A analysis of Alibaba.com and Alibaba Group in terms of their business strategy and global challenges. Including SWOT, Business Canvas and 4P analysis and some simple financial analysis for year 2016 and 2015.
2. 2
Table of Content
Part 1 – Business Summary....................................................................................................... 3
Background............................................................................................................................. 3
Vision & Business Idea........................................................................................................... 4
Goal & Strategy ...................................................................................................................... 4
From Alibaba.com to Alibaba Group................................................................................... 8
Part 2 – Marketing Strategy of Alibaba.com........................................................................... 9
4P Analysis .............................................................................................................................. 9
Business Model Canvas Analysis ........................................................................................ 11
SWOT Analysis..................................................................................................................... 12
Conclusion............................................................................................................................. 13
Part 3 – Alibaba Group’s Financial Operation Strategy...................................................... 15
1. Operating Profit Margin & Net Profit Margin ............................................................. 15
2. Asset Turnover (Kapitalomsättningshastighet)............................................................. 16
3. Quick Ratio (Kassalikviditet).......................................................................................... 17
4. Earning Power (Räntabilitet) .......................................................................................... 18
5. Equity Ratio (Soliditet) .................................................................................................... 18
6. Comparison with Amazon ............................................................................................... 19
Part 4 – Alibaba Group’s Organization Strategy.................................................................. 21
1. Key Values......................................................................................................................... 21
2. Organization Model & Barett Value Center.................................................................. 22
3. Leadership and Management methods .......................................................................... 22
Part 5 – Conclusion and Reflection .......................................................................................................23
Reasons of Success ..............................................................................................................................23
Advantages and disadvantages..........................................................................................................23
The Future of Alibaba ........................................................................................................................24
3. 3
Part 1 – Business Summary
Background
Alibaba Group is currently China’s biggest e-commerce company, holding more than 80% share of the
country’s e-commerce market. With almost 1.4 billion populations (Year 2016) and their Internet usage
around 53.2% among the population, Alibaba Group is now one of the most influential companies
among the world in the global economy.
It was year 1999 in Hangzhou, China, that Alibaba.com was born and became the starting point of
expend vastly and unbelievable fast growing journey of Alibaba Group. Leading by Jack Ma, a former
English teacher with 17 other friends, Alibaba.com was established and aimed to become an online
yellow page for the Chinese manufactures in the first place. When it launched, it became a English
language, business-to-business (B2B) trading platform, a global wholesale online marketplace;
connecting manufactures in countries such as China, India, Pakistan, and to name a few with
international buyers around the world. Mainly targeted Small-medium (SME) business/manufacture at
the time, their website provides free membership for manufactures/sellers to advertise their
products/services, with different packages one can chose to upgrade their membership packages in order
to enjoy premium benefits such as unlimited product listing, priority on the listing, advertisements etc.
on the website.
In the same year Alibaba was launched, Alibaba Group raised US$5 million from a consortium of
investors. Shortly in year 2000, got further US$20 million from an investor group led of Softbank.
Those investments allowed Alibaba to continuously work its way through until year 2002 to become
cash flow positive at the end of the year.
4. 4
Vision & Business Idea
Alibaba’s vision can be seen in their name: Alibaba.
The name took the inspiration from the ancient story “Ali Baba and the forty thieves” from the
collection “One thousand and one night, which a chamber of treasures is opened with the word “open
sesame”. Their vision is to open doors for business everywhere, as like someone shouting out to the
world “Open sesame!” and deliver what they promised through the magic of E-commerce. The world is
their oyster and their goal is as stated on their official website:
“To make it easy to do business anywhere”. (See Diagram A)
Diagram A
On Alibaba Group’s official website, it is also stated that their vision as following:
“We aim to build the future infrastructure of commerce. We envision that our customers will meet, work
and live at Alibaba, and that we will be a company that lasts at least 102 years.”
Goal & Strategy
Alibaba.com’s goal is to become the biggest B2B platform of global trade and simply deliver what it is
promised. At the beginning of E-commerce Era in China, it provided the most needed platform for the
B2B wholesale trading in China. With many SMEs manufacture in China who may or may not speak
English and have no access to the international market, the website enables them to upload their
products/services easily with simple functions and easy navigation of website design. Meanwhile, many
international/western buyers who were eagerly looking for cheaper, better quality of products but lack
of access to China, this platform opens the door for them. The underlying idea is to facilitate the
purchase of any product in any place of the world. And do it in a global scale by using the new and free
channel, the Internet. (See diagram below)
Vision
To make it easy to do
business anywhere
Business Idea
Connect the sellers &
buyers in a global scale
Goal
To become the biggest B2B platform of
global trade
Strategy
Target SMEs customers, Free membership -
competitive pricing ,Tust worthy transation
Operation
Security - Trust pass, Gold Supplier, Services
5. 5
Image source: http://mba13-group8.weebly.com/best-practice-case-alibabacom.html
Alibaba.com can be considered as a “collective entrepreneurship” and it’s a model based on profit
sharing. Which means the larger the network are, the greater benefits for the company and traders. As
the tractions are the foundations of this model to work, the Operations of are crucial as in terms of how
to attract users/inputs to their websitease to build the “big enough database”. Besides affordable
memberships (in the beginning was free) to attract sellers to join Alibaba.com, Alibaba.com also use
very simple websites – functional and easy to upload as “good enough” and “easy” with “enough
information” to attract buyers. Last but not least, they use various methods to ensure their users that
Alibaba provides trust worthy transactions and securities for international trade to take place on their
platform.
