support of business
logistics is significant for its growth realization. Logistics quality, as well as efficiency,
significantly impact on the experience of the consumers moreso on online buying.
Power of buyers is moderate
Alibaba’s significant customers can be grouped into two: individual buyers and Small
Medium-Sized Entrepreneurs (SMEs). The two categories of customers are very much
different from each in the market. Due to their power limitations, SMEs have no choice but to
comply with online services for them to perform their transactions. They have a complex as
well as diverse e-commerce service demand like warehousing, micro-finance, and marketing.
Alibaba Group provides a variety of products and services to meet SMEs' needs. Several of
the customers experience a high switching cost. This makes their power to bargain low.
Individual online customers are entirely different. Because of the functionality of the
internet, buyers may opt for a different platform instantly in case they do not find their
intended merchandise on the platform of Alibaba. Some of the primary reasons could be if
they question the quality of the products, or else if they are not pleased by payment services
as well as service delivery. Unlike SMEs, these customers experience no switching charges,
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and hence they have high bargaining power.
The threat of Substitutes is High
The traditional commercial model, for example, showcase, as well as store types, provided
an expensive service cost with low customer volume as opposed to e-commerce transactions.
Though the shoppers can easily have direct exposure with the product on traditional
purchases, continuous advancement in technology and eCommerce trends reveals that more
people, as well as businesses, have much accepted the online platform services.
Besides, TV purchase has emerged as a significant efficient form of performing business
activities. Similar to e-commerce, Television is as well a virtual form of purchases. However,
the type of transaction involved is a bit more secure since ordering is done through the wire,
and the customers have more contact with products; hence they see more details of the item
they want. Besides, many television applies membership systems making their customer
groups stable. They exercise a hybrid of the traditional form of purchase. The authenticity of
shopping in television mode may lure customers since they have positive feelings. The
shoppers exercise a reduced risk since, at times, product descriptions on the online platform
may be very different from the real item.
Rivalry in the industry is high
Competition in the e-commerce industry has grown more intense with recent
advancements in the technology. There is no room for monopolization in the online market as
the services, as well as products provided by the dealers, are relatively the same. The
uniformity set a continuous rivalry among these businesses as they try to be unique from the
other. This has been a significant challenge for Alibaba Group. Tencent Group, Amazon.com,
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JD.com, suning.com, eBay, and Shopify are major e-commerce competitors of Alibaba group.
Competitive rivalry is a strong force that pushes the company to put a strong strategy and to
change its decisions.
2.2 PESTEL Analysis:
Political
According to the general pattern of the country, the "Five-Year Plan" mainly clarifies
the national strategic intent. The signals it releases still consider the most important political
factor in China. The "12th Five-Year Plan" mentioned that upgrading the industrial structure
and promoting the service industry is one of the most critical parts of the next period of
economic development. He also suggested that we should improve e-commerce based on
SMEs and promote the construction of a support system such as credit service, online
payment, and logistics. The goal is to dramatically enhance e-commerce service provision to
customers and develop businesses as well as global reputation e-commerce brands. On May
26, 2011, Alipay obtained the first admission of the third-party payment service from China
Central Bank (Qin, 2017). With the advanced e-commerce industry, the laws and regulations
of the sector are improving as quickly. As the most famous e-commerce company in China, it
is inevitable that Alibaba Group will benefit from the political environment. However, he
should be alarmed at the influence of upcoming laws and regulations.
Economical
Since 2016, the global economy is recovering very quickly (Berthier, Monfort &
Stoliaroff-Pepin, 2017). Western countries, in particular the United States of America, are
gradually getting rid of the evil influence of the subprime crisis in 2008 (Berthier, Monfort &
Stoliaroff-Pepin, 2017). Other economic indicators have slightly increased. Since the
adjustment of the industrial structure is the main point, according to the "Five-Year Plan,"
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electronic commerce could play an important role, mainly by helping to reduce the cost of
trade, to promote the use of social resources, by offering vast amounts of job postings and
leading economic restructuring. As the leading provider of e-commerce services in China, its
strategy needs to change as the domestic and global economic environment evolves.
