Академический Документы
Профессиональный Документы
Культура Документы
(University of London)
Jiajia Ge
Requirements for the MBA degree and the Diploma of Imperial College London
September 2006
FTMBA 2005 Jiajia Ge
SYNOPSIS
The main objective of this project is to identify the possible expansion strategy for
Ever since its emergence in the mid-1990s, Chinas e-commerce industry has
government policies, improving broadband access across the whole of china, as well
Alibaba, the biggest B2B e-commerce company in China, showed its strong
ambitions for expansion after achieving profitability. It has developed from a single
was implemented. The research involves the following key aspects: 1) review the
Based on the research, it is concluded that the more appropriate expansion strategy
barriers to expansion.
I
FTMBA 2005 Jiajia Ge
ACKNOWLEDGEMENTS
Sincere thanks are due to Dr. Nicos Nicolaou for his supervision and great
I also gratefully acknowledge the invaluable opinions received from the interviewees.
Finally, I would like to thank my family and my friends for their support during the past
year.
II
FTMBA 2005 Jiajia Ge
TABLE OF CONTENT
III
FTMBA 2005 Jiajia Ge
List of Figures
Figure 1: The life cycle of Chinese B2B industry (Source: iResearch, 2005) ....... - 6 -
Figure 2: The life cycle of Chinese B2C industry (Source: iResearch, 2005)....... - 8 -
Figure 3: Value chain of Chinese B2C e-commerce (Source: iResearch, 2005).. - 9 -
Figure 4: The life cycle of Chinese C2C industry (Source: iResearch, 2005)..... - 10 -
Figure 5: Stage model of business growth (adapted from Churchill and Lewis, 1983)
.................................................................................................................... - 13 -
Figure 6: Creativity-based Model of Entrepreneurial Opportunity Recognition... - 18 -
Figure 7: Strategies to preserve profits against competition (Shane, 2003) ....... - 21 -
Figure 8: Alibabas business growth model ........................................................ - 32 -
Figure 9: Possibilities identified.......................................................................... - 38 -
List of Tables
Table 1: The five phases of Growth (adapted from Greiner, 1972)..................... - 12 -
Table 2: Amazons expansion Process (Source: Datamonitor, 2005) ................. - 24 -
Table 3: eBays expansion Process (Source: Datamonitor, 2005)...................... - 26 -
Table 4: Evaluation of opportunities identified .................................................... - 41 -
IV
FTMBA 2005 Jiajia Ge
Chapter 1: Introduction
across the whole of china, as well as the increasing number of Internet users,
Chinas e-commerce industry has entered into a fast growing period. In 2005,
(iResearch, 2005a).
B2B business, Alibaba aims to offer a reliable and convenient online B2B platform to
numerous Chinese small and medium-sized enterprises, which are fast developing
After achieving profitability, Alibaba showed its strong ambitions for expansion. In
2003, it expanded into C2C e-commerce market by launching its own C2C website,
Taobao, which exceeded eBay China and became the leading C2C e-commerce
website in China after two years development. Later that year, Alibaba entered into
online payment market. Moreover, Alibaba also attempted to expand its territory by
cooperating with Yahoo!. In 2005, the two companies announced a strategic alliance
billion from Yahoo! for 40% stake in Alibaba. To date, Alibaba has developed from a
single B2B e-commerce company to a large group, with a portfolio consisting of four
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FTMBA 2005 Jiajia Ge
The aim of this project is to identify possible expansion strategy for Alibaba and the
What are the expansion opportunities for Alibaba? How can Alibaba explore
the appropriate opportunities? What are the benefits and risks involved?
In order to answer the questions above, the research will include the following key
aspects:
analyse the driving forces behind Alibabas expansion. This analysis will
expand.
Identify new business opportunities for Alibaba and analyse the potential
The next chapter begins with a review of existing theories and best-practices,
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FTMBA 2005 Jiajia Ge
Chapter 3 illustrates the research strategy, the rationales and the methodology of the
research.
analysis of the information collected. This chapter encompasses two sections. The
first section includes the analysis of Alibabas business growth process, the driving
expansion and lessons from expansion. The second section provides some
barriers to expansion.
