A Comprehensive review of The

Alibaba Group A Paper Presented in

Partial Fulfillment Of the Requirements
of The Robert Kennedy College
, E-Business course June 2011
Abstract This case study documents the example of how a small Chinese company which originated from
humble beginnings can eventually make it and compete successfully on the global electronic and
economic market. The case study looks at The Alibaba Group strategies for success in the complex world
of 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 as
standard supplier store fronts.com to both suppliers and buyers. Like its international counterpart.
Alibaba. . The Group provides online marketplaces through Alibaba. product listings and communication
tool such as e-mail alerts.com limited is the global leader in business-to-business (B2B) e-commerce and
is the flagship of the Alibaba Group. Alibaba China brings together a trusted community of members who
meet regularly to chat.cn is the Chinese-language version and this business-to-business marketplace
promotes trade among the domestic china. news and alerts are available for free. A broad range of
products and services are offered at Alibaba. but disadvantaged. discussion forums. Alibaba.com is
geared towards helping vital.cn boasts more than 31.Introduction The Alibaba Group of companies was
founded in 1999 by its visionary leader Jack Ma and a small group of his friends. hosting an international
global trade marketplace. Alibaba.com.com which is English language website. segments of China
economy with simple and efficient internet solutions. which entitles them to post trade offers and products
online. 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 by
Alibaba. search for products and do business online. Alibaba Group is a many to many e-market place
that brings together millions of buyers and seller from around the world who want to do business with
China.com. Base in Hangzhou.

com. It allows individuals and business to transact payments online in a safe and secure manner. The site
provides a platform for both retailers and individuals to see virtually anything to Chinese
consumers.com.china. this is China largest internet retail site with 100 million registered users and more
than 1. Taobao. The Analysis and Companies Portfolio In 2008 and 2009 China experienced rapid growth
in 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. this
company offers an internet base business management solution.com.com is Chinas leading third party
online payment platform. and one of the most popular e-mail services in China. its founder was faced with
a very difficult challenge on how to bring Alibabas businesses to their fullest potential. During this time
The 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 leading
classified listing website. information management and basic financial management tools to SMEs in
China. Koubei. It develops markets and delivers internet base business management software such as email.Header In addition the Alibaba Group owns and maintains the following marketplaces: 2 Yahoo. This
online payment facility assisted merchants worldwide to sell directly to consumers in China Alisoft. . This
group of autonomous companies was able to grow revenues by 24% to $636M and their assets by 7% to
5. Alipay.
In this case I believe that Jack Ma would have recognized the importance of good customer service and
customer loyalty. leave them as separate entities but foster collaboration among them. The other
business in the Alibaba Group did not depend largely on sales teams but rather more head counts in
engineering and customer service in the Case of Taobao and Alipay. p154). Secondly. Efraim Turban.5
million and 14 million registered users in its international and Chinese domestic marketplaces
respectively. In 1998 Ma joined a company established under Chinas Ministry of foreign Trade and
Economic Cooperation (MOFTEC) which was mandated to help Chinese companies adopt . In 2009 The
Alibaba Group had nearly 17. Customer acquisition and retention is a critical success factor in any ecommerce business. After typing the word China into a portal search engine and receiving no result he
was 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 fist
challenged was if to maintained the competition among the subsidiaries or bring them together.000
employees. (Electronic Commerce. Therefore his companies needed deploy significant resources to
attract new customer as well as retaining existing ones.S as an interpreter for a Chinese economic
delegation. 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 ready
for inline commerce. Alibabas B2B Marketplace Jack Ma was an English teacher who glimpsed the
power of the internet during a trip to the U. 2010.
5 million registered users and 1. trading companies and downstream manufactures. prioritized listings for
increase exposure to buyers. company profile authentication to increase buyers confidence and real time
performance analysis and escrow payment services. While it offered free basic services to registered
members it migrated about 1% of its users to the value added of the international gold supplier program
and 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 fragmented
markets.9 billion and added 10. Alibaba. However Ma did not agree with the strategy of electronic data
interchange (EDI) favored by his superiors. To survive this company was to compete directly with eBay
who 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 to
become the leading trading exchange in China.7 million storefronts in 2008. Alibaba also gained revenue
form it reverse auction in keyword bidding and advertising.com started as a simple trading platform
designed to help connect small Chinese manufactures with buyers. Taobao In 2003 Taobao was
launched as a business-to-consumer (B2C) and a consumer-2-consumer (C2C) platform for retailers and
individuals to sell good to Chinese consumers. By improving on its product offerings and service delivery
Aibaba operating profit grew by 48% to RMB 1. Jack Ma also believed that Alibaba would derive revenue
in the form of commission from stable transaction volume via bulk discounts through the approach of
Citibank and UPS. with limited access to communication channels and information sources and had no

