On November 6, 2007, Alibaba.
com debuted on the Hong Kong Stock Exchange, raising US$1. 5 billion to become the world’s biggest Internet stock offering since Google’s initial public offering (IPO) in 2004. On the first trading day, frenzied purchases of the stock pushed prices up to by 193%, the fourth largest first day gain in Hong Kong’s stock exchange in three years. The closing price of US$5. 09 per share gave Alibaba. com a value of about US$25. billion, making it the fifth-most-valuable Internet company and the largest in Asia outside Japan.
Small and medium-sized enterprises (SME) have been a key driving force in the booming Chinese economy. In 2004, SMEs contributed 68. 8 percent to the nation’s gross industrial output.iResearch estimated that the number of SMEs in China would rise from 31. 5 million in 2006 to 50 million in 2012 (see Exhibit 1). 1 Out of these 31. 5 million Chinese SMEs, a mere 8. million, or 28 percent, utilized third-party B2B (business-to-business) e-commerce platforms.
With the Chinese government encouraging SMEs to use third-party e-commerce platforms, however, the numbers were expected to rise to 41 million and 82 percent, respectively, in 2012 (See exhibit 2). 2 The implication was that e-commerce had plenty of room for growth in China, at least among SMEs, where the market was expected to almost quadruple between 2007 and 2012. Primary key issue / problem faced by Netflix.
The rising popularity of e-commerce among SMEs in China was fueled by several challenges in the traditional trade environment, including first, limited geographic presence restricting SMEs’ ability to develop customer and supplier relationships beyond their immediate vicinity. Second, fragmentation of suppliers and buyers, which made it difficult to find and communicate with suitable trading partners. Third, limited communication channels and information sources through which to market and promote products and services or to find new markets and suppliers.Fourth, a relatively small scale of operation, limiting SMEs’ resources for sales and marketing. Lastly, absence of efficient mechanism for evaluating the trustworthiness of trading partners. Alibaba. com’s Strategic and Functional Operations To eliminate the cons, first, Alibaba.
com tried to increase the size of its marketplaces through the expansion of its user base and active listings. Second, Alibaba. com planned to enhance community experiences to further improve user loyalty and activity through continued development and introduction of new features and tools.
Third, Alibaba. com was keen to monetize its user base after providing years of free service to the majority of its members. Fourth, Alibaba. com planned to selectively expand its sales and customer service capabilities into international markets, either directly or through third-party agents, to acquire more paying members and sell premium services outside China.
Fifth, Alibaba. com believed that its online marketplace could be extended beyond pure trade marketing to address its users’ daily business processes such as customer relationship management and internal operations.It aimed to enhance the loyalty of its users by providing business applications through the marketplace platform and becoming the integral part of users; business operations.
Finally, Alibaba. com was set to expand its business through acquisitions, investments, licensing arrangements, and partnerships. Implementation of Alibaba. com’s strategy The implementation of the strategy through its expansion was that the company believed that the breadth and quality of users and listings were critical to the success of marketplaces. To that end, Alibaba. om continued to leverage the networking aspects of its online marketplaces, its leading market position, and the “Alibaba” brand name to increase its user base worldwide.
It also planned to conducts targeted marketing to potential users in specific industries and geographic locations. Next is the implementation in enhancing the community experience was investing in the existing instant messaging service, online forums, and other communication services. Alibaba. com also planned to continue organizing regular meetings, training, and offline events for registered users and paying members to further build the sense of community services.Third, that the company would strive not only to convert more users into paying members but also to generate more revenue from existing paying members through sales of value-added services, such as additional keyword listings and premium listings placements. Fourth, the company had already taken the first step by offering Gold Supplier membership packages to Hong Kong suppliers in 2007. Alibaba.
com was already in talks with Japanese telecommunications giant Softbank about a joint venture to tap the Japanese market, for which significant upgrades to Alibaba. om’s Japanese languages Websites were already in the pipeline. Fifth, that loyalty of the users by providing business application through the marketplace platform and becoming an integrated part of users’ business operations. For example, it launched an internet based business management application called Alisoft Export Edition, developed by sister company Alisoft, for users based in China. Lastly, the underlying objectives would be expand its users and revenue base, widen geographic coverage, enhance content and service offerings, advance its technology, and strengthen its talent pool.Alibaba. com also considered leveraging its relationship with parent company Alibaba group to seek cross-selling, cross-marketing, and licensing arrangement and other opportunities.
Strength of Alibaba. com The company believed that it had certain competitive strengths to merit such moves as the membership merger, which would effectively produce more revenue. The company built a premier brand in the e-commerce domain, boasting the highest trasffic among all online B2B marketplaces. According to Internet statistics compiler Alexa.
com, Alibaba. om was the most visited site in the e-commerce and international business and trade categories, in addition to being the largest online B2B company in China. Alibaba. com attracted suppliers on the strength of the large number of potential buyers that used the marketplace, which in turn attracted more buyers to sign up with Alibaba. com. Second, Alibaba.
com was focused exclusively on the high lucrative SME sector. Providing tools and solutions tailored to SMEs, Alibaba. com was confident in the value propositions of its service offerings.For example, Alibaba. om provided trust ratings for suppliers and buyers, thus facilitating the process of selecting potential trading partners. The fixed subscription fee model also gave budget certainty to SMEs, which were often budget-sensitive and averse to ad-hoc expenditures. Users and subscribers had responded positively, leading to the formation of interactive community experience of users to build up loyalty to and trust in the brand. Lastly, Alibaba.
com was confident about its sales force and customer service support in attracting and retaining users, especially those who paid for subscriptions. As of mid-2007, Alibaba. om maintained more than 1,900 full-time field salespeople, and more than 400 full-time customer service employees, all of whom were grouped into teams in direct, daily contact with current and prospective customers. The customer service arm provided customer feedback to the sales force which, in turn, made use of findings and worked with the product development team to deliver services that more closely met customer’s needs. For example, a number of services available to Alibaba. com users, such as e-mail and instant messaging, had initially been proposed by customers and later developed by Alibaba.