The last chapter summarises the key findings of the research, and points out the
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FTMBA 2005 Jiajia Ge
This chapter reviews existing theories and best-practices which will lay an academic
foundation for the analysis in the following chapters. This chapter encompasses five
models, driving forces as well as barriers; second, business growth models; third,
Canzer (2003) defined e-commerce as the activities involved in buying and selling
on a world-wide scale, partly because it reduces the transaction cost inherent in the
In China, e-commerce has been developing since 1995 when Internet access began
and regulation of e-commerce, the rapidly increasing user base, the fast
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Chinese enterprises are similar to those for global firms. The development is driven
by market expansion for existing products, customers demanded it, entering new
e-commerce in China is still at a start-up stage with uneven diffusion among different
geographic areas, demographics and industry sectors (Tan and Wu, 2002; Tan and
Wu, 2004).
Consumer (C2C) e-commerce. In the following section, these three sectors will be
development process of Chinese B2B industry can be divided into four stages:
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2010-
Maturity
2004-2009
Take-off
1998-2003
Growth
1993-1997
Preparation
.
Figure 1: The life cycle of Chinese B2B industry (Source: iResearch, 2005a)
Growth. With the first B2B deal in 1998, Chinese B2B e-commerce industry
came into the take-off stage, as a result of the flourishing international trade
Take-off. Since 2004, foreign VCs have shown their interests in Chinese
Maturity. This stage is also called as vertical integration stage. B2B service
management) module may be integrated into the system to add value for the
suppliers.
Ho and Chen (2002) identified three business models in B2B e-commerce industry: 1)
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supplier-oriented model. Consumers and business buyers all use the same
may open their own online market and invite potential suppliers to bid on orders. 3)
In the work of Tan and Wu (2002), three key drivers are identified for the
be connected with the global economy after Chinas entry into WTO. B2B
e-commerce is viewed as one of the most efficient and effective ways for
growing sectors in China. As a result, the potential profits would attract both
domestic and foreign IT service providers to enter this sector and allocate
2.1.1.4 Barriers
Tan and Wu (2002) also identified the barriers to develop B2B e-commerce in China
as follows:
Lack of trust. A solid legal and technical foundation to monitor and enforce the
state-owned enterprises.
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FTMBA 2005 Jiajia Ge
The development process of Chinese B2C e-commerce can also be divided into four
stages: introduction, growth, take-off and maturity (iResearch, 2005b) (Figure 2).
2010-
Maturity
2006-2009
Take-off
2003-2005
Growth
1998-2002
Introduction
.
Figure 2: The life cycle of Chinese B2C industry (Source: iResearch, 2005b)
Introduction. From the introduction of B2C e-commerce into China to the end
of 1999, more than 300 B2C service providers emerged. This number
doubled in 2000. However, after the .com bubble in 2000, Chinese B2C
Growth. Since 2003, online shopping environment has been greatly improved
to thrive in 2004.
networks.
of national economy.
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The value chain of Chinese B2C e-commerce includes five components: supplier,
B2C service provider, bank, logistics and individual user (iResearch, 2005b) (Figure
3).
Bank
B2C service Individual
Supplier
provider user
Logistics
The key drivers for the development of B2C e-commerce are as follows (Tan and Wu,
Potential profits. The large size of the Chinese customer base is attractive to
2.1.2.4 Barriers
The barriers to develop B2C e-commerce in China are identified as follows (Tan and
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Lack of general credibility monitoring system and online payment issues. The
use of credit card in china remains low and there is no credibility monitoring
system currently in China. Moreover, the majority of the credit cards issued
The development process of Chinese C2C e-commerce industry can be divided into
2010-
Maturity
2003-2009
Growth
1999-2002
Introduction
.
