Case: Alibaba Competing in China and Beyond Electric commerce (e-commerce) is the buying and selling of products or services over an electronic medium like the internet. The advantages of e-commerce are speedy transactions, less travel, low operational costs, ability to reach a large customer base, and round the clock buying and selling. Some of the disadvantages of e-commerce are the minimum amounts of customer to company interactions which leads to trust issues, e-commerce is prone to fraud and theft, and there is no guarantee on product quality.
In a market like China, it’s important to understand the local culture, values, the political government, and the language. The political government in China has a major impact on the Internet companies in China. It is important for e-commerce companies in China to understand how to successfully launch a Chinese language website or design a search engine that would suit the complex language. In order to gain an edge amongst their competitors, international companies must seek out local help to understand the local culture and values, the language, the consumers, and how to deal with the politics of the region.
Alibaba, founded by Jack Ma, is a website which allows for buyers and sellers all over the globe to engage in electronic business transactions. Alibaba played a major role in bringing the Internet Revolution to China. Ma achieved this by allowing small and medium-size enterprises (SME) in China to benefit from cross border trade through his website. Alibaba made their money from the 21 million users who paid annual subscriptions. Alibaba established itself when the Chinese Internet industry was still in its infancy.
This was the perfect opportunity for e-commerce companies because of the lack of competition. However, the competition that they did face were Global Sources and MeetChina, which were also launched in 1999. In order to gain a competitive advantage in the B2B market Alibaba did not charge fees for any transaction. That was a strategy that critics were skeptical about. However, Alibaba built a customer base that would end up to be unrivaled. What made Alibaba so successful was its ability to rapidly adapt to current market trends in China.
In the dotcom bubble burst Alibaba reformulated their strategy to concentrating on improving its business in China rather than focusing on global markets, they moved the headquarters back from Shanghai to Hangzhou, and they would concentrate on the richest regions in China. Foreign companies saw opportunity in China’s expanding e-commerce market. One of those companies was US-based eBay Inc. , who entered China by acquiring stake in Shanghai’s EachNet. com for $30 million. Ma then launched Taobao to rival eBay in the Business to Consumer (B2C) and Consumer to Consumer (C2C) market.
Again, Taobao employed the free concept strategy to attempt to build a consumer base by offering free listings on their website. Alibaba also developed a promotional strategy for Taobao in which they advertised through online ads and billboards. Taobao also had a unique feature where users can e-mail and chat with each other onsite unlike their eBay counterparts who concealed sellers identity and only offered communications through offline messaging. Taobao also addressed the trust factor during online transactions between buyers and sellers by developing AliPay, similar to Paypal.
The first mistake that eBay Inc. made was that they based their business strategy on the US business model. What works well in one region will not work in others. Ma quoted “We knew that someday, eBay would come in our direction. ” indicating that Alibaba had done their research and they were prepared for the arrival of any potential rivals. After cornering 79% of the market shares in China, eBay soon found itself in fierce competition with Alibaba when Alibaba made quick marketing adjustments. Bay ‘s other mistake was that they entered China assuming that they have a global product. What they failed to realize is that the Taobao product was designed for the local consumer while eBay’s product was more product based, meaning they are more concerned with how to get more consumers to use their product rather than does this product fit the consumers wants and needs. eBay declined to drop their auction fees and failed to improve consumer interaction on their website to compete with Taobao. eBay should have focused more on the local strategies that other local business use.
They could have done this if they were more consumer driven and aligned with the local environment. eBay should have went through the process of environmental scanning. They should have conducted an analysis of their current and potential competitors to find out what their goals and strategies are and what are their strengths and weaknesses. eBay’s lack of knowledge and ignorance of the local market left them unprepared for rapid change that local businesses employ. Foreign competitors fail to enter the Chinese market because they lack the nderstanding of the language, the culture, and they lack the ability to adapt rapidly to change. Foreign companies can address this issue by preparing a strategy for entry such as organize ways to enable fast communication and processes for quick business decision making. They should hire within the country to adopt the workers who have a understanding of the local culture and values. They should be prepared for change and learn to adapt with the local market trends and prepare a plan of action to react faster.