Alibaba- The Magic Carpet of Ecommerce

ALIBABA: THE MAGIC CARPET OF E-COMMERCE 1
Alibaba: The Magic Carpet of E-Commerce
Kelly A. Mott
DeVry University

Abstract
Just like the character Ali Baba from the folk tales that comprised The Arabian Nights, a click of
the mouse or a tap on your phone is your “Open Sesame!” command to the treasure of global
goods. The mission of Alibaba.com “is to make it easy to do business anywhere.” Just like
Prince Husain, another character in the tales from The Arabian Nights, Alibaba Group is your
magic carpet to transport you anywhere in the world.

Alibaba: The Magic Carpet of E-Commerce
The Wall Street Journal description of Alibaba “is a marketplace, a search engine, and a
bank, all in one”. Alibaba is not your grandma’s eBay- the vision of Alibaba Group is 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.”
History
Conceived in 1999, Alibaba started as a team of eighteen people led by a former English
teacher, the charismatic and illustrious Jack Ma. The initial flagship project had a goal of aiding
the expansion of Chinese exporters, manufacturers, and entrepreneurs into the international
market. Alibaba Group changed the lives of Chinese citizens in February of 2014 with the launch
of Tmall Global that made international brands available to Chinese consumers. The company
went public on the NYSE on September 18, 2014, under the ticker symbol (BABA). The
company priced shares at $68.00 each, and although it was not the largest IPO, it was one of the
biggest stock sales on record.
Products and Services
Alibaba group is comprised of multiple business platforms, some serving only China, and
some global. (All images for products and services captured from www.alibabgroup.com on
November 8, 2015.)
Alibaba.com (www.alibaba.com), the first business of Alibaba Group, is a platform for
global wholesale trade for businesses around the world. The Alibaba.com website boasts over
forty categories of merchandise. Businesses can purchase anything in bulk from animal

husbandry equipment, apparel, and auto parts to zinc oxide, zoom lenses, and zodiac inflatable
boats.
The Taobao Marketplace (www.taobao.com) is an online shopping destination similar to
eBay, where Chinese consumers can purchase countless Chinese products. Taobao translates to
“digging for treasure”. Taobao has recently added Taobao Travel to its long list of goods and
services, mimicking the services offered by such companies as Expedia and Orbitz. Anyone may
access and shop at Taobao.com, and MasterCard and Visa are two of the many accepted forms of
payment. However, the site is geared towards Chinese consumers and is mostly in Mandarin.
Tmall.com (www.tmall.com) is a third-party platform offering both international and
Chinese brands and retailers. The Tmall website is also geared toward Chinese consumers and is
in Mandarin, but the TmallAgent.com service makes it easy for anyone to purchase items they
desire from Tmall.com. The TmallAgent website claims the advantage to using their service is
that many of the goods offered on sites such as eBay, loffer, and Amazon are actually made in
China, and by purchasing directly from Chinese manufacturers through their service you
eliminate the middle man and can purchase items at a much lower price.

Juhuasuan (www.juhuasuan.com) “offers quality products at discounted prices by
aggregating demand from numerous consumers. It mainly does this through flash sales which
make products available at discounted prices for a limited period of time,” according to the
Alibaba Group website. Juhuasuan is similar to Groupon with daily deals on specific
merchandise. Juhuasuan has expanded its customer base beyond China to include Hong Kong
and Taiwan.
AliExpress (www.aliexpress.com) is for worldwide consumers to purchase directly from
wholesalers and manufacturers in China. The AliExpress website is in English, and you can
“like” them on Facebook. AliExpress is like an online Sears with “departments” in apparel and
fashion accessories, cosmetics, toys, sporting goods, electronics, home and garden, and
automotive accessories.
1688.com (www.1688.com) “serves as a wholesale channel for merchants doing business
on Alibaba Group’s retail marketplaces to source products from domestic wholesalers,”
according to the Alibaba Group website. The 1688.com website is entirely in Mandarin, and
caters to Chinese merchants.

