Case Study

BUSINESS MANAGEMENT - SWOT Analysis

Task Description

You are required to critically analyze ‘Alibaba – the Yangtze River Crocodile' case and write a report covering the following tasks:

·      A detailed study of the industry in which Alibaba is operating using Porter’s five forces highlighting its competitiveness. Perform a SWOT analysis of Alibaba.

·       An analysis of Alibaba’s present generic strategy and its implications.

·       An evaluation of Alibaba’s strategic capabilities using VRIN framework.

·  A critical evaluation of the growth strategies adopted by Alibaba using Ansoff framework.

  

Your report must be focused, must demonstrate extensive reading. You must critically examine the relevant issues. Descriptive answers would not fetch the higher grades. The following criteria will be used to evaluate your written analysis:

ªAnalysis of issues and

ªUnderstanding of concepts

ª Referencing and use of proper referencing style

ª Research rigor

ª Structure, Vocabulary and Cohesiveness of the written analysis

         

Note:

·       Assessment Icarries60% weighting and constitutes the submission of a written report (40% weighting of) and a Viva Voce (20% weighting of the module).

·       Students have to ‘pass’ both the written component as well as the viva to pass the assessment.

INSTRUCTIONS (for written case analysis)

·       The written Case Analysis has 40% weighting in this module.

·       This is a Group Assignment and a group shall consist of 4 or 5 students.

·   The written analysis of the case should be in the report format and not exceed 3000+/-10% words.

·       A reference list in Harvard style  must be included

·     All assignments must be adhered strictly to the deadlines specified by Majan College. Failure to hand in the assignment for any reason and without prior approval and a valid written extension from the module tutor will not be marked and will be awarded a grade G (0) irrespective of the quality of the work.   (See student handbook Section 4.4.2.)

· Unacknowledged use of work of others (plagiarism) is regarded as a dishonest practice and will be will be penalized. (See the penalties in the student handbook Section 5.7)

Alibaba – the Yangtze River Crocodile

In May 2015, the Alibaba Group – China’s largeste- commerce company – got a new Chief Executive. DanielZhang was 43 years old, with a career in the accountingfirms Arthur Andersen and PwC before joining Alibabain 2007. Zhang’s experience in international firms wasreflected in an early statement: ‘We must absolutely globalize,’he said during a company-wide strategy session.‘We will organize a global team and adopt global thinkingto manage the business and achieve the goal of global buy and global sell.’

Zhang’s appointment as CEO came at a difficult time.Alibaba had undergone the largest ever Initial Public Offering(IPO) on the New York Stock Exchange in September2014, achieving a total valuation of $231bn (£138.6bn,€173.3bn). But the first quarter of 2015 had seen profitsat half those of the same period in the previous year. TheGroup’s share price was down a third from its post-IPOpeak. Zhang’s predecessor as CEO had been dismissedafter just two years in the job.

The man who appointed Zhang was Jack Ma, founderof Alibaba just 16 years earlier. Alibaba started as China’sfirst business-to-business portal connecting domesticmanufacturers with overseas buyers. Since then, theGroup had grown in many directions. 1688.com wasfounded for business-to-business trade within China. Alibaba’sTaobao Marketplace serves small businesses andindividuals. Tmall.com provides electronic shop frontsto help overseas companies such as Nike, Burberry andDecathlon to reach Chinese consumers. Juhuasuan offersdaily deals on everything from toys to laptops. There isalso Alipay, effectively under Ma’s personal control butfunctioning as the Group’s equivalent to PayPal, whichprocesses 75 per cent of Group transactions. One wayor another, it is possible for Alibaba’s customers to tradealmost anything: the American security services haveeven set up a sting operation on Alibaba to catch tradersselling uranium to Iran. At the start of 2015, Alibabahad approaching 80 per cent of the e-commerce marketin China, the largest e-commerce market in the world,and also had strong positions in Brazil and Russia. Internationale-commerce represented nearly 10 per cent ofthe company’s total sales of 76.2bn Yuan in the financialyear ending 2015 (about $12.3bn, £11.2bn, €8.2bn: seeTable 1).

Alibaba had always had an international bent. FounderJack Ma had started his career as an English languageteacher in the city of Hangzhou, not far from Shanghai.As early as 2000, Ma had persuaded both the leadingAmerican investment bank Goldman Sachs and the Japaneseinternet giant Softbank to invest. The then ascendantAmerica internet company Yahoo had bought nearlya quarter of the Group in 2005. Post-IPO, SoftBank stillheld 32.4 per cent of the shares and Yahoo 15 per cent.The Alibaba Group board counted as members Yahoo’sfounder Jerry Yang, Softbank’s founder Masayoshi Son and Michael Evans, former vice-chairman of GoldmanSachs. Even so, Jack Ma was ambivalent about Westerninvestors: ‘Let the Wall Street investors curse us if theywish!,’ Ma had proclaimed at a staff rally. ‘We will stillfollow the principle of customers first, employees secondand investors third!’

Strictly, overseas investors do not directly own stakesin the Alibaba Group, instead owning shares in a shellcompany – a so-called variable interest entity (VIE) – thathas a contractual claim on Alibaba’s profits. This VIEstructure is a common way for Western-listed Chinesefirms to get around Beijing’s foreign-ownership rules. Butthe Chinese government could close the loophole at any time, and it gives foreign shareholders limited recourseagainst abuses by Chinese companies’ managers. Ironically,the most notorious VIE controversy so far involvedAlibaba’s Jack Ma, who in 2011 separated Alipay fromthe rest of the Group without board approval. Ma said newChinese regulations forced him to make the move. Yahoowas only told about the spin-off five weeks after it hadhappened. A fund-raising round for Alipay’s new parentcompany valued Alipay at nearly $50bn.

