Introduction
Alibaba Company is China’s most extensive network business and the world’s second-largest networking business. The company is illustrated as the Yangtze river crocodile in contrast with the rival eBay, which is highlighted as a shark in the ocean. The organization was launched to the international financial sector with the stock code ‘BABA’ by a rising Initial public offering (IPO) in 2014 (Keane et al., 2020). The head office of Alibaba is located in Hong Kong, while the continental headquarters are located in Hangzhou, China. Alibaba’s platform (2022) highlights that the organization’s economy comprises more than 1 billion registered subscribers from over 240 countries across the globe. This paper examines Alibaba’s external and internal environment through a PESTLE, Porter’s Forces, and VRIO analysis. Moreover, the buy, ally, and DIY framework, the PMI Matrix Strategy, and the CAGE framework will be applied to determine the company’s potential acquirement of eBay and market expansion in the USA and Egypt.
PESTLE Analysis
A PESTLE analysis will be performed to determine the factors that affect the company concerning the external environment. Namely, political, economic, social, technological, and legal circumstances based on the company’s history will be analyzed to illustrate whether the entity succeeded based on the circumstances during the period highlighted in the case study.
Politics
Uncertain political events threaten Alibaba’s company since the Chinese political system can be illustrated as lacking democracy. On the other hand, the US political life has been democratic and more appealing for entrance. The Yangtze River Crocodile could not compete with eBay regarding political environments.
Economy
China has recently become one of the fastest growing markets, a fact that cannot be stated concerning the case study period. Hence, the economic opportunities were less prominent at the time.
Social
Taobao, the smartphone application of Alibaba, is a commercial platform where users may shop from the program’s catalog of items. However, before the focus on online shopping, Alibaba’s social aims focused on creating awareness through TV ads, ultimately drawing attention.
Technology
Alibaba’s focus on technology was prominent from the beginning, which led to the current innovative implications, one of the company’s strengths. However, the overall potential of technology at the time was less favorable compared to existing environments, which was a weakness.
Legal
Changes have been made to Alibaba’s Intellectual Property Protection Platform so that appropriate action may be taken in the event of an infringement. However, Alibaba has had past issues with the legality of certain aspects, such as work conditions, ethical treatment of the workforce, and unlawful labor, which has not been the case for eBay and poses a weakness for the corporation.
Porter Forces
Another tool that can be applied to determine the operating environment of Alibaba is Porter’s forces, which highlight such circumstances as supplier bargaining power, substitute threats, buyer bargaining power, and threats of new entrants.
The Threat of New Entrants
Alibaba and other eCommerce companies have significant financial investments and distribution networks, making it hard for new businesses to join.
The Threat of Substitutes
Alibaba faces competition in the e-commerce industry from Amazon, Walmart, and Tencent, among others.
Bargaining Power of Customers
Alibaba operates on the B2B and B2C models, and its B2B business generates a large amount of money for the firm, becoming an implicit financial resource.
Bargaining Power of Suppliers
Alibaba is a global platform whose b2b wholesale sales provide a significant portion of its income.
Competitive Rivalry
Target, ASOS, Amazon, and Walmart provide a variety of B2C items at competitive pricing to entice clients.
Some of the competencies that can be applied include:
- Consistently excellent.
- Incomparable worth.
- Unceasing innovation.
- Innovative and effective marketing.
- Excellent client service.
On the same note, some of Alibaba’s capabilities include admirable organizational culture, leadership effectiveness, and strategic cohesion. The aforementioned concepts are the platform’s explicit resources, alongside implicit ones such as economic, intellectual, and development potential. The company’s strengths are intangible assets such as intellectual property, cash, and cutting-edge technology. Alibaba’s firm market sustainability in China is vital to competition. The business platform has a substantial advantage regarding customers, while its nearest competitor holds a lesser economic portion (Fan et al., 2021). Alibaba has solid brilliant, competent producers who distribute their goods worldwide and have the lion’s market share. Regarding weaknesses, Alibaba is a relatively local platform compared to its rivals with a more extensive international presence. Moreover, the company’s reputation in regards to a lack of fraud and customer service is less prominent.