Figure 4: The life cycle of Chinese C2C industry (Source: iResearch, 2005c)
Growth. During this period, as investments and personnel rapidly moved into
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FTMBA 2005 Jiajia Ge
result, resources are reallocated. Moreover, the issue of relevant law and
rules; distribution, the improvement of online payment and security; and the
these two kinds of services into one system in order to diversify the offerings.
business growth, especially the growth of SMEs (e.g. Penrose, 1995; Greiner, 1972;
Churchill and Lewis, 1983; Dodge and Robins, 1992; Freel, 2000). Different
approaches have been adopted to analyse the development process of the business,
firm growth are two main branches (Freel, 2000). Here the stage model of firm
growth is selected for further elaboration, for it is more relevant to this project.
Greiner's (1972) work established the basic foundations for the theory of stage
modelling of firm growth (Masurel and van Montfort, 2006). He divided organisations
growth process into five phases, each of which contains a stage of evolution, which is
a relatively placid growth period, and ends with a stage of revolution, where a
management crisis occurs (Table 1). Each stage of evolution fosters its own
revolution and management solutions to each revolution lead to the next stage of
evolution.
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Based on the findings of Greiner (1972), Churchill and Lewis (1983) further
developed the stage model. They divided a firms business growth into the following
five stages: Existence, Survival, Success, Take-off and Resource Maturity. Each
extent of formal systems, major strategic goals, and the owners involvement in the
At the stage of Success, a common question that owners normally faces is whether
to keep the company stable and maintain the profitability or exploit the companys
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FTMBA 2005 Jiajia Ge
Large
Small
Management Direct Supervised Functional Functional Divisional Line and Staff
Formal to minimal
Systems
Major Existence Survival Maintain Get Growth Return on
Business Owner Owner still Owner moving Owner still Owner Owner
and Owner being being apart from being deeply reasonably separating
business business business involved in separating from
business from business business
Figure 5: Stage model of business growth (adapted from Churchill and Lewis, 1983)
During the business growth process, the following firm level management factors are
etc., all of which give the company a position in its industry and market.
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FTMBA 2005 Jiajia Ge
As mentioned in Section 2.2, while entering the success stage, enterprises are facing
the company stops growing and this stage could be the last stage of development.
The other possibility is to pursue growth (Churchill and Lewis, 1983; Masurel and van
Montfort, 2006). It is during the growth stage (including both growth stage and
take-off stage in Churchill and Lewis model) that rapid expansion occurs (Gupta and
Chin, 1994). In this section, theories of expansion, including driving forces behind
Penrose (1995) analysed the drivers of expansion and pointed out that the drivers
may be outside the firm or within the firm. The external inducements encompass
that might influence a firms existing operations negatively and against which a firm
could protect itself through expansion in particular directions, etc. Internal drivers of
expansion stem largely from the existence of a pool of unused productive services,
From a firm growth point of view, Greiner (1972) pointed out that decentralised
motivation at lower levels. Managers with more authority are motivated and able to
respond quicker to the market and identify new business opportunities (such as
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FTMBA 2005 Jiajia Ge
Scott and Bruce (1987) claimed that expansion is made possible by growth through
van Montfort, 2006). Tan and Tan (2004) applied the resource-based view and
Internal growth, the primary goal of which is generic expansion. However, this
boundary expansion.
Taking the characteristics of services into consideration, Carman and Langard (1980)
developed minimum risk growth strategy paths for service firms, which are: market
From a general point of view, Penrose (1995) identified three limits on expansion,
which are: 1) managerial ability, referring to conditions within the firm; 2) product or
factor markets, referring to conditions outside the firm; 3) uncertainty and risk, a
In the work of Feldman and Klofsten (2000), specific barriers to expansion faced by
SMEs are pointed out and categorised into the following three groups:
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FTMBA 2005 Jiajia Ge
Finance. SMEs need to face the problems generating from the division
functions) (Veblen, 1965; Feldman and Klofsten, 2000). For example, the
coordination may occur during the process of growth (Feldman and Klofsten,
2000).
Competition from new firms or products. SMEs often face greater competition
need where there is sufficient demand to make meeting that need worthwhile.
Identifying and developing right opportunities is essential not only to new businesses
(Stevenson et al., 1985; Shane, 2003), but also to established businesses (Hulbert,
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FTMBA 2005 Jiajia Ge
Shane (2003) summarised the sources of opportunities and categorised them in the
existing business, both of which will result in new profit potential (Ardichvili, 2000).
