Marketing in Action Case Real Choices at Alibaba When you're already big it can be hard...

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Marketing in Action Case Real Choices at Alibaba When you're already big it can be hard to get bigger. That's why Alibaba is working hard to continue to expand its e- tailing empire. In 1999, Jack Ma, inspired by a trip to the U.S. where he first encountered the Internet, led a group of 17 friends to form Alibaba.com. Initially, the website was a business-to-business portal to bring together Chinese exporters, manufacturers, and entrepreneurs with overseas buyers. Today, the Alibaba Group, often called the Chinese Amazon, is a leading online and mo- bile marketplace in retail and wholesale trade, cloud comput- ing, and other services. As of 2016, the group's retail businesses had more than 423 million active users, 12.7 million annual or- ders in its marketplace, and 86.2 percent of the Chinese mobile shopping market. According to research by McKinsey Digital, only 19 per- cent of rural China is using online buying services. Due to the constraints of lower incomes, dispersed populations, and poor logistics, rural traditional retail options are limited, have higher prices, and inferior product quality. These limitations make for tremendous prospects for expansion of online sales. To take advantage of this opportunity, Alibaba's e-commerce business, Taobao, has opened service centers in many rural villages. There, residents can search for deals on products like mobile phones, toothpaste, apparel, and more using company-provided computers. To implement this strategy, Alibaba has committed to investing over USD$1.5 billion on logistics, hardware, and training in more than 100,000 villages. Michael Evans, President of Alibaba, says "Globalization is a critical strategy for the growth of Alibaba Group today and well into the future." E-commerce accounts for less than 1 percent of retail sales in Southeast Asia, compared with 6 percent in Europe and percent in China and the U.S., according to data from consulting firm A.T. Kearney. Credit Suisse, a multinational financial services company, found that as a share of total retail sales, e-commerce may soon be larger in emerging markets than in developed countries. They assert that nearly 1 billion online shoppers will emerge in these markets in the next few years. The company recently acquired a controlling stake in Singapore e-commerce firm, the Lazada Group, which operates e-commerce portals in other Asian countries including Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. The portals are online shopping and selling destinations that offer mobile and web access, multiple payment methods, customer care, and free returns. Alibaba will be able to contribute its ex- tensive infrastructure and advanced logistics abilities to Lazada. The shared tools and knowledge are important because parts of Southeast Asia do not have the necessary distribution networks and information technology management. Of course, there are still challenges for the Alibaba Group. The company's home market of China is struggling with slow- ing development as the overall economy faces some chal- lenges. Expansion means dealing with Southeast Asia's weak infrastructure and slower Internet speeds. Alibaba also faces growing competition. Western competitors such as Amazon. com and eBay.com are less of a threat that homegrown com- petitors. These include Tencent, primarily an entertainment and social media company, that is getting into e-commerce; JD.com, more like Amazon.com involving direct sales, holding inventory, and managing logistics and shipping; and Baidu, China's dominant Internet-search engine, that is very similar to Google in both services and products. You Make the Call 12-38. What is the decision facing Alibaba? 12-39. What factors are important in understanding this deci- sion situation? 12-40. What are the alternatives? 12-41. What decision(s) do you recommend? 12-42. What are some ways to implement your recommendation? Based on: Dexter Roberts and Lulu Yilun Chen, "China's Hunt for Growth in the Countryside," Bloomberg Businessweek (August 27, 2015), http://www.bloomberg.com/news/articles/2015-08-27/china-s-hunt-for-growth-in-the-countryside (accessed May 1, 2016); "History and Milestones," Alibaba Group, http://www.alibabagroup.com/en/about/history (accessed May 1, 2016); Alyssa Abkowitz and Newley Purnell, "Alibaba to Invest $1 Billion in E-Commerce Startup Lazada," Wall Street Journal (April 13, 2016), http://www.wsj.com/articles/alibaba- to-invest-1-billion-in-e-commerce-startup-lazada-1460445117 (accessed May 1, 2016); Prableen Bajpai, CFA (ICDA), "Alibaba's Top Competitors, Investopedia http://www.investopedia.com/articles/investing/110714/alibabas-top-competitors.asp (accessed May 17, 2016). Marketing in Action Case Real Choices at