21st Century business Analysis - Alibaba PDF

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Understanding the business model and strategy of Alibaba...

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Final assessment 21st Century Advanced Business Structures

The academic year 2020/2021

Alibaba business analysis

Name: Likith Cariappa K N Module Name: MC002 21st Century Advanced Business Structures Lecturer: Prof. Stelvio Gori Date: 06/12/2020 College: European School of Economics Location: Firenze

CONTENTS Particulars

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1. Introduction

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2. Report

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i) Critical evaluation of the organization's current status Answer1.1: Ali Baba's main business line by profits and revenues Answer1.2: Alibaba's Porter's Framework using the factors of Mark Raskino's Gartner Model. Smart Business

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Answer1.3: Three major business policies ii) Critique of current reorganization plan and options

10 Answer2.1: Main strategic objectives Answer2.2: Mission and vision Answer2.3: Suggestion for Improvements using SWOT analysis Answer2.4: Strategic Business Unit (SBU) analysis of Alibaba

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Answer2.5: Type of control strategy

iii) Action and Control Plan

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3. Recommendation/ Conclusion

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4. Referencing

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1. INTRODUCTION Alibaba – so-called by entrepreneur Jack Ma and his co-founders for their uniformly mystical connotation of "open sesame," was founded in 1999 and was originally a B2B online portal for the easier domestic and international expansion of small Chinese suppliers' business reach. In 2003, with Taobao, Alibaba joined the C2C and B2C arenas. Shortly afterwards, both Alipay and Aliwangwang (instant Taobao messenger) began to complete the procurement process in Taobao. Based on Alipay, the platform was complemented by numerous financial services culminating in Ant Finance's 2014 launch, which centred on financial services distribution and small business "micro" lending.

Alibaba enables merchants with the simple trading infrastructure, allowing multiple exchanges and social exchanges between customers and traders. The business invests in diverse sectors, including retail e-commerce, cloud computing, digital media, entertainment, risk capital, and more. It has also invested in logistics businesses to extend its regional presence. Several trends propel Alibaba's growth: vigorous internet usage growth, growing demand for online shopping and mobile e-commerce, and continuing cloud migration. For years, Alibaba has sustained its exponential growth, and in our view, Alibaba will continue to benefit from their subsidiaries' synergies.

Alibaba has a comprehensive network, including retail in Mainland China and wholesale and cross-border e-commerce. The development of the Alibaba network is exponential. More than 10 million active traders work in the Chinese retail markets of Alibaba each year. More than 1 billion goods are online for sale.

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2. REPORT i) Critical evaluation of the organization's current status Answer: 1.1 The company overview offers a brief history of Alibaba, the financial highlights and the current events in the company that could impact investment growth in line with Alibaba's policies and vision. Alibaba Group is a multinational Chinese holding company with mobile commerce, global shopping, utilities, software, and entertainment businesses (Alibaba, 2020). Alibaba is also the most important non-US retail brand in the world (Yuen, 2019). The main business lines of Alibaba are Core Commerce, Cloud Computing, Digital Media and Entertainment, and innovation initiatives. Ant Group, a related non-consolidated party, also offers payment processing and financial services to customers and merchants. The company networks and enterprises comprise of clients, traders, brands, retailers, third-party service providers, strategic partners and other enterprises that have grown into a digital economy (Alibaba, 2020).

The financial highlights of the Alibaba Group in September 2019 and 2020 on the financial ground showed:

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Growth of 40% with a US$ 4.5 trillion EBITA investment.

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In their quarterly study, the Alibaba Group has reported that they have 785MM active monthly users (MAUs).

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693 MM of the active annual consumer.

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1.5 billion listings of products (Alibaba, 2019).

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Alibaba's digital economy in the twelve months ended March 31, 2020, produced RMB7,053 billion (USD 1 billion), mainly including GMV of RMB6,589 billion (USD 945 billion).

The Alibaba Group and Ethiopia government signed agreements on creating an EWTP (Electronic World Trade Platform) centre in Ethiopia are also expanding to the African market. The company's vision is to increase cross-border trade through intelligent logistics like ecommerce and distribution to help small and medium-sized enterprises in Ethiopia in reaching Chinese and world markets (Alibaba,2019).