Social
The continuous change in the consumer's attitudes, as well as the social structure, has a
considerable impact on the e-commerce industry (Duffett, R. G. (2017). Global urbanization,
as well as countryside development, has rendered increased consumers access to e-commerce.
Further, young generation couples are more loyal consumers of Alibaba group. The two
categories of consumers are Alibaba's key target groups. It is important to note that e-
commerce is significantly changing consumers' habits. Unlike some decades ago, there is a
high likelihood of the customers accepting newly introduced products on the internet.
Considering the domestic consumption as well as demand stimulation, the Alibaba Group has
taken the opportunity by organizing activities like the "double carnival of shopping." The
adoption intends to lure customers as well as create social effects, necessary for promoting the
entire business development.
Technological
Increased advancement of information technology provides new and more opportunities
for the e-commerce industry (Kaur & Gupta, 2019). The consumer's interaction with the
platforms saves time. The enhanced application reduces the time gap for product searches
through online platforms. The development of internet services offers a friendly experience to
online buyers. Internet improvements create a more comprehensive and potential market for
the e-commerce industry. Such services include cloud computing as well as big data mining,
which highly promote e-commerce services (Wang, Shen & Pu, 2019, December). They have
made it easy to advertise and reach the intended target group of consumers. E-commerce
growth is closely linked to the growth of internet users and mobile clients. It is worth noting
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that smartphones are increasingly replacing the use of PC; hence it will recently become the
main online buying channel. It is thus necessary for Alibaba to closely link its business to the
information technology for the future of the company is offering better customer services.
Environmental
It is every business initiative to take care of the ecosystem responsibly. Traditional
industries are prone to high waste product, which has an extraordinary impact on the
environment due to pollution. Unlike the conventional sector, thanks to e-commerce
characteristics, as it is not involved with any processing that can result in environmental
pollution. Nevertheless, it is vital for relevant measures to be taken as the same industry are
suppliers of online e-commerce stores. Changes can probably influence the supplying
industries in the ecosystem. However, these problems may be solved by the application of the
"Green IT" (Bıçakcıoğlu, Theoharakis & Tanyeri, 2019).
 Legal: this the last PESTEL model’s factor of consideration. Due to improved labor
law, labor cost is shooting (Alesina, Battisti & Zeira, 2018). This is more evident in
the traditional form of industries, as they require more human resources. Considering
that e-commerce is an online service industry, it requires less workforce, and hence it
is less affected by labor law changes.
3.0 Internal Analysis of Alibaba
3.1.1 Tangible assets
According to the NASDAQ on 19th Dec 2018, the market capitalization of Alibaba was
$352.28 billion (Moghaddam, Moghaddam & Esfandyari, 2016). Alibaba group is thus among
the top ten well-established and valuable companies worldwide, including Amazon,
Microsoft, Facebook, etc. At the start of 2018, Alibaba emerged the second company in Asia
to hit the $500 billion value mark, next to its rival Tencent. In 2018 the company was ranked
at 9th of the Alibaba highest world value (Tang, 2019).
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3.1.2. Intangible assets
Alibaba Group is an online mobile marketing platform, both wholesale as well as retail,
cloud computing service provider, and many other business operations. The company offers
technological services to allow consumers as well as merchants to perform business in its
platform. Alibaba manages Taobao Marketplace, Tmall, Juhuasuan, Alibaba.com, 1688.com,
and AliExpress.
3.1.3. Organizational capabilities
The availability of financial and human capital, as well as the competent management of
Alibaba, creates chances to have useful organizational skills. Alibaba mostly focusses on big
data, fin-technology, finance, and supply chain management. For example, in 2018, the
business had 576 million active users that are higher than the whole US population (Yuan,
2018). Following that, it was 58% of all retail sales in China (Yuan, 2018). Because of that,
they focus on the big data that earns customers and keep them to be active with the company.
It should be noted that to support its high devotion, and it has created an educational
institution – Alibaba Global Initiatives, which involves senior executives, business leaders,
and entrepreneurs that teach employees first-hand experience via practical fields.