Alimama (www.alimama.com) is described by the Alibaba Group website as “an online
marketing technology platform that offers sellers on Alibaba Group’s marketplaces online
marketing services for both personal computers and mobile devices. Through the Taobao
Affiliate Network, Alimama also provides those sellers with such marketing services on third-
party websites.” The goal of Alimama is to build media advertising comparative to that of
Google.
AliCloud (www.aliyun.com) is “Alibaba Group’s cloud computing arm, develops highly
scalable platforms for cloud computing and data management. It provides a comprehensive suite
of cloud computing services to support the participants of Alibaba Group’s online and mobile
commerce ecosystem, including sellers, and other third-party customers and businesses,”
according to the Alibaba Group website. The Aliyun website is available in English, but does not
include all website content. If you visit the website in English, you will see a polite and
apologetic message that they are preparing to support more languages. One of the offerings of
AliCloud is Kanbox, Alibaba’s answer to Dropbox.

Ant Financial Services Group is described by the Alibaba Group website as “focused on
serving small and micro enterprises as well as consumers. With the vision “to turn trust into
wealth,” Ant Financial is dedicated to building an open ecosystem of Internet thinking and
technologies while working with other financial institutions to support the future financial needs
of society. Businesses operated by Ant Financial Services Group include Alipay, Alipay Wallet,
Yu’e Bao, Zhao Cai Bao, Ant Micro Loan and Sesame Credit.”
 Alipay is similar to PayPal for Chinese consumers and businesses using the
various platforms of Alibaba Group, but continues to expand as a financial service
far beyond a secured payment feature for online purchasing.
 Alipay Wallet is an app available on iOS and Android, and is more than just a
secured payment system, but a financial management app.
 Yu’e Bao translates to “leftover treasure”. Alipay users can put their money into
the product, which invests in funds. There is no minimum amount, and customers
can withdraw their cash any time.
 Zhao Cai Bao is a platform for small businesses and individuals to borrow
directly from investors. Borrowers have access to investors after a financial
institution has guaranteed the loan.
 Ant Micro Loan is a micro loan service for small businesses provided by Ant
Financial.

 Sesame Credit is a credit scoring service aimed at making credit more widely
available to Chinese consumers by using their bill paying habits, mobile phone
history, and other factors to assess their worthiness of credit.
Cainiao Logistics President Judy Tong stated in an interview that, “Cainiao operates a
proprietary logistics information platform that links a network of logistics providers, warehouses
and distribution centers, which allow participants to confidentially share information on orders,
delivery status and user feedback. This information flow and related data analysis help logistics
companies to achieve higher efficiency and quality service for both merchants and consumers.”
(Borison)
SWOT analysis.
Strengths.
 Strong branding and increasing popularity
 Huge customer base
 Limitless product availability- anyone can sell or buy anything
 Has reduced barriers of market entry
 Own payment system
 Existing logistics system
 Focus on the future, dedication to continuous improvement
Weaknesses.

 Competitive market
 Failed to control counterfeit goods, misleading promotions
 Financial network may charge high interest rates
 Possible hidden costs- especially for international customers
 Although popular in China, still not widely known internationally
Opportunities.
 Growing demand for e-commerce world wide
 New acquisitions
 Venture capital
 Government Support and Regulations to aid in the reduction of counterfeit goods
and false product claims
 Increase delivery efficiency and reduce delivery cost
 Collaboration with other companies to provide post-purchase services on big
ticket items like appliances and electronics
 Continued international expansion
Threats.
 Government regulations
 Global economic crisis
 Competition on the Chinese market
 Competition from foreign companies
 Counterfeit goods
 Lawsuits from brand holders

