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FINAL REPORT
ALIBABA GROUP HOLDING LIMITED
By:
Nabila Sekar Hapsari 1506679483
Rahmatania Ekoputri Apriliana 1506679281
Pratama Adipradana 1606884602
Ananda Nandika 1506727204
Mohamad Raihan Ghifari 1506679294
Rheinhard Yonatan 1506749634
Menno Janssen van Doorn 1806265583
Tobias Heinicke 1806265564
We, the undersigned, hereby declare that the attached paper is purely the result of our own
work. No work of others that we use without citing sources. This material is not / has not
been served / is used as a material for papers / assignments on subjects other than we stated
clearly that we have used. We understand that this task can be reproduced and or
communicated for the purpose of detecting the presence of plagiarism.
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GROUP MEMBERS
3
TABLE OF CONTENTS
STATEMENT OF AUTHORSHIP 2
GROUP MEMBERS 2
TABLE OF CONTENTS 4
COMPANY OVERVIEW 6
BUSINESS PORTFOLIO 6
Board of Directors 10
EXTERNAL AUDIT 16
Market Share 16
Core Commerce 16
Cloud Computing 17
Investments 20
INTERNAL AUDIT 26
IFE Matrix 26
CPM Matrix 27
4
STRATEGY GENERATION 29
SWOT Matrix 29
SPACE Matrix 30
BCG Matrix 32
IE Matrix 33
STRATEGY SELECTION 35
Market Development 36
Product Development 36
QSPM Matrix 37
STRATEGY IMPLEMENTATION 40
Marketing 40
Finance 43
STRATEGY MONITORING 47
Balanced Scorecard 47
APPENDICES 50
REFERENCES 50
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COMPANY OVERVIEW
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Alibaba is a major empire consisting of many different businesses and segments.
Ranging from commerce to logistics, they surely have it all. One of the way Alibaba operates
that is quite important in their revenue generating process is how they categorize every single
platform into different compartments, and that each platform would have different uses, or
similar uses but for different kinds of markets.
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1688.com, the largest B2B marketplace in China. Meanwhile, the global market is served
through AliExpress, Tmall Global, Alibaba.com and Lazada.
Moving on to the cloud computing segment, Alibaba Cloud or Aliyun. This segment
was initially founded in 2009, however the usage was still internal as it also supported the
first ever Single’s Day (11.11). As time went on, Alibaba witnessed a digital movement
happening everywhere and eventually decided to make the Alibaba Cloud services available
for public. Right now, it is the largest cloud computing company in China, and operates in 18
data center regions and 42 availability zones around the world.
Aside from its main operations, Alibaba also branched out to entertainment, mobile
media, and other sets of innovations. The platforms within this segment is namely UC
Browser, Tmall TV, Alibaba Music, AliHealth, and so on. They aspire to be in every aspects
of everyone’s lives.
As they want to create a whole ecosystem, Alibaba decided upon a strategic move
which was acquire firms who were operating in the field that Alibaba didn’t master, and
make them partners that would align their businesses with Alibaba. A notable example would
be Cainiao who had been acquired by Alibaba in 2017 by 51%, because Alibaba intends to
invest more in its logistical capabilities. Another example is Alipay, which started out as a
victim of China’s central bank regulations on third-party payment providers, to become
restructured as a domestic company controlled by Jack Ma. Although they had some issues
on their transfer of ownership, but Alipay went on to becoming Alibaba’s ultimate payment
platform. In 2015, its parent company was rebranded as Ant Financial Services Group.
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VALUES, GOVERNANCE AND SOCIAL RESPONSIBILITY
Board of Directors
Jack Ma and Simon Xie (Alibaba Group’s Co-Founder) have effectively transferred
ownership to select members of the Alibaba Partnership who are Chinese citizens. The
Alibaba Partnership was set up by the company a decade ago to ensure that Alibaba does not
rely on one or two executives in power and divides decision making among the 36 Alibaba
partners.
The Alibaba Partnership comprises 36 individuals who have the exclusive right to
nominate a simple majority of Alibaba’s board of directors, subject to shareholders’ approval
during the annual general meeting. This means they are also generally the ones with the most
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decision-making power since directors are hand-picked by the partners, despite not all of the
partners serving on the board of directors.
