External Environment Analysis
Proper PESTLE analysis is required and it is essential in nature for analysing the Political, economic, social, technological, environmental and legal factors that will create huge impact on the environment. Alibaba Group Holding Limited is one of the Chinese multinational e-retail markets and the respective food chain has its own challenges both externally and internally. In order to follow the standards along with the different kind of contemporary trends, it is essential in nature to conduct the PESTEL analysis that will assist in understanding the different kind of current market demands and trends (Alibabagroup.com, 2018).
Political Factors is one of the major factors that play a significant role in determining the different kind of factors that impacts the long-term profitability of Alibaba retail store. Alibaba Group is operating in speciality retail department in more than dozens of countries and there is different kind of political system risks as well (Mastropieri and Scruggs 2017). Alibaba needs to closely analyse the different factors in entering or investing in certain kind of market that includes the following:
- Risk of the invasion of military
- Favoured kind of trading partners
- Regulations relating to pricing along with other tariffs
- Labelling of the product along with mandatory kind of employee benefits
- Industrial safety kind of regulations in the company as well
Economic factors are the other element wherein Alibaba can use the economic factor of the country that includes the rate of growth along with inflation and economic indicators as this can impact the competitive advantage of the company (Lasserre 2017). Alibaba needs to analyse the different kind of economic factors that includes the following:
- Rate of unemployment in the country
- Level of education in the economy
- Labour costs along with productivity in the entire economy
- Quality of the infrastructure in the speciality retail store along with gaining comparative advantage
- Exchange rates along with stability of the currency of the host country
Social Factors is one of the other factors that are required to be analysed in an effectual manner wherein the culture of the society along with performing other things impacts the culture of the organization along with the environment. Alibaba needs to understand the customers of the market and design the marketing message for the speciality retail and it helps in analysing the following factors:
- Skill level of population along with culture of the society
- Class structure along with hierarchy in the entire society
- Interests of the leisure
- Attitudes that include environmental consciousness
Legal Factors is one of the factors wherein the different kind of institutions and legal framework are not robust in nature as this helps in protecting the intellectual property of the organization. The firm carefully evaluate the before entering into the market. The different kind of legal factors that Alibaba limited wherein leadership should consider while entering the new market are as follows:
- Protection of data
- Health and safety laws
- Employment law
- Discrimination law
- Antitrust laws in speciality retail
Environmental factors are the other factor wherein there are different kinds of norms and environmental standards that can impact the entire profitability of the company in an ineffective manner (Grant 2016). Before entering into the new markets, proper evaluation is required to be done in order to evaluate the environmental kind of factors that are required in operating in the market. The environmental factors include:
- Climate change
- Laws regulating to environment pollution
- Endangered species
- Waste management in services sector
Therefore, it can be concluded that PESTLE analysis is essential in nature as this helped in understanding the rules and regulations that is required to be followed by Alibaba in gaining competitive advantage and gain customers.
Industry Analysis using Porter’s 5 forces
Ali Baba is one of the biggest online retail stores. The company offers various goods and services to the given target market. The company is a giant in the given industry and thus, it sees to it that it is able to cater to the needs of the target market and provide premium goods to its customers. The given section will undertake the Porter`s Five Forces analysis of the given industry in China (Jarzabkowski and Kaplan 2015). The Porter`s Five Forces is an external environmental tool which helps in the analysis of the industry factors that exist in the business environment.
Competitive Rivalry in the Industry
The competitive rivalry is encouraged by the players who are present in the given industry and serve as the competition to it. There are various online retailers in the given industry ranging from Amazon, Wish.com and others. The companies engage in international competition with one another and offer services like free delivery, online offers and all goods required. The competition is extremely high in the given industry and each company wants to perform well by providing various offers and coupons so that they are able to attract the maximum crowd (Morschett, Schramm-Klein and Zentes 2015).
Along with the extensive international brands, Ali Baba also competes with the local brands. The local brands provide cheaper prices with better goods (Johnson 2016).
Threat of New Entrants
The threat of new entrants in the given industry is comparatively very high. This is because the given industry is offering consumer goods which are basic necessities and the market is very attractive. This is because of the nature of the goods involved. The competition is also very fierce in lieu of which the companies offer comparatively lower prices (Hill, Jones and Schilling 2014). The current retailers have also developed a first mover’s strategy which is then again a disadvantage for new companies.
Threat of Substitutes
The threat of substitutes is very high. This is because there are various other one retail products which are present in the industry and act as a substitute. This options which are substitutes include options like alternative options. The switching cost for the customer is very easy. And there is no differentiation involved hence it leads to substitution threats.
