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One of the key reasons Alibaba former Chairman Jack Ma has remained bullish, despite a trade war between the US and China that's seen high tariffs imposed on goods flowing between both parties, it is because of the company's dominance of China's home market. China’s e-commerce sector is more or less monopolistic with Alibaba’s TMall commanding almost 51.3% of the market. Using Porters five forces framework, this report examines why trade tensions between China and the USA will not impact Alibaba as much as other Chinese multinationals. We analyze Alibaba's relationship with buyers and suppliers to understand who holds more power.
The report also looks the BCG Matrix of Alibaba to examine the strategic business units (SBUs) that the company should invest in or divest based on rates of market growth, profitability and macro factors identified in Alibaba's pestle analysis (See Alibaba Pestle and Swot 2018 report).
Alibaba Strategy Case Study
Key Learning Outcomes
- Analyse the online retailing industry and how the five forces have affected Alibaba, as well as global rivals and the impact on industry structure, attractiveness, and profitability.
- Understand how Alibaba has managed to defend against intense competition from major players such JD.com (Jingdong) and the strategies it uses to create 'blue oceans' that are defensible, helping it capture and maintain top position.
- Analyse the various strategic business units in Alibaba's portfolio and assess which ones are the stars and cash cows generating the most value, or the question marks, and dogs that may need further investment or divesting to achieve a balanced portfolio.
- To apply strategy business models and frameworks such as Porters five forces, BCG matrix etc. to real company cases.
Analyse the micro environment of Alibaba using Porters five forces and examine how the five forces are shaping industry competitiveness and structure.
- See also, Alibaba Pestle and Swot Analysis 2018
Alibaba Group Holdings is a Chinese company founded in June 1999 by Chung Tsai and Yun Jack Ma with headquarters in Hangzhou, China (Reuters 2018). Through various subsidiaries, Alibaba engages in online, mobile commerce and offers services, products, and technology that helps transform the way brands, merchants and other businesses market and operate in China and internationally (Reuters 2018).
Alibaba operates under the following segments; core commerce, cloud computing, digital media and entertainment, and innovative initiatives among others (Nikkei Asian Review 2018). The Chinese online giant generates 80% of all online sales in China from its B2B portal connecting Western businesses and Chinese manufacturers, commanding a market share of 51.3% under the TMall shopping website while its biggest rival JD.net commands a distant 32.9% market share as of 2017 (Chadha 2017; Absolunet 2017). The company’s revenue has been on a steady growth, increasing from $8.576m in 2014, $15.903m in 2016, $23.521m 2017 to $37.762m in 2018 while enjoying profit margins of 25.56% (Nikkei Asian Review 2018).
Using Porters five forces analysis, this report examines the intensity of competition Alibaba faces and how the five forces of competition, namely, buyer power, supplier power, competition from substitutes, rivals and new entrants have impacted Alibaba’s profitability, and market growth opportunities. Porter’s five forces analysis is especially helpful in identifying the industry structure of China’s e-commerce industry to understand why Alibaba is the dominant player and the reasons for its strong competitive position.
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