This process is not a singular event; it is an iterative process, through which an idea
for a business is formed into an opportunity (Ardichvili et al, 2003; Lumpkin and
Lichtenstein (2005) divides the opportunity recognition process into two phases:
incubation and insight while formation phase consists of evaluation and elaboration
(Figure 6).
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Discovery Formation
Insight
Preparation Eureka! Elaboration
Deliberate Problem
Unintended solved
Incubation Idea shared Evaluation
The five elements are reviewed as follows (Lumpkin and Lichtenstein, 2005):
1989). At organisational level, the ideas often emerge from the firms
external sources.
resources and capabilities, and whether the idea is novel enough therefore
worthwhile to pursue.
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FTMBA 2005 Jiajia Ge
Ardichvili et al (2003) summarised major factors that affect the business opportunity
recognition process and explained the relationship between the key factors and
managers.
Creativity. Hills et al (1997) found through their survey, that 90% of the
and Dickson, 1994; Krueger and Brazeal, 1994; Guth et al, 1991).
entrepreneurs who have more network contacts are more likely to identify
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FTMBA 2005 Jiajia Ge
After the identification of the new business opportunities, strategies need to be taken
section, the strategic actions to exploit opportunities will be reviewed from these two
perspectives.
In order to preserve the profits generated from exploiting new business opportunity,
the individual/group that identifies the opportunity need to preclude others from
imitation. Efforts to prevent imitation involve keeping the secret of information which
was used to discover the opportunity, or setting barriers to the competitors (Figure 3)
(Shane, 2003).
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FTMBA 2005 Jiajia Ge
Strategy to
preserve profits
Secrecy Barriers
Preclude access Control resources
Preclude understanding Legal obstacles
Scale
Reputation
Innovation
information about the opportunity to prevent the others from imitation. Specific
Growth from small scale. Due to the information asymmetry and uncertainty
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FTMBA 2005 Jiajia Ge
could be very costly for new ventures. In order to reduce costs, it is more
to keep the venture flexible and adapt to develop new solutions while
In this section, the growth and expansion strategies adopted by two successful
2.5.1 Amazon
Founded in 1994, Amazon is one of the first entrants onto the Internet (Javalgi et al,
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FTMBA 2005 Jiajia Ge
2004). Amazon was publicly launched as an online book retailer in 1995 and
expanded its business through several acquisitions in the first a few years. As the
business became stable, Amazon expanded further into a variety of new product
categories (e.g. movies, health, tools, electronics, etc) as well as other offerings,
(Javalgi et al, 2004; Amazon Inc., 2005). Amazon also followed an aggressive
expansion strategy across borders. As for foreign market entry, they adopted both
traditional entry modes such as exports and foreign direct investment, and new
strategies which are exclusively applicable to the web. For instance, Amazon
adopted e-mediation strategy to enter the Canadian market. They arrange product
deliveries to Canadian customers from local suppliers, all using the U.S. website
Table 2 illustrates main expansion activities Amazon has adopted are as follows:
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2001 Strategic Alliance Formed a strategic alliance with Borders to re-launch the
Borders.com
2.5.2 eBay
eBay was launched in 1995 and was the first mover into the C2C auction business. It
is among the few online sites which has been profitable almost from the very
beginning. Its revenue comes from fees and commissions from customers who use
their services. Different from the strategy of Amazons, eBay expansion strategy
mainly focused on expanding its customer base by promoting its core service
competencies, rather than the expansion of product lines and offerings (Javalgi et al,
Also, eBay expanded its customer base by creating new marketplaces. For example,
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eBay moves on from its online auction market for the individual customers to extend
its expertise into areas such as business to business (Strategic Direction, 2005).
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2000 Joint venture Cooperated with based eCorp to enter the Australian
market
Strategic Alliance Allied with NEC and moved into the Japanese market
2001 Acquisition Acquired French Internet auction firm iBazar, and took
over its online trading sites in Belgium, Brazil, France,
Italy, the Netherlands, Portugal, Spain, and Sweden.