VRIO Analysis
Alibaba’s extensive capabilities include economic development, technological advancements, and expansion. However, financial resources are necessary for the capabilities to be implemented practically in the business strategy. The VRIO analysis will help determine Alibaba’s strategic direction in relation to its economic potential.
Valuable
The Alibaba VRIO Analysis demonstrates that Alibaba’s financial resources are critical since they enable the company to engage in emerging external prospects. These also assist Alibaba in defending against external attacks.
Rare
According to the VRIO analysis of Alibaba, the company’s financial resources are few. Only a few firms in the sector have substantial financial resources.
Imitable
Alibaba’s financial resources are difficult to mimic, according to the Alibaba VRIO Analysis. The corporation has accumulated these assets via sustained profitability throughout the years. Thus, to amass these levels of financial resources, new entrants and rivals would need to earn comparable earnings over a lengthy period.
Organization
Alibaba’s financial resources are structured to capture the value found by its VRIO analysis. These assets are utilized carefully to invest in the best locations, capitalizing on opportunities and defending against dangers.
Alibaba and the eBay Merger Implementation of the Buy Framework
As the financial resources have been established and examined, it is important to determine how they can be invested for the company to succeed further. One of the possibilities is expansion, namely, to the USA market. This can be achieved by forming an alliance or purchasing a major retail platform, eBay.
Table 1: BADIY Matrix
The decision is based on whether the company assesses all possible acquisitions (Buy), generates an alliance (partnership), and relies on self-organic growth opportunities. In regards to Alibaba, if the organization acquires eBay, they must decide quickly; most preferably, they should BUY (acquisition), a matter requiring high urgency due to the growing cost of the company and its potential for development (Table 1). With the acquisition, they share sophisticated resources, methodologies, and processes (Johnson et al., 2020). Alibaba boasts quality products and reliable suppliers, whereas eBay has more electronic products and operations, and their merger may promote collective acquisition may improve amenities. However, buying implies soft capabilities in regard to cultural differences as the two companies operate in different markets.
Under extreme urgency, Ally is not a recommended alternative since the businesses cannot leverage each other’s talents. It would be a long process since corporations would need time to understand how specific units function so they can collaborate. The partnership will also hinder decision-making since opposing notions may occur in strategic policy generation. In an emergency, Ally may not be the superb option. Self-adjustment is a time-consuming process that requires investment in R&D, corporate assets, and working methods. This technique involves overtime and costs that cannot be reduced. At the same time, DIY is not recommended in this theorem. Consequently, it is advisable to Buy the acquired company with extreme urgency because it benefits both.
Moreover, if Alibaba and eBay are in a high-risk scenario, their wisest course of action would be to create an alliance (partnership). This is because, under a partnership (Ally), the businesses would agree to risk sharing so that all parties will carry the consequences of an uncertain circumstance. If Alibaba and eBay are required to make judgments based on their soft skills, the optimal course of action would be to retain their cultural coherence without conflict and self-adjust organically.
The PMI Matrix Strategy
Based on the PMI matrix, the optimal hypothetical eBay takeover for Alibaba would be preservation. Notably, a strong desire for institutional autonomy and slight strategic dependency. For example, in strategic dependency, a firm can be expected to be more competitor and customer oriented. Alibaba needs to focus on some crucial aspects to effectively manage a theoretical eBay acquisition, satisfy customers and increase its edge over rivals. In this regard, Alibaba must increase its share of the global e-commerce industry. They must focus on enhancing their brand awareness and visibility in other areas. Investments in advertising and marketing initiatives in large regions, such as the United States and Europe, might accomplish this goal. Alibaba could take the competitive edge of the fact that clients throughout the globe are progressively acquiring items from other nations. Two choices are developing its cross-border e-commerce network or forming partnerships with local businesses.
