Founded by schoolteacher Jack Ma and 17 associates in 1999, a year which included its first major investment by Goldman Sachs and Softbank, Alibaba has become Asia’s leading e-commerce giant. The company has the vast majority of its business within China, offering a huge challenge to its competitors within its territories.
In this article, we examine the strengths, weaknesses, opportunities, and threats that impact the operations and future of one of the world’s largest online sales platforms.
1. It has a large customer base: the population of China.
Alibaba’s main clientele is the population of China, a country which has the greatest population, seconded by India – another country that Alibaba has a strong market share. Alibaba’s business is Business to Consumer, Business to Business, as well as Consumer to Consumer, meaning that it’s positioned to cater for the vast majority of transactions for its consumers.
China’s population is 1.398 billion people. (The World Bank Group)
2. Strong innovation underpins Alibaba’s growth strategy.
Relying on innovation in Alibaba’s go-to-market strategy ensures efficiencies in its entrance. Innovations that decrease the company’s costs often give Alibaba a competitive advantage, allowing it to undercut its competitors.
Alibaba has 17,945 patents protected in mainland China. (Statista)
3. Alibaba’s Asian markets have seen strong growth in wholesale and retail.
The Asian markets that Alibaba operates in have seen incredible growth in the last decade. This growth has been driven by an emerging middle class offering a larger level of disposable income to be spent on items that Alibaba and its partners sell. Furthermore, as Alibaba is B2B as well, the rising tide of the Asian Economies certainly lifts all boats.
Alibaba’s share in the B2B eCommerce market is 28%. (Statista)
4. Alibaba’s retail sector benefits from a strong dealer community.
Many businesses use the platform that Alibaba offers as their only means of market exposure. This heavy reliance on the Alibaba network means that its consumers are incredibly loyal and entrenched in the Alibaba ecosystem – ensuring relevance in the marketplace going forward.
Alibaba’s gross merchandise volume reached $1.017 trillion in 2020. (Statista)
5. “Singles Day” is the largest shopping festival in the world, almost completely facilitated by Alibaba.
Online retail within the Asian Markets is underpinned by the Alibaba infrastructure. Any event that revolves around online retail within these markets will have a positive impact on the company. Singles Day is one such event. The premier shopping event in the most populated countries in the world means the volumes that are traded on this day are record-breaking, with a vast majority going through Alibaba’s platform.
800 million shoppers take part in “Singles Day” worldwide. (Queue-it)
6. China’s largest consumer-to-consumer sales platform, TaoBoa, is a part of the Alibaba group.
As remote work and entrepreneurship increase across the world, many individuals are using the Alibaba platform to sell their products and services to other consumers – this segment is one of the fastest-growing marketplaces. With over 1 billion product listings and the 8th most visited site in the country, Taobao is one of Alibaba’s strongest businesses.
Taobao’s gross merchant volume reached $523 billion in 2020. (Statista)
1. Alibaba’s work-life-balance leaves much to be desired.
Jack Ma, Alibaba’s founder holds a firm belief that having a job is a privilege, and you should want to honor the company that has awarded you the opportunity to improve your circumstance. This view is echoed throughout Alibaba’s human resource policies, which have contributed to their fair share of controversies.
Jack Ma, Alibaba’s founder, advocates a 72-hour workweek. (Singapore Press Holdings Limited)
2. Counterfeit goods continue to plague Alibaba’s products.
China has historically held a very relaxed view on patent protection, and counterfeit products and technologies. This sentiment has ingrained itself within the Chinese marketplace, meaning that manufacturers are quick to copy a successful product and offer a copy of it for cheaper using lesser quality components and technologies.
Alibaba has invested $161 million to mitigate the occurrence of fake goods on its platform. (Endeacour Business Media, LLC)
3. The company’s research and development have lagged compared to its competitors.
Alibaba has seen incredible success since its founding in 1999, using innovation to engrain itself into the market, as well as enter new markets. This success has encouraged competitors to enter the marketplace, who have derived their market entry practices focused on innovation, driven by research and development. However, these companies are doing so at a rate greater than Alibaba potentially undermining Alibaba’s future market relevance.
China’s top internet companies invested $21.85 billion in research and development. (ZDNet, A Red Ventures Company)
4. The company has an over-dependence on the Chinese market.
With little growth left to be realized within its home market, Alibaba should seek to expand to other marketplaces. Europe and North America are easy targets considering Alibaba’s existing infrastructure, and free cash flow available to be used in growth strategies.
International commerce retail sales accounted for 5% of Alibaba’s revenue. (Statista)
5. Alibaba’s revenue streams are insufficiently diversified.
The vast majority of Alibaba’s revenue comes from eCommerce from the Chinese marketplace. This exposes the company to the risk of new entrants undermining the company’s position in its core marketplace. Alibaba should diversify its geographical segmentation, as well as its product lines.