Alibaba When you're already big it can be hard to get bigger. That's why Alibaba is working hard to continue to expand its e- tailing empire. In 1999, Jack Ma, inspired by a trip to the U.S. where he first encountered the Internet, led a group of 17 friends to form Alibaba.com. Initially, the website was a business-to-business portal to bring together Chinese exporters, manufacturers, and entrepreneurs with overseas buyers. Today, the Alibaba Group, often called the Chinese Amazon, is a leading online and mo- bile marketplace in retail and wholesale trade, cloud comput- ing, and other services. As of 2016, the group's retail businesses had more than 423 million active users, 12.7 million annual or- ders in its marketplace, and 86.2 percent of the Chinese mobile shopping market. According to research by McKinsey Digital, only 19 per- cent of rural China is using online buying services. Due to the constraints of lower incomes, dispersed populations, and poor logistics, rural traditional retail options are limited, have higher prices, and inferior product quality. These limitations make for tremendous prospects for expansion of online sales. To take advantage of this opportunity, Alibaba's e-commerce business, Taobao, has opened service centers in many rural villages. There, residents can search for deals on products like mobile phones, toothpaste, apparel, and more using company-provided computers. To implement this strategy, Alibaba has committed to investing over USD$1.5 billion on logistics, hardware, and training in more than 100,000 villages. Michael Evans, President of Alibaba, says "Globalization is a critical strategy for the growth of Alibaba Group today and well into the future." E-commerce accounts for less than 1 percent of retail sales in Southeast Asia, compared with 6 percent in Europe and percent in China and the U.S., according to data from consulting firm A.T. Kearney. Credit Suisse, a multinational financial services company, found that as a share of total retail sales, e-commerce may soon be larger in emerging markets than in developed countries. They assert that nearly 1 billion online shoppers will emerge in these markets in the next few years. The company recently acquired a controlling stake in Singapore e-commerce firm, the Lazada Group, which operates e-commerce portals in other Asian countries including Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. The portals are online shopping and selling destinations that offer mobile and web access, multiple payment methods, customer care, and free returns. Alibaba will be able to contribute its ex- tensive infrastructure and advanced logistics abilities to Lazada. The shared tools and knowledge are important because parts of Southeast Asia do not have the necessary distribution networks and information technology management. Of course, there are still challenges for the Alibaba Group. The company's home market of China is struggling with slow- ing development as the overall economy faces some chal- lenges. Expansion means dealing with Southeast Asia's weak infrastructure and slower Internet speeds. Alibaba also faces growing competition. Western competitors such as Amazon. com and eBay.com are less of a threat that homegrown com- petitors. These include Tencent, primarily an entertainment and social media company, that is getting into e-commerce; JD.com, more like Amazon.com involving direct sales, holding inventory, and managing logistics and shipping; and Baidu, China's dominant Internet-search engine, that is very similar to Google in both services and products. You Make the Call 12-38. What is the decision facing Alibaba? 12-39. What factors are important in understanding this deci- sion situation? 12-40. What are the alternatives? 12-41. What decision(s) do you recommend? 12-42. What are some ways to implement your recommendation? Based on: Dexter Roberts and Lulu Yilun Chen, "China's Hunt for Growth in the Countryside," Bloomberg Businessweek (August 27, 2015), http://www.bloomberg.com/news/articles/2015-08-27/china-s-hunt-for-growth-in-the-countryside (accessed May 1, 2016); "History and Milestones," Alibaba Group, http://www.alibabagroup.com/en/about/history (accessed May 1, 2016); Alyssa Abkowitz and Newley Purnell, "Alibaba to Invest $1 Billion in E-Commerce Startup Lazada," Wall Street Journal (April 13, 2016), http://www.wsj.com/articles/alibaba- to-invest-1-billion-in-e-commerce-startup-lazada-1460445117 (accessed May 1, 2016); Prableen Bajpai, CFA (ICDA), "Alibaba's Top Competitors, Investopedia http://www.investopedia.com/articles/investing/110714/alibabas-top-competitors.asp (accessed May 17, 2016).

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1238 What is the decision facing Alibaba Alibaba is facing the decision of expanding its ecommerce business into rural areas particularly focusing on ... View the full answer