Of the 36 partners, six were part of Alibaba’s 18 co-founders, including Ma (a
lifetime partner) and executive vice-chairman Joe Tsai. The remaining partners are executives
who have worked for at least five years at Alibaba, or its affiliates like Ant Financial, each
with a proven track record of contributing to the group’s business. They are elected into the
partnership by their peers, with years of vetting. They must also be nominated by three
existing partners, and receive at least 75% of the votes of all existing partners.
As stated in Alibaba Group’s website, “The Alibaba Partnership has the right to
nominate such number of persons who shall stand for election as directors as may be required
to ensure that directors nominated or appointed by the Alibaba Partnership shall constitute a
simple majority of the total number of directors on our board of directors, with as equal a
number of such nominated directors assigned to each group of directors as possible.”
Besides the Alibaba Partnership, SoftBank and Nominating and Corporate
Governance Committee also have the rights to nominate a person who shall stand for election
as directors. As it is also stated in Alibaba Group’s website, “SoftBank has the right to
nominate one person to stand for election for so long as SoftBank owns at least 15% of our
outstanding shares. The director nominated by SoftBank will be entitled to receive notices
and materials for all meetings of our committees and upon notice to the relevant committee,
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to join as an observer in meetings of the audit committee, the compensation committee, the
nominating and corporate governance committee and other board committees we may
establish.” However, for the Nominating and Corporate Governance Committee of the board
of directors has the right to determine the persons who shall stand for election as directors for
the remainder of the places available for election to our board of directors.
Alibaba Group also has its own board of committee. It consists of three subsection of
committee which includes audit committee, compensation committee, and nominating and
corporate governance committee.
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VISION AND MISSION
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Alibaba’s Proposed Vision and Mission Statements
There is a way to evaluate vision and mission statement by doing vision and mission
analysis. Although there is no one best vision and mission statement for a particular
organization, when it comes to evaluating vision and mission statements, good judgment is
required. Ideally, each of the statements will provide more than simply inclusion of a single
word of the component.
Alibaba’s statement about their vision already reveals the type of business that the
firm engages because Alibaba has an ocular proof of developed infrastructure of commerce.
They built an ecosystem that provides e-commerce and created many platforms that
transform the way of business to make business more efficient to their stakeholders that are
consisting of consumers, merchants, brands, and retailers.
The statement “to make it easy to do business anywhere” itself consists of markets,
self-concept, and philosophy components. Self-concept component has further explanation in
“an ecosystem has developed around our platforms and businesses that consists of
consumers, merchants, brands, retailers, other businesses, third-party service providers and
strategic alliance partners” statement.
As for the technology and concern for survival, growth, and profitability components,
it can be found in “we provide the technology infrastructure and marketing reach to help
merchants, brands and other businesses to leverage the power of new technology to engage
with their users and customers and operate in a more efficient way” statement.
Since there is no statement that empower or explain about the company’s concern for
public image and employees, we can say that there is something missing from Alibaba’s
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mission statement. Thus, we proposed a new Alibaba’s mission statement that includes the
missing components. The new lines added for the mission statement would be as follows:
“...We believe there is no prosperity when our people and planet are not sustainable.
Our concern about sustainability bring us to care about social equity, economic development,
and environment.”
Customers ✓ ✓
Product or Services ✓ ✓
Markets ✓ ✓
Technology ✓ ✓
Philosophy ✓ ✓
Self-Concept ✓ ✓
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EXTERNAL AUDIT
Market Share
Alibaba is well known for its widely diversified portfolio of services. However in this
report, we would like to focus on our market share analysis on two of Alibaba’s strongest
segments that are Core Commerce (which comprises of both Retail and B2B Commerce) and
its new and growing segment, Cloud Computing.
● Core Commerce
Table 3. Global Non-store Internet Retailing Industry Market Share (Euromonitor, 2018)
The market share data shows the movement of worldwide non-store internet retailing
market share. This data shows that Alibaba is a force to be reckoned with, overtaking the
world with its commerce business unit. Despite coming second trailing after the giant
Amazon.com Inc., to be reminded again is that this data shows global market share in which
takes into account all population in the world, and that Alibaba has successfully claimed
almost 15% of global population.
Another thing to note is Alibaba’s growth rate in this core commerce business unit.