 Inability to develop procedures and company structure in harmony with company
growth
 Disruptive new technology
 Corruption
 Politics
 Unfavorable perception of Chinese goods by international consumers
Competition.
Global Competition.
The top global competitors for Alibaba are Amazon.com Inc. (AMZN) and eBay Inc.
(EBAY). It seems unlikely that Alibaba could overpower these two online sales giants in
America, but has taken ideas from them and expanded upon them to become a retail giant in
China. It is also difficult for Amazon or eBay to enter the Chinese market given the strict
government controls of media. The three companies are in competition for business outside the
U.S. and China, and Alibaba is targeting new business from other countries each day.
The biggest difference between Amazon and Alibaba is that Amazon owns distribution
centers and warehouses, and directly sells to merchandise to customers. Amazon does have third
party sellers, but Alibaba is entirely third party transactions and does not aggregate revenue from
direct sales.
Alibaba is more similar to eBay as both companies produce earnings from facilitating
transactions between buyers and sellers, and have conveniently provided a payment service for
both parties as well. Alibaba was wise in mimicking the successes of eBay, but it is doubtful that
Alibaba will ever be able to overtake the brand recognition and customer satisfaction history of
eBay.

Internal Competition.
Alibaba enjoys an advantage over competitors in China in revenue, market share, and
publicity. However, Alibaba’s efforts to “do it all” for internet users in China has some
competition.
The social media and entertainment company Tencent is listed on the Hong Kong Stock
Exchange under the ticker symbol (0700.HK). The company’s products include QQ, WeChat,
QQ.com, QQGames, Qzone, 3g.QQ.com, SoSo, PaiPai, and Tenpay. Tencent developed China’s
first instant messaging software, QQ, and then expanded its services to other applications. Its
main threat to Alibaba has been introducing e-commerce into its “WeChat” messaging app for
smartphone users.
JD.com, or Jingdong Mall is listed as (JD) on NASDAQ and is China’s largest direct
online sales company. JD.com is modeled like Amazon with direct sales from its own
distribution centers and warehouses, but does not include third party sellers. JD.com primarily
deals in consumer electronics.
China’s leading search engine is Baidu, listed on NASDAQ as (BIDU). Baidu is China’s
answer to Google offering videos, maps, internet TV, antivirus software, and other services. The
company’s many offerings can be viewed in English at
http://ir.baidu.com/phoenix.zhtml?c=188488&p=irol-products
The website states that Baidu literally means “hundreds of times”, and represents a
persistent search for the ideal.
Each of these three Chinese companies enjoys success, but pales in comparison to
Alibaba in China and the potential for drumming up business abroad. Enter Wanda Group.
According to the Wanda Group website,

Wanda now operates 99 department stores in major cities such as Beijing,
Shanghai, Chengdu, and Wuhan with a combined retail floor area of 2.6 million
square meters, making it China’s largest department store chain. Our department
stores provide shoppers with an upscale and unique shopping experience. No
more easily can this be experienced than at the company’s two flagship
department stores located in Wuhan and Changsha. The Wanda Department Stores
chain has partnerships with over 3000 leading local and international brands- the
largest partnership of its kind in the industry.
Through its joint venture with Tencent and Baidu, Wanda plans to invest 20
billion yuan over five years into developing an O2O e-commerce model and
building the world’s largest O2O e-commerce company.
The alliance of Wanda, Tencent, and Baidu is certainly a concern for Alibaba, and if
JD.com joins the party that can give the underdogs in China even more momentum. The winners
in this race are the Chinese people, who will be given more choices and consumer options that
were never available to them before. This could be a disadvantage to Chinese merchants in
China, as western brands become more available to Chinese citizens, they may not desire goods
made in China. Although many goods sold all over the world are manufactured in China, the
Chinese consumer may desire western goods as a status symbol, and desire the quality of western
brands over the Chinese knock offs.
Demographics.
China is facing a rapidly aging population. The family planning policy enacted in 1979
that restricted China’s ethnic Han majority to one child has resulted in an imbalance between
young and old, as well as the ratio of males to females. The one-child policy is no longer