Operations
As mentioned above, to put their vision into practice and be able to build the E-commerce Ecosystem
Alibaba envisioned. Traction is the key and delivery is the pillar and employees are the foundation as
they are the main factors to deliver besides the input from Sellers and Buyers.
Therefore in terms of delivery, operations can be divided into three perspectives: to Sellers, to Buyers
and to Employees. One can also divide it into only two sides, External & Internal operations.
For the External Operation, as for Sellers and Buyers, I think there are two key of Alibaba’s operation
that distinguish them from other E-commerce websites at the time Alibaba.com was launched; which
are Security and Services.
1. Security
One must remember that Alibaba.com does not sell any goods directly or hold any inventory.
Therefore, to allow the business idea to work and attract high traffic of sellers & buyers to participate on
the website, the key is to provide the right service with security & credibility. Alibaba have divided
security into the following categories to regulate and ensure their customers the security of using their
platform.
1. Account Security
2. Supplier Selection
3. Payment Safety
4. Quality Assurance
5. Fraud & Dispute
To protect the user and to ensure that they verify the credibility and the reliability of the suppliers/sellers,
Alibaba.com use the following three functions/methods in terms of the Supplier Selection:
6. 6
• Trust Pass Profile – for all suppliers with various degree of membership
The “Trust Pass” is that a supplier/seller would need to pass an in-house verification check from
a third-party credit agency to be able to be listed on the website. The basic details such as
business size, business type, business certification etc. will be listed in the supplier/sellers Trust
Pass profile for buyers to browse. However, there are more in-depth verifications accessible for
Global Gold Supplier or suppliers who wish to use the services in order to attract/obtain new
buyer. (See diagram below)
Image source:
https://service.alibaba.com/buyer/ab/safety_security/products/verification_services.php
• Global Gold Supplier - for premium suppliers
The “Gold Supplier” is an extra verification of trustworthiness of third party required with
“years” stated next to the logo.
• Trade Assurance - for payment
The trade assurance is a payment system for buyers to ensure not only the security of the
payment but also the quality and the shipping process through Alibaba.
2. Services
7. 7
The scope of Alibaba.com’s services is wide, but they are all aims to build the Alibaba’s network. The
basic structure of Alibaba’s network is as the diagram below shows. Obviously over the years, the
services Alibaba gets more and more sophisticated in combination with the extensions of other services,
for example Ali-pay and to name a few. Nevertheless, the goal remains the same and the backbone of
the Alibaba is always to service the Buyer and Suppliers as much as they can to make the
trade/transaction happens.
The basic services on Alibaba.com for Buyers and Sellers/Suppliers are as shown as in below diagram.
One must also note that on top of those basic services, Alibaba also provides Buyer-Sellers matching
services and numerous communication services with communication tools.
Image source: https://www.slideshare.net/alibabainfomedia18/open-sesame-mumbai-december-2007-
presentation
8. 8
From Alibaba.com to Alibaba Group
One can say Alibaba Group’s operation is vertically, horizontally and continuously extending. In doing
it so allows Alibaba to stay on top of the game through numerous integrations & acquisitions.
For example, while Alibaba.com was launched focusing on global wholesale trade, 1688.com was
launched at the same time for the domestic whole trade in China. In year 2003, the C2C consumer e-
comerce website Taobao.com was launched, followed by Alipay, the equivalent of Paypal to be
established in year 2004. In year 2008, Tmal,l a B2C online commerce platform focused on brands and
online retail was established. In year 2010, a flash sale Website Jujuasuan was launched and it round off
Alibaba’s digital offerings in China.
Besides numerous extensions into other sectors of the market and numerous acquisitions, Alibaba Group
was listed in Hong Kong exchange in year 2007, following by to be listed in New York IPO year 2014.
From there, the foundation of Alibaba Empire is built.
Below diagram shows the basic branches of Alibaba Group in different sectors. The last acquisition is
LAZADA (Owns 83 percent currently), a Singapore based E-commerce firm, in order to continue
Alibaba’s expansion plans in South East Asia. In 2016, Alibaba also announced the opening of Data
Centre in Dubai, Frankfurt, Sydney and Tokyo; which indicates their ambition/ direction towards the
Cloud Computing.