When faced head-to-head with major competitor Amazon.com, the data shows this
movement:
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Figure 3. Core Commerce Growth Rate FY 2013-2017 Comparison (Company Data,
Team Analysis)
Despite the downward movement from 2013 and finally taking a huge hit on its
revenue growth on 2016, but afterwards it has been moving upwards going into the year 2017
and onwards. When compared to Amazon, while it’s true that they’re having constant upward
growth rate, but in general their growth rate is still below Alibaba’s growth over the years.
Looking at the upward growth rate for Alibaba, it’s natural to forecast another increasing
growth rate looking at 2018 and furthermore.
● Cloud Computing
This segment of Alibaba is relatively a newcomer among its cloud computing
competitors (taking an example of the leading service AWS by Amazon which was founded
way back in 2002, while Alibaba Cloud was initially founded in 2009 and offered for public
usage in around 2014). However, being new to the public cloud services market doesn’t stop
Alibaba from soaring as shown in table 4.
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3 Alibaba Cloud 3.7 4.6
Table 4. Global IaaS Public Cloud Services Market Share (Gartner, 2018)
Alibaba is already in third place with increasing market share from 2016 to 2017, with
3.7% and 4.6% market share respectively. Moreover, just recently the new appointed CEO of
Alibaba, Daniel Zhang stated that Alibaba cloud will be Alibaba’s main business in the future
with all the digital enhancement that is happening all over the world. The rate that Alibaba
Cloud is growing is shown in figure 4.
The overall IaaS cloud computing market is increasing, and Alibaba is jumping in on
the growing bandwagon. For a relatively new business unit, Alibaba Cloud is showing
tremendous growth rate at 62.7% per year from 2016 to 2017. While it is true that the market
is dominated by rivals Amazon and Microsoft, but Alibaba Cloud’s growth rate is showing
how the business is still small, yet growing and expected to see upward growth movement.
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The Alibaba Ecosystem
Ever since its inception back in 1999, Alibaba founders had already agreed upon a
vision, that Alibaba would “foster the development of an open, coordinated, prosperous e-
commerce ecosystem.” They wanted to make a platform providing all kinds of resources, or
access to resources, that an online business would need to succeed.
This ecosystem was simple at first, which became a place where buyers and sellers of
goods are linked. Over the years, one by one business functions started to be technologically
infused, like marketing, logistics, and finance. The ecosystem expanded accordingly to
accommodate these innovations, and is now an interrelated ecosystem.
The ecosystem comprises of several categories, which are marketplaces, and enablers
or accelerators. The marketplace category beholds all kinds of Alibaba’s marketplaces that
each serves niche markets; Alibaba for global trade, 1688.com for Chinese wholesale
transactions, AliExpress for connecting global buyers with Chinese wholesalers and
manufacturers, Taobao for Chinese retail customers, Tmall for branded sellers, and
Juhuasuan for group buying. Meanwhile, these trades’ transactions and workflow are
facilitated by the enablers, such as Alipay for payment services, Cainiao for logistic services,
UC Browser as a browsing application, and many more. These platforms have created on
integrated ecosystem in which all of their business units complement one another on serving
their customers, a nod to one of their utmost important values that is ‘customer first’.
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Alibaba versus the Others
Alibaba is operating in the wholesale business against some very big competitors like
Amazon and eBay, who have entered the industry prior to Alibaba. Now, the race on
becoming the best and largest e-commerce platforms is on for these players, and even more.
With that being said, Alibaba through the lens of Jack Ma has operated in a way that would
set them apart from its US counterparts. One of the ways they differentiated themselves from
the others are:
● Investments
Alibaba has grown from the plucky startup taking on eBay to China’s most dominant
ecommerce player, and one of the most valuable companies in the world. For the last
two decades, the company has made plenty of investment decisions. The following
chart offers a breakdown of Alibaba’s startup investments to date, both by industry
category and by country of origin. Most of Alibaba’s startup investments are made in
tandem with other investors and the specific amount Alibaba put into the deal
typically isn’t disclosed.
Clearly, Alibaba’s biggest priority is holding its home turf: online shopping in China.
The vast majority of its investments to date have gone to China-based startups and its
favorite industries to invest in, ecommerce and logistics, have direct relevance to its
existing ecommerce business. Aside from US VR firm Magic Leap, Lazada and
Tokopedia were the only foreign companies to make the list.