necessary, as more Chinese women desire education and a career over marriage. The rising
participation in higher education among both male and female young adults is driving down the
labor force in China, whose economy in the past was largely driven by cheap labor. The outlook
is not necessarily bleak, as Feng Wang explains in his article;
China’s demographic transition will create opportunities as well as challenges.
Population aging and the growing pile of pension funds are already forcing
changes in the capital market and financial services sector….An aging society
will require a more sophisticated investment sector, thereby presenting new
opportunities for financial managers and investment services.
Another big growth area will be health care. Establishing better long-term
insurance plans will be critical in a country with few young family members to
care and provide for the old.
China faces many challenges ahead to effectively utilize the population shift and the
growing number of educated young people and turn it into a positive outcome. Engineering and
innovation can make up for the lack of cheap labor and continued efforts to use the internet to
generate revenue from the global economy. Education can also solve the problem of caring for
the elderly population and grow the child care industry, freeing up young people to pursue
careers and financial wealth.
The change in demographics in China has been advantageous to Alibaba Group so far.
Not only does it cater to the young, educated Chinese consumer, but it is also creating jobs.
Alibaba Group and its internal competitors could be the answer to maintaining China’s economic
stability. The financial services provided by Alibaba’s Ant Financial Services group may also

play a key role in aiding young Chinese adults in building wealth that will offset the potential tax
burdens that may become necessary for providing for China’s aging population.
Organization Structure.
Alibaba has a hybrid business structure that is designed to nurture its innovation and
growth, but is unfavorably viewed by investors. Author Ciara Linnane reports in her article about
an interview with Mark Mobius, head of emerging markets at Franklin Templeton Investments,
that, “Alibaba is using a structure known as a “variable-interest entity,” a set-up used by other
Chinese tech companies that have listed in the U.S., such as Baidu Inc. That means that an
investor who buys the shares is buying a stake in a company registered in the Cayman Islands,
which has a contract to share in Alibaba’s profit. The assets are controlled by founders Jack Ma
and Simon Xie.”
Walter Frick states “Spanning e-commerce, payments, messaging, business software,
entertainment, and more, Alibaba looks a lot like a conglomerate,” in his article Alibaba Looks
More Like GE than Google. He goes on to explain why the structure of Alibaba is frowned upon
in the western world by investors,
The heart of modern strategy is the alignment of complementary activities. If
activities are complementary, they should be combined as divisions of the same
firm, the thinking goes. If they are not complementary, part of the firm should be
sold. Conglomerates resist this approach, combining more diverse businesses and
allowing them separate decision-making structures. Investors are wary of this
approach.
Alibaba’s businesses are not completely diverse, of course. There is a central
theme behind them all, and it is the rise of internet usage in China.

Table 1
Since Alibaba Group is a company like no other, it is rational that the company would
have a renegade strategy and structure. Although Alibaba is compared to other internet based
companies, Alibaba is going where no company has gone before in a country whose media, and
internet, is controlled by the government.
Entrance and Exit Strategies.
Alibaba Group entered the international market as an export-import business. The
Alibaba Group website boasts, “Founded in China, Created for the World.” In the event that Jack
Ma should choose to retire without a predecessor, he has a few options of how to sell his
company. He could sell out all his shares to Yahoo, allowing them to be in a position to overtake
Alibaba Group as a whole.

Table 2
Note: Image captured from What is Alibaba? - WSJ.com. (n.d.). Retrieved
October 27, 2015 from http://projects.wsj.com/alibaba/#chapter1
Another exit strategy would be to sell or merge the individual business platforms to their
internal and external competitors. Due to the shrinking labor force in China, the flagship e-
commerce platform Alibaba.com and 1688.com may become obsolete, or become small enough
that bulk retailers such a Costco or Wal-Mart’s Sam’s Club, or even an industrial supply
company like Grainger may be interested in buying it out and conducting business with China’s
manufacturing sector. All three companies are already purchasing and retailing goods from
China. Wanda Group would definitely be interested in a takeover of Taobao, TMall, and Ali
Express, if eBay didn’t beat them to it. eBay already tried to do business in China, but was
outsmarted by Jack Ma by offering no fees for buyers and sellers on Taobao. eBay is well aware