Image source: https://www.linkedin.com/pulse/swot-alibaba-group-consumer-online-marketplaces-
worldwide-adrian-lee
9. 9
Part 2 – Marketing Strategy of Alibaba.com
To have a good grasp of Alibaba.com’s marketing strategy, I will use 4P, Business Model Canvas and
SWOT to analysis Alibaba.com’s core marketing strategy. To start with 4P, it would provide the basic
layout Alibaba.com’s business methods. With Business Model Canvas one can see the scope of
Alibaba’s business methods in more details. Last but not least, with SWOT one can see the threats and
possibilities. In combinations with other two analyses, one can try to predict what holds in the future for
Alibaba.com.
4P Analysis
1. Product
Alibaba.com’s product is intangible. It provides service that aim to facilitate the purchase of any
products in anywhere. Not only it provide an online catalogue for buyers to search and a platform to
advertise themselves for sellers. Sellers also get to increase their sales by the exposure to the
international markets; buyers get to have access to a better and more transparent sourcing channel. I put
theirs products into three different categories as one for Sellers, one for Buyers, and the last for business
solutions as overall.
1. For Sellers – A platform for merchants & advertisement
2. For Buyer – A wholesale platform on the global site seeking fast shipment of small quantities of
goods.
3. Business Solution –
a) Business management software
b) Internet infrastructure services
Product-
Services
Place -
Two Market
Price -
Competitive
Promotion -
Freebies &
others
10. 10
c) Educational services – enterprise management & e-commerce professionals
The feature of their services are emphasized with the following-
• Easy access with no geography boundaries
• Efficiencies
• Affordable price
• Good Security/Credibility
2. Place
Obviously all the transaction of Alibaba.com happened on their website. However, we can still divide
their market into two categories – one for International Market and another is for the China Market.
Considering how big the China Market is, it cannot be ignored nor neglected. However, as the set up of
1688.com was established focusing on the China local market, Alibaba.com was established to be focus
on the International Market. Nowadays Alibaba.com has divided their market by 5 continents such as
Asia, America, Europe, Middle East and Africa; including about 47 countries. As the point of services,
Alibaba Group has about 10 offices abroad (excluding Hong Kong). With the majority employees in
China, they have officially recorded more than 50,000 employees worldwide in year 2017.
3. Price
As in the beginning of Alibaba.com, the founders knows they have to gain as many participants as
possible to successfully build the Alibaba Network they have envisioned. Therefore at one point Jack
Ma told their investors that they will not make any profit until Alibaba.com has more than 1 million
users. At the point of lunched they did not charge for neither Sellers nor Buyers to register at
Alibaba.com, this could be understandably true. However, once Alibaba had big enough registered
customer base, they started to charge for Sellers/Suppliers to register with them. On top of the registered
fee, there were other sources of profits for Alibaba.com as well, which are advertising and value-added
services. As same as many other E-commerce platforms nowadays, at the time the majority revenues for
Alibaba was advertising.
After Ali-pay was established, it generates another source of income by collecting technical services
charges from business transactions. Overall, Alibaba uses a competition pricing in setting the price of a
product in comparison with its competitors – with no extreme differences. In another words, Alibaba
use a very competitive pricing strategy but offers great exposures for Sellers/Suppliers in combination
with their professional trade services and supports.
4. Promotion
As mentioned before, Alibaba started introduce their platform to users with freebies – free membership,
free registration and free services. Although they started to charge for registration at later stage, they
continue to use freebies as a promotion method in different ways. For example, at one point they
promoted their membership by giving away free Shopkeepers TM – a software package that consisted
of accounting, stock management and consumer resource management. They also use various Internet
promotion strategies, such as public relations, direct marketing, and discounts during special days such
as festivals, media advertising and sponsoring events to draw awareness of Alibaba. In combination
with attending traditional trade exhibitions, host management conferences to link/penetrate the business
world. Not to mention that the founder, Jack Ma, acted as spokesman for Alibaba attends numerous TV
shows, media shows and release numerous public letters in an act to promote Alibaba as well.
11. 11
Business Model Canvas Analysis
Key Partner
1. 3rd
Party
Verification Org.
2. Seller/Retailer
3. Logistic (FedEx,
DHL)
4. Alipay (Payment
System)
5. Advertising/Mar
keting
Key Activities
1. Marketing &
Sales
2. Data
Management
3. Loan services
Value Proposition
1. Access to
global market
2. Security –
supply and
payment
3. Advertising
Customer
Relationships
1. Self service
help centre
2. Online
customer
service
3. Community
4. Newsletter
5. VIP event
team
Customer
Segment
1. B2B
2. Global
3. China
Key Resource
1. Company/Retail
er/Sellers’
Brand
2. Customer Data
Distribution
Channels
1. Website
2. Alibaba Apps
3. Local office
Cost structure
1. Personnel
2. Infrastructure Technology
Revenue Stream
1. Membership Package
2. Advertising
3. Value-added Service (QC, Verification, Shipping)
4. Technical transaction fee (Ali-pay)
As mentioned before, Alibaba’s business model is different from other E-commerce retailer as they are
about profit sharing. Therefore, their Key Resource is brand – Alibaba’s brand as the biggest online
marketplace; their retailer’s/Sellers brand as provide good quality of products. The second resource is
their Customer Data, which is equivalent essential to many E-commerce business models nowadays.