Breaking the deals down by the total amount funded, Chinese firms were the clear
winners, with US$12.8 billion raised and Indonesian firms were next, with US$3.1
billion. Looking at the money distribution down by industry, ecommerce-relevant
investments came out on top, with over US$10.8 billion of the US$16.5 billion total.
Like its other Chinese tech rivals, Alibaba is big enough to have at least some
investment interest in most tech-related industries, and it has spent money supporting
startups in all the global tech hotspots.
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Figure 6. Alibaba’s investments segments
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billion people that inhabit China. Alibaba acts as a middleman, allowing businesses
and people to offer their products in auctions.
Over the past few years, the dynamic marketplace in China has welcomed some new
players that are offering branded products, which are popular among consumers, but
forecast ranking of top 10 e-commerce predicts that Alibaba will continue to dominate
China e-commerce market, followed by JD.com with 16.3% share.
And this is an important edge to have because as seen on figure x, the global retail
sales is a zero sum game where it shows that while the US has decreasing global retail
share, it shows an increase in Asian market, as the current comparison is already 16%
US and 84% Asia and the rest of the world, with the expected rate to be decreasing
even more in the future. Alibaba has already conquered the gigantic Chinese
ecommerce market, but soon US and European marketplaces may be targeted.
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Figure 9. The shift of US and Asian Retail Ecommerce Sales (Euromonitor, 2017)
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EFE Matrix
Upon identifying Alibaba’s opportunities and threats, we have concluded with sets of
facts and data included in our External Factor Evaluation Matrix. After the identification is
done, we created this EFE Matrix and score accordingly.
OPPORTUNITIES
THREATS
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2. Increasing regulation from the Chinese government 0.04 4 0.16
over its market activities due to Alibaba monopoly
market power
The results shows a mighty 3.40 as Alibaba’s EFE results. This is showing how
Alibaba is really strong on using its opportunities to counter its threats. This is a way above
average results and therefore, Alibaba appeared really great on the External Audit and they’re
really good at handling their external features.
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INTERNAL AUDIT
IFE Matrix
Internal factor evaluation matrix is one of the best strategic tool to perform internal
audit of any firm. IFE is use for internal analysis of different functional areas of business
such as finance, marketing, information technology, operations, human resources, and other
depend upon the nature of business. Based on our analysis of Alibaba’s internal factor
evaluation matrix we have gathered regarding relevant informations needed to realize the
evaluation techniques. Here are our findings:
STRENGTHS
WEAKNESSES
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4. The lack of self-automated machine in their 0.09 1 0.09
operating sector holds back potential improvement
on logistics and customer support (Operation)
Internal factor evaluation matrix of alibaba shows a result of 2.87, which means that
Alibaba’s internal strengths and weakness are showing great evaluation score. Nevertheless,
Alibaba still needs to improve their performance in some aspect to makes Alibaba better and
also makes innovation about their business to maintain their position a market leader in e-
commerce.
CPM Matrix
Alibaba Amazon
Critical Success Factor Weight
Weighted Weighted
Rating Rating
Score Score
Product Quality
0.1 2 0.2 4 0.4
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Table 7. CPM Matrix for Alibaba (Team Analysis)
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STRATEGY GENERATION
SWOT Matrix
SO Strategies
● Emphasize the aggregator model by the scale of operations and the market share.
(S1,S2,O1)
● Emphasize on the visionary leader and seek new markets (S3,O4)
● Keep strong partnerships and use the strong market position in China as leverage
(S4,O4)
WO Strategies
● Use the aggregator model to keep track of sellers (W1,O1)
● Use more precise E-commerce, and personalize discounts (W2,O3)
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● Apply for governmental support (W3,O2)
ST Strategies
● Seek opportunity of Partnerships with competitors (S4,T1)
● Sell more premium products (S1,T3)
● Improve service and increase staff (S3,T4)
WT Strategies
● Improve website safety and control (W1,T2)
● Hence economy is getting stable, make less discounts (W2,T3)
● Increase product quality, make requirements for sellers (W4,T4)
These above strategies have been conducted from the SWOT. It both shows where to
improve operations but also where to seize opportunities and avoid or mitigate threats.