In addition to e-commerce, the company has coordinated its research and development activities (MarketLine, 2019). The company has shown growth in revenues in the utility services sector, as Alibaba Cloud, one of Alibaba's companies is 64 per cent, and creative projects are showing a 14 per cent rise in revenues (Alibaba, 2020). The Alibaba has also concentrated on fintech (financial technology), which allows economies to digitize, and Alibaba has announced an extensive strategic collaboration to strengthen and expand the services of fintech with the Ant Financial and Industrial and Commercial Bank of China (Alibaba, 2019).

Answer: 1.2

Alibaba's Porter's Generic Strategy Framework using the environmental factors of Mark Raskino's Gartner Model: Three key streams are used by Alibaba to meet the growth targets for Porter's generic strategies: cost leadership, differentiation and focus strategy. Business Focus: (Influences Cost leadership)

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User-centric: Born-digital businesses rely on the customer to make the experience better for him with the philosophy that money would follow because he makes the perfect product for the user. In the new world, winner-take-all, a relentless emphasis on the end-user appears to thrive. Porters Generic Strategies (Kerin and Hartley, 2017) Cost leadership: Cost leadership approach needs a strategic edge by reducing prices (Galpin, 2019). Cost management is Alibaba's major general approach in different customer markets that is driven by the User-Centric consideration in Gartner's model. Alibaba use cost leadership strategy? (Alibaba, 2019) • The strategy assists Alibaba by increasing its share of the market, concentrating on the mid class people, which represents the largest proportion of the global consumer mixture. The factor of price is typical of high significance to consumers of the middle class and the best approach for addressing the demands of this market group is cost leadership. • Alibaba focuses on open and inexpensive manufacturing worldwide, leading to big brand recognition and increased market growth, leading to a strong competitive edge. (Rahman, 2016)

Alibaba customers are the producers or companies whose products are available both on the website and overseas. The foreign consumer does not have to go to China to buy or display the products. Therefore, the consumer will substantially reduce costs. From the other side, the retailer does not open stores for the display of products in other countries. Therefore, because the producer cannot actually open shops, it may cut operating costs.

Cost Leadership represents the selling price of the products of the business since they are comparatively low, making it very User-Centric. Alibaba's strategy is based on cost 6

leadership; therefore, it helps to minimize the operating costs as much as possible. It also focuses on the mass market, which is available to many people accelerating market awareness, consumer base growth, consumption promotion, and revenue goals while stressing affordability and usability (Galpin, 2019). Differentiation: Differentiation is another generic technique most widely employed to create a strategic edge (Galpin, 2019). In tandem with cost control, Alibaba uses distinction to meet growth goals that are informed by the Data-Driven component in the Gartner model. Alibaba usage of differentiation strategy? (Alibaba, 2019) • The goal of Alibaba strategically is to use this approach is to distinguish and resolve the increasing health issues of customers by integrating creativity. • Alibaba places its goods in a way which differs from the alternatives available. As an experienced brand, the company uses identifying as a method to reduce the burden from other companies. High costs for marketing, advertisements and big face sponsorship are solely aimed at separating Alibaba from other brands (Rahman, 2016). Furthermore, the company delivers a wide range of flavours that suit the consumer's particular taste needs. It utilizes creativity method as a differentiated offering to deliver which impresses the consumers and increase Alibaba's affinity for other brands. Focus strategy: Focus urged Alibaba on expanding its tightly focused segments (Galpin, 2019). As Alibaba implemented its target approach, they served small segments of the industry and to gain a strategic edge in niche marketing that is determined by the Tiny Sourcing element in the Gartner model. Alibaba usage of focus strategies? (Alibaba, 2019)