Due to the nature of their business, the fixed cost of Alibaba is relatively low compare to other E-
commerce platforms; one can say in that sense their business nature are more similar to Ebay instead of
Amazon.
However, as Alibaba’s business model is profit sharing, most of their revenue stream is from
Adversiting and Value-added services. Ali-pay is the later added on services developed within Alibaba
Group and embedded in Alibaba.com in order to vertically integrated the services within Alibaba.com
not to mentioned to generate another stream of income by collecting the transaction fee.
12. 12
SWOT Analysis
It is rather difficult to differentiate Alibaba.com from Alibaba Group when analysing its SWOT. The
reason behind it is that many of other divisions within Alibaba Group is linked or co-working with
Alibaba.com. However, one must keep in mind that although Alibaba.com is the starting point of
Alibaba Group and holds the same future together; it is possible that in the future Alibaba.com will have
a different fate separating from Alibaba Group; example, to be less focused or replaced due to the shift
of business trend in E-commerce or due to the different direction Alibaba Group decided to turn to.
The strength of Alibaba is clearly their well-build customer base and market presence in China. With
the strong digital commerce and sales features they have developed in the past decades, plus the
numerous acquisitions and easing regulation give them more advantages among other competitors.
As Alibaba.com is established more of a gateway for China Suppliers, they have quiet limited global
presence and international sales – as most of their revenues comes from China Sellers/Suppliers. Not to
mention that due to the nature of their business model, Alibaba.com is sensitive to usage rate and suffers
greater usage challenge; as to retain their customer going back to their website is crucial and the
decreasing usage of their platform is fatal to Alibaba.com. Alibaba was also quiet late in developing
mobile commerce functionalities – Apps, therefore in terms of consumer experience internationally they
are not really catching up with other competitors in Apps development, such as Wechat. Last but not
least, due to the large size of their company, inevitably leads them to lag in the disruptive technology,
such as AI. However, one can see that Alibaba tried to rectify by numerous acquisition and hiring the
experienced personnel, including hiring an AI chief from their competitor Baidu in March 2017. (Source:
https://www.ft.com/content/177b6354-0efa-11e7-a88c-50ba212dce4d?mhq5j=e5)
Strengths
1. Dominate market presence in China
across multiple product category offerings
2. Strong digital commerce and sales
enablement features
3. Increased international business driven
by acquisitions and easing regulations
4. Support of China government
Wekaness
1. Limited global market presence and
international sales - sensitive to usage
2. Weak mobile commerce functionality
and consumer experience internationally
3. Lag in disruptive technologies, such as
AI
Opportunities
1. Grow digital commerce ecosystem via
payments, gaming and cloud channels
2. Improving conversion rate through
integration of zero-touch
3. Expansion into new markets of
Southeast Asia, Latin America, the Milddle
East and Africa
Threats
1. Intense competition in international
markets and the Amazon effect
2. Growth of vertical specialists in China
3. Increasing concerns about counterfeit
products on online marketplaces globally
SWOT
13. 13
In terms of Opportunities, one can see that Alibaba’s attempt to cover them all. As shown in the diagram
below, in additional to Alibaba.com (until Year 2016), under the Alibaba Group they have AliExpress,
Tmall Global and Lazada to tackle the South East Asia/International market. Also they have YouKu
Tudou, Tmall TV, Alibaba Music and Alisports.com to tackle the Media channel. Last but not least,
they have Alibaba Cloud and Aliyun.com to tackle Cloud Computing.
Image Source: https://revenuesandprofits.com/alibaba-makes-money-2016-update/
The threats for Alibaba are more of the result of globalisation; which one can say is in parallel with
what all the other global E-commerce business are facing. The competition is intense and Amazon as
one of the leading competitor. In the homeland of Alibaba, the vertical specialist also have raised and
grown in the past decades, therefore the home competition has also increased enormously. The
counterfeit products are always a problem in China, especially now the China market has matured and
Alibaba is seeking to expend their customer into Europe and America. Alibaba will have to address this
issue promptly and successfully in order to branching out into the Europe and American markets.
Conclusion
Since Alibaba.com was established in year 1997, one can say there are 6 stages of development of
Alibaba Group as following:
1. 1998 – 2001: Alibaba.com – B2B Entering the market.
2. 2002-2003: Alibaba invented reliable credit certification, TrustPass &
Alipay.
3. 2004: Tabao – C2C website (similar to Ebay).
4. 2005-2007: Yahoo China was taken over by Alibaba – enable Alibaba to
monitor all transactions operations.
5. 2008-2016: B2C – Juhuasuan, Tmall, Aliexpress & Lazada.
