The Alibaba fairytale is being repeated in the world of internet-based shopping, far from the sands of Arabia in the 21st century China. The privately-owned Hangzhou-based e-commerce giant Alibaba Group Holdings of China has emerged as a global force to reckon with in little more than a decade of its existence since 1999.
Amid fierce competition on its home turf for margins among an extremely cost conscious consumers who are equally reluctant to trust, Alibaba sought to fill the gap by offering free services, third party verification mechanism and escrow based payment system earning trust and credibility. Though it still primarily serves Chinese consumers and manufacturers in mainland China and overseas, it recently reported businesses amounting more than the United States’ entire e-commerce market. While on the one hand it shows the depth of e-commerce business in China even as the Chinese economy is just nearly half of the US GDP, it also underlines the potential of China’s online market in the future when the Chinese economy shifts to a consumption- driven growth.
For Alibaba, its very scale gives it enviable access to data and understanding of spending habits of millions of Chinese spenders from consumers to manufacturers. Now this consumer to business retail model company, as its Chairman Jack Ma claims it to be, Alibaba aspires to become the world’s largest e-commerce retail company pushing Wal-Mart behind by 2015.
Alibaba Group’s flagship subsidiaries include Alibaba.com, Tmall.com and Taobao Marketplace. Alibaba.com serves importers and exporters globally and the Taobao Marketplace (www.1688.com) targets domestic business-to-business trade in China. Tmall.com was launched as a dedicated business-to-consumer (B2C) platform to complement Taobao. In addition, there is the AliExpress.com which allows smaller buyers to buy at wholesale prices. Tmall and Taobao Marketplace recorded 1 trillion yuan ($163 billion) in total transactions last year. Now analysts point out that this e-commerce behemoth, which is poised to be the one with the potential of becoming world’s most valued company, has ventured into small finance, mobile based e-trading and even internet services and cloud computing. These steps are aimed at fully integrating the entire e-commerce operation under one-roof and warding off competition from potential rivals like Tencent.
However, Tencent, a $62 billion market-cap company could give Alibaba a run for its money with its stand-alone e-commerce capability acquired through gaming business; Paipai, a Taobao competitor, and 51buy.com, a parallel of Tmall. Alibaba’s financial endeavour being pursued despite adverse regulatory environment is also facing heat from established banks.
Probably the biggest challenge to Alibaba’s current business model comes from increasing use of mobile devices for e-commerce, a technology where it has less expertise than its most potent rival Tencent. Tencent’s WeChat smartphone messaging app boasts of 236 million active users. According to analyst Bryan Wang all that Tencent needs to do is to integrate its e-payment feature with other services in to WeChat. Fearing such prospects, Alibaba has responded by increasing its stakes in online services primarily Sina Corp.’s Twitter-like Weibo microblog business and mobile mapping software firm AutoNavi Holdings Ltd.
For nowl, the Alibaba Group virtually sells nearly every product imaginable. In what could be termed a feat in a middle-income economy like China, Alibaba even started selling aircrafts recently. It now plans to go global and cash on its superiority in Chinese market. Given its niche marketing abilities in a highly specific, less regulated even skewed market like the Chinese, it would have to adhere to global standards to seek attention and attain credibility even as it influences those standards themselves. An important step towards Alibaba’s overseas aspirations is an Initial Public Offering (IPO) expected before the end of this year. Once public, Alibaba Group, which accounts for nearly two-third of China’s parcel delivery and 90 per cent of consumer-to-consumer and more than half of business-to-consumer e-businesses, could prove to be a landmark in making China a more sustained, consumer driven and transparent economy.
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