SPACE Matrix
Y - Axis 2.8
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Customer Loyalty -2 Ease of Entry into Market 4
X - Axis 3.2
From the analysis on all four spectrums yielded the results of both axises, being 3.2
for the x-axis and 2.8 for the y-axis. These results placed Alibaba on the Aggressive quadrant
on the SPACE Matrix as shown on figure 6.
First, we must also identify what kind of profile Alibaba is in this aggressive
quadrant. Given the coordinates of (3.2 ; 2.8), it’s showing that Alibaba is operating in a
good, growing industry but haven’t seen much financially gaining results. This gives Alibaba
several recommended strategies, such as integration strategies, market penetration, market
development, and both related and unrelated diversification.
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BCG Matrix
In the analysis of BCG Matrix, we identified three main segments of Alibaba’s
business portfolios which are retail commerce, wholesale commerce, and cloud computing.
The sales percentage, relative market share and industry growth of the three segments are as
stated as table x. However, the profit percentage aren’t able to be shown because there are no
data in regards to segmental profit that each segment makes.
Others 11% - -
Total 100%
Upon doing analysis on the dataset from table x, we got the BCG Matrix for Alibaba
as shown in figure x.
From the results, both retail commerce and wholesale commerce are located in the
Star quadrant, while the growing cloud computing is located in the Question Marks quadrant.
These two different locations signify two different kinds of set of strategy recommendation.
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For the more established core commerce segment, the strategy recommendations are the
integration strategies and the intensive strategies that consist of market penetration, market
development and product development. This is shown by the segment’s high relative market
share position and the high-growth within their industry as well. Meanwhile, for the cloud
computing segment the strategies varies from intensive strategies to divestiture. This is
caused by the fact that cloud computing currently has quite a low relative market share
position, yet is being in a high-growth industry, and it’s also stated that they have yet to gain
any profit so far. However, with the possibility of high growth upon this segment it is more
advisable for Alibaba to go with the intensive strategy.
IE Matrix
Alibaba analysis about Internal Factors Evaluation (IFE) and External Factors
Evaluation (EFE), Alibaba can conclude their Internal External Matrix. Alibaba IE Matrix be
in column II based on score on IFE and EFE. IFE scores of Alibaba show on 2.87 and EFE
scores of Alibaba show on 3.40. Alibaba has positioned on grow and build strategy. Strategy
that Alibaba should do as intensive and integration. Intensive strategies could be doing with
market penetration, market development, and product development and then for integration
strategies Alibaba either forward, backward, or horizontal integration.
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Grand Strategy Matrix
This Grand Strategy Matrix has become a popular tool of for formulating strategy, All
organizations can be positioned in one of the Grand Strategy Matrix four strategy quadrants.
The Grand Strategy Matrix based on two evaluation dimensions : competitive position and
market (Industry) growth. Firms located in Quadrant I are in an excellent strategic position.
Based on analysis and result that we already have from 2 factors : competitive
position and market growth. Alibaba Grand Strategy be on quadrant I. Alibaba have strong
position on the market based on Alibaba is the biggest e-commerce and also the market
leader. Alibaba have their own commerce ecosystem that provide Logistic, Travel,
Entertainment, Communications, and many more. Alibaba on quarter ending June 2018
posted revenue growth by 61%. Therefore, suitable strategy that should adopt by Alibaba
could be related diversification, product development, and integration strategy.
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STRATEGY SELECTION
For
ont
Rel
rke
rke
uct
ate
ate
Ma
Ma
wa
wa
Ho
Un
Matrix Used
Ba
od
rel
D
riz
ck
Pr
v
rd
i
d
t
t
SPACE
✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
Matrix
Grand
Strategy ✓ ✓ ✓ ✓ ✓ ✓ ✓
Matrix
IE Matrix ✓ ✓ ✓ ✓ ✓ ✓
BCG
Matrix
● Retail
commerce
✓ ✓ ✓ ✓ ✓ ✓
● Wholesale
✓ ✓ ✓ ✓ ✓ ✓
commerce
● Cloud
computing
✓ ✓ ✓ ✓
Total 5 5 5 6 6 6 2 1 1
Based on the strategy generated from each matrix use in the strategy generation, we
found that most of the matrix recommends Alibaba to choose either market development or
product development. Our team found that Alibaba has already defined what their market
development and product development strategies would look like. Alibaba’s market
development strategy is to expand their market globally, deeply into other countries,
especially in South Asia countries and for their product development, Alibaba planned to
open a smart physical store in China.