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• Alibaba reviews its promotional approach by emphasizing on product features and frequent adjustments to product design and packaging, to fulfil psychological requirements and optimize value for money for its consumers (Rahman, 2016). On analyzing the organizational structure and work culture of the company in the past 20 years, and also considering the company ethics explained by the Alibaba leaders and employees, the type of control strategy the organization has chosen is a Corporate Strategy model. By using the OCAI model in Alibaba, the company is slightly in between the 'Clan and Bureaucratic Control' which constantly concentrates on Consumer first and Employee second ideologies. Concept of Smart Business at Alibaba: Alibaba Ant Microloans is an example of Alibaba's philosophy of intelligent enterprise. Banks reluctantly provided services to businesses without any credit background or even sufficient company paperwork. Consequently, huge numbers of companies in China were struggling to secure the capital they needed to develop their business (Ming Zeng, 2018). Alibaba recognized the opportunity to construct a high-functioning SME loaning idea through the enormous amount of transaction information generated by Alibaba platform by the many small firms. Alibaba, therefore, launched in 2010 a groundbreaking data-driven microcredit firm to provide loans to companies of not more than RMB 1 million (around $160,000). The group has lent over 13.4 billion dollars to SMEs in seven years. By 2012, the firm joined Alipay, the top-rated payment company, in the development of Ant Financial Services. Advanced algorithms can evaluate transaction details in order to determine how well an organization is performing, how attractive its products are on the market if its partners have high credit scores etc. Ant uses these data to compare good and poor borrowers and isolate similar features of all classes. Those attributes are then used for credit scores estimation. Of

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course, all the banking agencies do so, but Ant analyzes all creditors and all their behavioural data dynamically in real-time. Data scientists from Alibaba are crucial in defining and evaluating which data points have the insights they are searching for and then designing algorithms for data mining. This work includes a profound knowledge of the market and the skill of algorithms for machine learning (Ming Zeng, 2018).

Answer: 1.3

Unconventional Profit Model of Alibaba:

The company’s revenues primarily made through sponsorship. which accounts for 56% of overall gains. The 2nd significant driver of income i.e. 25 per cent, is the technical service focused on vast data of user behaviour. Alibaba has cultivated online purchasing habits between local customers by taking away the intermediate fees to encouraging the vendors to register for free (Xavier Pavie, 2020). A Credit Reliable Model: This credit model of Alibaba assist customers to establish trust oriented credibility. A verification of online exam is required to the Alibaba e-commerce participants to check their identification records. This eliminates illicit sales as sellers are actively tracked on the website. Besides, all purchases are registered, and both sellers and buyers may trace them. This safeguards the credibility of each offer and makes buyers choose more trustworthy vendors (Xavier Pavie, 2020).

New Transaction Patterns: Alibaba aggressively opposes conventional transaction practices and looks for innovative ways of growing consumers' value under their needs (Xavier Pavie, 2020). Transaction model Consumer-to-Business (C2B) and Online Offline (O2O) strategy.

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Organizational Structure: The organizational structure of Alibaba is planned to govern all activities through the company directors. This structure is made up of three levels: board, management and junior management. The organization is led by Jack Ma's though he is not the CEO anymore. (Alibaba, 2020).

The Iron Triangle strategy involves three primary sector, logistics and finance terms with a trading network made of a variety of company websites refers to the consistency of the product and supply networks. Finance applies to the consumer interaction and sales management of Alibaba. Culture: As CEO Daniel Zhang describes that the company culture of Alibaba is the building block of the company as innovation is part of all the employees (Alibaba, 2020). The company utilises a market management model which adjusts accordingly to the relationship model framework. The organization is following this relationship model based on its principles.

The company also announced that on 10 September (Alibaba, 2019) it completed strategic changes in the management team by focussing on creativity, encouraging young developers to do so and taking steps to become more diversified and globalized.

ii) Critique of current reorganization plan and options Answer: 2.1 Restructuring goals: The organization is pursuing its 2025 objective of implementing transformation plans, i.e. globalization, domestic consumption and data collection through technologies such as big data and cloud computing, in a three-pillar model. In numerous sectors, including agriculture, manufacturing and service, Alibaba realizes the promise of the digital economy (Alibaba, 2019). 10