of the profits they are now missing out on. Apple or other tech giants like Dell and HP would be
interested in Alimama, and Groupon could acquire Juhuasuan. If Yahoo was not able to secure
the entire Alibaba group, it would still be interested in Alicloud, along with competitors Google
and Mozilla. Ant Financial would easily be gobbled up by SoftBank, or any major western
financial institution; Citibank, JPMorgan Chase & Co., HSBC Holdings PLC just to name a few.
And Fed Ex or UPS would be prospective buyers for Cainiao logistics.
However, Jack Ma has envisioned an ecosystem of e-commerce that will enjoy longevity
and growth in China and worldwide. His “variable-interest entity” structure may be a red flag to
investors, but his vision is to allow each platform of Alibaba Group to create a superior
experience for the customer that is exclusive to the Alibaba brands. By allowing each entity to
operate separately, they could continue on business as usual independently without their parent,
Jack Ma and Alibaba Group.
Government structure.
The Chinese government is a contributing factor to Alibaba Group’s success. The
government’s ban on western social media such as Facebook, Twitter, and Instagram gives
Alibaba the advantage of dominating the market. It is not a monopoly, as Alibaba does have
other Chinese competitors, but government regulations impede any infiltration from U.S.
competition. Bruce Einhorn explains in his article, How China’s Government Set Up Alibaba’s
Success:
While the Chinese government doesn’t ban U.S. companies from operating in
China, it doesn’t make their lives easy. Regulators seem eager to target foreigners
for alleged misdeeds. Walmart is a particularly juicy target; the government has
penalized the retailer for offenses such as mislabeling fox meat as donkey meat.

The cultural differences are evident in the statement, also. The American consumer does
not usually purchase fox meat nor donkey meat, and would find both unappetizing, to say the
least. The Chinese government wants to give the citizens of China the perception of giving them
choices, but in reality they are controlling everything they see and buy online.
The “Great Firewall” of China and the government’s policy on “Internet Sovereignty” is
more aimed at controlling the press and social media than it is retailers, but it is still a hurdle for
the western companies that want to get in on China’s growing economy. Wikipedia, Bloomberg,
and the New York Times have been blacked out by the Central Propaganda Department, and the
other government bodies charged with regulating the data flow in and out of China. The Chinese
government censors the internet with methods that include bandwidth throttling, keyword
filtering, and deep packet inspection technology to squash any unfavorable information on the
world wide web from reaching Chinese citizens. There are more than a dozen government bodies
that review and enforce China’s laws and policies for internet activity, and it is estimated there
are approximately 100,000 employees of the government and private companies who are
watchdogs for internet activity.
Economic indicators.
Gross Domestic Product.
The Gross Domestic Product in China was worth 10360.10 billion U.S. dollars in 2014.
The GDP value of China represents 16.71% of the world economy. GDP in China is reported by
the World Bank Group.

Table 3
Money Supply.
Money Supply M2 in China increased to 136100 CNY Billion in October from 135980
CNY Billion in September of 2015. Money Supply M2 in China averaged 45009.48 CNY Billion
from 1996 until 2015, reaching an all-time high of 136100 CNY Billion in October of 2015 and a
record low of 5840.10 CHY Billion in January of 1996. Money Supply M2 in China is reported
by the People’s Bank of China.
Table 4

Consumer Price Index.
Consumer Price Index CPI in China decreased to 101.30 Index Points in October from
101.60 Index Points in September of 2015. Consumer Price Index CPI in China averaged 105.55
Index Points from 1986 until 2015, reaching an all-time high of 128.40 Index Points in February
of 1989 and a record low of 97.80 Index Points in April of 1999. Consumer Price Index CPI in
China is reported by the National Bureau of Statistics of China.
Table 5
Producer Price Index.
Producer Prices in China remained unchanged at 94.10 Index Points in October
from 94.10 Index Points in September of 2015. Producer Prices in China averaged 101.14 Index
Points from 1995 until 2015, reaching an all-time high of 113.47 Index Points in July of 1995
and a record low of 91.80 Index Points in July of 2009. Producer Prices in China is reported by
the National Bureau of Statistics of China.