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Market Development
Alibaba planned to expand their market globally, and at the present day they aimed to
increase their market in South Asia country. One of the move used by Alibaba in this strategy
was to acquiring foreign e-commerce services that already have presence in the respective
market, for example, when Alibaba started to expand their market to Southeast Asia
Countries, Alibaba acquire Lazada, which at that time in 2016, already become one of the
largest e-commerce services in Asia. Currently, Alibaba aimed to expand their market shares
in South Asia country, and like what they had done when expanding their market into
Southeast Asia market, they acquire company that already have presence in the South Asia
market.
In May 2018, Alibaba acquire Daraz, which is an e-commerce services that serves
market in South Asia countries. In India, Alibaba invest in some of the India’s e-commerce
services, such as Paytm, which is India’s largest mobile payments company with more than
200 million users, snapdeals, the third most popular e-commerce retailer in India by app
downloads, and in 2018, Alibaba invest their money to Xpressbees, an e-commerce logistics
firm, and into BigBasket’s Series E, an online grocery store. Despite this, Alibaba expansion
into India was wasn’t without challenges and until now, they still battled with Amazon for a
domination in India’s market shares.
Product Development
Alibaba planned to expand their product into brick and mortar shopping in China, but
it’s not a conventional retail store, but instead Alibaba want to create a physical store that
combine its physical store operation with their online operation. In fact, Alibaba has already
open this smart physical store which is known as Hema. Hema incorporate some of the
feature that the customer usually found on Alibaba e-commerce services, such as payment
using their Alipay account by scanning their faces at the kiosk, the ability for customer to
order the groceries online, and see product information in their phone by scanning the
respective product barcode.
Beside use as retail store, Hema also had a restaurant, which is serves by robot and
used as warehouses for online orders. Alibaba itself intended to reach their 100 stores in
December 2018, and until now, it’s already operate in 16 cities, and according to Alibaba in
their 2018 Investor Day, Hema had already served 10 million customers. As Alibaba focused
to open this smart physical store in tier 1 and tier 2 cities in China, we found that at this
moment Alibaba won’t face major challenges from other domestic competitor in China, as
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currently they’re still the market leader in China e-commerce businesses and with the tight
regulation imposed by the Chinese government which cause many abroad companies to exit
the country, means that Alibaba also won’t face major challenges from foreign companies
that try to open the same smart retail store in China.
QSPM Matrix
WEAKNESSES
The lack of self-automated machine in their 0.09 1.00 0.09 3.00 0.27
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operating sector holds back potential
improvement on logistics and customer
support
OPPORTUNITIES
THREAT
38
operational activities
According to our QSPM analysis, we found that it’s more attractive for Alibaba to
implement their product development strategy which is to open their smart physical store
instead of implement their market development strategy. The reason of this strategy selection,
according to our analysis, as the physical store were built in China, Alibaba could maximize
their current strength and opportunity, mainly their high market share and government
support. In addition, Alibaba R&D in the present day which is focused on the development of
Artificial Intelligence are aligned with the development of the physical store which require
the use of Artificial Intelligence on its operation .
Alibaba would also found less threat when they’re opening their physical stores in
China, as some of the threat face by Alibaba was imposed because their international
operation, such as currency fluctuation and challenge presented by other e-commerce
businesses when they are operating overseas, such as Amazon, which is considered as
Alibaba main competitor, especially when it comes to their market share in India.
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STRATEGY IMPLEMENTATION
Marketing
There are seven aspects to Marketing which are product, promotion, price, place,
Physical Evidence, Process, and People.
- Product
Alibaba is operating in online space as the one of the largest online e-
commerce in the world. Alibaba is where businesses go to source manufactured
products, both cheaply and in bulk, that they can resell or private label for their own
businesses. One of the best qualities of using the Alibaba website is that anyone, with
or without their own business, can browse through their database of suppliers,
manufacturers and products.
Alibaba product is simply put to provide medium for manufacturer and
consumer in one place so Alibaba can makes them to make deals easier which
benefits both the seller and the consumer.
Alibaba should implement and execute the new retail concept. which
combines the online shopping convenience and traditional shopping experience.
