Internationalization Strategies of "Born Globals" and the Alibaba Group


Term Paper, 2018

27 Pages, Grade: 1.3


Excerpt

Table of Contents

Executive Summary

Table of Contents

List of Abbreviations

List of Figures

List of Tables

1. Introduction
1.1. Problem statement
1.2. Objectives of the Paper
1.3. Research Methodology
1.4. Structure of the Work

2. Theory and Concepts
2.1. Traditional Internationalization Strategies
2.1.1. Economic Approach
2.1.2. Behavioral Approach
2.1.3. Uppsala Model (International Process Approach)
2.2. Born Global Firms
2.2.1. Forces that Drive Early Internationalization of Born Globals
2.2.2. Characteristics of Born Globals

3. Practice Transfer / Case Example
3.1. Alibaba: Fundamental Information
3.1.1. Alibaba’s Present
3.1.2. Numerical Facts
3.1.3. History
3.2. Alibaba: Characteristics and Drivers of Internationalization
3.2.1. Timing of Internationalization
3.2.2. External Drivers of Internationalization
3.2.3. Comparison of Alibaba with Characteristics of Born Globals

4. Results and Analysis
4.1. Traditional Internationalization Strategies versus Born Globals
4.2. Classification of Alibaba's internationalization strategy

5. Summary and Outlook

6. Reference list

Executive Summary

Expansion into foreign markets is an issue that many companies have to address if they want to offer their products and services not only in domestic markets but also in foreign markets. In order to becoming internationally successful, various internationalization strategies can be chosen.

The first part of the work describes traditional internationalization strategies with the focus on the Uppsala approach as well as a relatively new concept called ‘Born Globals’ from a theoretical standpoint.

In the second part of the work, the theoretical learnings about Born Globals are applied to practice at the example of the Alibaba Group.

The work ends with the conclusion that the Alibaba Group shares the most common behaviors and characteristics of Born Globals.

List of Abbreviations

illustration not visible in this excerpt

List of Figures

Figure 1 Business and Web properties of Alibaba Group.

Figure 2 Annual e-commerce revenue of Alibaba from 2010 to 2017, by region

List of Tables

Table 1 Alibaba's history

1. Introduction

Expansion into foreign markets is an issue that many companies have to address if they want to offer their products and services not only in domestic markets but also in foreign markets. In order to becoming internationally successful, various strategies can be chosen.

One approach might be to follow a slow process and to enter foreign markets in small gradual steps in order to minimize risks that are associated with the market entry. This approach was favored by many scholars and practitioners for many decades.

1.1. Problem statement

However, over the past two decades, more and more young companies like the Alibaba Group have begun to expand internationally at an early stage after their foundation in order to enter several markets at the same time and in one single move.

In order to classify the behavior of such companies, both traditional internationalization strategies and the concept of "Born Globals" are presented in this work and differences between the two approaches are pointed out.

After the theoretical concepts have been clarified, the findings about "Born Globals" from the first part are used to determine whether the Alibaba Group shares characteristics and typical behaviors of Born Globals.

1.2. Objectives of the Paper

This work has two main objectives. The first main objective is to introduce the internationalization process of so called “Born Globals” in comparison to traditional internationalization strategies of SMEs and to find common characteristics of born-global firms. To fulfill this goal, the concepts of the ‘Born Globals’ model and of traditional internationalization models are described.

The second main objective lies in the application of the “Born Globals” model to practice at the case example of the Alibaba[1] Group’s internationalization process in order to determine whether the company is a born-global firm.

1.3. Research Methodology

The research for this work is performed using secondary data (Saunders, Lewis and Thornhill, 2016, p. 316), namely documents like books, articles, reports, case studies and information from websites. The gathered data is analyzed using a qualitative deductive approach (Saunders, Lewis and Thornhill, 2016, pp. 569–570).

