External Environment of Alibaba Group Holding Limited - Case Study Example

ALIBABA GROUP HOLLING LIMITED. Name Professor (Tutor) University Course Word Count City and State Date ALIBABA GROUP HOLLING LIMITED Executive Summary This paper focuses on the external environment of Alibaba Group Holding Limited and its main opportunities and threats. A brief introduction on the company profile is provided to give an insight on what kind of business the company does and a brief history of its founding. An external environmental analysis is then conducted based on economic, legal and regulatory, labor, resource, customer, global, technological, and competitive environments. Finally, the main threats and opportunities of the company are briefly discussed. Table of Contents 1.INTRODUCTION AND COMPANY OVERVIEW 4 1.1.Company Profile 4 1.2.Brief 4 2.EXTERNAL ENVIRONMENT ANALYSIS 4 2.1.Technological Environment 4 2.2.Economic Environment 5 2.3.Competitive Environment 5 2.4.Labour Environment 6 2.5.Resource Environment 7 2.6.Customer Environment 8 2.7.Legal and Regulatory Environment 8 2.8.Global Environment 9 3.INTERPRETATION AND DISCUSSION 9 3.1.Main Opportunities 9 3.2.Main Threats 10 4.CONCLUSION 10 REFERENCES 11 1. INTRODUCTION AND COMPANY OVERVIEW 1.1. Company Profile Alibaba was founded in 1999 with the founder being Jack Ma assisted by seventeen other people. The company began as a small commerce and trade enable through platforms dependent on the internet in China. Alibaba Group Holding Limited expanded into the global market environment in 2014 and today, the company is the largest e-commerce and e-trade Company in the world. the company offers a wide range of services ranging from wholesale and retail trade, e-payment, advertising, marketing, network services, and cloud computing (Reuters (U.S. Edition), 2015). 1.2. Brief An analysis of the external business environment of an organization is crucial as it allows for the shaping of future of the individual business and the overall industry that the business operates in (Cadle et al., 2010). several methods of analyzing the external business environment exist. However, this paper will analyze the external business environment of Alibaba Group Holding Limited on eight external environments namely economic, legal and regulatory, labor, resource, customer, global, technological, and competitive environments. 2. EXTERNAL ENVIRONMENT ANALYSIS 2.1. Technological Environment Alibaba makes use of propriety technology systems and this is a critical technological strength for the company. The systems are essential in backing up enterprises on the worldwide scale and this allows the smooth functioning of all business transactions. This aspect has helped the company by attracting more customers as the business transactions made by the company are facilitated and helped by information that is relevant and robust. The company is based in China and this is also an advantage for the company as the country is known as a global location for outsourced products that are cheap. Through the use of cheap outsourced technology, Alibaba acts as a way through which businesses are connected to customers and other businesses in e trading and e-commerce (Loeb, 2014). The technology employed by Alibaba has allowed businesses and customers to conduct business negotiations and transactions in a transparent and smooth manner. The company has grown into a major global e-commerce player by taking advantage of outsourcing cheap technology by taking advantage of its location in China and its main enterprise. The company uses the new technology breakthrough that has led to cheap and reliable technology to act as a crucial global intermediary between businesses and customers. 2.2. Economic Environment Alibaba is preparing for the future because it faces the issues of slow economic growth in the Chinese market. There is an expected merging of different commerce aspects and this will lead to a new economic environment for the company. The different aspects of commerce include logistics, online, and offline. Through its founder and chair Jack Ma, the company aims at becoming the fifth largest global economy by 2036. The company looks to create over 100 million jobs and provide support to over 10 million businesses that generate revenue (Sharma, 2016). With these projections, the company will provide service to over 2 billion customers from all over the world. In the 2019/ 2020 financial year, the company projects a gross value of one trillion US dollars in merchandise making it the 17th largest global economy (Sharma, 2016). Moreover, the company looks to take advantage of the current global practices related to commerce, which has led to the erosion of market shares of small companies and growth of large companies. With Alibaba classified as a big company with large market shares in e-commerce, the company will continue to grow its market share and this will improve the overall economic environment. Alibaba recently became number one in value in the whole of Asia and this led to a rise in company stock and an expected increase in sales by approximately 50% in 2018 shows the conducive economic environment that the company is operating (Wei, 2017). 