6. Current: Cloud Computing
14. 14
One can see that in the past decade, Alibaba Group have covered all the E-commerce market in terms of
B2B, C2C and B2C. As the diagrams shows below, one can see clearly how their market strategy lies in
comparison with couple of other international E-commerce companies.
However, when to come to the scope of the market, Alibaba Group is obviously not having enough
penetration into the international market as much as Ebay and Amazon; this also indicates that Alibaba
is heavily relying on the China market. This would need to be addressed promptly due to two reasons.
One is that the China economic will slow down at one point in the future, which will affect Alibaba
enormously as they are so heavily relying on the China Market. The second one is that China’s
economic can turn from Exporting to Importing, as Jack Ma has predicted himself, there is no guarantee
that Alibaba Group will be able to grasp the Import business market; as the consumer behaviour changes
rapidly with the economic structure changes in China, the lacking of disruptive technology may make
Alibaba unable to win over the younger generations consumers in China.
Image Source: https://www.slideshare.net/akudasov/alibaba-global-strategy
If one looks at the lifecycle of Alibaba Group, one can
say that Alibaba.com started growing since year 2003
when their profit turned positive. Since 2004, Alibaba
Group has been revitalising themselves relentlessly.
However, the pace of lifecycle in E-commerce is
faster than any other business we’ve known. Coupled
with the innovation of smart phone, E-commerce has
become more complex than we ever known before.
This constant revitalisation may be obligatory in order
to survive, but no one knows if it will guarantee the
survival of Alibaba.com.
2017-08
VAD ÄR SKILLNADEN?????
INNOVATÖR
ENTREPRENÖR
AFFÄRSUTVECKLARE
Livscykelkurva
Introduktion Tillväxt Mognad Nedgång Ev. ny tillväxt
Oms.
Tid
Sökfas
Utvecklingsfas
Tillväxtfas
Stabilisering
Revitalisering
Nedgång
Återhämtning
Drivkrafter
Year 2003
Year 1997
Since Year 2004
15. 15
Part 3 – Alibaba Group’s Financial Operation Strategy
As Alibaba Group is listed in New York Stock Exchange (NYSE) as Alibaba Group Holding Lt
(BABA), their financial information is easier to access. Therefore I will use Alibaba Group’s financial
data collected from Google Finance (finance.google.com) to do the basic financial analysis between
years 2015 to 2017. By looking into the following five aspects of Alibaba Group’s financial report to
discuss the trend of Alibaba’s financial status:
1. Operating Profit Margin & Net Profit Margin
2. Asset Turnover (Kapitalomsättningshastighet)
3. Quick Ratio (Kassalikviditet)
4. Earning Power (Räntabilitet)
5. Equity Ratio (Soliditet)
6. Comparison with Amazon
In the last part, I will briefly compare Alibaba’s financial status with Amazon in order to draw a clear
benchmark for their financial performance in year 2015 and 2016. The reason I chose Amazon is
because their sizes are more similar in terms of Assets.
1. Operating Profit Margin & Net Profit Margin
As Alibaba’s products are intangible, there is no inventory cost and very low fixed cost. Therefore it
reflects on their Income. From the charts below shows that the Revenue is increasing year on year,
while the Net Income is relatively constant with the exception of year 2016 due to on-off accounting
gains from interests and investments. Meanwhile Operating Income is going on a steady trend.
Year 2015 2016 2017
Revenue 7620400 10114300 15827300
Operating Income 2271600 2820000 4593000
Net Income 2426100 7146000 4367500
(In Millions of CNY)
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
2015 2016 2017
Revenue
Operating Income
Net Income
16. 16
Year 2015 2016 2017
Operating Profit Margin % 30% 28% 29%
Net Profit Margin % 32% 71% 28%
The Operating Profit Margin and Net Profit Margin are shown in the table above. The Operating Profit
Margin is steady between 28%~30%. But the Net Profit Margin is relatively volatile; from 32% in year
2015 it went to a high of 71% in year 2016, and went down back to 28% in year 2017.
The reason why the Net Profit Margin was so high in year 2016 was due to the Net Income exceeding
the Operating income; the differences came from the certain accounting gains from the interest and
investment income. And this type of investment income is one-off and should not be considered as norm.
(Reference Source: https://revenuesandprofits.com/alibaba-vs-walmart-fiscal-year-2016/)
2. Asset Turnover (Kapitalomsättningshastighet)
As below chart shows, the Asset Turnover of Alibaba in the past three year is stable within the range of
28%~ 31% but relatively low compare to Amazon (2015 – 164%, 2016 – 163%).
As Alibaba have larger asset, it consequently makes Alibaba’s Asset Turnover lower; this can be
interpreted into that Alibaba Group does not utilize all their assets as efficiently as Amazon.
However, if one compares Alibaba’s Asset Turnover to Ebay (2015 – 40%, 2016 – 48%), they seem to
fall under the similar percentage range. This could also to be explained base on the differences of their
business nature; although all three of them are E-commerce businesses, both Alibaba and Ebay both
provide service/platform instead of Amazon which to some extent sells products. Therefore the
relationship between Assets and Revenues are much more entwined for Amazon than Alibaba or Ebay.