The power of customers
The bargaining power of the buyers is comparatively very low. This is because the number of customers purchasing the products is generally large and a shift in the change of one consumer would not affect the other consumer. The customers are less sensitive to price fluctuations which are relatively inelastic and therefore, the sellers enjoy the power.
The bargaining power of suppliers
The bargaining power of the supplier is comparatively very low and weak because the raw materials required in the industry are basic commodity products which are easily available.
Therefore, it can be concluded that the threat of substitution and the competition rivalry is the highest in the given industry.
The Porter`s Five Forces of E-commerce Industry (Source: Grant 2016)
Overall market prospects and competition - this should be based on the SBU analysed in Porter’s five forces
The e-commerce market in China continues to grow largely and the singles day celebrated in China witnessed the growth of the electronic commerce which has been evolving digitally. The giant Alibaba experienced a growth of 39% in comparison to 2016, which suggests that the consumers are confident and the consumption will e continuously rising.
The economy of China is growing steadily and is at a GDP of 6.8% which is a positive momentum. The healthy disposable income growth is 7.5% which can be observed as a positive sign ( Hahn 2015). The consumers in China have been spending more and the spending percentage has been increasing to more than 43% annually. The given rate is more than other global rates.
The e-commerce market in China is on an upward slope and there are various trends prevailing in the given industry like the shopping festivals of e-commerce websites, online and offline merging, Digital payment options, media platform usage and the consumer upgrade option. The various competitors present in the industry are Group on, JD.com and EBay.
- Alibaba- Alibaba operates in the present market through channels like Tmall, Taobao and online which sells almost every product available in the market.
- JingDong( JD)- is the primary competition to Alibaba which focuses on electronics and other consumer goods. However, the give n website is famous for its electronic range.
- Suning- The suning is another e-commerce platform which again sells electronics.
- Yihaodian is an e-commerce website selling daily groceries and food products.
- Jumei- This e-commerce industry is selling cosmetics online, and has been growing cross border selling recently.
- WeiPinHui- The e-commerce retailer also sells discounted cosmetic products which stores mostly international brands.
- Xiao Hong Shu is selling imported fashion, products and related cosmetics.
Opportunities and Threats
There is different kind of opportunities of Alibaba:
- Alibaba has the proper opportunity to capture the greater market share in the entire market with AliExpress and Lazada (Serra and Kunc 2015)
- Potentiality of becoming the entire market leader in the computing of cloud
- Strong growth in the retail and wholesale business as well
There is different kind of threats of Alibaba:
- There is huge and stiff kind of competition in the E-commerce market (Carroll, Primo and Richter 2016)
- Alipay may lose the entire global market share as there are different kind of other existing other players in the entire market (Jarzabkowski and Kaplan 2015)
- There has been increase in the number of the fakes that can affect the entire core competency (Chang 2016)
Strategic Position of AlibabaCorporate Strategy of Alibaba
Alibaba has tried to popularize the selling of One-Click wherein the customers can buy different kind of goods and services with just a click on the mouse or the mobile application (Bromiley et al. 2015). Furthermore, it has been seen that the current corporate strategy of Alibaba Group is basically built around the convenience aspect wherein the different customers do not need to go the physical store and purchase different items as well. Apart from this, Alibaba Group Holding Company has focused on the overall cost leadership strategy with little kind of product differentiation and this helped them in competing with the different customers in the market as well (Koseoglu 2016).
Business Strategy of Alibaba
Alibaba Group Holding needs to regularly enter into the new niches and segments wherein they made (Baker and Saren 2015). The sophisticated global kind of logistics helps in representing the solid bases in the terms of the other competitors in the market and this helped them in gaining competitive advantage. Presently, the company has launched the home services in a simple manner that has assisted them in focusing more on the leadership approaches and this created huge strengthening of the ecosystem of Alibaba Group Holding Company as well. The senior kind of leadership helps in engaging in deriving maximum benefit from each of the component in the ecosystem of the company in an effectual manner as well.
Identification of possible new strategiesCorporate Strategy
- Ali Pay- As the technology has advanced, the digital payment options have become increasingly popular whereby the companies have restoring to no cash options of payment. This no cash option will increase transparency and decrease the potential risks involved in the black money market. To combat with this, Ali Baba can come up with options like a digital payment option named AliPay. AliPay were act more like an online wallet and payment system which will allow the different users to use the AliPay portal and platform to make the different payments online. This will provide consumers with an option to save money when they resort to online options and increase ease of working on the company`s side.