2004 Acquisition Acquired mobile.de and moved into the Indian market by
acquiring Baazee.com
Increased its holding in Internet Auction from 62%
to 86%
Acquired Marktplaats.nl
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2.6 Summary
This chapter started with an overview of the Chinese e-commerce industry, in order
to provide a macro view for the project and facilitate the understanding of the industry
environment. Sections 2.2-2.4 reviewed (i) business growth models, (ii) expansion,
and (iii) opportunity recognition and exploitation theories, which will constitute the
academic framework for the analysis in the following chapters. Finally, the successful
expansion strategies adopted by Amazon and eBay were reviewed for reference.
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This chapter aims to illustrate the research strategy adopted in conducting the report
and address the rationales of the research. In addition, the two-stage research
In the work of Yin (2003), case study is defined as a research strategy, together with
other research strategies, such as experiment, survey, archival analysis and history.
evidence, following its own logic. The decision of choosing one specific research
strategy is made on the basis of the following three conditions (Yin, 2003):
For this project, the single-case study is selected as the main research strategy
and propositions for further inquiry. Why and how questions lead to an
This single case is a representative case, the lessons from which are
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FTMBA 2005 Jiajia Ge
In order to achieve the objective of this report, both primary and secondary
For primary research, documentation and interviews are used as major sources of
newspaper clippings, and formal studies, etc (Yin, 2003). Due to the confidentiality,
some of the information mentioned above is difficult to obtain. As a result, the book
Zheng (2006) who was empowered to access all the documents and files of Alibaba
(excluding those business contracts protected by special terms and conditions), and
Interviews also play an important role in information collection process. The selected
interviewees cover the employees from Alibaba and industry consultants. The
interviews were set to be open-ended, where interviewees were asked about the
facts as well as their opinions about the companys development and expansion
activities. Interviewees were also encouraged to propose their own insights into the
companys future expansion and offer other useful contacts as well as other
information sources. In addition, the public interviews of Jack Ma and the other
Academic journals
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Books
Company websites
information collected in the previous stage to address the initial propositions of the
case study (Yin, 2003). Yin (2003) also developed three general analytic strategies,
behind Alibabas expansion, identify new business opportunities for Alibaba, and
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This chapter is divided into two sections. The first section applies the academic
theories that are reviewed in Chapter 2 to the analysis of the information collected
from both primary sources and secondary sources. The second section aims to
4.1 Analysis
alliance between Yahoo! and Alibaba will also be inspected to generate a benefits
This section applies stage model of business growth (Section 2.2) to the analysis of
Alibabas business growth process, therefore identifies the growth stages for Alibaba.
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2000 - 2001
1998 - 1999
Small
Figure 8: Alibabas business growth model
Alibabas initial B2B e-commerce website was launched in 1998 and Alibaba was
incorporated in 1999. During the period of 1998-1999, Alibaba acquired its first
venture capital, which was essential for the company to remain alive. The objective of
the company at this stage is to obtain sufficient customer acceptance and deliver
service. The organisational structure is very simple without any formal planning
system. At this stage, the company is owned by the founder, Jack Ma, who directly
During this period, as Alibaba built up its reputation in Chinese e-commerce market,
the growth of customer base was significant and Alibaba eventually achieved
break-even point in 2001 (Zheng, 2006). Moreover, Alibaba successfully won access
to critical venture capital from Softbank Capital, which also contributed to its survival
from the .com bubble. At this stage, despite the enlarged employee base, the
organisational structure stayed simple and it was still Jack Ma who made the major
decisions. The managers received orders from Jack Ma and carried out tasks
accordingly instead of making their own decisions. The major goal of the company at
As the entire Chinese e-commerce industry entered into the stage of growth, Alibaba
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FTMBA 2005 Jiajia Ge
was also prepared for the further development. In 2002, Alibaba achieved profitability.