69% of Alibaba’s revenue comes from Chinese eCommerce retail sales. (Statista)
6. The company has been thrust into a rare antitrust lawsuit by the Chinese government.
Antitrust Lawsuits originating from the Chinese Government are quite rare. Alibaba has recently been embroiled in an antitrust lawsuit which has damaged the reputation that Jack Ma has worked to protect. The allegation is that Alibaba violated China’s anti-monopoly policies resulting in a hefty fine.
Alibaba was fined $2.8 billion after an antitrust investigation by China. (Vox Media, LLC)
1. There has been a global rise in demand for eCommerce.
Growth in the global eCommerce marketplace has been unprecedented in the last 3 years. Alibaba has done well to capture this market. However, this is only the beginning of the market surge. As technological uptake increases in developing marketplaces and the size of the middle-class increases, more and more people turn to eCommerce as their means of trade and access to retail. This bodes well for Alibaba.
79.1% of internet users in China had shopped online. (Statista)
2. The company can increase its presence in digital marketing.
While Alibaba is a household name, this is by no means a reason to relax spending on marketing and advertising. The marketplace for eCommerce infrastructure is becoming more and more competitive, and the nature of the industry is such that market share is quick to transfer. Alibaba should ensure that its advertising spend is matched and not exceeded by its competitors.
Alibaba spent $4.77 billion in advertising in 2020. (Statista)
3. The rising income of China’s population will be helpful in increasing sales.
China’s rapidly growing middle-class translates to a growing market for China’s eCommerce operators. Furthermore, this middle-class offers a greater level of disposable income for purchases made online.
The average annual income in China is $13,937.60. (Statista)
4. China’s economy is incredibly robust.
Considering the size of China’s economy, and Alibaba’s market share within this economy, the robust nature of China’s market translates to a robust nature of Alibaba’s earnings. As this market develops and matures, so should Alibaba’s commercial offering.
China’s gross domestic product reached $14.72 trillion in 2020. (Statista)
5. The company’s free cash flow offers an opportunity for investment-focused on growth.
Alibaba’s free cash flow, originating from its trading activities is one of the largest among its competitors. This available cash allows it to invest in product segments that it wishes to enter, as well as invest in new marketplaces offering growth potential.
Alibaba generated $20.9 billion in free cash flow. (Nasdaq)
6. Growth in cloud computing could allow Alibaba to become an industry leader within this segment.
China’s 800 million internet users create a phenomenal amount of data, which needs to be stored and processed remotely and securely. Alibaba is perfectly positioned to cater to this marketplace, by starting with its consumers.
Alibaba’s cloud computing platform bought in $2.47 billion in revenue. (SaveMyCent)
1. China’s declining population raises a longer-term red flag for Alibaba’s main market.
As a large marketplace has been positive for Alibaba, it cannot ignore the fact that its population is declining. India’s population size is expected to overtake that of China in the next ten years.
China’s fertility rate is less than 1.5 children per mother. (The Financial Times)
2. The shortage of skilled workers impacts Alibaba’s profitability.
Skilled labor translates into profitable operations. A constraint on growth for Alibaba is the lack of skilled labor in the marketplaces that Alibaba operates in, as well as in the geographical marketplaces that the company wishes to expand into.
China has 2.1 million employees working in general retail. (Statista)
3. Stiff competition within Asia’s eCommerce sector challenges Alibaba’s market position.
As Alibaba has effectively created eCommerce in China, and done so incredibly well, it has highlighted an incredibly profitable market for new entrants to break into. This results in a large number of aspirants aspiring to erode Alibaba’s market position.
China recorded 74 public companies in the eCommerce sector in 2020. (Statista)
4. Alibaba continues to battle the presence of fake products on its platform.
Counterfeits continue to erode Alibaba’s reputation, resulting in a trust deficit for the consumers that utilize the platform for trade and commerce. This opens the door for competitors to enter the marketplace and assume market share.
Alibaba has facilitated the arrest of 1,752 individuals and closed down 1,282 manufacturing facilities in a clampdown to decrease fakes. (Verizon Media)
5. Trade wars between geopolitical regions pose a risk to Alibaba.
As Alibaba operates B2B and B2C operations and having China as one of America’s greatest trading partners, any events that hurt the trading volumes between these regions will negatively impact Alibaba’s profitability.
$300 billion worth of consumer electronics are subject to the trade war between China and the United States. (Reuters)
6. The rising minimum wage undermines Alibaba’s business model.
Alibaba’s business model has resulted in strong growth for the company up until now. This growth has relied on a few key inputs, one of them is cost-effective labor provided by the Chinese workforce.
China’s minimum wage ranges between $165.20 and $347.20 per month. (Statista)
Considering its firm grip on the Asian marketplace and efficient go-to-market strategies and campaigns, Alibaba is firmly entrenched in its home market. Furthermore, it is strongly positioned to expand into new markets and new sectors considering its strong financials and growth strategies. Alibaba is here to stay. It becomes increasingly relevant as the world replaces more and more physical actions for online actions and eCommerce further penetrates the market.
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