- Development of a new SBU- Virtual Reality is the new future. The company should try and see to it that, it is able to enter into a new segment and develop stores based on virtual reality. The virtual reality allows the users to shop by venturing into a new mode of technology whereby the consumers will be able to view the online store and make purchases accordingly. The customers will be displayed different products and the different customers who will hold a gaze at a particular product for more than a few seconds, that particular product will be put into the basket. This will allow the company to save costs and invest in other better opportunities.
Market Prediction on Strategic Business Unit – China
Firstly, Alibaba Group Holding Company needs to develop different kind of introduction of marriage along with introduction of dating of the individuals in their website. This strategy is interesting and this will help Alibaba Company in gaining more competitive advantage in the market in an effectual manner as well (Helfatand Martin 2017). Furthermore, the dating introduction along with marriage will help them in competing with other online e-commerce companies as this is the complete new introduction that can attract the youngsters and this is generally for the young generation itself.
Secondly, elderly care can be provided by Alibaba to the individuals who need proper care and different kind of services in an effectual manner (Zott and Amit 2015). Proper ascertainment can be made by them as this will help the company in gaining strong customer base. It has been seen that there are different kind of old individuals who are in need of proper care and support as they live alone and their children stay outside, for them this is the best possible option and this can be easy for them to access such elderly individuals as well (Gomes, Barnes and Mahmood 2016).
Screening of Options using SAF Framework
As the firm has been in the business since a long period of time, the company can manage to invest the give amount in extending its operations and investing in the Ali Pay domain.
The idea will be highly acceptable by the customers and the customers might get a new payment option which they would like to invest in and give it a try.
The strategic option is highly feasible as it goes a long way in helping the firm to compete with its other competitors in the given market and develop a new private payment option (Kalkan and Bozkurt 2013).
The firm has no prior experience in the given scenario and hence, there exists a major doubt whether the company will be able to easily execute the given strategy or not.
There are high chances that the customers will not be able to accept the given offering by the company. This is because the customers might find it very difficult to adhere to the new style.
There are few chances that the company might be able to achieve success in the given strategy as the company lacks experience and the execution might not be completely successful (Lasserre 2017).
Marriage Introduction Strategy
The idea is suitable in nature wherein the young generation will be attracted towards the app and this will help the company in gaining competitive advantage in the market as well. The suitability is huge in nature as the marriage and dating app introduction by Alibaba Group Holding Company in solving the different kind of other options and attract customers as well
This strategy is acceptable in nature wherein this will help Alibaba Company in managing the different kind of other competitors in the market. Proper analysis of the strategies is essential in nature as this helped them in gaining huge customer base
The feasibility is strong in nature as this will help the entire company in making the customers use the app in an effectual manner. Alibaba needs to analyse the different kind of advantages that can be gained to make the system effectual
The suitability is not high in nature as the elderly individuals may not be able to use the different applications in mobile phone and this can create hassles for them as well. This kind of strategy is not up to the mark and this causes huge issues in the Alibaba Holding Company as well
The application may not be suitable for the elderly individuals in the market as this is based on technological advancements and usage of the app by them is not easy. The strategy has to be reframed by the company in an effectual manner as this will help them in gaining customers
The feasibility is low in nature as there are individuals who do not have the proper knowledge about the different kind of applications that are on the mobile phones. Proper analysis is required to be done as this will help them in making the system competitive in nature
Full description of recommended strategy
The strategy that has been recommended is the strategy to develop the financial services and invest in the AliPay option. As the technology has advanced greatly, the firm can take advantage of the advancement and digitalise its services. This shall go a long way in making the firm successful in the eyes of the customers. Adhering to the digital way of making payment online, the company will be able to easily track the revenue it has been earning and avoid circulating of cash in the economy. This will ensure that all financial payments which are made, have an easy re ord. On the other hand, the customers will also find it easier to avail the given service and make payments in an easy method.
Key issues in implementing the strategy – risk assessment and management
The key issues in implementing the given strategy are given as follows:
- Increased research and development costs- Ali Baba will be required to engage in proper research and development activities to come up with the new payment option for the users which can take time and large funds as well.
- Increased technological costs- The digitalised payment options is very expensive to implement and generally quite expensive which will then increase the costs of the firm.
- Risk of unacceptability - The new may or may not be accepted by the customers.
Ali Baba needs to manage these risks by indulging in a proper scanning of the external environment. This will ensure that the company is able to match with the needs of the external environment and make decisions correctly.
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