Table 6
Consumer Confidence Survey.
Consumer Confidence in China decreased to 103.80 in October from 105.60 in
September of 2015. Consumer Confidence in China averaged 109.57 from 1991 until 2015,
reaching an all-time high of 124.60 in August of 1993 and a record low of 97 in November of
2011. Consumer Confidence in China is reported by the National Bureau of Statistics of China.
Table 7

Current Employment Statistics.
Unemployment Rate in China increased to 4.05 percent in the third quarter of 2015 from
4.04 percent in the second quarter of 2015. Unemployment Rate in China averaged 4.13 percent
from 2002 until 2015, reaching an all-time high of 4.30 percent in the fourth quarter of 2003 and
a record low of 3.90 percent in the third quarter of 2002. Unemployment Rate in China is
reported by the Ministry of Human Resources and Social Security of the PRC.
Table 8
Retail Sales YoY.
Retail sales in China increased by 11 percent in October of 2015 over the same month in
the previous year, slightly up from a 10.9 percent rise in the previous month. Year-on-year, sales
of communication equipment expanded the most by 36.6 percent, followed by building materials
(+19.7 percent), office supplies (+15.5 percent), furniture (+12.4 percent), cosmetics (+10.6
percent), personal care (+10.1 percent) and automobiles (+7.1 percent). In contrast, sales of
petroleum & petroleum products declined by 7.1 percent. Meanwhile, the country's fixed asset
investment grew by 10.2 percent year-on-year in October from a 10.3 percent increase in the
preceding month. Retail Sales YoY in China averaged 13.67 percent from 2010 until 2015,

reaching an all-time high of 19.90 percent in January of 2011 and a record low of 10 percent in
April of 2015. Retail Sales YoY in China is reported by the National Bureau of Statistics of
China.
Table 9
Housing Starts.
Average prices of new homes in 70 Chinese cities increased 0.1 percent year-on-year in
October of 2015, the first rise since August 2014. In Beijing, prices rose 6.5 percent while in
Shanghai prices went up 10.9 percent. On a monthly basis, new home prices rose 0.2 percent, the
sixth straight monthly gain, signaling a slight recovery in the housing market. Housing Index in
China averaged 2.14 percent from 2011 until 2015, reaching an all-time high of 9.90 percent in
November of 2013 and a record low of -6.10 percent in March of 2015. Housing Index in China
is reported by the National Bureau of Statistics of China.

Table 10
Manufacturing PMI.
The Caixin Manufacturing PMI in China was at 48.30 in October of 2015, up from 47.20
in September and better than market expectations. While the reading was the highest since May,
it remained below 50 for the eighth straight month. Total new business declined only modestly,
helped in part by a renewed increase in new export orders. This in turn contributed to softer
contractions of output and employment in October. Meanwhile, purchasing activity and
inventories of inputs continued to fall amid reports of lower production requirements.
Manufacturing PMI in China averaged 49.44 from 2011 until 2015, reaching an all-time high of
52.30 in January of 2013 and a record low of 47.20 in September of 2015. Manufacturing PMI in
China is reported by Markit Economics.