3.1.4. Financial situation; According to NASDAQ, the total revenue of Alibaba on
31/03/2018 was 39.777B, and the cost of revenue was above $ 17.014B (Moghaddam,
Moghaddam & Esfandyari, 2016). And the gross profit, according to this information, became
around $ 22.76B.
Formula: Gross profit=Total revenue-cost of revenue;
Alibaba’s annual revenue in value was billion (B) at 31/03/2018
Trend 3/31/2018 3/31/2017 3/31/2016 3/31/2015
Total Revenue $39,777B $22,965B $15,638B $12,292B
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Cost of Revenue $17,014B $8,631B $5,312B $3,844B
Gross Profit $22,764B $14,334B $10,327B $8,447B
(Yuan, 2018)
As far as we see from the table, Alibaba's revenue shows a sharp rise from 2015 to 2018.
From 2015 it shows total gradual growth till 2016 from $ 12.292billion to 15.638 billion.
However, starting from 2016 to 2017, total revenue reached $ 22.965 billion. And also, from
2017 to 2018 increased 73% that the rate of total revenue reached 39.777B.
One of the biggest rivals of Alibaba is Amazon. Alibaba and Amazon perform their business
rightfully all the time. Each of the two companies has its formulas and approach of
succeeding that have brought hefty revenues to their shareholders.
Alibaba's' shares have grown 63.97% within the past period of twelve months and 146.15% in
the last two years, while Amazon’s shares have increased 67.76% and 121.44% within the
same time (Qin, 2017). It means that Alibaba is growing at high speed. If the company
continues like this, the company definitely will become more significant than Amazon after a
few years.
3.2. Core competencies; It should be noted that by the company's mission, “To make it easy
to do commerce everywhere," the company makes its products and services to be readily
available for the customers through the world and also provides an opportunity for everybody
who wants to be a seller. Today, as we see, Alibaba is one of the top 10 successful companies
globally. Alibaba’s new competencies in the existing market are delivery speed, international
delivery reliance, and creating diversification with skills and rate of payments, lower prices,
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and product offering (Qin, 2017). Also, in the new market, their new competencies are
disruptive technology and forward integration into smartphones, while old competencies are
entering international markets and physical trading commodities.
3.3. The barriers to imitating (isolating mechanisms) the core competencies; According to
the core competence of the company, there are two main barriers for other competitors: fast
delivery speed and lower price and product offering. Nowadays, as far as we know about
online markets, there is a lot of problems for customers to wait for their orders because time is
costly in our life and Alibaba does it with high speed. And also, the company provides
products and services for its customers at a lower price. That's creating an opportunity for all
types of customers to use their services and products at a lower price.
3.4. Competitive advantage
One of the first and the main competitive advantages of Alibaba is the location of the
company. Headquarter of the company is in the Hangzhou, Zhejiang Province, China. It
should be noted that China is the world’s largest internet market; hence Alibaba has a large
pool of domestic customers into which it can be tapped (Glowik, M2017). Another
competitive advantage of Alibaba is the business model; that's a network of many business
people who provide products sold on the platform. Alibaba simply facilitates the trading
process and charge commissions for this. The Company’s business model attracts more sellers
to the network, and this benefits from increased customer traffic. Also, Alibaba uses the
Alipay payment wallet for e-commerce transactions in the local market as well as the on-local
market. The strengths and weaknesses, as well as the opportunity and threats related to the
performance of the company in a competitive environment, are presented in the following
table (SWOT Analysis):
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3.2 SWOT Analysis
Strengths: Weaknesses:
 Leading position as the most significant internet
market
 Perfect location because of the large population
 Brand acceptance & investor confidence,
growing internationally
 Good relation with the Chinese Government
 Connected with its payment system (ALIPAY)
 Easy to imitate the business model
 Counterfeits
 Influenced by the Chinese
Government
 Disorderly business platform
Opportunities: Threats:
 Government support/regulation
 Growing internet penetration
 Increasing delivery efficiency
 Strong economic & economic background
 E-commerce competition
 Global Economic Crisis
 Grows of M-commerce
 Lawsuits from brand holders
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