Introduction to Strategy: Alibaba's Business and Strategic Analysis

This report provides a comprehensive strategic analysis of Alibaba, the global e-commerce giant. It begins with a company background, highlighting Alibaba's evolution from a B2B website to a major e-commerce player. The external environment is examined using PESTLE analysis, assessing political, economic, social, technological, legal, and environmental factors. Porter's Five Forces are applied to evaluate the competitive landscape. The internal environment is analyzed using VRIO analysis to determine resources and capabilities and the value chain. Strategic issues are addressed through TOWS matrix, strategy canvas, and red/blue ocean analysis. The report concludes with strategic recommendations, suggesting potential areas for expansion and a shift in business development focus, particularly towards Western regions.

Running head: INTRODUCTION TO STRATEGY
Introduction to Strategy
Name of the Student:
Name of the University:
Author note:

1INTRODUCTION TO STRATEGY
Executive Summary
Emerging from Hangzhu, China, a single apartment unit, Alibaba Group has developed itself
into a global e-commerce scene with Alibaba.com- a B2B website that caters the needs of
both buyers and suppliers from all around the world for becoming one of the first online
businesses in China. It has grown significantly from its initial starting as a general e-market
to a giant e-marketplace. This paper has elaborated on presenting an analysis of Alibaba and
its business environment using PESTLE analysis, Porter’s Five Forces, Value Chain
Analysis, VRIO etc. on the basis of the analysis, it is recommended that Alibaba should entry
in a new segment or sector where the competition will be low or negligible and it should
change its business development focus more towards the western regions

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Table of Contents
Introduction................................................................................................................................2
Discussion..................................................................................................................................2
Company Background............................................................................................................2
a) PESTLE Analysis........................................................................................................3
b) Industry definition and life-cycle position..................................................................5
c) Porter’s five forces......................................................................................................6
Internal analysis.....................................................................................................................7
a) VRIO Analysis............................................................................................................7
b) Value Chain Analysis..................................................................................................8
Strategic Issues and Recommendations...............................................................................10
a) TOWS........................................................................................................................10
TOWS matrix.......................................................................................................................11
b) Strategy Canvas & Blue and/or Red Ocean..............................................................13
Conclusion................................................................................................................................14
References:...............................................................................................................................16

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Introduction
The marketplace of electronic commerce is growing rapidly as more number of
customers today prefer the convenience of shopping online (Blazquez 2014). A huge number
of companies, both small and large have embraced the advantages of the combination of
supplemental internet based storefronts and the brick-and-mortar locations for meeting the
needs of majority of the customers. One of the notable players in this market is Alibaba. It is
considered to be number one e-commerce company that targets the online customers in
China.
This paper shall elaborate on analysing Alibaba and its business and business
environment. It shall provide a brief background of the company and its operations, while
analysing its external environment using the PESTLE, Porter’s Five Forces and its internal
environment using VRIO and Value Chain Analysis. Lastly, recommendations shall be made
in terms of TOWS matrix, Strategy Canvas and assessing whether they are playing in Red or
Blue Ocean.
Discussion
Company Background
Alibaba is an undisputed global leader in the field of e-commerce for the small
businesses. It was founded in the year 1999 by Peng Lei and Jack Ma (Lin and Mehaffy
2015). The company was started for championing the small businesses with a belief that
internet would level the playing field by means of enabling the small businesses for
leveraging the innovation and the technology to compete and grow more efficiently in the
global and domestic economies. It is a B2B website and is the flagship company of Alibaba
Group, which was founded in the year 1999 (Yu 2018). It provides C2C. B2C and B2B sales

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services through website portals. Its key products include e-commerce, cloud computing,
retail, entertainment, films, television shows, mobile media etc.
It is a public company. Its major stakeholders include the customers, employees,
shareholders, distributors, suppliers, business partners and local community. It is to note that
the mission of Alibaba Group is “To make it easy to do business anywhere” (Havinga,
Hoving and Swagemakers 2016). Hence, the company operate leading the mobile and online
marketplaces in the wholesale and retail trade along with cloud computing and the other
related services. Furthermore, the vision or the objective of the company is to build the future
infrastructure of commerce. The company envision that the customers would meet, work and
live at Alibaba and to last in the field for at least 102 years. In this process, the company also
provide services and technology for enabling the customers, markets and the other
participants to conduct in the ecosystem.
External Analysis
a) PESTLE Analysis
Political- It is to note that there has been a push for Artificial Intelligence (AI) and
digitalisation from the part of Chinese Government. Increasing protectionism within the
Chinese economy is assisting the company in increasing its penetration in China (Li et al.
2017). Chinese government is offering significant support for the expansion of AI by means
of sharing the personal information like ID photos for the surveillance. It encourages the
regional businesses that has proved to be beneficial for Alibaba that have seen rapid growth.
Political forces like trade relationships in between the nations also is affecting Alibaba. For
example, China and America’s trade relationship has reached to be a bad situation and this is
not advantageous for the Chinese businesses that are operating in America.