Therefore, Alibaba must build logistics and shipping facilities to meet consumers’ demands worldwide and accelerate delivery times. Collaborating with existing logistics businesses to develop their infrastructure is one way to do this. To meet the needs of today’s mobile-centric consumers, Alibaba should focus on growing its mobile commerce expertise. Furthermore, another alternative is to motivate employees and create desirable autonomy. Based on the aforementioned strategies, the corporation is to employ a strategic planning corporate parenting style to ensure the business units work in unison and the future is planned rather than obtained through divisively generated business decisions.
Alibaba’s CAGE Framework Implications in Egypt
When expanding into a new market, a firm may encounter several problems. The CAGE framework highlights its fundamentals in providing an outline for safety operations (Schlegelmilch, 2022). The framework can be applied in relation to Alibaba’s strengthening of positions in Egypt. For example, regarding cultural perception in Egypt, Alibaba can apply its Islamic background to succeed in the Arabian nation. The administration is another CAGE vital cage aspect, and there is a possibility that the corporation would have difficulties interacting with the Egyptian government and its unrest due to several restrictions.
Furthermore, due to the geographical location, the distance that separates it from Alibaba’s headquarters in China, Egypt is located in an area that may make connectivity and logistics challenging and costly. Regarding the economy, in Egypt, there are concerns about restrictions on freedom of expression, civil rights, and political opposition. This has created a volatile business environment that might affect Alibaba’s operations, making doing business there hazardous.
As a result of the perceived volatility of Muslims, Alibaba would need to be informed of and prepared for any aggression that may occur and would also need to adjust to it. There is a significant risk that terrorists may attempt to carry out strikes in Egypt. Even if most assaults are concentrated in North Sinai, there is still a chance of attacks happening elsewhere in Egypt. There is a greater likelihood of terrorist attacks occurring in the vicinity of or inside religious facilities and during religious celebrations. Alibaba would need to be aware of these aspects and change its business operations appropriately to succeed.
Additionally, problems with the administration, it is possible that the corporation may have trouble dealing with the Egyptian government and the extensive corruption inside the administration. Egypt’s administration has been accused of being corrupt and ineffective. Because of this, it could be challenging for enterprises to function inside the nation. The company must be ready to face the challenges if Alibaba is serious about establishing a foothold in the Egyptian market.
Egypt is situated in a region quite far away from Alibaba’s headquarters in China. This geographical distance may make the coordination of the company in the area a challenging endeavor, particularly in terms of communication between the center and the business units that are functioning in Egypt and the transportation expenses involved. If Alibaba is serious about establishing a foothold in the Egyptian market, it will need to consider this.
Conclusion
Based on existing evidence, Alibaba could establish a stronger international presence by acquiring eBay and employing certain strategic decisions regarding strengthening its position in Egypt. The analysis can show that the corporation benefits from innovative ideas and strategic planning while meeting difficulties due to certain political and economic systems within the markets where they operate. Moreover, expansion in the US can be possible through the urgent matter of purchasing the eBay platform. In contrast, expansion in Egypt correlates with difficulties in terms of organizational culture, geographical difference, and political unrest.
References
Alibaba (2022). Company Overview. Alibaba Group.
Fan, D., Li, X., & Zhang, J. (2021). Comparative study on strategic modes of e-commerce platform between Jingdong and Alibaba. E3S Web of Conferences, 275(01028), 1-4.
Johnson, G., Whittington, R., Regnér, P., Angwin, D., & Scholes, K. (2020). Exploring strategy. Pearson UK.
Keane, M., Yu, H., Zhao, E. J., & Leong, S. (2020). China’s digital presence in the Asia-Pacific: Culture, technology, and platforms. Anthem Press.
Schlegelmilch, B. B. (2022). The global marketing environment. In Global marketing strategy (pp. 19-49). Springer.