During the period from 2002 to 2005, Alibaba was continuously growing. The major
business area of Alibaba, B2B e-commerce, stayed profitable and kept its growing
system in China, Alibaba started to construct its own credibility system in 2002, in
order to enhance the service it offered (Zheng, 2006). In terms of expansion, Alibaba
extended its territory by launching new businesses, C2C e-commerce (Taobao) and
online payment (Alipay). Moreover, Alibaba further enriched its portfolio through the
strategic alliance between Alibaba and Yahoo!, which involved Alibabas acquisition
of the entire assets of Yahoo! China,, including its online auction section, gateway
section and search engine section. Through this alliance, Alibaba obtained brand
equity, technology, 600 employees and an investment of $ 1 billion2. Through all the
expansion activities mentioned above, Alibaba not only exploited the market depth by
introducing supplementary products and offerings into the existing market, but also
In the aspect of the organisation, the organisation structure became more tiered and
professional managers were introduced into the senior management team as well as
mid-level management team. The organisation entered into a fast growing period
planning were formalised; yet strategic planning heavily depended on the owner.
Jack Ma and the co-founders of the company were still deeply involved in the
business.
Since the beginning of 2006, Alibaba has adopted a series of measures to make
agencies that used to cover the East and South-east China were integrated into
three subsidiary companies, which facilitated Alibaba to further formalise its systems,
2
Jack Ma, interview with Chinese Entrepreneurs, 2005
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image and reallocate resources, therefore get ready for the expansion into the other
domestic markets. Moreover, it was also realised that Alibaba lacks strategic
thinking3. To resolve this problem, a specific division of strategy planning was built
management area in China; several senior managers have joined or will join Alibaba,
effectiveness.
This section applies the theories of Penrose (1995) and Greiner (1972) presented in
the literature review section to the analysis of the driving forces behind Alibabas
There are over 30 million SMEs in China4; more than 5 million Chinese
enterprises are seeking export opportunities every year; and the value of
inventory in China exceeds $ 375 billion (Zheng, 2006), all of which reveal a
the facts above imply huge growth potential for e-commerce companies
such as Alibaba.
many domestic and international service providers rush into this market,
3
Jack Ma, interview with Chinese Entrepreneurs, 2005
4
Li, Z., The development of e-commerce among SMEs contributes to the new business opportunity for
software enterprises, http://industry.ccidnet.com/art/1544/20060829/883265_1.html
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Alibaba to extend its market reach and depth; therefore win an upper hand in
responsibilities and more importantly, the actual right to make decisions, the
managers have more incentives and space to sense the market changes
Lumpkin et al (2005) as well as the theory of Shane (2003) (Section 2.4), to seek new
Stage 1: Preparation
This stage involves the accumulation of information and knowledge, from which
ideas may generate. In this subsection, information is collected in the following three
Changes in technology.
The emergence of web 2.0. The concept of Web 2.0 was raised in
platform, where users can control their own data. Compared with
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FTMBA 2005 Jiajia Ge
significantly.5
etc.
area.
that the potential market for online video content will grow from 13
world-wide scale.8
are able to add value to the customers - both suppliers and buyers.
5
Tim OReilly, What is Web 2.0?, http://www.oreillynet.com/pub/a/oreilly/tim/news/2005/09/30/what-is-
web -20.htm l?page=1
6
Pew Internet Project
7
Lee Rainie and Graham Mudd, The popularity and importance of search engines,
http://www.pewInternet.org /pdfs/PIP_Data_Memo_Searchengines.pdf
8
Ben Macklin, Online Video Stats Say It All, http://www.emarketer.com/Article.aspx?1004105
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production networks.
economy.11
9
Xinhua (2006) Development Strategy Boosts West China, http://en.chinabroadcast.cn/2946/2006/08/
30/ 272@133051.htm
10
Luo, Z.W, Guo, C.X. (2005) The Policy to Speed up the Development of SMEs in China,
http://theory.people.com.cn/GB/49154/49155/3871074.html
11
Zhou, T.Y. (2004) Blueprint for China's economic growth, http://english.people.com.cn/200407/15/
eng20040715_149647.html
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quarters of 200512.
