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STRATEGIC MANAGEMENT

FINAL REPORT
ALIBABA GROUP HOLDING LIMITED

By:
Nabila Sekar Hapsari 1506679483
Rahmatania Ekoputri Apriliana 1506679281
Pratama Adipradana 1606884602
Ananda Nandika 1506727204
Mohamad Raihan Ghifari 1506679294
Rheinhard Yonatan 1506749634
Menno Janssen van Doorn 1806265583
Tobias Heinicke 1806265564

FAKULTAS EKONOMI DAN BISNIS


UNIVERSITAS INDONESIA
DEPOK
STATEMENT OF AUTHORSHIP

We, the undersigned, hereby declare that the attached paper is purely the result of our own
work. No work of others that we use without citing sources. This material is not / has not
been served / is used as a material for papers / assignments on subjects other than we stated
clearly that we have used. We understand that this task can be reproduced and or
communicated for the purpose of detecting the presence of plagiarism.

Course : Strategic Management


Paper / Assignment Title : The Analysis of Strategic Management Model
Case Study: Alibaba
Date : December 19th, 2018
Lecturer : Anna Amalyah Agus S.E., M.B.A / Avanti Fontana Ph.D

Name Student ID Number Signature

Nabila Sekar Hapsari 1506679483

Rahmatania Ekoputri A. 1506679281

Pratama Adipradana 1606884602

Ananda Nandika 1506727204

Mohamad Raihan Ghifari 1506679294

Rheinhard Yonathan 1506749634

Menno Janssen van Doorn 1806265583

Tobias Heinicke 1806265564

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GROUP MEMBERS

Ananda Nandika Menno Janssen van Doorn


Finance Marketing
1506727204 1806265583

Nabila Sekar Hapsari Rahmatania Ekoputri A. Pratama Adipradana


Finance Finance HR
1506679483 1506679281 1606884602

Mohamad Raihan Ghifari Rheinhard Yonatan Tobias Heinicke


Marketing Finance Operations
1506679294 1506749634 1806265564

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TABLE OF CONTENTS

STATEMENT OF AUTHORSHIP 2

GROUP MEMBERS 2

TABLE OF CONTENTS 4

COMPANY OVERVIEW 6

BUSINESS PORTFOLIO 6

VALUES, GOVERNANCE AND SOCIAL RESPONSIBILITY 10

Alibaba’s Corporate Value 10

Board of Directors 10

Corporate Social Responsibility 12

VISION AND MISSION 13

Alibaba’s Vision Statement 13

Alibaba’s Mission Statement 13

Alibaba’s Proposed Vision and Mission Statements 14

EXTERNAL AUDIT 16

Market Share 16

Core Commerce 16

Cloud Computing 17

The Alibaba Ecosystem 19

Alibaba versus the Others 20

Investments 20

Captive Market of China 21

EFE Matrix Error! Bookmark not defined.

INTERNAL AUDIT 26

IFE Matrix 26

CPM Matrix 27

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STRATEGY GENERATION 29

SWOT Matrix 29

SPACE Matrix 30

BCG Matrix 32

IE Matrix 33

Grand Strategy Matrix 34

STRATEGY SELECTION 35

Market Development 36

Product Development 36

QSPM Matrix 37

STRATEGY IMPLEMENTATION 40

Marketing 40

Finance 43

Research and Development 45

Management Information System 45

STRATEGY MONITORING 47

Balanced Scorecard 47

CONCLUSION Error! Bookmark not defined.

APPENDICES 50

REFERENCES 50

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COMPANY OVERVIEW

Alibaba Group is a Chinese multinational conglomerate which businesses are


comprised of core commerce, cloud computing, digital media entertainment, innovation
initiatives, and major investee companies. The headquarter is located in Hangzhou, China.
Founded in 1998, Alibaba Group provides C2C, B2C, and B2B sales services via web
portals.
The company was established by 18 founders led by Jack Ma. Its first web portal is
Alibaba.com, a global wholesale marketplace. Jack Ma and 17 other founders also tried to
develop the trade market condition in its home country by creating a domestic wholesale
marketplace named 1688.com. Halfway through a decade, Alibaba Group launched its online
shopping website called Taobao. Since then, Alibaba has been gaining lots of attention from
investors, domestically and globally.
As a technology-based company, Alibaba Group developed its own communication
platform for the sellers and buyers named Aliwangwang and a third-party online payment
called Alipay. In 2007, Alibaba completed its initial public offering on Hong Kong Stock
Exchange and launched Alimama, an online marketing technology platform. The company
expanded its business line by establishing AliExpress which enabled exporters in China to
reach and directly transact with consumers around the world.
Through its journey of business expansion, Alibaba also focused on promoting social
issues and helping the society. The Alibaba Foundation was established with an aim to
promote human development. In 2014, Alibaba was listed in New York Stock Exchange and
became the biggest Asian IPO of all time opened in NYSE. The company also announced
that it will invest RMB10 billion over the next three to five years to build 1,000 county-level
"Taobao rural operations centers" and 100,000 village-level "Taobao rural service centers"
throughout China.
Alibaba has been named as one of the fastest growing company for the last two
decades and it has more room to grow. On Fortune Magazine’s annual list of World’s Most
Admired Companies, Alibaba Group notched 4th place in the Internet Services and Retailing
category with estimated brand value of about $54.92 million. The company also became the
top 5 e-commerce in Asia, Australia, and southern part of America. Until now, Alibaba has
been developing a business ecosystem through its technology platform.
BUSINESS PORTFOLIO