1.4. Structure of the Work

The work is divided into five chapters. After the introduction to the topic (chapter 1), traditional internationalization strategies as well as the "Born Globals" concept are explained from a theoretic point of view and possible differences between the two concepts are pointed out (chapter 2). Also at this section, the most common characteristics of „Born Globals" are examined (chapter 2.2.2) and possible external influencing forces for internationalization are shown (chapter 2.2.1). In the third chapter, the Alibaba Group is analyzed in order to determine whether it shares characteristics of "Born Globals" (chapter3.2.3) and whether it shows typical behaviors of those firms. The fourth section presents and analyzes the results of the previous chapters (chapter 4). The work ends with a summary and an outlook (chapter 5).

2. Theory and Concepts

The following chapter deals with theories about the internationalization process of SMEs. The first part provides an overview of traditional internationalization strategies with special attention to the Uppsala Model. The second part is devoted to the so-called "Born Globals", a theory that has become increasingly important over the last two decades.

2.1. Traditional Internationalization Strategies

Business internationalization can be understood as the process of increasing involvement in international operations across borders changing both perspectives and positions (David, 2016, p. 1)(David, 2016, p. 1; Welch and Luostarinen, 1988, pp. 36–37). The strategy that firms adopt when expanding into foreign countries and regions has been a central research topic in the field of international business for the last decades. The various theories on internationalization that have been developed through the years can be separated into two main approaches: The economic approach and the behavioral approach.

2.1.1. Economic Approach

The economic approach has a strong emphasis on rational decision making while focusing on the effect that internal and external contingencies have on the firm’s degree of control over foreign operations (Welch, Benito and Petersen, 2007, p. 20). The approach consists of six main contributions, namely the Market Imperfections Theory, the Internalization Theory, the Transaction Cost Theory, the Rivalistic and Strategic Behavior Theory, the Resource-based Theory and the Eclectic paradigm (Welch, Benito and Petersen, 2007, pp. 20–33).

2.1.2. Behavioral Approach

The behavioral approach focuses on learning through a process perspective and on rationally limited decisions. Following this approach, internationalization means uncertainty which derives from a lack of knowledge of the foreign market (Vahlne and Johanson, 2013, pp. 190–191). Thus, international expansion is seen as a long and risky process where the firm acquires required information about the unknown market (Clarke and Liesch, 2017, p. 925). The approach is mainly based on three contributions, namely the Internationalization Process Perspective (also known as the Uppsala model), the Network Approach and Inward-Outward Connections (Welch, Benito and Petersen, 2007, pp. 33–42).

The Uppsala model is not only the best-known model among the behavioral approaches, but also the most widely accepted theory of the traditional internationalization strategies (Vissak and Francioni, 2013, p. 951). Hence, the Uppsala Model will be described in more detail below.

2.1.3. Uppsala Model (International Process Approach)

The original Uppsala model (Johanson and Vahlne, 1977) was developed in 1977 based on inductive studies of Swedish companies that started their internationalization process (Vahlne and Johanson, 2013, p. 195). Following this model, the internationalization process of firms is divided into four successive stages. The stages are: (1) No regular export activities, (2) Export via independent representatives / agents, (3) Sales subsidiary, (4) Production or manufacturing in new market (Johanson and Vahlne, 1977, p. 24). The idea is, that with every stage taken, knowledge about the new market as well as the commitment to the market increase. By following this procedure, the expanding company can minimize its risk by gradually reducing uncertainty about the target market. This paradigm is also reflected when firms select new target markets as they usually start with countries that have a low psychic distance to their home country (Johanson and Vahlne, 1977, p. 24). In later steps, also markets with a higher psychic distance are entered.

The authors of the Uppsala approach revised their original model in 2009 (Johanson and Vahlne, 2009, 2011) in order to respond to important changes in the global business environment. By doing so, they shifted their focus from market knowledge into the direction of business network relationships (Johanson and Vahlne, 2009, pp. 1423–1425).

Despite these changes, the (revised) Uppsala model (still) defines internationalization as a slow and gradual process, in which countries and markets are entered one after the other (Clarke and Liesch, 2017, p. 934; Johanson and Vahlne, 1977, pp. 25–26, 2009, p. 1420).