Alibaba’s relationship with the Chinese government ishard to read. Jack Ma insists that he has never taken loansor investment from the Chinese government or its banks:he had gone to overseas investors instead. However, giventhat a third of Chinese business activity is carried outwithin state-owned enterprises, the government is boundto be in close liaison with the dominant national player ine-commerce. Ma explained his philosophy as: ‘Always tryto stay in love with the government, but don’t marry them.’The Alibaba Group has built up its political connections.Tung Chee-hwa, Hong Kong’s first chief executive after itsreturn to China, served on its board of directors. Alibabahas also allied with several so-called ‘princelings’, childrenof important political leaders. Princeling investors includeWinston Wen, son of a former Chinese premier; AlvinJiang, grandson of a former Chinese President; He Jinlei,son of a former Politburo member and a senior managerof the state Chinese Development Bank; and Jeffrey Zang,son of a former vice premier and a senior manager atChina’sstate sovereign wealth fund, Citic Capital.

Given Chinese President Xi Jinping’s sweeping politicaland economic reform campaign, there are no guaranteesof Alibaba’s position domestically. In 2015, princelinginvestor He Jinlei’s older brother was under house arrestbecause of accusations of corruption. The beginning ofthe year had also seen the publication of an investigationby China’s State Administration for Industry and Commerceinto counterfeit goods and fake listings on theGroup’s Taobao site, leading to a 10 per cent fall in Alibaba’sshare price. Jack Ma commented on his relationswith Chinese regulators: ‘Over the past two years, not onlywas I a very controversial figure, but also these days, thedisputes are bigger and bigger.’ He continued, ‘I, too, feltpuzzled, sometimes wronged – how did things becomethis way?’ Nonetheless, Ma promised to clean up the site.Even so, just a few months later, fake Apple Watches wereon sale on Taobao weeks before their official launch in theUnited States.

President Xi Jinping’s reform campaigns were partly inresponse to changing economic conditions in China. Afterthree decades of double-digit growth, China’s growth ratehas slowed to around 7 per cent a year (see Table 1). Suchgrowth is very respectable by world standards. Besides,faced with rising domestic concern about the environment,President Xi was happy to restrain the expansion ofhigh polluting industries such as cement, coal and steel.At the same time, the Chinese government was promotinge-commerce as a key area for future economic growth.However, there were causes for concern. Many localauthorities and firms had borrowed heavily on expectationsof higher growth, and there were fears that financialinstitutions had over-lent. Some warned of a consequentcrash. Moreover, it was hard to see China’s growth ratepicking up again, on account of an ageing population andthe drying up of the traditional supply of young labourfrom rural villages: by 2015, the Chinese workforce wasfalling by about three million workers a year. Althoughthe government relaxed the famous one-child per familyrule in 2013, Chinese parents are still reluctant to havemore children because of the cost of housing and a goodeducation in the main urban centres. It is predicted thatby the early 2030s, about a quarter of China’s populationwill be over 65 (against 17 per cent in the United Kingdom).Slower economic growth in China overall is beingmatched by some slowing in the rate of growth of theChinese e-commerce market (see Table 1).

At the same time, Alibaba faces greater competition. Adecade ago, Alibaba had seen off an attack by Americanrival eBay in the Chinese market with a fierce price-war.Jack Ma had proclaimed: ‘EBay is a shark in the ocean;we are a crocodile in the Yangtze River. If we fight in theocean, we will lose, but if we fight in the river, we willwin.’ A combination of cultural, linguistic and governmentpolicy factors kept Western internet companies at arm’slength in the Chinese market: Google has been reducedto a market share of about one per cent, while Amazoneventually chose to list on Alibaba’s TMall site after adecade pushing its own venture in China.

But now Alibaba’s home-market dominance is facing alocal challenge from the aggressive JD.com. While Alibabastill depends on China’s unreliable postal service to getits goods to customers’ doors, JD.com has been more likeAmazon in investing in its own distribution centers anddelivery services. As a result, JD.com can promise samedaydelivery in 43 of China’s biggest cities. Moreover,JD.com is well-placed to benefit from the shift to smartphonesfor e-commerce. Tencent, China’s largest socialnetworking and online games company, has taken a 15per cent stake in JD.com, giving the challenger access tomore than 400 million users of its WeChat phone messagingapp. WeChat allows users to scan product barcodes with their smartphone cameras to make instantpurchases through JD.com. Alibaba too has been enteringsmartphone e-commerce, and in early 2015, smartphonesales accounted for half of its retail Chinese sales, twicethe proportion of a year earlier. But smartphone screen sizes are less attractive to advertisers, an importantpart of Alibaba’s traditional PC-based business model.JD.com’s domestic growth in the year to 2015 has beentwice that of Alibaba’s. Although JD.com was still onlyabout 15 per cent of its rival’s size, founder and chiefexecutive Richard Liu has declared a goal of beating Alibabato the top position: ‘The competition makes the twocompanies stronger. I’m actually enjoying competing.’

Thus Alibaba’s new chief executive Daniel Zhang facedmany opportunities and threats in 2015. There werealready promising signs in favor of the globalizationstrategy, though. Alibaba’s international flagship AliExpresshad rapidly taken the number one position in Russiaand the number three position in Brazil, with local usersdelighted to have direct access to cheap Chinese goods. One target now is the United States, only second to Chinain market size. The Yangtze River crocodile is aiming toattack the ocean sharks in their home seas.

The case is written by Richard WhittingtonSource: JOHNSON, G., WHITTINGTON, R., SCHOLES, K., ANGWIN, D., & REGNER, P. (2017). Exploring strategy: text and cases. Harlow, England, Pearson.

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