Alibaba Group Case Solution

Alibaba Group focuses on e-commerce, cloud computing, digital media, and innovative initiatives. The company has been able to develop an ecosystem around its e-commerce platforms and businesses which consist of “consumers, merchants, brands, retailers, third-party service providers, strategic alliance partners, and other businesses” (Alibaba Group, 2021). The fast-growing technology company is continuously increasing its outreach and added to its profits. As of March 2021, the Alibaba ecosystem reached a milestone of one billion where around 891 consumers were from China and approximately 240 million consumers were outside of China (Primavera, 2021). Transactions on its online site have been consistently increasing and Alibaba has been successful in building its reputation across the globe as a leading online shopping destination.

Alibaba Group is a publicly traded company and it is listed on the New York Stock exchange along with the Stock Exchange of Hong Kong. The purpose of this report is to conduct a strategic analysis of the company and study its business environment in Hong Kong. 

2. Market Environment Analysis

i. PESTEL Analysis

PESTEL analysis is a tool that can be used to analyze and monitor macro-economic factors that have a significant effect on the performance of the organization (Business to you, 2016). PESTEL is an acronym that stands for Political, Economic, Social, Technological, Environmental, and Legal factors.

Political Factors

Political factors are considered important by companies as the stability of the government and its rules and policies have a significant effect on the business of the company. Governments across the world have become more active in terms of oversight and control of businesses especially the technology sector which has been a lucrative industry in the past years (Prathap, 2019). The Hong Kong government plays the role of a referee, it works to maintain an open trading environment where it has made it easy to pour in and pull out capital in firms and keep the tax rate low for corporates as well as individuals (Enright, 2021). Hong Kong is considered ideal for doing business in Asia as it has a free port and the government does not levy any customs tariff and has limited excise duties (export.gov, 2016). The favorable business regulations and policies of the government have enabled Alibaba to invest in the host country and grow in the Hong Kong market. 

In order to be affected less by government instability, Alibaba Group is focused on its international market and is working to reduce its dependence on the Chinese market. 

Economic Factors

The economic outlook in Hong Kong has been favorable for businesses. According to projections of Focus Economics, the Hong Kong economy is expected to grow by 4.6% in the year 2021 and recover from the economic shocks faced due to political unrest and prevailing covid situation which halted businesses in the host country (Focus Economics, 2020). 

Social Factors

The popularity of the websites and mobile apps of Alibaba Group has helped the company in capturing a huge market share at the global level. Alibaba’s mobile applications, Taobao and Ali Express claim that an average user visits the websites at least seven times a day (MBA Skool, 2020). 

Technology

Technology is key in the e-commerce business and it is the founding pillar of Alibaba group. Alibaba has achieved a lot on the technology front and it has made consistent efforts to introduce and adopt disruptive technology to lead the e-commerce industry. To support its giant e-commerce business, Alibaba has successfully developed a “computational network that is known to be the world’s fastest cloud-based streaming processing platform” (Alizila, 2017). 

Environmental Factors

Environmental factors are important as consumers favor the companies that are environmentally responsible. Alibaba Group is host to millions of merchants who use the platform to sell their products to end consumers. The company has stringent policies set in place and urges its strategic partners to make their processes sustainable. Alibaba Group has made investments in its supply chain and logistics and has encouraged sustainable practices across the board (Prathap, 2019). 

Legal Factors

For companies to sustain themselves in the business environment, it is essential to operate within legal boundaries. Failure to abide by the legal laws can result in the defamation of the company as well as financial loss. The company had to face financial costs for violating the anti-monopoly law. After the issuance of the penalty the company took serious actions to safeguard fair market competition and ensured that the company was determined to comply with laws in the future. 

ii. Porter Five Forces Analysis

Porter's five forces analysis is another tool that can be used to access the macro environment. Porter's model is a reliable tool that can be used to identify five competitive forces that shape the industry and figure out the weaknesses and strengths of the overall industry (Scott, 2020). The model can be used to determine the level of competition in the industry and develop a relevant corporate strategy of the company that exists in that business environment (CGMA, 2021).

Bargaining power of buyers

Buyers in this industry are generally very demanding. They want to buy products available on the website and are willing to pay the minimum price possible (Fern Fort University, 2021). The internet has made it easier for shoppers to sit at home in a relaxed environment and look for options to buy a product and compare prices from websites of different competitors. Buyers tend to do their thorough research and look for the best possible option available to them once they have look at the alternatives available. In today’s digital world, buyers have more power as options are available to them just one click away. 

Bargaining power of suppliers

The bargaining power of suppliers is low to medium. The merchants who aim to sell their products online tend to look for e-commerce websites that are popular and have significant daily website traffic as the more people who visit a website the more chance it will increase for the ads and products to be seen by potential customers. Other than that, suppliers also look for websites that provide a variety of services that eliminates the hassle for them. In this industry, Alibaba Group has made its name as a trustworthy website and it is also recognized for its superior relationships with its merchants and strategic partners. In the case of Alibaba, supplier power is low as the number of merchants that the company hosts are in the millions which increases competition and reduces supplier’s bargaining power. 

The threat of new entrants

The threat of new entrants does exist in the e-commerce marketplace as it is a lucrative business. Even though there are fewer barriers to enter into the industry, it is still difficult for new companies to come into the business because of the network effects of the companies that already exist in the industry. The existing website such as Alibaba, Amazon, eBay, JD.com have worked really hard over the years to penetrate the market and have built a strong network to capture the market share (Carpenter, 2020). The popularity of these websites will not allow newcomers to settle in easily in the industry.