Alibaba will help traditional retailers to restructure and enhance the way they operate,
which can touch everything from customer experience, to inventory management, and
retail spaces. By implementing New Retail, whether it be across a grocery store, a
mall or even a car vending machine, requires experimenting, implementing and
harnessing the power of three important concepts; Cloud Commerce, Digital
Shopping Experience, and Location Data Analytics.
Cloud Commerce mastery is important to help Alibaba’s analysed data needs
to be processed quickly and securely at an unprecedented scale and in coordination
with every other system a given retailer employs. Digital Shopping experience will
enhance the user of Alibaba’s new retail experience and convenience so the customer
will have higher satisfaction. Location data and analytic tracking used real-time data
processing via the cloud and real-time application activity of users and employees
combine to better understand the feasibility of location of the new retail and how
Alibaba can implemented it successfully.
- Place
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Alibaba operates in over 200 countries and territories, Alibaba is the world's largest
retailer, one of the largest Internet and AI companies, one of the biggest venture capital firms,
and one of the biggest investment corporations in the world. The company hosts the largest
B2B (Alibaba.com) and B2C (Taobao, Tmall) marketplaces in the world.
Alibaba also has main offices in many countries and regions, including China, Hong
Kong, Singapore, the United States and the United Kingdom. In addition, we maintain data
centers in a number of countries including Indonesia, Malaysia, India, Australia, Singapore,
Germany, Japan and the United States to help Alibaba coordinated their worldwide operation
Alibaba’s new retail concept will first be implemented in China and then expand
around the world, starting from India and other developing countries around Asia and then
expand worldwide to developed countries with the experience from few years of
implementation.
- Price
The pricing strategy that Alibaba uses is penetration pricing as it seeks to enter
newer and newer markets. It therefore offers discount for both supplier and consumer.
Some of the services that they offer do not involve any transaction cost. Some of the
services like Aliexpress have no registration fee as well.
The main revenue of Alibaba is through the advertisements that are done on
their site by businesses. The secondary revenue is from customers who take
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membership. It also sometimes employs competitive pricing to offer products at
prices similar to the competitors to drive the sales.
- Promotion
Alibaba promotes through a number of channels. Alibaba advertises through
traditional channels like print media, radio and TV and Social Media. It advertises
through catchy taglines. As most of the services offered are online Alibaba promotes
through digital media as well. They have also been the sponsors for international
events like Beijing Olympics. It has also sponsored Australia-China Business Week
which was one of the high-profile events in the business world. The other ways in
which it promotes itself is through offers, discounts, festive sales and cashbacks for
purchases on its ecommerce platforms.
- Physical Evidence
The physical evidence of Alibaba includes the intangible aspects of service
like the delivery schedule which has to go as promised. The products delivered should
be as per the order and quality desired. The transactions should be smooth and
trustworthy and the ecommerce platforms should be user friendly and attractive.
These aspects form the physical evidence of the company.
- Process
Alibaba offers shopping platforms and the way the whole process takes place
is simplified. The shopping can be done on a wholesale basis, group shopping, or
customer to customer. The manufacturers make the products according to the order
quantity and ship them. The customers who want to sell, sell the products directly to
other customers. The transactions can be done through either Alipay or Western
Union and similar platforms.
- People
Alibaba is mainly divided operations, finance, marketing and customer service
departments. The lowest level is the one having manufacturers and sellers. The
organization has a major emphasis on the engineering department where they hire
only from top institutes. The engineers are extremely skilled in their domain and
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adaptable to the changes in technology as it is the department which is at the core of
the business. This completes the marketing mix of Alibaba.
Finance
According to Forbes.com, over the past two years Alibaba has been buying physical
stores, engineering a bold experiment to revamp China’s entire retail landscape. Alibaba is
currently integrating their online-offline shopping experience for its consumers by developing
their physical stores with the use of online technology. Alibaba has budgeted ¥1,799,148,000
in 2017 for this newly implemented program. This fund is used to open up their new brick
and mortar stores and investing in its technology to run the new retail experiment. Alibaba
predicts that from this new retail initiatives, it will grow Alibaba’s total addressable market in
e-commerce.
