Strategic Management - Lecture notes 1 PDF

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STRATEGIC MANAGEMENT DBA 401 ALIBABA GROUP CASE ANALYSIS PRESENTED TO: DR ZACH AWINO

PRESESNTED BY; D33/3120/2014 D33/3004/2014 D33/2965/2014 D33/2014 D33/2014 D33/2014 D33/2014 D33/2014 D33/2014 D33/2014 D33/2014

STRATEGIC MANAGEMENT BACKGROUND Alibaba is a group of Chinese companies that started in 1998 by Jack Ma and seventeen other friends, Jack Ma’s profession was a teacher of English originating from Hangzhou, China. The main goal of the founders was creating an online marketplace for Chinese retailers and consumers knowing that internet will level the playing ground by encouraging the small businesses to maximize use of technologyand innovation to control and making it to compete even more effectively in both locally and internationally. The group has evolved over time from its formation back in 1998 up to now having captured almost one half of b2b ecommerce in China and over seventy prcent of online shopping. They have also been able to bring together a significant good number of people connecting approximately 200million users in more than 240 countries across the world. The company provides a host of services in B2C, B2B and C2C sales services via web portals. The various subsidiaries include: Alibaba.com which is an international Business to Business market place, Alibaba.com.cn which is a domestic business to business market place and Taobao which is the China’s largest online platform for both retailers and individuals, The company also provides electronic payment services via Alipay, online Business Management solutions via Alisoft, internet based advertising through Alimama and an entertainment portal through China yahoo. The Alibaba group has attracted a significant big number of clients with their introduction of value-added services which has resulted in a tremendous growth in revenues over time.

The company’s operations have been expanding since 1999 due to entrepreneurial culture and ambition of the founders, introduction off socialist market economy; where businesses are provided with tangible incentives to offer goods and services that people wantArnott, D., Lizama, F., & Song, Y. (2017).. This created an enabling environment for Alibaba to thrive. The other reason was the rapid technological advancement meaning that many customers and retailers would be able to access internet based services and hence be eligible to trade in a virtual platform.

PROBLEMS Culture and incentives problem. The Group has a culture of rotating managers among the different business units. This poses a remuneration problem as the business units vary in size hence profitability. There is no fixed pay scale for the Group. Alibaba’s employees are provided with incentives in the form of stock options. This has proved to be a challenge as there is one public listed business unit while the rest are private. The stock options of the public listed business unit provided liquidity for the awarded employees while those of the private units had no valuation or liquidity. Internal competition among subsidiaries Ma had a preference that each business unit should come up with its own strategy; hence he did not set up one agenda for the Group. This encouraged the subsidiaries to compete with each other. The main objective of creation of Alipay was to help in payment processing. This required the unit to create its independent client base. Some of the merchants were in direct competition with Taobao. Lack of perpetuity. There is a perceived dependence of all the business units on one ultimate leader, Jack Ma. He appears to have some high degree of control over the Group. Regardless of each business unit being led independently, they all look up to Jack Ma for some sense of direction. He is

undeniably the face of the Group, the brand that people buy in to. In the case of his illness or demise, the Group will definitely have a problem in continuity. Challenge of developing a suitable mobile platform strategy for the Group. Ma had a challenge in determining the best strategy to develop, deploy and operate for the Group’s mobile platforms. There was rapid development of smartphones in the market and they were likely transform online trade. There is clear uncertainty of whether each business unit should develop its own platform or one should be developed for the Group as a whole. Little value for shareholders. Jack Ma openly bashes the investors of the publicly listed business unit and tells them that it is not a requirement for them to invest in the business. His view of prioritizing the employees and customers will definitely lead to shareholder wealth maximization but he should have sought a better way to address the shareholders’. He should have noted the numerous benefits acquired by the business by being publicly listed.

STRATEGIC ANALYSIS STRENGTHS 1. Continuous innovation and creativity: Alibaba progressively came up with different subsidiaries to suit the market needs. For instance, after creation of taobao, he came up with Alipay to reduce the transaction risk which was very common especially to the banking sector. This attracts many customers to the platform hence enhancing its growth. Alisoft was created to provide online business solutions, Alimama provided online advertisement platform. This strengthened the company’s operational capacity. 2. Competent human resource. The highly competent staff employed by Alibaba has facilitated innovation of the new subsidiaries to suit the market needs. Moreover, the proper management of the subsidiaries has resulted to creator profitability.