2.2. Born Global Firms

In the second half of the 1980s, scholars discovered that more and more firms didn't follow the slow and incremental internationalization process that the Uppsala model postulated (Cavusgil and Knight, 2015, p. 3). In contrast, some companies started internationalization within the very first years of their existence (Knight and Cavusgil, 1996; McDougall, Shane and Oviatt, 1994; Welch and Luostarinen, 1988). Such companies that expand into foreign markets and exhibit international business abilities and superior performance from or near their founding (Knight and Cavusgil, 2004, p. 124) are since then called “Born Globals” (Knight and Cavusgil, 1996), “Global Start-Ups” (Oviatt, McDougall and Loper, 1995) or “International New Ventures” (McDougall, Shane and Oviatt, 1994).

In the following two sections, the most important characteristics of Born Globals[2] (section 2.2.2) and the forces that drive the initiation of early internationalization (section 2.2.1) are described.

2.2.1. Forces that Drive Early Internationalization of Born Globals

Changes in the global business environment in the 1980s made it possible for companies to expand into foreign markets at an early stage of their existence. The most important changes are described in this section.

Globalization and Fall of Trade Barriers

Globalization trends and decreasing trade barriers offered firms new opportunities for early internationalization (Andersson, 2003, p. 254; Augustyniak, 2017, 2017, p. 8, 2017, p. 8; Cavusgil and Knight, 2015, p. 6; Gabrielsson and Kirpalani, 2012, pp. 57–58). Consistent with the globalization paradigm, founders of born global firms viewed the world as their marketplace (Cavusgil and Knight, 2015, p. 4). Hence, early internationalization was a natural strategic and cost efficient move for Born Globals.

Specialization

The trend to specialization and the emergence of niche markets was another force that accelerated internationalization (David, 2016, p. 3; Efrat and Shoham, 2012, p. 675). In order to increase the limited customer base in their home countries, firms had to offer their special products to foreign markets right from the very beginning. This step was essential to reach profitability of niche products.

Technological Developments

Technological developments in production, transportation and communication were likely the most important forces that drove early internationalization of firms (Cavusgil and Knight, 2015, p. 5; Gabrielsson and Kirpalani, 2012, p. 16). The increasing spread of the Internet as an advanced communication tool played a dominant role in this development (Brouthers, Geisser and Rothlauf, 2016, p. 513; Glavas and Mathews, 2014, p. 243; Mathews and Healy, 2008, pp. 193–194).

2.2.2. Characteristics of Born Globals

The following section highlights seven distinctive characteristics of born global companies.

Early Internationalization

Born Globals start internationalization strategy within a short period after their inception (Cavusgil and Knight, 2015, p. 9; Tanev, 2012, p. 6). The maximum period from the foundation of the firm to the start of the internationalization process is estimated with 2-3 years (Andersson, Danilovic and Huang, 2015, p. 27; David, 2016, p. 3).

International Experience of Founders

A second characteristic of Born Globals is the international experience of the founder(s), who sees international markets as a possibility rather than an obstacle (Cavusgil and Knight, 2015, pp. 9–10). The global mindset of the founder is even be considered as a necessary condition for early internationalization (Knight, 2015, pp. 8–9).

Strong Business Networks

Having strong business networks is also seen as an important characteristic of (successful) Born Globals (Andersson, Danilovic and Huang, 2015, p. 35; Oviatt, McDougall and Loper, 1995), as this means receiving knowledge and information of a certain market faster and of better quality than the competition. Also strong internal networks are important for Born Globals, because it offers a way to easily share information and visions within the firm.

Limited Resources

Limited availability of resources (financial and tangible) is another common characteristic of born-global firms (Freeman, Edwards and Schroder, 2006, p. 43; Knight and Cavusgil, 2004, p. 125; Tanev, 2012, p. 6). Limited financial resources hinder Born Globals from carrying out expensive investments. In order to overcome this obstacle, many Born Globals decide to expand internationally mainly via strategic alliances (Knight and Cavusgil, 2004, p. 125).