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Economic- Economic factors are playing a dominant role in the international businesses
Hancock and Vivoda (2014). With the same, situation in local economies are also influencing
the global businesses as well as their sales and profitability. After recession, the economy of
the world has returned fast on the track. This a positive factor for the international businesses
like Alibaba. Alibaba is considered to be the leading Chinese brand and the main factor
behind its strong performance is due to the healthy Chinese economy (Jin and Hurd 2018).
More number of people are shopping online and hence, use of technology has increased a lot
by both the businesses and individuals. People today have higher dispensable income and
hence, they spend more on the lifestyle items and technology.
Social- In contemporary world, in majority of the cultures and societies, usage of internet
and the internet based services has grown to a significant extent. This trend has proved to be
profitable for the e-commerce businesses like Alibaba and Amazon. Furthermore, it is to note
that one of the major issues of China is that of population ageing (Zhang and Tan 2016). On
an account of the ageing population as well as the drying up of the former supply of young
labour from the rural villages by the year 2015, Chinese workforce was falling three million
workers per year. These factors are leading to a destructive decline of able-bodied employees
of Alibaba.
Technological- Alibaba is a technology business and it has acquired an immense growth
within very short period of time. It happed because it focused on innovation and technology.
It is to note that Alibaba invests huge amount of money every year in research and
development. Apart from being an e-commerce business, it is also considered to be a leader
in the cloud computing industry in China (Wu et al. 2016). With the same, because of its high
focus on the technological innovation and customer convenience, Alibaba has seen rapid
growth in many different active users and sales and revenue. Also, more number of people

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are using smartphones and internet for shopping online. With this trend of increase in the
digital technology around the world, Alibaba flourished.
Legal- Compliance to the law and legal factors are important for big companies like
Alibaba as the world ver legal agencies have grown the level of oversight of businesses in
order to ensure that they adopt responsible practices and are accountable for everything that
they do. For example, lawsuit against counterfeits (Li and Lin 2016). Non-compliance to
these legal factors can result in high fines and these fines could be a significant share of the
net revenue of the company.
Environment- It is to note that environmental factors today have acquired an important
role in the field of businesses, especially the big companies comprising of the leading
technology brands who are making notable investments in sustainability and environment.
Alibaba too has made sustainability and Corporate Social Responsibility (CSR), a part of its
business model ever since its emergence (Debroux 2014). With the same, Alibaba has
remained committed towards supporting and participating in charities and to the socially
responsible projects that align with the core mission and values of the company. One of such
projects are the reunion system that makes use of its technological resources for finding out
the missing children.
b) Industry definition and life-cycle position
Alibaba is a conglomerate business belonging to e-commerce sector. It is to note that e-
commerce refers to the activity of selling and buying products from the online service (Kawa
and Zdrenka 2016). It often includes transmission of data and funds over the electronic
network. Such business transactions take place as B2B, B2C, B2B, C2B or C2C. It is to note
that at present, Alibaba is at its maturity stage where it experiences peak sales, lowest cost per

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customer, having mass market, earning high profits and over all, has a stable number of
competitors to compete with.
c) Porter’s five forces
Threat of New Entrants- It is to mention that setting a smaller and more focused e-
commerce business is not tough in China. Notwithstanding this fact, setting large online
market like that of Alibaba needs huge investment and a very powerful distribution channels
all around the world. They require advanced technologies to run and support huge number of
online users (Jung, Ugboma and Liow 2015). With the same, it is also to mention that the
new entrants in this market would fail to attain the economies of scale that the existing
players are at and this will make their cost of operation higher and the profit, slower. Hence,
the barrier to entry in the Chinese market of e-commerce is high.
Bargaining Power of the Suppliers- The bargaining power of the suppliers is low.
Suppliers of Alibaba are manufacturers and they are the members of its selling pages. For
every product category, there are huge number of suppliers who are available to Alibaba.
Because of its strong brand reputation, the suppliers of Alibaba were needed to pay
membership fee for having their products that are mentioned on their website (Tan et al.
2015). This is why, any supplier who attempts for increasing the rate of market would not be
successful as Alibaba would be able to gain more number of suppliers who are willing
towards selling at the rates of market.
Bargaining Power of the Buyers- Buyers of Alibaba are both the individual customers
and the businesses present all around the world (Jung, Ugboma and Liow 2015). Because of
the low prices, strong network of distribution and wide variety that Alibaba offers, most of
the buyers do not have any choice for switching to. They need to buy the products at higher
prices in case if they witch and although there is no cost of switching, but a huge online