Stage 2: Incubation
Based on the information collected at the preparation stage, the possibilities are
12
The issues in the distribution of income 2005-2006, http://www.china.com.cn/zhuanti2005/txt/
2006-01/19/content_6097387.htm
13
China business forecast Report, 2006, Business Monitor International
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package.
Online payment
Develop m-payment.
Stage 3: Insight
The aim of this stage is to identify appropriate business opportunities for Alibaba. The
ideas generated at the previous stage will be assessed against the following
selection criteria: market maturity, market size, market need, competition, barriers to
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Delphi Chart
Market Maturity Market Need Market Size Competition Barriers to Entry Time to Market AVG. Grade
B2B e-commerce
Integrated service package 6 7 10 7 7 7 7.33
M-commerce 8 6 7 8 6 8 7.17
Domestic expansion 5 8 9 7 9 10 8.00
C2C e-commerce
Integrated service package 6 6 5 7 7 8 6.50
Increase user participation 6 7 3 6 9 8 6.50
Wireless value-added service 8 7 6 2 8 9 6.67
Online Payment
M-payment 8 8 7 3 7 9 7.00
Band 1 - 10 Colour
Low Score 1 - 3.9 Red
Mid Score 4.0 - 6.9 Yellow
High Score 7.0 - 10 Green
Based on the analysis above, it is concluded that the main new business
opportunities still lie in Alibabas major business area, B2B e-commerce section,
partly due to the huge market size of B2B e-commerce and relatively low competition.
market size.
The top three opportunities identified at this stage are domestic expansion in B2B
m-payment and other wireless value-added services) and integrated service package
Stage 4: Evaluation
This stage aims to evaluate the opportunities by analysing the drivers and inhibitors
(Table 4).
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Stage 5: Elaboration
This stage involves the planning activities to exploit the opportunities. Shanes (2003)
Domestic expansion
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FTMBA 2005 Jiajia Ge
relatively mature market and the demand and production are better
resources, etc.
Using the theories of Penrose (1995) and Feldman and Klofsten (2000), which are
presented in Section 2.3.3, this section analyses the barriers to expansion for
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FTMBA 2005 Jiajia Ge
gateway and search engine (Yahoo! China) have not found sustainable
external financier and other big stakeholders, both of who are more than
However, the effects of these measures have not been proved yet.
Managerial ability. Despite the fact that Alibaba has attracted quite a few
senior and mid-level professional managers in the past a few years, the
planning still relies on Jack Ma to a large extent. Moreover, Jack Ma and the
fostered15.
14
Information obtained from interviews with employees of Alibaba
15
Jack Ma, interview with the Economic Observer, 2004
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manufacturers and global market, has not been widely applied among
The acquisition of Yahoo! China was the most explosive event in Chinese Internet
industry in 2005. It is also the most aggressive expansion activity Alibaba has ever
This section analyses the benefits and risks brought by the acquisition from Alibabas
perspective, therefore learn lessons from this expansion attempt for Alibaba.
4.1.5.1 Benefits
new functions being integrated into the existing system, Alibaba is able to
market depth.
Finance. Alibaba had invested a great deal in the expansion activities during
have cost Alibaba at least $ 56 million16. As more companies enter into this
16
http://www.taobao.com/about/intro.php
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Internet industry. Through this acquisition, Alibaba has raised the value of its
brand equity, which could facilitate its expansion into global market in the
future.
4.1.5.2 Risks
Business model. Yahoo! entered into Chinese market in 1999. During its six
business model. Facing the competition from both local and international
players, Yahoo! China had been increasingly losing its market share.