For them, Alibaba has set four key objectives: extending mobile commerce, increase active buyers in China and globally, expand the offering, and increase cross-border ecommerce. Alibaba set its five-year target of hitting an annual active customer of 1 billion and generated over 10 trillion RMB sales by 2036, which indicate an expected increase in future sales and investment growth. There was a mistake (Alibaba,2020). Alibaba claims that the convergence of digital technology and trade would give small and medium-sized businesses a considerable number of opportunities not restricted by borders. Alibaba uses the go-to-market' strategy that means 'global purchase, global sale, global payment, global distribution and global fun' to grow its digital economy supporting reconstruction (Alibaba, 2020). CEO Daniel Zhang named the fuel and engine of the digital economy is Big Data and cloud computing. The quick, uniform data flow is a key component of the competitive market today. The objectives of Alibaba are to improve the Alibaba operating system and develop Alibaba's cloud, smart logistics, financial technology and digital trading capabilities (Alibaba, 2020) in order to support Alibaba's above-mentioned restructuring goals. The word "New Retail" was created by Jack Ma in 2016. From his viewpoint, it is a tech-enabled retail movement to integrate and update the retail sector from online, offline and logistical platforms to services. Alibaba's investments in AI certainly improved the creation of its new retail convenience store, Hema Fresh, through the use of face recognition payment, digital inventories, machine-learned supply chain etc. According to Gartner's Model, AI is the future of the retail industry and a top reorganizing objective priority of Alibaba (Sirui Zhou, 2019).

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Answer: 2.2 The mission of Alibaba is to revolutionize and build trade infrastructure. The organization has set its 2036 goal for 2 billion customers in the world, empowering 10 million companies and generating at least 100 million jobs (Alibaba, 2019).

The current reorganization mission of Alibaba is to build its platform for trade and social exchange between its customers and companies, creating new revolutionary technologies that will drive the world towards a more digital economy (Alibaba, 2020). The organization has also set the target of expanding its international markets across various business categories such as cloud computing, digital media and entertainment, research and development.

Alibaba has listed its company's six core values. The organization believes that workers will only grow and shareholders achieve long-term benefit if consumer values are promoted. Also, the organization emphasized the ideals of confidence-building and sustaining the changing world economy (Alibaba, 2019).

The firm wants to represent the mutual values between its customers, in order to drive the new potential of the digital economy through Big Data Analytics toward its goal of becoming more globalized and diverse organizations (Alibaba, 2020). Studying the example of Alibaba for Tmall's latest commercial platform, which doubled the number of brands it previously had to 40,000 (Chen, 2019). We can see how Alibaba is approaching its task of targeting its future clients and innovating the fundamental procedures.

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Answer: 2.3 Suggestion for Improvements using SWOT analysis: (Kerin and Hartley, 2017) Strength 1. Focus On Research &

Weakness 1. A Decline in Operational

Development(R&D) 2. Leading in innovation

Performance 2. Inconsistent to control the rising customer demand and B2B/B2C transactions.

Opportunities 1. Positive viewpoint for the the worldwide online retail market 2. To attract and assist the global SME networks

Threat 1. Sellers Compliance with Tax Collection and services on Alibaba's platform. 2. Intense competition

a) Operational performance decrease: During the audit year, the Alibaba reported a progressive decline in operating efficiency. The operating margin of the company decreased from 26.9% in the financial year 2019 to 15.1% in the fiscal year 2020 (MarketLine, 2020). The Feeble work shows that cost control is inefficient. Its operating expenses have increased from 73% in fiscal 2018 to 84.8% in fiscal 2019. Also, the net overall profits in the company declined from 25.6 per cent in 2018 to 23.2 per cent in 2019. (MarketLine, 2019). The business must rework its ineffective operating results which could criticize the organization's ability to execute strategies for growth and development.

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b) Incompatible with the growing consumer demand and transactions of B2B/B2C: Aliexpress is used by Alibaba to deal with SMEs and their online sales through Ant Financial. It is a strong strategy for linking small businesses to small businesses. It is beneficial in emerging markets and developing countries where SMEs lack exposure on the Internet and an introduction to selling their products. In order to monitor growing client demand and B2B/B2C transactions, ANT Financial needs to restructure ...