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Alibaba is a major empire consisting of many different businesses and segments.
Ranging from commerce to logistics, they surely have it all. One of the way Alibaba operates
that is quite important in their revenue generating process is how they categorize every single
platform into different compartments, and that each platform would have different uses, or
similar uses but for different kinds of markets.

Figure 1. Alibaba’s Core Businesses

The first segment to describe is the core commerce segment. As Alibaba’s


powerhouse, this segment contributes the most to Alibaba’s total revenue at about 80% every
time. What’s different about Alibaba’s commerce segment is that they don’t try to force and
cramp every single thing and features into one platform; instead, they created different
platforms targeting niche markets for each platform. Firstly, they differentiate the region that
is China and International. The reason behind this is that they want to keep using Chinese
language and Mandarin letters within their domestic platforms, keeping these marketplaces
appealing to and being close to heart for the Chinese market, which has always been their
main market. However, upon targeting the international market, they use a more global
approach which was to use English on their international & cross-border commerce
platforms.
And then, further compartmentalization happens on the level of transaction happening
in the platform, as they categorize their commerce segment into retail commerce and
wholesale commerce. They have many local retail commerce platforms such as Taobao
(retail commerce in China), Tmall (where brands act as sellers and sell directly to individual
customers), and juhuasuan (for group buying). Local wholesale commerce happens in

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1688.com, the largest B2B marketplace in China. Meanwhile, the global market is served
through AliExpress, Tmall Global, Alibaba.com and Lazada.
Moving on to the cloud computing segment, Alibaba Cloud or Aliyun. This segment
was initially founded in 2009, however the usage was still internal as it also supported the
first ever Single’s Day (11.11). As time went on, Alibaba witnessed a digital movement
happening everywhere and eventually decided to make the Alibaba Cloud services available
for public. Right now, it is the largest cloud computing company in China, and operates in 18
data center regions and 42 availability zones around the world.
Aside from its main operations, Alibaba also branched out to entertainment, mobile
media, and other sets of innovations. The platforms within this segment is namely UC
Browser, Tmall TV, Alibaba Music, AliHealth, and so on. They aspire to be in every aspects
of everyone’s lives.

Major Investee Companies & Cooperative Partners

Figure 2. Alibaba’s Investee & Cooperative Partners

As they want to create a whole ecosystem, Alibaba decided upon a strategic move
which was acquire firms who were operating in the field that Alibaba didn’t master, and
make them partners that would align their businesses with Alibaba. A notable example would
be Cainiao who had been acquired by Alibaba in 2017 by 51%, because Alibaba intends to
invest more in its logistical capabilities. Another example is Alipay, which started out as a
victim of China’s central bank regulations on third-party payment providers, to become
restructured as a domestic company controlled by Jack Ma. Although they had some issues
on their transfer of ownership, but Alipay went on to becoming Alibaba’s ultimate payment
platform. In 2015, its parent company was rebranded as Ant Financial Services Group.

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VALUES, GOVERNANCE AND SOCIAL RESPONSIBILITY

Alibaba’s Corporate Value


Alibaba has six core values that are fundamental to the way the firm operates and how
the firm recruits, evaluates, and compensates its people. The six corporate values of Alibaba
are customer first, teamwork, embrace change, integrity, passion, and commitment. The
meaning of “customer first” value is that Alibaba puts the satisfaction of consumers,
merchants, and enterprises as its first priority by providing a supportive ecosystem to help
them prosper. Alibaba also emphasizes on teamwork as the firm believes that teamwork
enables people to achieve extraordinary things. As the business environment moves
dynamically, Alibaba is running its business flexibly and innovatively in order to maintain
sustainability and vitality of the business. Alibaba also promotes integrity as the firm expects
that Alibaba’s people uphold the highest standards of honesty and deliver on their
commitments. Those values can be achieved by internalizing and implementing passion and
commitment in every activities that is done within the company.
The success and rapid growth of Alibaba is built on the spirit of entrepreneurship,
innovation, and an unwavering focus on meeting the needs of our customers. The firm
believes that a strong sense of shared values enables to maintain a common company culture
and community. Alibaba’s corporate values has its own characteristic which include
transparency, flattened hierarchy, and family unity. A truly unique element of the corporate
culture at Alibaba is the impact of the myths and legends of Chinese martial arts novels,
which have become an everyday reality for employees. This is not just a fun exercise in the
culture of Alibaba but also a method for flattened hierarchy.

