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A Comprehensive review of TheAlibaba Group A Paper Presented in

Partial Fulfillment Of the Requirementsof The Robert Kennedy College, E-Business course June 2011

Abstract This case study documents the example of how a small Chinese company which originated fromhumble beginnings can eventually make it and compete successfully on the global electronic andeconomic market. The case study looks at The Alibaba Group strategies for success in the complex worldof online trading through its visionary leader Jack Ma.

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Paid membership packages are also available for verified suppliers.6 million registered users. such asstandard supplier store fronts.com to both suppliers and buyers. Like its international counterpart.Alibaba. . The Group provides online marketplaces through Alibaba. product l istings and communicationtool such as e-mail alerts.com limited is the global leader in business-to-business (B2B) e-commerce andis the flagship of the Alibaba Group. Alibaba China brings together a trusted community of members whomeet regularly to chat.cn is the Chinese-language version and this business-to-business marketplacepromotes trade among the domestic china. news and alerts are available for free. A broad range ofproducts and services are offered at Alibaba. but disadvantaged. discussion forums. Alibaba.com isgeared towards helping vital.cn boasts more than 31.Introduction The Alibaba Group of companies wasfounded in 1999 by its visionary leader Jack Ma and a small group of his friends. hosting an internationalglobal trade marketplace. Alibaba.com.com which is English language website. segments of Chinaeconomy with simple and efficient internet solutions. which entitles them to post trade offers and productsonline. This website serves small and medium-sized enterprises (SMEs) in the international community.Basic features. customers pay annual subscription fees for membership. The business model adopted byAlibaba. search for products and do business online. Alibaba Group is a many to many e-market placethat brings together millions of buyers and seller from around the world who want to do business withChina.com. Base in Hangzhou.


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com. It allows individuals and business to transact payments online in a safe and secure manner. The siteprovides a platform for both retailers and individuals to see virtually anything to Chineseconsumers.com.china. this is China largest internet retail site with 100 million registered users and morethan 1. Taobao. The Analysis and Companies Portfolio In 2008 and 2009 China experienced rapid growthin the e-commerce markets.5 million sellers have open store on this site.com. an interactive community.customer support. this is a leading Chinese-language portal website that offers search tools. thiscompany offers an internet base business management solution.com.com is Chinas leading third partyonline payment platform. and one of the most popular e-mail services in China. its founder was faced witha very difficult challenge on how to bring Alibabas businesses to their fullest potential. During this timeThe Alibaba Group was had established a leadership position with its business-to-business platforms.However.3b in just six months from December 2008 to June 2009. It also acquired Chinas leadingclassified listing website. information management and basic financial management tools to SMEs inChina. Koubei. It develops markets and delivers internet base business management software such as e-mail.Header In addition the Alibaba Group owns and maintains the following marketplaces: 2 Yahoo. Thisonline payment facility assisted merchants worldwide to sell directly to consumers in China Alisoft. . Thisgroup of autonomous companies was able to grow revenues by 24% to $636M and their assets by 7% to5. Alipay.

In this case I believe that Jack Ma would have recognized the importance of good customer service andcustomer loyalty. leave them as separate entities but foster collaboration among them. The otherbusiness in the Alibaba Group did not depend largely on sales teams but rather more head counts inengineering and customer service in the Case of Taobao and Alipay. p154). Secondly. Efraim Turban.5million and 14 million registered users in its international and Chinese domestic marketplacesrespectively. In 1998 Ma joined a company established under Chinas Ministry of foreign Trade andEconomic Cooperation (MOFTEC) which was mandated to help Chinese companies adopt . In 2009 TheAlibaba Group had nearly 17. Customer acquisition and retention is a critical success factor in any e-commerce business. After typing the word China into a portal search engine and receiving no result hewas inspired to leave the delegation and setup an online directory call China pages. Approximately 70%worked in Alibabas B2B arm covering sales in small business in over 50 cities in China.Header 3 The fistchallenged was if to maintained the competition among the subsidiaries or bring them together.000employees. (Electronic Commerce. Therefore his companies needed deploy significant resources toattract new customer as well as retaining existing ones.S as an interpreter for a Chinese economicdelegation. The Alibaba group of companies had experience rapid membership growth to the tune of 2.

However he faced constraints in moving China Pages forward as China infrastructure was not quite readyfor inline commerce. Alibabas B2B Marketplace Jack Ma was an English teacher who glimpsed thepower of the internet during a trip to the U. 2010.

