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Assignment 3 Satinder

This document discusses the benefits and limitations of Alibaba.com. Some key benefits include its large location in China which has a massive online market, economies of scale through offering various products across multiple sites, and the networking effects of its large user base. However, limitations include high operating costs during its expansion phase, reputation issues with complaints from companies, and an inability for retail customers to purchase small quantities.

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87 views

Assignment 3 Satinder

This document discusses the benefits and limitations of Alibaba.com. Some key benefits include its large location in China which has a massive online market, economies of scale through offering various products across multiple sites, and the networking effects of its large user base. However, limitations include high operating costs during its expansion phase, reputation issues with complaints from companies, and an inability for retail customers to purchase small quantities.

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twinkle goyal
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© © All Rights Reserved
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Download as DOCX, PDF, TXT or read online on Scribd
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NORTHERN COLLEGE, PURES -

TORONTO

Assignment-3.
Benefits and Limitations of Alibaba.com

Submitted to: Abiodun Ojo Submitted By: Satinder Singh

Computer Applications Student ID : 201904413


For Business & Technology

Alibaba is China’s — and by some measures, the world’s — biggest online


commerce company. Its three main sites — Taobao, Tmall and Alibaba.com —
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have hundreds of millions of users, and host millions of merchants and businesses.
Alibaba handles more business than any other e-commerce company.

E-COMMERCE
Alibaba is the most popular destination for online shopping, in the world's fastest
growing e-commerce market. Transactions on its online sites totaled $248 billion
last year, more than those of eBay and Amazon.com combined.

MARKET CAPITALIZATION
Alibaba became one of the most valuable tech companies in the world after raising
$25 billion from its U.S. IPO. It is also one of the most valuable Chinese public
companies, ranking among some of the country’s state-owned enterprises.

ADVANTAGES
1. Location:
The first advantage is location--China. With 560 million Internet users spending 20
hours a week online, China is by far the largest Internet market  in the world--twice
the size of the U.S. market. And notably, China is skipping traditional retailing in
favor of e-tailing.

“Just as China jumped straight to wireless communications, China may skip a


generation of brick-and-mortar retail build-out through aggressive e-commerce
adoption,” writes Ken Hao. This generates great growth opportunities for Internet
retailers, especially for early movers like Alibaba.

2. Economies of Scale:

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The second advantage is economies of scope; the cost savings associated with the
offering for sale of different products by a single corporation through the same
sales channels. In this case, sites. Alibaba has two retail sites – Taobao, which
features thousands of non-brand name products sold by smaller-unknown
merchants; and Tmall, for brand name products. The variety of products offered on
each side, especially Taobao is astonishing.

3. Scale:
The cost savings associated with a larger volume of sales. “What sets Alibaba apart
is size,” writes Juro Osawa. “The company has said that Taobao and Tmall account
for more than half of all parcel deliveries in China. In 2012, the combined
transaction volume of Taobao and Tmall topped one trillion yuan ($163 billion),
more than Amazon and eBay combined.”

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4. Networking:
The benefits arising from an expanding network of users of a product or service.
The larger the network, the more valuable the product becomes to each user.

Alibaba is a form of “collective entrepreneurship” between the company and


thousands of merchants that join the network -- Alibaba provides the platform, and
the merchants provide the products.

This model, which relies on revenue sharing rather than listing fees, makes it easier
for additional merchants to join the network. And the larger the network, the greater
the benefits for each merchant, as it attracts a large volume of customer traffic.

5. Good Relation with Government:


The fifth advantage is Alibaba’s good relations with the Chinese government.
Though such relations are important in every country, they are particularly
important in China, where the government is the gatekeeper of the economy,
deciding who will be in what business and for how long.

Alibaba, for instance, was one of the five companies chosen by the Chinese
government to enter Internet banking, an enormous opportunity in a country where
banks are owned by the government.

DISADVANTAGES

1. Operating cost

After attracting series of venture capitalists, Alibaba began expanding globally.


However, the rapid increase in labour cost, marketing, advertising and zero profits
drove the firm into financial trouble in 2000. By January 2001, Alibaba had less
than $10 million in its account.

Later, Savio Kwan, a senior manager at General Electric, joined the company and
became the chief operating officer. Immediately after taking over, Kwan began
laying off staff. The number of employees in the US was reduced from 40 to three,
and subsidiaries located in Hong Kong, Beijing and Shanghai were closed down.
Salaries of the remaining staff were cut by 50 per cent while their share options
went up 100 per cent.

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After three months of drastic cuts, the company survived with its operating cost
falling from $2 million to $500,000.

2. The international reputation of Alibaba is not good. Many companies have


filed complaints against the company. The complaints range from problems
with a product, problems with service, billing, advertising and delivery
complaints.

3. The site Alibaba competes with you in that it provides the same product to
everyone – meaning also your competition. If you are a seller in Europe or
U.S.A. you will want to differentiate yourself from the competition.

4. The biggest limitation for a retail customer is he cannot buy in small


quantity, he has to buy products in a large quantity.

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References:
[1]Tan, B., Pan, S. L., Lu, X., & Huang, L. (2009). Leveraging digital business
ecosystems for enterprise agility: The tri-logic development strategy of Alibaba.
com.

[2] Alibabagroup.com,. (2014). Alibaba Group. Retrieved 23 October 2014, from


http://www.alibabagroup.com/en/ir/financial

[3] Qing, H. (2008, December). A Model for Value-added e-Market Provisioning:


Case Study from Alibaba. com. In Future Generation Communication and
Networking Symposia, 2008. FGCNS'08. Second International Conference on (Vol.
1, pp. 47-52). IEEE.

[4] Osawa, J. (2014). How Does Alibaba Make Money?. The Wall Street Journal
Retrieved 23 October 2014, from http://blogs.wsj.com/digits/2013/09/09/how-does-
alibaba-make-money/

[5] WANG, G., & Lim, Y. T. (2011, August). Research in China’s Alibaba’s
Development. In Artificial Intelligence, Management Science and Electronic
Commerce (AIMSEC), 2011 2nd International Conference on (pp. 2295-2301).
IEEE.

[6] Alibaba.com. (2014, September). Linked In. Retrieved Oct 20, 2014, from
Business Development and Marketing Director:
https://cn.linkedin.com/jobs2/view/17317067

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