Can Alibaba Make Large-Scale Sustainable Success in the American E-Commerce Market?

A Case Study


Seminar Paper, 2019
11 Pages, Grade: 1,8

Excerpt

Part 1 - Alibaba conquering the United States Market?

“We envision that our customers will meet, work and live at Alibaba, and that we will be a company that lasts at least 102 years.”1 This is the current vision of the Chinese superstar company, Alibaba. Jack Ma, the man who turned the Alibaba Group (hereafter Alibaba) into China’s dominant and successful e-commerce platform, now has his sights set on global domination, also on the Unites States (US). Looking back, Ma has traveled more than 800 hours to dozens of countries to meet business leaders and state representatives to convince them of Alibaba's aim: to let small and medium businesses (SMEs) from all parts of the world trade freely and securely on Alibaba's platforms. The company's vision is to achieve $1 trillion in gross merchandise by 2020 and to serve two billion customers by 2036.2 To achieve this, global operations are key and experts propose: “globalization is better done now than later”2. Alibaba is currently experiencing high competitive pressure in China and will need to conquer new territories to continue on current trajectory.2 Needless to say, entry into the US market will not only be difficult, but also require premium strategic decisions with little to no room for errors. Can Alibaba make large-scale sustainable success in the American e- commerce market? Or is the industry not attractive and the market saturated?

Alibaba Group

Alibaba provides technology, infrastructure and marketing to help merchants, brands and businesses to leverage the power of new technology to engage with their customers. The Alibaba Group was founded in 1999 by Jack Ma and 17 other people. Alibaba was originally founded as a B2B e-commerce portal to connect Chinese manufacturers with overseas buyers.1 Nowadays, Alibaba ranks in the Top Ten companies in terms of market value (2018: $509 billion).3 Most of the credit goes to Ma himself, because he utilized the first-mover advantage and successfully planned entrepreneurial growth and corporate initiatives. This was also made possible because Alibaba explored and utilized the advantages of the network effect on multi-sided platforms. Today, Alibaba has around 66,000 employees in more than 70 offices globally.4 The e-commerce giant is proud of 636 million annual active buyers interacting with ten million sellers in 240+ countries. Alibaba is highly successful with annual revenue of $37 billion and annual profits of $9 billion (December 31, 2018).5

Alibaba Businesses

In general, Alibaba is a facilitator in an online global value chain that stays open 24 hours a day by creating efficiencies and connecting SMEs and other consumers (see Table 1).6 Specifically, Alibaba provides client-based subscription services, that allow SMEs to post and advertise their products on Alibaba's website. The B2B (Alibaba.com) and B2C (Tmall and AliExpress) marketplaces are the primary focus of this case. Further portals belonging to Alibaba are: Taobao Marketplace (C2C), Juhuasuan (sales and marketing platform) and 1688.com (wholesale). Additional websites are Alimama (technology), Alibaba Cloud (cloud computing), Ant Financial Services (for small enterprises), and Cainiao Network (logistics network).6

The United States B2B and B2C platforms market

Though Alibaba had not glamorously advertised its entry to the US market, as of May 2015 Alibaba was already serving manufacturers, wholesalers, and consumers in the United States through Alibaba.com and AliExpress. Alibaba’s blockbuster 2014 public offering (IPO) (that raised $25 billion on the New York Stock Exchange) introduced Alibaba to the US market. In general, the e-commerce market will soon account for 15% of all specialty retail sales in the USA. Also, 60% of all retail sales are influenced by consumers' digital exposure. In 2018, US e-commerce grew by 16% to over $500 billion.7 The market consists of uncountable online retailers however, the market is dominated by two giants: Amazon and eBay. Amazon is set to clear $258.22 billion in US retail sales in 2018, which will work out to 49.1% of all online retail spend in the US. The next closest competitor is eBay at 6.6% (see Appendix B).8 It is no wonder that so many new online commerce businesses are chasing the marketplace model, but with regard to sales volume the B2B market is even bigger. In 2016, manufacturing and merchant wholesale in the US amounted to $5.79 trillion in B2B e-commerce sales.9 In 2015, the e-commerce share of total B2B sales in the US was 9.7%. Despite the opportunities Alibaba has by entering these high potential markets, Alibaba highlighted that they do not want to compete with Amazon. Instead Jack Ma presented to 3,000 possible US businesses their actual plan. They want to work with established US brands to sell on Tmall; help small businesses sell in China on Taobao; and match US manufacturers with Chinese component makers on Alibaba.com. Alibaba's President Michael Evans said: “We create the infrastructure of commerce, the platforms, the technology and the partnerships to make it possible for millions of SMEs to participate successfully in global trade.”10 This shows that, although some might think that the e-commerce market is saturated, Alibaba is reinventing the industry by supplying new opportunities and a gateway to China. In general, the US e- commerce market has a really good reputation among customers. Encouragingly, the markets are also very innovative. For instance, Amazon is planning on delivering parcels with drones or consumers can order within seconds via mobile apps, smartwatches and cars. In addition, retailers offer highly attractive services like Amazon prime, which make the e-commerce experience highly enjoyable.11

Main competitors

eBay

Founded in 1995, eBay’s main business model is to provide B2B and B2C sale services on the Internet. eBay connects sellers to buyers and generated revenue by charging the sellers fees and commissions payable on the completion of a transaction. eBay constantly improves customers’ experience, e.g., by introducing a fraud protection program that reimbursed buyers in cases of fraud.12