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. This
company 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 when
dealing with business in through Taobao. Alipay had more than 550 million registered users and
facilitated around 8. This was done through the use of a pay-for-performance contract. In August 2008
Alipay 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 the
internet (Electronic Commerce. therefore sellers only paid for their bids if a customer actually clicked on
the advertised product. The companys ambition is that by the end of 2011 to reach an annual . secure
and 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 in
exchange for preferential ad rankings. By the end of that year Alipay had gained 50% of all online
payments in China and executed 4 million transactions per day. Efraim Turban 2010. In 2005 Jack Ma
separated it from Taobao and made it an independent business unit. Consumer trust is fundamental to
successful online trading. With 2 million individual sellers and merchants on Taobao this would be a
natural base to make great revenue and in the second half of 2008. p157).Header 5 Taobao offered its
services for free to entice Chinese consumers to come online. It provides a simple. Alipay is now Chinas
leading online payment platform.
It increases the potential for substantial yearly savings to buyers. Therefore in 2009 China Yahoo
eventually shut down its 3721 operations. China Yahoo! was one of the leading Chinese-language portals
offering search. control and legal personnel and other departments. Linking budget systems to
payroll.Header 6 transaction volume of 1 trillion yuan and top pay pal to become the worlds largest
payment firm. inventory management and financial management. The ERP benefits should include the
following: Buyers can reach more vendors. China Yahoo showed poor growth in its market of the keyword
search market. China Yahoo was purchased from Yahoo! Inc. Selected other Business In 2005. email
and an enhanced focus on entertainment content. This company was created to supply small business
with affordable Enterprise Resource Planning technology to include systems like customer relationship
management. Sellers and vendors can widen participation in government contracts. ERP systems also
provides fast access to detailed accounts histories. It allows for faster product/service look-up and
ordering. allowing nearly instant data exchange and ensuring such information is constant and uniform
across the board. accounting. It can provide easy access to trend data. Alibaba began incubating a new
company called Alisoft. producing from more competitive bids and lowering the cost of products and
services purchased. In early 2006. financial information from . providing more abundant information and
improved planning and analysis (for buyer and sellers). The systems should bring major benefits to the 40
million 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 daily
basis and connected with over 80 million consumers. By 2009. how to find ways to encourage cross
business 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 challenges
brought about by Chinese start-ups? Like many other countries from Asia the current global recession
has cause business to look outside their home markets for customers and companies from China are no
different. Overtime. Chinese companies are not only increasing their share of the Chinese domestic
market but they are aggressively penetrating western markets with great success. In January 2007 Alisoft
had demonstrated it market viability and had reached critical mass and Jack Ma transferred it out is
incubation and had the company reporting directly to him. ERP system can empower small business to
closely measure their performance in order to achieve desired results. Alimamas model evolved from just
an online exchange to an affiliate network of small web publishers. Alisoft had 40% of the Chinese EPR
software market and employed 500 professionals. 1. By 2008. Alibaba launched Alimama this was an

online advertising exchange which connected websites and advertisers. One of the key reasons for this
development is that Asian companies know how to compete in markets with low profit . However. This
platform allowed publishers to market their advertising inventory to advertisers. For example. Jack Ma
recognized that the business model faced several challenges.Header 7 previous years can be quickly
combined 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 the
world has to offer. However.Header 8 margins usually unheard of in the western world. Western
corporations have weathered rivals before and emerged stronger for it. And 3Com have formed telecom
equipment and design ventures with Hauwei. Many companies like The Alibaba Group are leveraging
their 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 lightweight
lithium ion batteries. What make these upstarts global contenders is their advantage to some of the
worlds most dynamic growth market and immense pools of low-cost resources. gone are the day when
they could afford to wait for an emerging . China per capita income is still just $1.8 billion to buy Maytab
just 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 and
getting products to market faster than their rivals. Despite this China internet penetration continues to
grow at a rapid rate. this new group of game-changing companies is different on many levels. Another
strategy is to refuse to concede grown either at home or abroad. join them for example Nortel Networks
Ltd. Western companies need reexamine their cost structure and look for innovative way to drive cost
down and past some of those savings on to the consumer. Thirdly is you cannot beat them. So how can
well establish western companies respond to this on slot? This first step is to begin respecting the new
competition 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 there
population while growing fast remains relatively poor.
com optimize its use of the proceeds from the IPO? The Alibaba Group of companies has a proven track
record in providing internet solution for millions of small business in China and connecting them to the
global market.K Prahalad. They have a business plan with targets for business expansion and you have
capable competent people in the right positions. you will not only miss opportunities but also cut out all
the 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 strategist
If 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 one
chooses to confront or collaborate. Considering the success of Alibaba. How should Alibaba. By 2006
The Alibaba Group would have experienced 7 years of successful trading and had a proven track record
for innovation. This would be a prime time to make an IPO providing that you are looking for capital in
order to finance growth and expansion.Header 9 market to ripen and then use their ability to dominate the
local players. The IPO is also an important channel through which an entrepreneur or venture capitalist
get rewarded for his initial effort. the new China startups are set to change the rules in the industry. 3. The
Chinese . a large customer base.com's IPO. A review by Luigi Zengales for the University of Chicago
suggests that the decision to go public should be the result of a value maximizing decision may be the
initial owner who wants to eventually sell his company or increase the value of it. had reached a level of
maturity and profitability. 2.
Users climbed from 59 million in 2002 to 390 million in 2009 with 270 million users connecting using
broadband. Develop an application that would allow The Alibaba Group to tap into the lucrative market of
small business loan. Use some of the funds to expand the existing business to expand both in China and
the global market. Finally The Alibaba Group should also consider the acquisition of businesses that offer
complementary products and services to the Groups portfolio of products and services. what should the
next steps be for a company like Alibaba. Therefore I would suggest that The Alibaba Group use the
proceeds from the IPO to do the following: Fuel the expansion in building additional application to assist
in the development of small business and further enhance the technology platforms. Some of the
proceeds should also be used to develop the brand value of the Alibaba Group both in the Chinese and