Table 11
Marketing Strategies.
The biggest advantage that Jack Ma has had over foreign competitors is his
understanding of the Chinese people and their lifestyles. In her article, How EBay Failed in
China, Helen H. Wang tells how he was able to outsmart eBay:
Soon after Taobao was launched, eBay signed exclusive advertising rights with
major portals Sina, Sohu, and Netease with the intention of blocking
advertisements from Taobao. In addition, eBay injected another $100 million to
build its China operation, now renamed “eBay EachNet,” and was spreading its
ads on buses, subway platforms, and everywhere else.
Ma fought back cleverly. Knowing that most small business people would rather
watch TV than log on to the internet, Ma secured advertisements for Taobao on
major TV channels.
At that time, China had about three hundred million cell phone users versus ninety
million Internet users. Taobao offered instant messaging and voice mail to mobile

phones for buyers and sellers because Chinese users were cell-phone savvy rather
than computer savvy.
Alibaba continues to make use of the popularity of cell phone usage in China and abroad.
You can follow them on Facebook, Google+, LinkedIn, Twitter, Weibo, and YouTube. On the
Alibaba Group website, the company explains that of the 649 million internet users in China, 557
million of those users access the internet through a mobile device. The combination of television
advertising, social media, and mobile-friendly apps from Alibaba’s various business platforms is
a perfect marketing mix.
Pricing Strategies.
Television advertising was not the only way that Jack Ma was able to outsmart eBay.
Alibaba launched Taobao to fend off the American giant, and offered the service free of charge
for both buyers and sellers. Taobao attains revenue from the small businesses that use the site.
There are more than 800 million items on Taobao, so merchants advertise to make their products
conspicuous. Juhuasuan.com and 1688.com operate as branches of Taobao.
Tmall operates differently. Merchants must pay a deposit to open an “online storefront”
after passing a strict authentication proceeding to ensure they are legitimate. Counterfeit goods
are a risk to all online buyers, even more so in China, and Alibaba does not want to risk its hard-
won reputation with the Chinese consumers.
Alibaba.com generates revenue through supplier membership fees. Businesses
considering joining Alibaba.com can try it out with a free trial membership with limited perks,
and if they should decide to “join” Alibaba.com there are three levels of membership to choose
from. The Premium, Standard, and Basic Gold memberships all include authentication and
verification to give buyers the security that you are a legitimate reputable business and are not

selling counterfeit goods. The varied tiers of membership are based off of how much visibility
your products will get.
AliExpress is fueled by a combination of advertising and membership fees. Buyers pay
an initial fee to set up an account, and then are awarded different levels of membership and
savings according to how much they spend. Information on seller memberships was not readily
available, as it was in Mandarin.
Alimama revenue is solely based on fees collected for creating online advertisement for
the small businesses on Alibaba’s various platforms.
AliCloud (aliyun.com) appears to rely on membership fees, but information in English
was also not readily available.
Ant Financial operates just like a traditional bank, and profits from service fees and
interest charges on financial transactions.
Cainiao operates from revenue generated from logistics services charged to both sellers
and buyers. The purpose of Cainiao is more to support the other business platforms of Alibaba
Group than to be a big money maker independently.
Global Operations and Supply Chain.
In addition to the TmallAgent.com service for users outside of China, Taobaoring.com, or
“magic agent”, is also available. This is not a service of Alibaba Group, but created by other
entrepreneurs who have started up a business to get in on the action of foreigners wanting to
purchase items from Taobao. Start-ups such as this are fueling the Chinese economy and spirit; a
trickle-down effect. The website explains how and why it charges a fee for their services other
than just translation:

And they also explain to you how they secure your order, using one of the services
provided by Alibaba group, Ali wangwang, a chat tool, to confirm the item you desire to
purchase is available and within your specifications as far as size, color, etc. If the seller is off-
line, they will leave a message for the seller, but if they do not receive a confirmation for your
order, they will contact you to confirm if you want to wait, or have lost interest in the item. The
website also informs the international customer how they can look out for your best interests by
helping you avoid a pitfall of being overcharged for shipping.