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market of scale of Alibaba would be tough for them to find. This is why, the bargaining
power of buyers is medium for Alibaba.
Threat from Substitute Products- Threat of substitute products against Alibaba is high.
There are many substitutes of the company and the largest is the physical retail store that
offer cheap goods. Furthermore, a large number of suppliers of China directly ship to the
customers and also, suppliers sell through the social websites (Ter Chian Felix Tan, Tan and
Pan 2016). Majority of the firms have developed their own retail websites offer same prices
as Alibaba and they save the supplier the costs of membership. Hence, the threat of
substitution is also high for Alibaba.
Industry Rivalry- It is to mention that industry rivalry is strong force that could push a
firm for changing its strategy and remaking its decisions. Alibaba has to face a strong
competition from its rivalry. They comprise of a wide range of online sites like eBay and
Amazon, both within and outside China (Zeng 2018). Also, within several nations, it faces a
strong competitions like Yayvo.com, Daraz.pk in Pakistan. Success of all these alternatives in
the market has led to the loss of profits for the company over the passage of years. One of
main limitation is the shortage of trust that several customers have on the Chinese products
that put Alibaba in difficult part.
Internal analysisa) VRIO Analysis
With the help of the internal analysis, the major internal strengths and weaknesses of
Alibaba will be identified based on which the further recommendations will be identified. In
this case, VRIO analysis will be done to identify the competitiveness of the key resources of
Alibaba.
Resources Valuable Rarity Inimitability Organizational

9INTRODUCTION TO STRATEGY
capability
Technology Yes Yes Yes
Brand equity Yes Yes Yes Yes
Human
resources
Yes Yes Yes Yes
Financial
resources
Yes Yes
From the above analysis, it is identified that the major resources for Alibaba are
technology, brand equity, human resources and financial resources. With the help of
technology, the valuation of Alibaba is getting increased because they are offering e-
commerce business, which is entirely based on technology. Thus, it is helping Alibaba to gain
higher value for the clients. It is inimitable because majority of the technological aspects of
Alibaba are patented. Brand equity of Alibaba is termed as resources because it is helping in
attracting new customers (Tan et al. 2015). In addition, it is rare because not many other can
gain the same level of brand value as Alibaba. Human resources are also their key resources
because the individual skill sets of the human resources helps Alibaba in offering best
services. They are rare and inimitable because skills are specific to the employees and cannot
be gained by others at the same level. Financial resources are considered as key resources for
Alibaba because it is helping them to further invest and develop their business.
b) Value Chain Analysis
Primary activities
Inbound activities Inbound activities of Alibaba involve the movement of the
goods from the manufacturers to the warehouse. Alibaba is
having effective management of technology based and
automated process of replenishing the stock in their

10INTRODUCTION TO STRATEGY
warehouse (Hu et al. 2014). However, the major difficulty is
in managing the diverse variants of products.
Operations Operations of Alibaba include sourcing of the items from
the manufacturers and offering them to the end businesses
through the portal. On the other hand, it also involves the
external and third party vendors who sell their products in
the portal of Alibaba. Thus, the entire operational process of
Alibaba involves movement of the items from one business
to another.
Outbound activities Outbound process of Alibaba involves selling of the
products from the portal of them. The ordered items are
collected from the warehouse and transported to the address
of the customers (Luo et al. 2015).
Marketing and sales Alibaba majorly involves online marketing including pay
per click where leads are collected from the online mediums
only.
Service Service process is also implied with Alibaba as they are
bound to be done by the selling manufacturers and Alibaba
is not liable.
Support activities
Firm infrastructure Alibaba is having one of most cost effective and efficient
ERP system and belt movement system in the industry.
Human resource
management
Workforce management is having multiple issues for
Alibaba where the managers have accused for number of
times for maintaining high performance workplace culture

11INTRODUCTION TO STRATEGY
Technology development Alibaba is the leading e-commerce entity in the world and
some of their technologies are patented
Procurement Alibaba is having effective management of suppliers from
whom the inbound sales are coming. Multiple suppliers are
connected with Alibaba to ensure the seamless flow of
supply.
Strategic Issues and Recommendationsa) TOWS
Strategic Issue 1
It is important to identify the strategic issues for Alibaba with the help of different strategic
model because on the basis of the issues, the recommended steps can be suggested. In this
case, TOWS matrix and strategy canvas will be done to identify the key issues for Alibaba
and accordingly, the recommended steps will be discussed. SWOT analysis will be done prior
to the TOWS matrix to have the understanding about the major factors.
Strengths  Market leadership status in terms of market share and revenue is
helping Alibaba to gain the maximum from the customers
 Effective supplier relationship and supply chain management of
Alibaba is ensuring the best operational process (Rezaei 2015)
 Diverse and deeper product varieties are also helping Alibaba to
cater to the maximum number of customers
Weaknesses  Lack of control over the quality check of the suppliers
 Cost leadership approach is affecting the revenue and profit
margin