5 million registered users and 1. trading companies and downstream manufactures. prioritized listings forincrease exposure to buyers. company profile authentication to increase buyers confidence and real timeperformance analysis and escrow payment services. While it offered free basic services to registeredmembers it migrated about 1% of its users to the value added of the international gold supplier programand China trust-pass membership program which provided subscribers with enhanced online storefronts.This company filled the void for over 40 million small Chinese businesses who operated in fragmentedmarkets.9 billion and added 10. Alibaba. However Ma did not agree with the strategy of electronic datainterchange (EDI) favored by his superiors. To survive this company was to compete directly with eBaywho already had 85% of the Chinese online market. As a result Jack Ma left the government job in 1999

to form Alibaba. . This intermediary company started as a pure information portal but then move tobecome the leading trading exchange in China.7 million storefronts in 2008. Alibaba also gained revenueform it reverse auction in keyword bidding and advertising.com started as a simple trading platformdesigned to help connect small Chinese manufactures with buyers. Taobao In 2003 Taobao waslaunched as a business-to-consumer (B2C) and a consumer-2-consumer (C2C) platform for retailers andindividuals to sell good to Chinese consumers. By improving on its product offerings and service deliveryAibaba operating profit grew by 48% to RMB 1. Jack Ma also believed that Alibaba would derive revenuein the form of commission from stable transaction volume via bulk discounts through the approach ofCitibank and UPS. with limited access to communication channels and information sources and had no


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evaluation tool to access the trustworthiness of their trading partners.Header 4 Electronic Commerce.such and retailers.

In 2008 Taobao introduce search engine advertising service called Zhi Tong Che. As of December 2010.which eroded eBays market share down to 7%. Taobao had taken 82% of the Chinese market. Thiscompany facilitated payment settlements on behalf of consumers until purchased good are delivered.5

million transactions daily. Thus Alipay would have been conceptualized to build consumers trust whendealing with business in through Taobao. Alipay had more than 550 million registered users andfacilitated around 8. This was done through the use of a pay-for-performance contract. In August 2008Alipay reached a peak of $66 million per day and its users account had exceeded 100 million. By 2007.Taobao broke even on the strength of revenues for Zhi Tong Che. it is considered the currency of theinternet (Electronic Commerce. therefore sellers only paid for their bids if a customer actually clicked onthe advertised product. The companys ambition is that by the end of 2011 to reach an annual . secureand speedy way for millions of individuals and businesses to make and receive payments on the Internet.Alipay Alipay was launched in 2004 by Taobao. This popular service let sellers bid for keywords inexchange for preferential ad rankings. By the end of that year Alipay had gained 50% of all onlinepayments in China and executed 4 million transactions per day. Efraim Turban 2010. In 2005 Jack Maseparated it from Taobao and made it an independent business unit. Consumer trust is fundamental tosuccessful online trading. With 2 million individual sellers and merchants on Taobao this would be anatural base to make great revenue and in the second half of 2008. p157).Header 5 Taobao offered itsservices for free to entice Chinese consumers to come online. It provides a simple. Alipay is now Chinasleading online payment platform.

It increases the potential for substantial yearly savings to buyers. Therefore in 2009 China Yahooeventually shut down its 3721 operations. China Yahoo! was one of the leading Chinese-language portalsoffering search. control and legal personnel and other departments. Linking budget systems topayroll.Header 6 transaction volume of 1 trillion yuan and top pay pal to become the worlds largestpayment firm. inventory management and financial management. The ERP benefits should include thefollowing: Buyers can reach more vendors. China Yahoo showed poor growth in its market of the keywordsearch market. China Yahoo was purchased from Yahoo! Inc. Selected other Business In 2005. emailand an enhanced focus on entertainment content. This company was created to supply small businesswith affordable Enterprise Resource Planning technology to include systems like customer relationship

management. Sellers and vendors can widen participation in government contracts. ERP systems alsoprovides fast access to detailed accounts histories. It allows for faster product/service look-up andordering. allowing nearly instant data exchange and ensuring such information is constant and uniformacross the board. accounting. It can provide easy access to trend data. Alibaba began incubating a newcompany called Alisoft. producing from more competitive bids and lowering the cost of products andservices purchased. In early 2006. financial information from . providing more abundant information andimproved planning and analysis (for buyer and sellers). The systems should bring major benefits to the 40million small businesses who were Alibabas clients.