2.3. Competitive Environment As a global organization, Alibaba faces competition from different global companies, for example, Amazon.com Inc, eBay Inc, Tencent, JD.com, and Baidu. The company controls over 80% of the e-commerce market in China but the company ventured into the global market in 2014 and the results have been a phenomenon. The listing of the company on the New York stock exchange shows how the company has ventured into the global market with growth in market share over the years. Since venturing into the global market, the company sales have continued to grow dwarfing its competitor sales. In the financial year 2014/2015, the company sales were approximately 420 Billion USD compared to Amazon’s 74.4 Billion USD, and eBay’s 16 Billion USD (Loeb, 2014). The table below shows the comparison of different aspects between Alibaba and its two main competitor’s eBay and Amazon as at 2015. Table 1: comparing Alibaba with Amazon and eBay Metric Amazon Alibaba eBay Active Buyers (Approx.) 270 million 367 million 31.1 million Company sales 420 billion USD 74.4 billion USD 16 billion USD Revenue (TTM) (million USD) 95,808 80,678 8,644 Revenue Growth 19.5% 44.1% 5% Operating Margin (CY 2014) 0.8% 26.6% 26.4% Cash flow as a percentage of revenue (TTM) 4.6% 45.5% 23.0% Market Capitalization (Billion USD) 249.1 157.7 31.1 From the table, the growth in revenue and company sales it is a clear that the company blows away its competitors and with expected growth of the company over the next twenty years, Alibaba will continue to dominate the e-commerce and e-trade markets globally. The strength of Alibaba in terms of maintaining its competitive advantage is making use of propriety technology. 2.4. Labour Environment Alibaba currently employs over 50,000 employees and this shows a significant rise in the number of employees in the company from 2012 where the number was just over 20,000. The chart below shows the rise in the number of employees over the five-year period from 2012 to 2017. With expected growth globally, the number of employees working at the company will continue to grow thus being a dominant force in the global labor environment. The company targets over 1.2 billion customers outside China by 2036 and this would mean the creation of more employment opportunities. By 2036, the company looks to create over 100 million jobs and this depicts the company’s strength in both China’s local labor market environment and the global labor market in general (Sharma, 2016). 2.5. Resource Environment Resource acquisition by Alibaba especially in its China domestic market is easy since China is a central global location for outsourcing cheap resources and products. Moreover, the company mainly depends on internet access for its functionality. With most of its trade customers having easy access to internet services through the different technological platforms, the company is able to operate effectively. Alibaba offers internet and technology based business platforms and solutions and thus the main input into the company is technology (Damouni, 2015). Technology is acquired through money as a resource and the company's huge revenue is re invested back to the company to outsource technology. Another important resource for the company as a human resource and the company looks to expand its human resource over the next twenty years. With the company projected to continue growing, the resource environment is also expected to grow. 2.6. Customer Environment The company’s customer environment is both local and global and these customers are served under different platforms. Chinese customers are served through Tmall, which is retail and brands, Taobao, which is for online shopping, 1688.com, which focuses on wholesale, and Juhuasuan, which is a market place for group buying (Retail Redaction, 2016). Global customers outside China are served through Alibaba.com a wholesale marketplace and AliExpress a consumer market place (Retail Redaction, 2016). Other support platforms also exist including Alipay for online payment, Alimama for online marketing, China smart logistics, and Alibaba cloud computing for use by third parties (Retail Redaction, 2016). Alibaba aims to use its unique business model to deliver efficient services to its customers who are individuals and profit making businesses. The company acts as an intermediary between the businesses and individuals, businesses and businesses, and individuals and individuals. The company projects that by 2036 it will be serving over 2 billion customers and this shows that the company expects to be a global giant in e-commerce (Sharma, 2016). By taking advantage of the customer data, which is an untapped resource the company customer base, and the environment is expected to grow. The customer data the company can take advantage of include spending habits and worth of credit for the Chinese middle class. The company knows this customer data since it accounts for over 60% parcel deliveries in China. By taking advantage of such customer data, the company’s local customer environment expanded. 