However, the situation has not been improved so far. Alibaba has not found a
months after the acquisition, Alibaba claimed that Yahoo! China would focus
on search engine and abandoned the gateway business. However, after one
years development, Yahoo! China returned to the starting point, with gateway
website relaunched, indicating Alibaba has not had clear logic with regard to
for the management team of Alibaba. The depth of the management team, to
acquisition, the online auction division of Yahoo! China was directly merged
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into Alibabas C2C e-commerce division (Taobao) and the other divisions
were integrated into one division of Alibaba. As a result, Alibaba has to handle
4.2 Results
Based on the analysis in the previous section, this section aims to exploit possible
expansion strategy for Alibaba and recommend on how to mitigate the barriers to
The aim of this section is to develop expansion strategies for Alibaba, by applying
Carman and Langards (1980) theory of the minimum risk growth strategy paths for
service firms. For Alibaba, it is still too early to adopt international expansion due to
its own limitations. For example, Alibabas core competencies are developed in
accordance with the local customer needs and its current success can largely be
attributed to the fast growing national economy, the robust development of Chinese
SMEs as well as the rapid development of Internet in China (Zheng, 2006). Alibabas
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FTMBA 2005 Jiajia Ge
The detailed recommendations with regard to each expansion step are as follows:
into the existing market (i.e. B2B e-commerce, C2C e-commerce, online
in a very short term due to the large market size and quick deployment.
equity and creating strong customer relationship, which can not be easily
imitated.
expansion needs to focus on B2B e-commerce due to the market size and
the mature business model. Market selection criteria should take local
ideal new market for B2B e-commerce. During the domestic expansion, the
planning and control systems need to be formalised and the brand image of
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FTMBA 2005 Jiajia Ge
diminish the boundary between different e-commerce sectors (i.e. B2B, B2C
managerial ability, Alibabas expansion strategy has to focus on organic growth from
essential to take into account both long-term return and immediate interests
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FTMBA 2005 Jiajia Ge
while expanding.
depth and breadth of the management team in the long run. Moreover, as
commitment.
forming alliance with peer companies will facilitate the fostering of the
Alibaba should keep flexible, and adapt products, services or even business
17
Information obtained from interviews with employees of Alibaba
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FTMBA 2005 Jiajia Ge
4.3 Summary
new business opportunities for Alibaba and barriers to expansion. The strategic
alliance between Yahoo! And Alibaba was also analysed to identify lessons from
barriers to expansion.
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FTMBA 2005 Jiajia Ge
Chapter 5: Conclusion
The entire Chinese e-commerce industry has moved into a fast growing period,
creating a sound industry environment for Alibabas further growth. B2B e-commerce
is still the biggest e-commerce industry sector in China, accounting for approximately
95% of the entire market (iResearch, 2005a). The difference between B2C
By applying the stage model business growth theory of Churchill and Lewis (1983) to
gone through existence, survive and success-growth stages, and is currently at the
take-off stage, where rapid expansion occurs (Gupta and Chin, 1994). This stage is
perceived as a driver of Alibabas further expansion. The other driving forces behind
Alibabas expansion encompass huge market potential and the strategic imperative
Lumpkin and Lichtenstein (2005), three major business opportunities are identified,
which are domestic expansion, wireless value-added services and integrated service
The strategic alliance between Alibaba and Yahoo! has been analysed to identify
this acquisition, Alibaba exposes itself to the risks of poor management, growing
organisation, increasing costs and losing control of the company. Moreover, the
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FTMBA 2005 Jiajia Ge
With regard to Alibabas future expansion, Alibaba has not got sufficient resources to
enter into global market yet. At present, the more appropriate expansion strategy for
with peer companies, etc., are recommended to mitigate these barriers to expansion.
Due to the time constraints and availability of information sources, this project has
mainly focused on the exploitation of short and mid-term expansion strategies for
Alibaba. Future researches could further develop expansion strategy in the long run.
Another limitation of the project is the data collection process, where the majority of
the interviewees are from the e-commerce sectors of Alibaba. As a result, this project
may put more emphasis on e-commerce sectors and overlook some new business
This project provides some useful information in Chinese e-commerce industry, the
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FTMBA 2005 Jiajia Ge
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2. How do you think the strategic cooperation between e-Bay and Yahoo!?
Do you think it will influence Alibabas future strategy? If so, what effects does it
have?
3. Aside from Alibabas current business domains, what new area do you think
Alibaba will enter? Why?
5. What barriers are there to expansion? What is the general attitude to expansion?
Are there sufficient resources and capabilities (funding, people, technology,
management capabilities, etc.)?
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