Companies like the Alibaba Group are hungry for customers and they are changing the global game.Alimama had employed 400 professionals serving a network of over 3 billon advertisements on a dailybasis and connected with over 80 million consumers. By 2009. how to find ways to encourage crossbusiness opportunities and reduce conflict among Alisofts and Alibaba B2B sales teams? As a result of

these issues in 2007. How can well-established Western companies best respond to the challengesbrought about by Chinese start-ups? Like many other countries from Asia the current global recessionhas cause business to look outside their home markets for customers and companies from China are nodifferent. Overtime. Chinese companies are not only increasing their share of the Chinese domesticmarket but they are aggressively penetrating western markets with great success. In January 2007 Alisofthad demonstrated it market viability and had reached critical mass and Jack Ma transferred it out isincubation and had the company reporting directly to him. ERP system can empower small business toclosely measure their performance in order to achieve desired results. Alimamas model evolved from justan online exchange to an affiliate network of small web publishers. Alisoft had 40% of the Chinese EPRsoftware market and employed 500 professionals. 1. By 2008. Alibaba launched Alimama this was an


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online advertising exchange which connected websites and advertisers. One of the key reasons for thisdevelopment is that Asian companies know how to compete in markets with low profit . However. Thisplatform allowed publishers to market their advertising inventory to advertisers. For example. Jack Marecognized that the business model faced several challenges.Header 7 previous years can be quicklycombined into an up-to-date long-term view.

However.300 a year. The best of them are proving innovative and run by some of the best minds theworld has to offer. However.Header 8 margins usually unheard of in the western world. Westerncorporations have weathered rivals before and emerged stronger for it. And 3Com have formed telecomequipment and design ventures with Hauwei. Many companies like The Alibaba Group are leveragingtheir base as a spring board to build global empires. No matter how big Western companies respond.Techtronic of Hong Kong was the first to the first to heavy-duty cordless tools powered by lightweightlithium ion batteries. What make these upstarts global contenders is their advantage to some of theworlds most dynamic growth market and immense pools of low-cost resources. gone are the day whenthey could afford to wait for an emerging . China per capita income is still just $1.8 billion to buy Maytabjust to keep it out of the Chinese. For example Wirlpool Corporation agreed to pay a surprisingly high $2.Their businesses are astutely run and they are monitoring global consumer trends and technologies andgetting products to market faster than their rivals. Despite this China internet penetration continues togrow at a rapid rate. this new group of game-changing companies is different on many levels. Anotherstrategy is to refuse to concede grown either at home or abroad. join them for example Nortel NetworksLtd. Western companies need reexamine their cost structure and look for innovative way to drive costdown and past some of those savings on to the consumer. Thirdly is you cannot beat them. So how canwell establish western companies respond to this on slot? This first step is to begin respecting the newcompetition and recognize that they will be here to stay and start planning and improving your systems.these aspiring giants are much more than low cost. For starters they are arriving from a country that therepopulation while growing fast remains relatively poor.

com optimize its use of the proceeds from the IPO? The Alibaba Group of companies has a proven trackrecord in providing internet solution for millions of small business in China and connecting them to theglobal market.K Prahalad. They have a business plan with targets for business expansion and you havecapable competent people in the right positions. you will not only miss opportunities but also cut out allthe innovation that comes from competing there. According to C. Then you wont be able to withstand the

pressure when these companies come and hit you there. a University of Michigan management strategistIf you dont participate in these markets. what is a good time for entrepreneurial start-ups going public?An initial public offer (IPO) is usually the largest equity issue a corporation ever makes. Whether onechooses to confront or collaborate. Considering the success of Alibaba. How should Alibaba. By 2006The Alibaba Group would have experienced 7 years of successful trading and had a proven track recordfor innovation. This would be a prime time to make an IPO providing that you are looking for capital inorder to finance growth and expansion.Header 9 market to ripen and then use their ability to dominate thelocal players. The IPO is also an important channel through which an entrepreneur or venture capitalistget rewarded for his initial effort. the new China startups are set to change the rules in the industry. 3. TheChinese . a large customer base.com's IPO. A review by Luigi Zengales for the University of Chicagosuggests that the decision to go public should be the result of a value maximizing decision may be theinitial owner who wants to eventually sell his company or increase the value of it. had reached a level ofmaturity and profitability. 2.

Users climbed from 59 million in 2002 to 390 million in 2009 with 270 million users connecting usingbroadband. Develop an application that would allow The Alibaba Group to tap into the lucrative market ofsmall business loan. Use some of the funds to expand the existing business to expand both in China andthe global market. Finally The Alibaba Group should also consider the acquisition of businesses that offercomplementary products and services to the Groups portfolio of products and services. what should thenext steps be for a company like Alibaba. Therefore I would suggest that The Alibaba Group use theproceeds from the IPO to do the following: Fuel the expansion in building additional application to assistin the development of small business and further enhance the technology platforms. Some of theproceeds should also be used to develop the brand value of the Alibaba Group both in the Chinese and


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international market. Having gone through the IPO. This application should be integrated in the existingplatforms to assist with ease use and repayments. 4.com? What constraints might the company face? .Expand their marketing drive to attack more buyers and seller to use the Alibaba exchange and otherrelated services.Header 10 population continues to display a hunger for the superhighway as internetusers continue to grow at a phenomenal rate. Develop a mobile platform that users can use to connect tothe exchange in order to search and purchase products.