(Reference source: https://www.stock-analysis-on.net/NASDAQ/Company/Amazoncom-Inc/Long-
Term-Trends/Total-Asset-Turnover)
Year 2015 2016 2017
Revenue 76204 101143 158273
Total Assets 255434 364245 506812
Asset Turnover % 30% 28% 31%
(In Millions of CNY)
0%
50%
100%
150%
200%
Alibaba Ebay Amazon
Asset Turnover
2015
0%
50%
100%
150%
200%
Alibaba Ebay Amazon
Asset Turnover
2016
17. 17
3. Quick Ratio (Kassalikviditet)
The Quick Ration of Alibaba Group is high on average, as the table below shows. Which means Abilaba
has good short-term liquidity. However, in the past three years the ratio has been decreasing
significantly; which indicates that that their short term debts has been increasing quicker than their
current assets. This indicates that Alibaba Group has been investing significant amounts in other sectors
in order to utilize their assets.
In year 2017 their Quick Ratio was 195%, which is still at a healthy level, but this should be closely
monitored to see if their investments and their attempts in expanding into different product ranges pays
off in the future.
(In Millions of CNY)
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
200000
2015 2016 2017
Current Assets
Short term debts
0%
100%
200%
300%
400%
2015 2016 2017
Quick Ratio
Quick Ratio
Year 2015 2016 2017
Current Assets 142109 134035 182516
Short term debts 39672 52039 93771
Quick Ratio % 358% 258% 195%
18. 18
4. Earning Power (Räntabilitet)
The Earning Power ratio of Alibaba Group is rather stable exempt year 2016. The reason year 2016 has
such a high income due to the extra investment income as mentioned before.
However, if the average of Alibaba’s Earning Power is between 13% ~ 12%, it is still relatively healthy.
In addition, it is relatively high if compare with Amazon’s Earning Power, which were 2% in year 2015
and 5% in year 2016.
Year 2015 2016 2017
EBIT 32326 81468 60029
Total Assets 255434 364245 506812
Earning Power % 13% 22% 12%
(In Millions of CNY)
5. Equity Ratio (Soliditet)
The Equity Ratio of Alibaba Group as shown below is stable around 56%~60%, which is high on the
average for this size of the company. This indicates that while their Equity is high, the company has low
borrowing and has better long-term solvency position. Considering investments and acquisitions made
by Alibaba Group, their Equity Ratio has not significantly changed as the Equity was kept in the right
balance with the assets (As the diagram shows below).
Year 2015 2016 2017
Equity 146097 217337 281791
Total Assets 255434 364245 506812
Equity Ratio % 57% 60% 56%
(In Millions of CNY)
0
100000
200000
300000
400000
500000
600000
2015 2016 2017
Equity
Total Assets
19. 19
6. Comparison with Amazon
Revenue & Operating Profit Margin
As below three tables shows, although Amazon has substantially higher Revenue than Alibaba, their
Operating Income falls in the same period. Alibaba has significantly higher Operating Profit Margin
ratio in comparison with Amazon. This can be accounted to the fact that Alibaba has much lower fixed
cost than Amazon. As the diagram below shows, Alibaba has more than 6 times Operating Profit
Margin ratio when compared with Amazon in both year 2015 and 2016.
Revenue
2015 2016
Amazon 107,006.00 135,987.00
Alibaba 11,425.00 15,164.00
Operating Income
2015 2016
Amazon 2233 4186
Alibaba 3405 4228
Operating Profit Margin
Amazon 2% 3%
Alibaba 30% 28%
(In Millions of USD)
Asset Turnover Ratio
As below shows that Amazon has much better Asset Turnover Ratio than Alibaba, this indicates that
Amazon utilize their Assets much more efficiently than Alibaba. However, the large gap between
Amazon and Alibaba could also be explained by the difference of their business nature as discussed
before. As Alibaba’s product is Service/Platform instead of products, one can say that their return of
assets is expected to be much lower as their performance is not directly linked to their assets. On the
other hand, their Asset Turnover Ratio may never be as high as Amazon due to the same reason.
2015 2016
Amazon 164% 163%
Aliababa 30% 28%
0%
5%
10%
15%
20%
25%
30%
35%
2015 2016
Amazon
Alibaba
20. 20
Earning Power
Although Amazon has much better Asset Turnover Ratio, but in terms of Earning Power Alibaba outdo
Amazon as below table shows. This could also be explained as Alibaba having much lower fixed cost
than Amazon, has much better Profit Margin; therefore, perform much better in terms of earning.
2015 2016
Amazon 2% 5%
Aliababa 13% 22%
Equity Ratio
Obviously Alibaba still outshine Amazon when it comes to Equity Ratio, but in terms of the gap, it’s not
as large as the difference between Profit Margin and their Earning Power. However, both company have
quiet good Equity Ratio, but Alibaba has exceptionally high Equity Ratio compare to other traditional
retail industry.