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 Not having market leadership across the world especially in the
western regions
Opportunities  Rising preferences and market trends towards the e-commerce
sectors
 Tapping the western nations will increase market share and
revenue
 Access to the angel investments for further development
Threats  Emergence of trade war between China and the western nations
 Change in customer trend and preferences
 Pricing strategy of suppliers
TOWS matrix
Strengths Weaknesses
Opportunities  Rising preferences for the e-
commerce sectors can be tapped
well by the diverse product
offerings of Alibaba
 With the effective supply chain
management of Alibaba in place,
tapping the western countries will
be easier
 Tapping the western nations will
increase the sales volume and profit
margin can be adjusted with sales
volume
 Angel investments can be effective
in developing business in the
western countries by extensively
investing there
Threats  Changes in taste and preference
pattern of the customers can be
catered by offering higher
diversity of products (Huang, Tan
 Cost leadership approach can be
changed and amended to prevent the
pricing decisions by the suppliers

13INTRODUCTION TO STRATEGY
and Ding 2015)
 Effective supply chain
management and supplier
relationship can be beneficial in
reducing the bargaining power of
them in pricing decisions
 Quality check process should be
enhanced to ensure the market
presence in the western countries
Recommendation 1
On the basis of the factors identified from the above TOWS matrix, it is concluded that
Alibaba should change their business development focus more towards the western regions.
This is due to the reason that as of now, they are having their major market presence in the
Asian region only. With tapping the western nations, the market share and global presence for
Alibaba will get increased along with the revenue. In addition, it is also recommended that
Alibaba should change their existing cost leadership approach and differentiation in terms of
service delivery process should be initiated. This is due to the reason that differentiation
strategy will reduce the cost burden from the suppliers and more will be attracted to get their
products sold via Alibaba. This will increase the product diversity of Alibaba.

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b) Strategy Canvas & Blue and/or Red Ocean
Strategic Issue 2
convenin
eces market
presence price product
varieties service
quality Offers
Competitors
Alibaba
Substitutes
Strategy canvas model of Alibaba
Source: Created by the author
The above strategy model canvas is being done on the basis of the major competition
for Alibaba. This is due to the reason that the more will be the competition for Alibaba, the
more will be their presence in the red ocean. In the above canvas, the competitiveness of
Alibaba is compared with other e-commerce sites (blue) and substitutes (green) (Kim and
Mauborgne 2014). These substitutes are the traditional competitors of Alibaba including the
brick and mortar stores. It is identified that Alibaba is way ahead of their competition in
multiple areas but the competition is steadily picking up with Alibaba. For instance, in terms
of market presence, majority of the competitors of Alibaba got round the world presence and
way ahead of them. On the other hand, in terms of service quality and offers also,
competition for Alibaba is intense (Agnihotri 2016). Hence, it can be concluded that Alibaba
is not operating in the blue ocean rather they are operating in Red Ocean. It is also projected
that the intensity of competition for Alibaba will get increased in the coming years with the

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entry of more players in the same sector. Thus, Alibaba should initiate the blue ocean strategy
in order to gain their long term business viability.
Recommendation 2
On the basis of the factors identified in the above strategy canvas model, it is
recommended that blue ocean market or business segment should be located by Alibaba.
According to the blue ocean strategy, Alibaba should entry in a new segment or sector where
the competition will be low or negligible. According to the Ansoff matrix, product
development, market development and diversification strategy will be effective in this case.
For instance, new markets should be developed by Alibaba where e-commerce sector is still
in the nascent stage. Alibaba should locate these regions or countries to gain the entire
untapped market. In terms of the product development approach, Alibaba should develop and
invest in innovation to introduce one of the kind products in the market. These products will
have no competition in the market. Private label products can be suitable for Alibaba in this
case. In terms of the diversification, Alibaba should enter in a completely new market
segment unrelated to their existing business. For instance, they can enter in food delivery
business under a new private label brand. Online food delivery services are emerging across
the world and with their existing supply chain process and infrastructure can gain the
maximum from this market in shorter span of time. However, the service should be
introduced in a completely new market where the online food delivery service is new and
innovative.
Conclusion
Hence, from the above analysis it is to mention that Alibaba is one of the major e-
commerce giants that are operating largely without having any physical stores. It dominates
the Chinese shopping space while selling its products directly and serving as an intermediary
for the other sellers. It is a B2B website that connects manufacturers from a huge range of

16INTRODUCTION TO STRATEGY
nations with different buyers all around the world. It has brought a revolution in the field of
electronic business. It has given a common platform for the sellers and buyers all around the
world. It has narrowed down the gap in between them and has brought them closer to one
another.

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