3. Reduction in transaction or settlement risk. Through the introduction of Alipay, the Alibaba Company was able to reduce the transaction risk that existed in the banking sector and other payment platforms hence this built trust to customers in making online purchases. 4. Suitable location. Alibaba is based in China which highly populated thus providing a good platform for the business to thrive due to its availability of readily unexploited market 5. Economies of scope and economies of scale: The economies of scope has made the company to reduce its cost of production, minimize losses and increase profitability, in such a way that losses from one subsidiary can be offset by profits made from another subsidiary. The huge financial base of the company has made the Alibaba group to produce large amount of goods at a very low cost hence maximization of profit. WEAKNESSES Little value of investors Despite investors or shareholders injecting a lot of the funds in Alibaba, they are given little attention by the founder Jack Ma. Ma values employees and the customers so much than his shareholders. He tells his shareholders that it is not a must to invest in Alibaba and they can invest elsewhere. This exposes the investors to predators, incase other opportunities arise for them to invest in. Overreliance to Jack Ma The company is overreliance to the founder. Most of the key initiatives are being spearheaded by one person Jack Ma which Barres others from exploiting their ideas. Almost all the innovations in Alibaba are being attributed to MaHuang, J. S., Pan, S. L., & Liu, J. (2017). This means incase Ma is not present the continuous innovation and creativity in Alibaba will also be affected. In addition, Ma is seen to be a sole leader with less attention to those who will take over the company’s operations after his season of leadership. This will lead to administrational crisis whereby top-level managers will be fighting for his position.

OPPORTUNITIES Opportunity to make investment in technology that is advanced The Alibaba group has a very great opportunity to make an investment to the advanced level of technology that can make them expand their market. This will automatically make the company to maintain the lead in the market. The creation of Alipay, Alisoft, Alimama and B2B business enabled Alibaba group to gain its competitive advantage in the market over other multinational online commerce companies. In order for Alibaba to maintain its competitive nature in the market, it has to take advantage of rapidly growing technology in invent new online businesses that suit the current trading systems hence enhancement of efficient doing of businesses in the world. Unclaimed market Although Alibaba group is currently operating in over two hundred and forty countries and connecting to over two hundred million customers, it still has a very large unexplored market. For instance, Africa alone has fifty-four countries with very potential market to explore. Opportunity to attract best talents Alibaba’s rich financial base enables it to hire or attract the best talents all over the globe. The rich pool of talents makes the company to accelerate its rate of creativity and innovation hence increasing its life span on the marketBudler, M., & Trkman, P. (2017, June).. The competitive age of the online commerce industry can only be maintained by company that looks forward to solve customer’s current problems. For incidence, taobao easily replaced the eBay due to its ability to solve the Chinese customers’ problems by enabling both retailers and individuals to do online shopping of the goods as well as services. Therefore, attraction of the best talents that can maintain high standards of creativity will make the company come up with the new products that aims at replacing the slowly expiring products in the market. In line with the company’s vision, “making it easy to do the business anywhere;” the company ought to bring in wide range of experienced employees all over the globe who wide information about both new market and existing ones hence enabling it to increase its customer base hence increase in revenue.

Threats Competition According to Investor Place, more retailers that are traditional are moving online, this is a growing threat, in that these retailors may in the long run dominate the local market of Alibaba. The growing smartphone technology also may encourage more competitors in the e-commerce business hence reducing Alibaba’s market share. Long run clash with the government Banks in China are state owned and by providing alternative small scale lending to small-scale businesses, Alibaba is providing direct competition to the state. This may in the long-run ruin friendly relations with the government. Loss of key employees Listing of Alibaba.com B2B business led to disclosing of its management’s compensation packages publiclyRothaermel, F. T. (2015). Other competing companies may approach Alibaba’s key management staff and offer them a higher compensation package. If these staff are not loyal to Alibaba, they may join these competing entities.

ALTERNATIVE SOLUTIONS TO ALIBABA PROBLEMS In regards to perpetual existence, Alibaba should mentor another business leader and engage the other founders actively in management, Alibaba should separate leadership from management as provided for in principles of management by empowering a board of directors to be more involved as opposed to Jack Ma. In relation to compensation management Alibaba should fix a scale of payment across the various companies and give bonuses instead of shares to handle the remuneration crisis.Peppard, J., & Ward, J. (2016)

Alibaba should also empower their investors through the AGM on their rights and the value the company has for them.Alibaba should also come up with well laid business structures to avoid internal competition by mapping out a clear future for the various subsidiaries.

RECOMMENDATIONS Increase processing fee by 2% for competitors using Alipay Immediately start a mentoring program for a suitable business leader who would take after Jack Ma Outsource expertise within 6 months before technology becomes outdated Immediately fix a scale of payment across various subsidiaries Continuously remind shareholders of the importance of employees and customer satisfaction

REFERENCES Peppard, J., & Ward, J. (2016). The strategic management of information systems: Building a digital strategy. John Wiley & Sons. Rothaermel, F. T. (2015). Strategic management. McGraw-Hill Education.. Budler, M., & Trkman, P. (2017, June). The role of game theory in the development of business models in supply chains. In Technology & Engineering Management Conference (TEMSCON), 2017 IEEE (pp. 155-159). IEEE. Huang, J. S., Pan, S. L., & Liu, J. (2017). Boundary permeability and online–offline hybrid organization: A case study of Suning, China. Information & Management, 54(3), 304-316. Arnott, D., Lizama, F., & Song, Y. (2017). Patterns of business intelligence systems use in organizations. Decision Support Systems, 97, 58-68....