2.7. Legal and Regulatory Environment As of 2016, China’s market regulator said it was expecting to provide more strict regulations to e-commerce to deal with issues of poor delivery of service to customers and counterfeit goods. These strict regulations were determined by reports by SAIC that big e-commerce companies in China were selling counterfeit products. Alibaba the largest e-commerce organization in China was mentioned in the report through its platform Toabao. There were claims that over 60% of the products for sale on the platform were fake (Millward, 2015). Before, 2016 the cost of breaking rules that governed e-commerce in China was low. The new regulations affected and continue to affect Alibaba. The regulations by the government were focused on the key responsibilities of the companies to their customers in relations to integrity and credibility. The tightening of these regulations relating to e-commerce has continued to affect Alibaba in relation to the investors. The company however recently called for tougher laws to govern e-commerce with a focus on counterfeit goods. The current counterfeiting laws are still ambiguous as claimed by the company. Moreover, the company also claims that that the regulations are unable to deal with counterfeiting in China. In 2016, a lawsuit was filed accusing the company of defrauding shareholders on its ability to deal with counterfeiting (Staff, 2017). Such lawsuits are expected in the future as the company continues to expand to global markets with different legal and regulatory environments. 2.8. Global Environment Alibaba main focus still remains the China market but since 2014 the company expanded its operations to the global scene (Damouni, 2015). The global system of Alibaba entails big data, cloud computing, a logistic network, and an e-commerce platform. The company has continued to grow globally and big numbers have been projected for the year 2036. The company has continued to develop its finance businesses on the global scene with the aim of expanding its global market environment. Forming a corporation with Lending Club which is the largest online loan organization is a master stroke for Alibaba’s expansion into the global market. With such a corporation, small enterprises in different global markets who mainly acquire loans from Lending Club can make use of the Alibaba platform to look for sources of supply and producers. With such strategies, the company looks to continue infiltrating the global market environment increasing its market share and profit returns through sales. 3. INTERPRETATION AND DISCUSSION 3.1. Main Opportunities The company’s experience in the Chinese market could offer a great opportunity as the company seeks to continue expanding its global market. The experience includes an in depth understanding of how the e-commerce operations are carried out. The business model employed by Alibaba is crucial to its operations. The model can be described as an aggregator model and this model is essential for the company’s operations as it is essential in cost reduction (Bhowmik, 2012). The model has already been a success in China and it, therefore, presents an opportunity for the model to be used in other global markets. 3.2. Main Threats Alibaba is threatened to develop rival marketplaces that would be used to sell its competitive products as a result of increasing competitiveness in relation to source locations that are cost effective. An example of such source location is India and such locations will threaten the global dominance of Alibaba on e-commerce and e-trade markets. Another threat to the company is the expected increase in regulation rules from the Chinese government concerning e-commerce. Since the company has established a monopoly in the China market, such tight regulations could have negative implications for the company. The company's exposure to accounting regulations due to its listing among the Chinese companies in the United States could also be a threat to the company. 4. CONCLUSION In conclusion, Alibaba is analyzed on the different aspects of the external environment including the economic, legal and regulatory, labor, resource, customer, global, technological, and competitive environments. Overall, Alibaba’s position in the local and global external market environment is good. This position is contributed by the company’s increased growth in the economic scale. The company is further projected to grow as evidenced by the many opportunities the company is presented with. REFERENCES Bhowmik, R. 2012. “Analysis on the Business Model of Alibaba.Com.” Accessed from http://www.slideshare.net/ronibhowmik/analysis-on-the-business-model. [16 August 2017]. Cadle, J., Paul, D., & Turner, P., 2010. Business analysis techniques: 72 essential tools for success. London: British Computer Society. Damouni, N. 2015. “Who’s Afraid of China’s Economy Slowing? Not Alibaba’s Jack Ma. 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Reuters (U.S. Edition). 2015. “Profile: Alibaba Group Holding Ltd (BABA.N).” Accessed from http://www.reuters.com/finance/stocks/companyProfile?symbol=BABA.N. [16 August 2017]. Sharma, R. 2016. “Alibaba Chair Jack Ma Predicts New "Economic Environment" (BABA),” Investopedia. Accessed from http://www.investopedia.com/news/alibaba-chair-jack-ma-predicts-new-economic-environment-baba/ [16 August 2017]. Staff, A. 2017. “Alibaba Urges Tougher Counterfeiting Laws, Enforcement & Penalties." Alizila. Accessed from http://www.alizila.com/alibaba-tougher-counterfeit-law/ [16 August 2017]. Wei, H. 2017. “Alibaba CEO predicts huge sales growth for the current year,” China Daily. Accessed from http://usa.chinadaily.com.cn/business/2017-06/09/content_29678922.htm [16 August 2017]. Read More