Alibaba was found in 1999 by Ma Yun and overall operates five e-commerce companies which manage different functions of the trading process. It is e-commerce or an e-auction platform based in Hangzhou with specialties in global trading. The website is available both in Chinese and English. Alibaba focuses on business-to-business sales connecting international buyers with Chinese businesses. There is a third version of the website as well that is for the Japanese customers in Japanese. Alibaba’s sources of income include advertisements and membership charges of the selling companies. Buyers do not need to get a membership (Julia, 2010).
Following is a detailed Porter Five Forces Model Analysis of Alibaba
Competitive Rivalry – High
Competitive rivalry is a very strong force that can push a company to change its strategy and remake its decisions. Alibaba faces severe competition from its rivals. They include a variety of online sites within and outside China. E.g. amazon.com and eBay both are its competitors. Even within many nations, it faces competitions such as Daraz.pk, Yayvo.com in Pakistan. The success of these other alternate markets has led to the loss of profits for Alibaba over the years. However, a variety of products offered and connecting buyers directly with manufacturers give Alibaba a competitive advantage as no other platform provides this facility. Also, the rates offered by Alibaba are less than the competitors. A drawback is the lack of trust many customers have on Chinese products that put Alibaba in a tough spot. Therefore, the competitive rivalry is high for Alibaba.
Threat of New Entrants – Low
Setting up a smaller and more focused e-commerce is not difficult in China. However, setting up an online market as large as Alibaba requires initial large investments and strong distribution channels worldwide. Also getting manufacturers to register themselves with you for a fee requires their trust. Online stores require advanced technologies to be installed to be up and running all the time and support a large number of online users simultaneously. Long time high profits and establishment in the market have earned Alibaba a strong reputation. Another aspect is that a new entrant will not be able to achieve the economies of scale that the existing players are at making their operating costs higher and profit slower (Kudasov, 2015). Thus, the threat of new entrants is low for Alibaba.
Bargaining Power of Suppliers – Low
The suppliers of Alibaba are in fact the manufacturers that are members of its selling pages. For every category of products, there are a large number of suppliers available to Alibaba. Due to its strong reputation, suppliers are required to pay a membership fee to have their products listed on the website. There are always new suppliers from China that are willing to register with Alibaba at any given time. Therefore, any supplier that attempts to increase the market rate will not be successful as Alibaba will easily be able to bring in more suppliers that are willing to sell at market rates. There is no switching cost for suppliers for Alibaba. Overall, the bargaining power of suppliers against Alibaba is low.
Bargaining Power of Buyers – Medium
The buyers of products from Alibaba are both individual customers as well as businesses across the globe. Due to the low prices, wide variety, and a strong distribution network that Alibaba offers, most buyers do not have a choice to switch to. They will have to buy at higher prices if they switch. Although there is no switching cost but a huge online market of the scale of Alibaba will be tough for them to find. The number of buyers is very large for Alibaba, making it tougher for the buyers to be able to influence the market. But recently, specialized online marketplaces have started emerging that are focusing on particular segments and being successful in grabbing market share. These can be the choices for the buyers. Thus, the bargaining power of buyers is medium against Alibaba.
Threat of Substitutes – High
There are a number of substitutes for Alibaba. The largest being the physical retail stores that are offering low price goods. Secondly, a number of suppliers of China are now directly shipping to customers. Suppliers are also selling through social websites. Many companies have also set up their own retail websites offering the same prices as Alibaba, saving the supplier the membership costs (Zheng, 2015). Thus, the threat of substitution is high for Alibaba.
References
Julia, K.P., 2010. Feasibility Study and Business Plan. [Online] Available at: http://www.51lunwen.org/UploadFile/org201009101017406801/alibaba.com.pdf [Accessed 19 June 2017].
Kudasov, A., 2015. Alibaba Global Strategy. [Online] Available at: https://www.slideshare.net/akudasov/alibaba-global-strategy [Accessed 19 June 2017].
Zheng, J., 2015. Porter’s Five Force analysis on Alibaba. [Online] Available at: https://mgmt7160jz.wordpress.com/2015/02/10/porters-five-force-analysis-on-alibaba/ [Accessed 19 June 2017].