international market. Having gone through the IPO. This application should be integrated in the existing
platforms 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 other
related services.Header 10 population continues to display a hunger for the superhighway as internet
users continue to grow at a phenomenal rate. Develop a mobile platform that users can use to connect to
the exchange in order to search and purchase products.
Building a powerful brand. Continue to encourage their employees to embrace the entrepreneurship sprit
and enhance their skills in e-commerce and internet technology. the Alibaba Group has created a solid
institution that fully understands the situation and need of SMEs. These can be in the form of: Enhancing
the power of the companys B2B exchange. Continue to focus on the Group competency. This can be
achieved by executing a marketing strategy that will make Alibaba.S. Continue to build on the strong
sales and customer service teams and expand these principals into the global markets.com in the U. the
Group must work together to match the needs of different customer segments. Continue to diversify the
relationship with the parent company and its subsidiaries. By focusing on small business that would be
otherwise be left alone. Continue technology innovation and providing application that can expand the
business products offered to members. However. Continue to develop their management teams and the
commitment to the strong corporate culture. This is developing electronic solutions for small business in
China. . not only in China but around the world similar to that of Amazon.Header 11 The next step for the
Alibaba Group after such a successful IPO is to relentlessly and aggressively pursue new markets and
deploying strategies for growth. this can be achieved by attracting and registering more buyer and sellers
on 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 the
situation changes radically. Therefore it is imperative that executives position themselves to deal with new
challenges created by the IPO. Working with Investors 2. Facing the Constraints Life after an initial public
offer can prove to be very different for a newly listed company. Risk Management Working with investors
When Alibaba was in private hands it was just accountable to Jack Ma and his other 17 friends. An IPO is
a transformative step for any business and it can change the lives of executives involved.Header 12
Deploy the use of collaboration software such as Lotus notes or Novell GroupWise. Delivering on your
promises 3. During the IPO process Alibaba would have crafted a compelling story about where the
company 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 better
communicate the objective of sharing common task. Three of the major constraints affecting the new
public company are examine below. working together and sharing information. Therefore . You will now
have hundreds possibly thousands of shareholders calling and you will need to cultivate effective
relationships with them.
The company will also need to keep on top of emerging threats and deal with any risk that can derail your
business plans. The IPO may be the most significant transaction in the companys life to date. The result
of the indicators should be used to fame public analysis of the company making sure that the discussion
takes place on Alibabas terms. while ensuring that you are in full compliance with regulatory
requirements. to flourish Alibaba will need to demonstrate to investors that you are competent at
executing 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 tempting
to relax and rest on your laurels. you will now need to keep the pressure on to continue moving forward
and deliver of the grow path projected to shareholders. However. Key metrics that will drive the business
forward will need to be defined and their indicators monitored closely. Being a public company Jack Ma
would now need to prioritize his efforts to cultivate a relationship with key analysts. Therefore. improve
cash flows and greater liquidity. but it is only one more milestone along the road to continuous growth and
market leadership. renew and recreate the business plan and his management team in order to sustain
the growth plan and satisfy shareholders demand. . He would have to guide them into understanding his
business model and foster constructive conversations about the company growth path. Delivering on your

promise The public market is an unforgiving place.Header 13 you will need to maintain that effort once
the 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 goals
and 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 the
companys long term success. . The working environment after an initial public offer can be distracting for
staff but that have to remain focus while understanding their new responsibilities. their working
relationships and conflicts of interest. The Alibaba Group will also have to comply with a host of new rules
and deadlines as failure to do so will alarm investors and the company may be subject to investigation
and 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 with
constant monitoring and revision.