Board of Directors
Jack Ma and Simon Xie (Alibaba Group’s Co-Founder) have effectively transferred
ownership to select members of the Alibaba Partnership who are Chinese citizens. The
Alibaba Partnership was set up by the company a decade ago to ensure that Alibaba does not
rely on one or two executives in power and divides decision making among the 36 Alibaba
partners.
The Alibaba Partnership comprises 36 individuals who have the exclusive right to
nominate a simple majority of Alibaba’s board of directors, subject to shareholders’ approval
during the annual general meeting. This means they are also generally the ones with the most

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decision-making power since directors are hand-picked by the partners, despite not all of the
partners serving on the board of directors.
Of the 36 partners, six were part of Alibaba’s 18 co-founders, including Ma (a
lifetime partner) and executive vice-chairman Joe Tsai. The remaining partners are executives
who have worked for at least five years at Alibaba, or its affiliates like Ant Financial, each
with a proven track record of contributing to the group’s business. They are elected into the
partnership by their peers, with years of vetting. They must also be nominated by three
existing partners, and receive at least 75% of the votes of all existing partners.

Name Position Member Since


Jack Ma Executive Chairman 1999
Joe Tsai Executive Vice Chairman 1999
Daniel Zhang Director and CEO 2007
Michael Evans Director and President 2014
Eric Jing Director 2007
Masayoshi Son Director 2000
Chee Hwa Tung Independent Director 2014
Walter Kwauk Independent Director 2014
Jerry Yang Independent Director 2005
Börje E. Ekholm Independent Director 2015
Wang Ling Martello Independent Director 2015
Table 1. Alibaba Board of Director

As stated in Alibaba Group’s website, “The Alibaba Partnership has the right to
nominate such number of persons who shall stand for election as directors as may be required
to ensure that directors nominated or appointed by the Alibaba Partnership shall constitute a
simple majority of the total number of directors on our board of directors, with as equal a
number of such nominated directors assigned to each group of directors as possible.”
Besides the Alibaba Partnership, SoftBank and Nominating and Corporate
Governance Committee also have the rights to nominate a person who shall stand for election
as directors. As it is also stated in Alibaba Group’s website, “SoftBank has the right to
nominate one person to stand for election for so long as SoftBank owns at least 15% of our
outstanding shares. The director nominated by SoftBank will be entitled to receive notices
and materials for all meetings of our committees and upon notice to the relevant committee,

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to join as an observer in meetings of the audit committee, the compensation committee, the
nominating and corporate governance committee and other board committees we may
establish.” However, for the Nominating and Corporate Governance Committee of the board
of directors has the right to determine the persons who shall stand for election as directors for
the remainder of the places available for election to our board of directors.
Alibaba Group also has its own board of committee. It consists of three subsection of
committee which includes audit committee, compensation committee, and nominating and
corporate governance committee.

Corporate Social Responsibility


Alibaba had a numbers of corporate social responsibility programs that was
implemented in China. One of Alibaba corporate social responsibility programs is to support
rural development in China, and Alibaba has launched a service center named “Rural
Taobao” in October 2014. Rural Taobao is one of Alibaba’s strategic projects that aim to
enhance the trade between China’s rural and urban areas. Since 2010, Alibaba has earmarked
0.3% of their annual revenue to fund initiatives with the objective of encouraging
environmental awareness and conservation as well as other CSR efforts.
Alibaba has also helped to reduce the number of unemployment in China. It could
happen because many types of service providers needed and it create employment
opportunities. Alibaba provides direct and indirect business opportunities for merchants,
Alibaba creates new opportunities for service providers in logistics, marketing, consulting,
operation outsourcing, training, and online commerce professional. Also provides direct and
indirect job opportunities in China, makes people working directly online storefront and
service to merchants.
Alibaba is committed to running their social responsibility program through a unique
charitable environment that focuses on innovation and scalability. Alibaba also supports and
promote another charitable and social responsibility initiatives as long as that programs in
ways that Alibaba believes and alignment with Alibaba core values and mission. Proof that
Alibaba focused on to take care about social responsibility are got named on one of the top 10
charitable enterprises in China and the top charitable private enterprise in China.