Building a powerful brand. Continue to encourage their employees to embrace the entrepreneurship spritand enhance their skills in e-commerce and internet technology. the Alibaba Group has created a solidinstitution that fully understands the situation and need of SMEs. These can be in the form of: Enhancingthe power of the companys B2B exchange. Continue to focus on the Group competency. This can beachieved by executing a marketing strategy that will make Alibaba.S. Continue to build on the strongsales and customer service teams and expand these principals into the global markets.com in the U. theGroup must work together to match the needs of different customer segments. Continue to diversify therelationship with the parent company and its subsidiaries. By focusing on small business that would beotherwise be left alone. Continue technology innovation and providing application that can expand thebusiness products offered to members. However. Continue to develop their management teams and thecommitment to the strong corporate culture. This is developing electronic solutions for small business inChina. . not only in China but around the world similar to that of Amazon.Header 11 The next step for theAlibaba Group after such a successful IPO is to relentlessly and aggressively pursue new markets anddeploying strategies for growth. this can be achieved by attracting and registering more buyer and sellerson the Alibaba platform.com a household name.

There are personal rewards in going public but it also comes with risk. But for a public company thesituation changes radically. Therefore it is imperative that executives position themselves to deal with newchallenges created by the IPO. Working with Investors 2. Facing the Constraints Life after an initial publicoffer can prove to be very different for a newly listed company. Risk Management Working with investorsWhen Alibaba was in private hands it was just accountable to Jack Ma and his other 17 friends. An IPO isa transformative step for any business and it can change the lives of executives involved.Header 12Deploy the use of collaboration software such as Lotus notes or Novell GroupWise. Delivering on yourpromises 3. During the IPO process Alibaba would have crafted a compelling story about where thecompany was going and its fast track strategies to market leadership. Maintaining the pace of growth 4. It

will take some strategic planning and proactive efforts to nurture an effective relationship with them. 1.especially for a leading fast-growth company like Alibaba. This would assist the group to bettercommunicate the objective of sharing common task. Three of the major constraints affecting the newpublic company are examine below. working together and sharing information. Therefore . You will nowhave hundreds possibly thousands of shareholders calling and you will need to cultivate effectiverelationships with them.

The company will also need to keep on top of emerging threats and deal with any risk that can derail yourbusiness plans. The IPO may be the most significant transaction in the companys life to date. The resultof the indicators should be used to fame public analysis of the company making sure that the discussiontakes place on Alibabas terms. while ensuring that you are in full compliance with regulatoryrequirements. to flourish Alibaba will need to demonstrate to investors that you are competent atexecuting the business plan. New levels of discipline will have to be deployed throughout the organization

with tight focus on efficiency. Maintaining the pace of growth After a successful IPO it might be temptingto relax and rest on your laurels. you will now need to keep the pressure on to continue moving forwardand deliver of the grow path projected to shareholders. However. Key metrics that will drive the businessforward will need to be defined and their indicators monitored closely. Being a public company Jack Mawould now need to prioritize his efforts to cultivate a relationship with key analysts. Therefore. improvecash flows and greater liquidity. but it is only one more milestone along the road to continuous growth andmarket leadership. renew and recreate the business plan and his management team in order to sustainthe growth plan and satisfy shareholders demand. . He would have to guide them into understanding hisbusiness model and foster constructive conversations about the company growth path. Delivering on your


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promise The public market is an unforgiving place.Header 13 you will need to maintain that effort oncethe company in now subject to public scrutiny. Jack Ma will need to continually re-evaluate.

Corporate governance issue will need to be resolved including full disclosures of directors compensation.The stock market does not like surprises so it would be important to set and communicate realistic goalsand ensure that the business is financially transparent. Risk Management The Alibaba Group will have to

overhaul their approach to managing risk.Header 14 The Alibaba Group will now have to focus on thecompanys long term success. . The working environment after an initial public offer can be distracting forstaff but that have to remain focus while understanding their new responsibilities. their workingrelationships and conflicts of interest. The Alibaba Group will also have to comply with a host of new rulesand deadlines as failure to do so will alarm investors and the company may be subject to investigationand fines. This will require rigorous planning matched by a commitment of operational excellence.Whatever approach they take it should form and integral part of their daily business processes withconstant monitoring and revision.

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