We have several information about Alibaba and the general economy in which the
firm operates its business. Alibaba’s operating margin in 2017 is reported to be 30.65% of
their sales. Alibaba also has an interest rate in range of 15%-20% and its tax rate is 29.00%.
By the end of 2017, the amount of share outstanding is 1,363,170,000 shares with their most
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recent closing price is ¥997.41 or 144.32 USD. We also have the information of their 2017
capital structure that consists of 56% equity and 44% debt.
By using the information above, we can make an EPS/EBIT analysis to determine
which financing alternatives that Alibaba can use to implement their new retail initiatives.
These are the list of the data used for the analysis:
❏ Amount of Capital Needed : ¥1,799,148,000
❏ EBIT Range (calculated by using the revenue in 2017):
❏ Recession : ¥170,934,840.00 (using revenue growth 8%)
❏ Normal : ¥174,100,300.00 (using revenue growth 10%)
❏ Boom : ¥177,265,760.00 (using revenue growth 12%)
❏ Interest Rate : 17%
❏ Tax Rate : 29.00%
❏ Stock Price : ¥997.41
❏ #Shares Outstanding : 1,363,170,000 shares
The calculation for the EPS/EBIT analysis is presented below in the form of table and
graph:
Common Stock Financing Debt Financing
Recession Normal Boom Recession Normal Boom
EBIT ¥170,934,840 ¥174,100,300 ¥177,265,760 ¥170,934,840 ¥174,100,300 ¥177,265,760
Interest ¥0 ¥0 ¥0 ¥309,093,626 ¥309,093,626 ¥309,093,626
EBT ¥170,934,840 ¥174,100,300 ¥177,265,760 -¥138,158,786 -¥134,993,326 -¥131,827,866
Taxes ¥41,520,073 ¥42,288,963 ¥43,057,853 -¥33,558,769 -¥32,789,879 -¥32,020,989
EAT ¥129,414,767 ¥131,811,337 ¥134,207,907 -¥104,600,017 -¥102,203,447 -¥99,806,878
# Shares ¥1,364,973,820 ¥1,364,973,820 ¥1,364,973,820 ¥1,363,170,000 ¥1,363,170,000 ¥1,363,170,000
EPS 0.0948 0.0966 0.0983 -0.0767 -0.0750 -0.0732
Table 12. EPS/EBIT Analysis (Formulated by the writer)
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As we can see from the calculation and graph above, the most ideal financing
alternative for Alibaba’s newest retail initiatives is by doing a 100% equity/stock financing.
For each economic condition and EBIT range (low to high), the 100% equity financing
option is still the best pick as it generates the highest EPS value for Alibaba. This result
suggest that Alibaba should not put more strain in their debt as they have a quite high interest
rate. Since Alibaba does not do dividend payment and the current stock price is rising, the
equity financing can be the best option.
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Figure 17. Alibaba Cloud services
Alibaba cloud offers many aspects to help improve online business all around business such
as high performance, elastic computing power in the cloud. Service that Alibaba cloud gives
could be available on a pay as you go basis and include data storage, relational database, big
data processing, anti-DDoS protection and content delivery network (CDN). Alibaba
committed to help the research and development of a large database system and advance big
data technologies. Their R&D has the effort to keep develop their MIS from the advancement
of an Internet of things technology, virtual reality, smart homes, and cloud-based mobile
device operating system. Alibaba cloud helps global infrastructure from an online business
technology aspect, this cloud already operates in 49 availability zones in 18 regions around
the world that makes data connected from one to other and keeps updated.
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STRATEGY MONITORING
Balanced Scorecard
Financial Performance
Customer
Operations/Process
Community/CSR
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Table 14. Alibaba Balanced Scorecard
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CONCLUSION
The strategy that Alibaba should implement is the Product Development through the
brand new concept that is New Retail. This strategy is great to re-capture their home market
and to maintain their position as number one in the country. This chosen strategy is also in
line with the mission statement that Alibaba has, which is to make it easy to do business
anywhere. By integrating both online and offline aspects of shoppings, they are literally
making it easy for everyone to conduct business anywhere.
This strategy will not be easy to market nor will it be easy to be funded, but Alibaba is
known for taking calculated risks upon operating and this strategy is one of them, therefore
we would recommend for Alibaba to further implement the Product Development strategy
that takes form in the New Retail concept.
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APPENDICES
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