Innovative Products

Born Globals very often offer cutting edge products to the markets (Augustyniak, 2017, p. 8; Boermans and Roelfsema, 2016, p. 284). Those firms are often established to exploit business opportunities that are based on the development of new products or services (Cavusgil and Knight, 2015, p. 6). These products and services offer a better product quality and / or are better designed than the products and services of the competition.

Differentiation Strategy

Many Born Globals choose a differentiation strategy when new markets are entered (Augustyniak, 2017, p. 17; Cavusgil and Knight, 2009). They do this by developing highly distinctive products that target niche markets in order to avoid major competitors. Their focus is often meeting particular customer needs and by doing this the firms hope to stimulate customer loyalty.

Extensive Use of ICT

Extensive use of advanced information and communications technology (ICT) is another characteristic of Born Globals (Augustyniak, 2017, p. 15; Cavusgil and Knight, 2009;). By choosing new media channels, born-global firms segment customers into global market niches and serve buyer needs in a highly specialized way (Tanev, 2012, p. 6). Additionally, the internet allows Born Globals to communicate with partners and customers at virtually zero cost.

3. Practice Transfer / Case Example

In the course of this chapter, Alibaba Group (hereafter Alibaba) and its internationalization process will be described. This goal is achieved by successive steps. In a first step, Alibaba will be briefly introduced, including its present state, interesting numbers about the company and important dates in the history of the firm (section 3.1.). Subsequently, the internationalization process, its start, potential external driving forces and characteristics of Alibaba will be reviewed (section 3.2). By doing this, it might be possible to show whether Alibaba has followed traditional internationalization strategies, whether typical strategies of Born Globals have been applied or whether the taken approach cannot be assigned to any of the internationalization concepts that have been discussed so far.

3.1. Alibaba: Fundamental Information

This section contains information about Alibaba’s business today (section 3.1.1), some interesting numerical facts (section 0) as well as a table with selected dates in the history of the company (section 3.1.3).

3.1.1. Alibaba’s Present

Today, the Chinese company Alibaba is a neutral e-marketplace, an independent intermediary and an IT-based digital business ecosystem which encompasses a diverse array of B2B and B2C Web assets and portals (Anwar, 2017, p. 534). The company maintains a large online marketplace and specializes in connecting SMEs over the Internet in global markets (Anwar, 2017, p. 535). The company also deals with B2C markets through its retailing Website called Taobao (see https://world.taobao.com/). Alibaba maintains ten distinct B2B and B2C Web platforms that are available for SMEs and other consumers worldwide.

illustration not visible in this excerpt

Figure 1below visualizes the different platforms, their business model / target customers and the launch year. It shows that Alibaba offers platforms for various target groups and customer types. In total, Alibaba offers the following product categories: Agriculture and food, Apparel, textiles, and accessories, Auto and transportation, Bags, shoes, and accessories, Electronics, Electrical equipment, components, and telecoms, Gifts, sports, and toys, Health and beauty, Home, lights, and construction, Machinery, industrial parts, and tools, Metallurgy, chemicals, rubber, and plastics, Packaging, advertising, and office (Anwar, 2017, pp. 539–540).

Branch companies of Alibaba are: Alibaba, Taobao, Alipay, Ali software, AliMama, Koubei, Alibaba.com Cloud Computing, Yahoo China, Yitao.com, Taobao Mall, HiChina, Juhuasuan etc. (Zhu, 2018, p. 84).

3.1.2. Numerical Facts

At the beginning of 2017, Alibaba’s web service was the biggest e-commerce website in the world (Powell, 2017). On February 16 2018, the company had a market capitalization of US $479.43 billion, a 2016 revenue of US $15.69 billion (Seth, 2018), daily transactions that can exceed one billion dollars and about 50,000 direct employees (Callens and Cherif, 2017, p. 271). In 2014, an overwhelming 84% of Alibaba’s total revenue came from within China and only 16% were generated in international markets (Chang and Allen, 2017, p. 37).

3.1.3. History

Table 1 below visualizes important dates in the history of Alibaba, including Alibaba’s foundation in 1999 and its IPO at the New York Stock Exchange in 2014.