2015 2016
Amazon 21% 23%
Aliababa 57% 60%
Conclusion
Overall Alibaba performs better in most of the financial ratios as stated above. Among all of them, the
only factor that Amazon is better than Alibaba is its Asset Turnover Ratio. This indicates that Amazon
has utilized its Assets more efficiently but also signifies that the nature of business between Alibaba and
Amazon is different. That results into their differences in terms of their financial indications. Due to the
low fixed cost for Alibaba, it means that if there is a sudden decrease in term of volume that would
affect their revenue negatively, Alibaba can easily manage and scale down the variable cost accordingly
to reflect the new reality.
21. 21
Part 4 – Alibaba Group’s Organization Strategy
To discuss Alibaba Group’s Organization strategy, I will divide it into the following four sections:
1. Key Values
2. Organization model & Barett Value Center
3. Leadership and Management
1. Key Values
Stated clearly on Alibaba Gorup’s website, they key values of Alibaba are Customer, Team, Change,
Integrity, Passion and Commitment. Customer is a must as same as all other business would say, the
Teamwork is also commonly known. However, “Embrace Change” is quiet unique and interesting as a
value for a company; considering being able to adapt quickly is very important for E-commerce to
survive and considering the nature of Alibaba’s business, one can understand that it is important for
their staffs to grasp the concept of changing.
Passion and commitment is also common for a company to require for their employees; Integrity stands
out, as it is not commonly discussed in the Aisan business value. However, I think this value does not
only apply to their employee but also as a message to their Seller/Suppliers. As have discussed before,
Credibility is important for the trade to take place in the virtual world, so I think Alibaba use this to
enhance their message to their Sellers/Suppliers as well as to ensure their customers.
Image source: http://www.alibabagroup.com/en/about/culture
22. 22
2. Organization Model & Barett Value Center
As discussed before regarding Alibaba Group’s business
models, one can identify that their Organization Model is a
combination of Function organization and Matrix
organization model. However, if we solely look in the
Organization Model of Alibaba.com, I would say that they
are more Divisions organization models and are divided
geographically.
As Sellers/Suppliers are complex and diverse as well as
bound to geographic limitation due to the local trade
regulations. It is important for the local offices to have the
flexibility to adapt to the local market. According to the
Harvard Business Review, “Jack Ma (Former CEO of Alibaba), constantly made subsidiary heads aware
that had the freedom to do what was right for their business.”
(Reference Source: https://hbr.org/2014/05/alibaba-looks-more-like-ge-than-google#comment-section)
If we look at the Barett Value Center, Alibaba Group is
between stages 4 and 5. I feel that they are constantly
renewing and revitalizing themselves, working on the
transformation and their Internal Cohesions. However, one
interesting point is that Alibaba does not emphasize much
on pursuing higher purpose as Stage 7 in the Barett Value
Center. They have stated their goal as sustainability and so
on their website, but it was only until 2016 did them hosted
their first philanthropy conference in China.
3. Leadership and Management methods
The style of leadership of Alibaba seems to be a mixed of old and new, a mixed of west and east. As a
Chinese company, it is highly likely for them to be using a top-down decision-making management
style. Also as the traditional Chinese style leadership is with hierarchy within the organization,
teamwork is highly valued but usually lead by a small management team. However, as have discussed
before, the organization model of Alibaba.com is more towards the Division Organization; which
should give the local division freedom to be localized and tailor towards their local customers’ needs.
Therefore, I think in terms of management methods Jack Ma has used adapted certain management
methods from the Western to mixed with the Eastern style. The Management style would be result-
oriented, fast pace in order to keep up with the everyday changing E-commerce business world but in
the form of divisional teamwork. I would imagine the economic incentive would be important was
always in the Asian working environment.
Before Jack Ma stepped down as CEO of Alibaba in year 2013, he was no doubt the leader in the
Alibaba Empire. However, his leadership style seems to be more giving inspiration speeches and
encouraging people. His changes his own strategies accordingly to the market and keep his flexibility in
terms of doing business, as a true businessman should be. There are many stories circle around
regarding his upspring and how he relentlessly worked his way up – which resonate with the uprising of
the middle class in Chinese economic in the past decades. The story is inspiring, and armed with the
English Teacher background he became a excellent spokesperson for Alibaba; which I think helps a lot
with the image building for Alibaba in the western world.