Inside China, Alibaba has Cainiao logistics services to coordinate how the product will be
delivered from the seller to the buyer efficiently. An article from The Economist explains just
how Cainiao works:
Alibaba, China’s biggest e-commerce firm, prefers an “asset light” approach.
Rather than owning its own delivery trucks, it has joined hands with a number of
existing courier firms who plan to invest some 100 billion yuan to develop a
“smart logistics” network relying on big data. Among other things, this coalition
plans to analyse customer information so that resources can be deployed more
efficiently. It has also recently entered into a strategic co-operation pact with
China Post. By sharing warehouses, processing centres and delivery personnel,
the firm hopes to be able to deliver online purchases within 24 hours even to
small cities and villages.
Logistics is a problem for the expanding economy in China, so Alibaba needed to come
up with their own method to keep the flow of goods from seller to buyer running smoothly.
Compensation and Appraisal System.
Jack Ma announced to employees in February that they would not receive a “hongbao”, a
Chinese tradition of giving red envelopes filled with cash for the Chinese New Year, according to
the Fortune magazine website. Ma stated that, “Alibaba’s financial performance in 2014 wasn’t
good enough to warrant handing out the benefit to staff.” (Lorenzetti) The article goes on to
explain that, “Red envelopes are not guaranteed; they are a discretionary part of a larger
compensation package, according to the company. Alibaba workers will still get a year-end
bonus this month, which is usually equivalent to one month’s salary.”

This decision by Jack is aimed as a motivational tool more than a scolding. It is his way
of letting his team know that they did good, just not that good. He believes that wealth creation
and sharing are key to the company’s success. All employees receive stock options as a means of
sharing the wealth of the company’s growth. With the success of Alibaba’s initial offering, it is
doubtful the employees are too upset about the absence of red envelopes this year.
Employee Culture, Employer Relations & Practices.
There are five characteristics that Jack Ma requires when recruiting new talent:
1. People with a dream.
2. People with shared values.
3. People with a smile.
4. People who enjoy work and can turn stress and challenges into innovation.
5. People who work together.
Jack seeks people who share in the dream that is Alibaba, and that dream is to make a difference
in the way people do business. Part of that dream is to make the workplace a “community”,
where employees can enjoy working together and pursuing their dreams. The elements of this
ideal work environment are described by Ma as:
 Blue Sky: Processes, systems, and decisions need to be open and transparent. There’s
nothing that should be hidden from employees.
 Solid Ground: Everything we do should be honest, ethical, and contribute to the welfare
of society. The company should be on solid financial ground so employees won’t worry
about the financial future of the company.
 Free-flowing Ocean: Talent must be allowed to rotate jobs across subsidiaries and
departments.

 Green Forest: Conducive conditions for continued innovation.
 Harmonious Community: Peers with shared values and interpersonal relationships.
Exchange Rates.
Table 12
Captured from: http://www.x-rates.com/table/?from=CNY&amount=1

Sources of Funds.
Table 13

Table 14
Stock Performance.
Table 15
Date Open High Low Close Volume
Adj
Close
12/1/2015 83.77 85.82 82.1 84.33 21246100 84.33
11/2/2015 83.52 86.42 75.64 84.08 26676900 84.08
10/1/2015 59.5 84.44 58.2 83.83 18574100 83.83
9/1/2015 64.38 68.08 57.2 58.97 22486200 58.97
8/3/2015 78.2 80.99 58 66.12 19038100 66.12
7/1/2015 82.6 85.38 76.21 78.34 12186300 78.34
6/1/2015 90.09 91.6 80.8 82.27 11851700 82.27
5/1/2015 81.03 95.06 77.77 89.32 23559300 89.32
4/1/2015 83.37 87.69 80.44 81.29 16727200 81.29
3/2/2015 85 87.04 80.03 83.24 18226800 83.24
2/2/2015 91.13 91.88 83.88 85.12 13807300 85.12
1/2/2015 104.24 105.34 87.36 89.08 20825400 89.08
12/1/2014 110.02 111.68 101.2 103.94 16617900 103.94
11/3/2014 99.67 120 99.05 111.64 41131400 111.64
10/1/2014 88.7 100.67 82.81 98.6 19999100 98.6
9/19/2014 92.7 99.7 86.62 88.85 66339200 88.85

Accounting Practices and Financial Performance.
Table 16

All images captured from http://www.alibabagroup.com/en/ir/financial

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