Table 1 Alibaba's history

illustration not visible in this excerpt

Source: Anwar, 2017, p. 541; Zhu, 2018, p. 84.

3.2. Alibaba: Characteristics and Drivers of Internationalization

This chapter analyzes the internationalization process and the DNA of Alibaba. It starts with the timing of the process (section 3.2.1), reviews external forces that may have driven the internationalization (section 3.2.2) and aims to detect characteristics of Born Globals in Alibaba’s DNA (section 3.2.3).

3.2.1. Timing of Internationalization

Alibaba was founded back in 1999 (see Table 1), by Jack Ma and 17 associates. The company provided website development and indexing services to local Chinese entrepreneurs. The firm offered a B2B platform to which sellers would upload their products, businesses would upload their requirements, and supplier-buyer matches would be made. (Kim and Chen, 2016, p. 2). In October 2000, Alibaba launched its 'Gold Supplier' membership in order to serve China exporters. In August 2001, the company launched its 'International TrustPass' to serve exporters outside China (Liu and Avery, 2009, p. 203). With this step, Alibaba initialized its global internationalization. Hence, the internationalization process wasn't a gradual and slow move as suggested by the Uppsala model (see section 2.1.3). In contrary, the internationalization started within two years after the foundation of the company. This behaviors hints at the Born Globals concept.

3.2.2. External Drivers of Internationalization

As outlined in section 2.2.1, forces of early internationalization can be globalization trends and decreasing trade barriers, the trend to specialization and the emergence of trade barriers and technological developments in production, transportation and communication.

The invention of the WWW back in 1995 opened up a new paradigm of e-business for Alibaba. This allowed the company to acknowledge a loophole by which it was able to idealize and revolutionize ecommerce in China (Kim and Chen, 2016, p. 2). By using the new possibilities that were offered by the new technology WWW, Alibaba gained a strategic advantage over the competition at that time (Anwar, 2017, p. 551). Even today, Alibaba’s business model relies on the technological development of the WWW back in 1995. Without this disruptive invention, the success of the company would – very likely – not have been possible.

Furthermore, due to China’s entrance to the WTO in 2001[3], mediocre firms opened their doors to American suitors, for which Alibaba served as the primary gateway (Kim and Chen, 2016, p. 2).

This shows that at least two external forces (the invention of the WWW and China’s entry to the WTO) were essential for the local and global success of the company.

3.2.3. Comparison of Alibaba with Characteristics of Born Globals

This section examines, whether or not Alibaba shows characteristics of born-global firms. As described in section 2.2.2, the seven most frequent characteristics are: (1) Start of internationalization within a short period after inception, (2) Providing international experience of the founders (3) Having strong business networks, (4) Lack of sufficient (financial) resources, (5) Offering cutting edge products, (6) Following a differentiation strategy, (7) Making extensive use of advanced information and communication technology (ICT).

Early Internationalization

The internationalization process of Alibaba started back in August 2001 with the launch of the ‘International TrustPass’ (Liu and Avery, 2009, p. 203). This happened within a 2-years’ timeframe after the inception of the company in 1999. Hence, Alibaba started its internationalization within the typical 2-to-3 years of born-global firms (David, 2016, p. 3).

International Experience of Founders

Alibaba was founded by Jack Ma and 17 additional founders. Ma, was born in Hangzhou, China. He graduated with a bachelor’s degree in English from a Teacher’s Institute in 1988 (Havinga, Hoving and Swagemakers, 2016, p. 16). In 1994, Ma founded a translation agency in Hangzhou where he got in direct contact with many people from abroad. In 1995 and the following years, Ma travelled to the US where he got in contact with the Internet and developed his style of international thinking. Starting from 1998 Ma worked for fourteen months creating trade-related Web pages at the Ministry of Foreign Trade (Liu and Avery, 2009, p. 200). Although Ma lacked profound experiences in multi-national enterprises before he founded Alibaba, he developed a clear international focus due to his work as a translator, his travels to the US and his work for the Ministry of Foreign Trade.