Amazon

Starting off as an online bookstore, Amazon was founded in 1994. Only over time, Amazon’s business model could be divided into two forms: online retail and Internet services. As of 2015, its offerings have expanded into music, video, toys, electronics, and more. It offers one of the world’s largest sale collections of products available online, however it only has two million sellers worldwide.13 It also serves as a channel for other retailers to sell their products through its website. Amazon is known for always reinventing its business model and finding new ways to create customer value. Its dynamic customer online shopping experience continues to raise industry standards. Even by offering a membership program, called Amazon Prime, they achieve great customer loyalty.12 However, many are surprised when hearing that from 2012 till 2017 Alibaba’s net income was actually higher than Amazon’s.5 In the 12 months ending 2018, Amazon had $232 billion in sales and an operating profit of $10 billion.14

Customers of Alibaba USA - Chinese customers

Alibaba mainly promotes that American business will be able to sell to Chinese customer. Therefore, Alibaba aims to create a new market with existing customers.15 The trend of purchasing goods from overseas markets started in China a few years ago and has become especially popular among the younger middle-class (26-40 years old).16 Popular shopping countries include the US, Hong Kong, Japan, the United Kingdom, and Australia.17 The B2C cross-border e-commerce market in China has experienced significant growth in the past few years. According to eMarketers 2018 report, cross-border e-commerce amounted to 167.7 million buyers in China, accounting for 24% of all digital buyers. In 2019, an increase of 8% is expected.18 Moreover, China’s online shoppers are young, tech-savvy and increasingly interested in foreign products, because they believe they offer greater safety and higher quality than domestic goods. It’s not surprising that beauty products were the most popular product category on Tmall Global last year. US brands ranked No. 2 (behind Japan) thanks to demand for health foods and supplements, baby products and formula. Also, cross-border e- commerce often offers better pricing than traditional imports. The reason behind this is, that purchases via cross-border e-commerce have been subject to lower tax rates compared with ordinary imported goods.19 Additionally, a relaxation of customs rules are causes for the boom in China’s cross-border US e-commerce.20

Suppliers

Similar to China, Alibaba is targeting SMEs to sell on their websites. Today, Tmall hosts 7,000 US brands, however there are no numbers published for Alibaba and AliExpress, presumably because they are too small.10 To sell on Alibaba's website, every supplier needs a membership. The costs for a Lite Package for small businesses, are 299 US$ each year. For the Standard Package, vendors pay 2999 US$ each year. These costs are, in total, lower than for Amazon and eBay. The businesses hope to grow and are mostly convinced by the demand of Chinese customers. However, as Alibaba is trying to gain high trust from customers, the suppliers also need to agree to factory audits.4

Substitute B2B and B2C marketplaces

Apart from Amazon and eBay, Alibaba will experience competition by small e-commerce websites, purchasing agencies and offline retailers. However, offline stores, whether it is B2B or B2C, will not account for a large number of Chinese customers. Nonetheless, some Chinese prefer purchasing agencies that buy products on behalf of consumers for a fee, provide assistance on payment and delivery, and allow consumers to pay in Chinese Renminbi. However, the process may take a long time to complete, they may not be reliable, and may import goods illegally. Additionally, Chinese consumers buy products directly from overseas shopping websites. This is a more reliable process, but consumers may face language barriers, foreign currencies, international shipping fees and no assistance with customs.16 Alibaba is in the process of offering three-day shipping worldwide. For comparison most overseas retailers have delivery times up to 30 days and often do not offer buyer protection or returns.21 A 2015 survey shows that only 29 percent of cross-border shoppers are buying directly from overseas websites. In contrast, 46 percent of shoppers are buying through B2C e-commerce platforms.16

Partners and Alliances

Alibaba did not have a successful debut in the US, and sold its US boutique e-commerce site 11Main only a year after it launched.15 After the failed debut in the US, strategic partnerships are key for Alibaba to familiarize itself with the US market. Therefore, cross-border alliances have become a major operational tool in the area of market entry.17 Alibaba has been exceptionally good in the area of alliances by seeking minority stakes in other companies like Groupon, Jet.com, Snapchat and Lyft (see Appendix C).22 Only by that, it contemplates an eventual expansion in the US. Evans, the company president, is summarizing this by saying: “It is important for us to keep abreast of things that could have an impact on any aspect of our business.”10

Can Alibaba continue their success in the US?

Founder, Jack Ma, is convinced that there is great opportunity for Alibaba in the US: “Alibaba was founded in China, but it was created for the world.”23 So far, the expansion into the market went slowly, and Alibaba is fighting to convince the US that they do not want to compete with Amazon. Ma is the opinion that, “in the next 10, 20 years, I bet there will be a lot of US Internet companies successful in China - because you cannot stop it.”23 But will Alibaba be part of this development, and will it be successful and sustainable? Or is the market saturated by Amazon and eBay? The fundamental question will be: Will Alibaba be able to achieve sustainable success in the US e-commerce industry?

Part 2 - Industry Analysis

In the following, Porter's five forces (plus the bargaining power of complementors) will be used to analyze the attractiveness of the US e-commerce industry and will answer the above-mentioned questions.

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Excerpt out of 11 pages

Details

Title
Can Alibaba Make Large-Scale Sustainable Success in the American E-Commerce Market?
Subtitle
A Case Study
College
Reutlingen University
Grade
1,8
Author
Year
2019
Pages
11
Catalog Number
V491372
ISBN (eBook)
9783668977976
Language
English
Series
Aus der Reihe: e-fellows.net stipendiaten-wissen
Tags
alibaba, case, market, e-commerce, american, success, sustainable, large-scale, make, study
Quote paper
Hannah Müller (Author), 2019, Can Alibaba Make Large-Scale Sustainable Success in the American E-Commerce Market?, Munich, GRIN Verlag, https://www.grin.com/document/491372

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