2017-08-28
9
VILKA ÄR UTMANINGARNA MED INNOVATION
1. Tid (Resurser) (42%)
2. Kunskap om innovation (24%)
3. Avsaknad av/kunskap om innovationsprocessen (20%)
4. Förmåga att förstå och tolka omgivningen (18%)
ORGANISATIONENS OLIKA PERSPEKTIV
SLOTTET KONTORET
FABRIKEN
I VILKEN SITUATION BEFINNER SIG
FÖRETAGET
Det framgångsrika
företaget
Det
underpresterande
eller det
snabbväxande
företaget
Det strävsamma
företaget
Krisföretaget
Inre effektivitet
Yttreeffektivitet
Hög Låg
Hög
Låg
Utvecklingstrappan Barett value center
DET LÖNSAMMASTE SOM FINNS
Engagerade människor
54
FREEDOM INC.
https://www.youtube.com/watch?v=sVBddXmynSc
8
SAMMANFATTNING
Funktionsorganisation
Tydlig specialisering
Tillvaratar stordriftsfördelar
Möjliggör att sätta
tydliga ansvarsområden
Otydligt kundfokus
(Mer fokus på den egna funktionen
istället för på helheten)
De tydliga funktionerna kan
leda till inflexibilitet vid
förändring
+ -
DIVISIONSORGANISATION
Koncernledning
Division A Division B Division C
23. 23
Part 5 – Conclusion and Reflection
Reasons of Success
There is no denying that Alibaba.com had successfully built the empire into the Alibaba Group we
witness today. With consolidated revenue to more than 158.3 Billion yuan in year 2017, which
translates into approximately around 22.99 Billon dollars with more than 443 million annual active
buyers. Considering there are about 730 millions of Internet users in China, Alibaba has more than 60%
share of this customer base. Alibaba Group is a force of unstoppable.
Besides all technicality reasons behind their success, I think the main factor of Alibaba.coms success
was TIME. Alibaba.com was launched at the right time with the right product plus the right marketing
strategies in the right economic environment. Alibaba.com successfully obtained large Internet
penetration in China with their freebies marketing strategy with the services that was urgently needed by
the market when E-commerce just started booming in China. But it was also the exploding economic
growth and their economic reforms in China allowed Alibaba to grow into the economic of scales they
are today.
Advantages and disadvantages
As mentioned before, Alibaba’s core business model is Profit Sharing; it is a double-edged swords that
brings as many advantages as same as disadvantages for Alibaba. With Profit Sharing e-commerce
ecosystem in place, Alibaba has more diverse customer base but also suffers greater usage challenge.
With low fixed cost Alibaba has more flexibility in terms of their cash flows, but it also make it more
difficult for them to utilize their assets efficiently. As Alibaba is dominated in the China market, one can
also say Alibaba’s growth is heavily relied on the growth of China’s economic. As in year 2016, retail e-
commerce in China accounted for 79 percent of Alibaba Groups’ revenue; it is exceptionally high and
shows how Alibaba’s growth is intertwined with China’s economic.
Alibaba has another unique advantage is the support of Chinese government. As their government still
strictly regulates foreign investors to do business in China, it is obvious that Alibaba has the exclusive
access and the home advantages. One of the interesting aspects of their financial performance on the
stock market is their P/E ratio. Although Alibaba Group is doing extremely well on the stock market;
their P/E ratio when comparing with Amazon is relatively low. Amazon’s P/E ratio is 242.57 while
Alibaba’s P/E ratio is merely 60.47. This reflects the low faith investors’ holds of the company
regarding their stock value; one can also interpreted this into that investors consider Alibaba with higher
risk comparing with Amazon. This could be the result of lack of information transparency in China
leads to the low trust in terms of their financial reports. Another main reason could also be due to the
way that how Alibaba is structured. As limited by the Chinese regulation, in order to be able to be listed
on the IPO, Alibaba Group is registered as a Cayman Island Shell Entity; which means shareholders
would not have direct access to Alibaba Groups asset. Above two points can obviously plant large seeds
into investors doubt regarding Alibaba’s stock value and explains the huge gap of P/E ratio between
Alibaba and Amazon. (Reference Source: https://www.wallstreetoasis.com/blog/alibabas-governance-
by-politburo-corporate-governance-and-value).
24. 24
The Future of Alibaba
While Alibaba’s position in China is undisputed, their global expansion has been slow. As profit sharing
business are built on the economic of scales, Alibaba is also vulnerable and sensitive of user base,
threats of substitutes and economic climate change; in another words, global growth is essential element
of Alibaba’s longer term strategy. In term of pursuing global grown, as Alibaba Group has grown so
much, it is by nature of the company this size to be lack of disruptive technology and difficult for them
to foresee the immediate change of the trend just around the corner.
Currently Cloud Computing is a very small part of Alibaba’s business, but it is where they are focusing
on to expand the most. Alibaba believes that cloud computing and big data will be the two key drives
that will transform the retail landscape in the next thirty years. One cannot help but notice that both
Alibaba and Amazon are moving towards the Cloud Computing aggressively, which also indicates the
future trend in International E-commerce environment.
Nevertheless, backed by one of the biggest growing economic – China, no doubt that Alibaba Group
will continue to press on to integrate more of its services and offerings into their retail ecosystem. The
company’s ability to effectively execute their strategies amid strong global competitions will be the key
driver of its growth in the coming future.