Strong Business Networks

From the very beginning, Ma was aware of the importance of strong business networks for the success of Start-Ups. Therefore, he built strong internal networks (The Haibo Network) (Liu and Avery, 2009, pp. 24–25) as well as external strategic investments and alliances with international companies like Yahoo!, Microsoft, Softbank, Auchan, Ruentex Group and others (Anwar, 2017, p. 535; Business Wire, 2017).

Lack of Financial Resources

Back in 1999, Alibaba was founded with an low initial budget of RMB 500,000[4] and its financial situation remained tight until the launch of the online shopping website ‘Taobao’ in May 2003 (Kim and Chen, 2016, p. 2).

Offering Innovative Products

The platforms that Alibaba had developed starting in 1999, represented the technological edge of possible web services back at that time. Consequently, Alibaba received a cover story in the Forbes magazine in July 2000 where the company was named a leading B2B firm (Kim and Chen, 2016, p. 2).

Following a Differentiation Strategy

Alibaba’s approach was to specialize in developing Web platforms for industrial trade (Callens and Cherif, 2017, p. 270). Back in 1999, such services didn’t exist. Thus, Alibaba followed a differentiation approach like many Born Globals do.

Extensive Use of Information and Communication Technology

The Internet and the WWW were and are essential for the success of Alibaba. The firm uses the Internet as a means for communication with business partners as well as consumers. Alibaba's web platform also functions as a web shop for business partners and direct customers. The whole ecosystem of the company is based on this relatively new technology, starting with the web frontends and ending with Alipay, Alibaba's own payment service provider.

4. Results and Analysis

The following chapter presents the results of the research. It shows in which areas the concept of "Born Globals" differs from traditional internationalization strategies (section 4.1). Furthermore, it will be stated whether Alibaba is a "Born Global" company according to the findings of this work (section 4.2).

4.1. Traditional Internationalization Strategies versus Born Globals

The most obvious difference between traditional internationalization strategies and the "Born Globals" approach lies in the timing and approach of internationalization.

The work has shown that in traditional internationalization processes such as the ‘international process approach’ (Uppsala approach), each new market is entered in small gradual steps and expansion takes place slowly and incrementally. A new market is often entered through deals with intermediaries followed by the establishment of own sales organizations and – as a final step – the beginning of manufacturing in the foreign market. Every link in this ‘establishment chain’ (Johanson and Vahlne, 2009, p. 1412) leads to new knowledge about the foreign market and to an increase of commitment to the market. Markets are entered incrementally by starting in areas that are particularly similar to the home market of the company. Only in later steps markets are conquered that have a greater geographic and / or psychic distance to the domestic market (Johanson and Vahlne, 2009, p. 1412).

[...]


[1] See http://www.alibabagroup.com/en/global/home

[2] Within this work, the term "Born Globals" will be used as a synonym for all three aforementioned terms “Born Globals”, “Global Start-Ups” and “International New Ventures”.

[3] See https://www.wto.org/english/thewto_e/countries_e/china_e.htm for details.

[4] Back in 1999, 1 € equaled 9.83 RMB (refer to https://www.boerse.de/historische-kurse/Euro-Yuan/EU0001458304). Hence, RMB 500,000 equaled approx. 51,000 €.

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Details

Title
Internationalization Strategies of "Born Globals" and the Alibaba Group
College
University of applied sciences, Cologne
Course
International Strategy & Sales Managenent
Grade
1.3
Author
Year
2018
Pages
27
Catalog Number
V416396
ISBN (eBook)
9783668661899
ISBN (Book)
9783668661905
File size
631 KB
Language
English
Tags
Alibaba, Born Globals, Internationalization, Uppsala Model, International Process Approach, Economic Approach, Behavioral Approach, Early Internationalization, International Strategy, Strategy, China, Internationalisierung, rapid, schnell
Quote paper
Thorsten Mannherz (Author), 2018, Internationalization Strategies of "Born Globals" and the Alibaba Group, Munich, GRIN Verlag, https://www.grin.com/document/416396

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