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VISION AND MISSION

Alibaba’s Vision Statement


A vision should provide clear information about the foundation for developing a
comprehensive mission statement. Aligning with the company goal to become the biggest e-
commerce, Alibaba should make a clear way about their vision and mission. Alibaba’s vision
is “We aim to build the future infrastructure of commerce. We envision that our customers
will meet, work and live at Alibaba and that we will be a company that lasts at least 102
years”.
The meaning of its vision statement is that Alibaba wants to enable commercial and
social interactions among hundreds of millions of users, between consumers and merchants,
and among businesses every day. The company also wants to empower customers with the
fundamental infrastructure for commerce and new technology, so that Alibaba can build
businesses and create value that can be shared among the company ecosystem participants.
Alibaba Group also strives to expand its products and services to become central to the
everyday lives of the customers. Finally, for a company that was founded in 1998, lasting at
least a hundred years means Alibaba will have spanned three centuries. Alibaba beliefs that
the company culture, business models, and systems are built to last, so that it can achieve
sustainability in the long run.

Alibaba’s Mission Statement


Alibaba Group’s mission is “to make it easy to do business anywhere”. The company
wishes to enable businesses to transform the way they market, sell, operate and improve their
efficiencies. Alibaba also tries to provide the technology infrastructure and marketing reach
to help merchants, brands and other businesses to leverage the power of new technology to
engage with their users and customers and operate in a more efficient way.
The company businesses are comprised of core commerce, cloud computing, digital
media and entertainment, and innovation initiatives. An ecosystem has been developed
around the company’s platforms and businesses that consists of consumers, merchants,
brands, retailers, other businesses, third-party service providers and strategic alliance
partners.

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Alibaba’s Proposed Vision and Mission Statements

There is a way to evaluate vision and mission statement by doing vision and mission
analysis. Although there is no one best vision and mission statement for a particular
organization, when it comes to evaluating vision and mission statements, good judgment is
required. Ideally, each of the statements will provide more than simply inclusion of a single
word of the component.

Alibaba’s statement about their vision already reveals the type of business that the
firm engages because Alibaba has an ocular proof of developed infrastructure of commerce.
They built an ecosystem that provides e-commerce and created many platforms that
transform the way of business to make business more efficient to their stakeholders that are
consisting of consumers, merchants, brands, and retailers.

There are nine components of an effective mission statement. It includes customers,


products or services, markets, technology, survival, growth, and profitability, philosophy,
self-concept, public image, and employee. Alibaba has created such a clear mission statement
that is going to create an ecosystem that makes it easy to do business anywhere. From this
perspective, Alibaba is paying attention to its customer which consists of business firm and
also individual consumer. Thus, customers component are fulfilled.

Product or services component can be found in “We provide the technology


infrastructure and marketing reach to help merchants, brands and other businesses to
leverage the power of new technology to engage with their users and customers and operate
in a more efficient way” statement.

The statement “to make it easy to do business anywhere” itself consists of markets,
self-concept, and philosophy components. Self-concept component has further explanation in
“an ecosystem has developed around our platforms and businesses that consists of
consumers, merchants, brands, retailers, other businesses, third-party service providers and
strategic alliance partners” statement.

As for the technology and concern for survival, growth, and profitability components,
it can be found in “we provide the technology infrastructure and marketing reach to help
merchants, brands and other businesses to leverage the power of new technology to engage
with their users and customers and operate in a more efficient way” statement.

Since there is no statement that empower or explain about the company’s concern for
public image and employees, we can say that there is something missing from Alibaba’s

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mission statement. Thus, we proposed a new Alibaba’s mission statement that includes the
missing components. The new lines added for the mission statement would be as follows:

“...We believe there is no prosperity when our people and planet are not sustainable.
Our concern about sustainability bring us to care about social equity, economic development,
and environment.”

Components Existing Mission Proposed Mission

Customers ✓ ✓

Product or Services ✓ ✓

Markets ✓ ✓

Technology ✓ ✓

Concern for Survival, Growth, and Profitability ✓ ✓

Philosophy ✓ ✓

Self-Concept ✓ ✓

Concern for Public Image ✓

Concern for Employee ✓

Table 2. Mission Statement Checklist

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EXTERNAL AUDIT

Market Share
Alibaba is well known for its widely diversified portfolio of services. However in this
report, we would like to focus on our market share analysis on two of Alibaba’s strongest
segments that are Core Commerce (which comprises of both Retail and B2B Commerce) and
its new and growing segment, Cloud Computing.

● Core Commerce

Market Share (%)


Rank Company
2016 2017

1 Amazon.com Inc 21.8 23.3

2 Alibaba Group Holding Ltd 13.4 13.4

3 JD.com Inc 6.5 7.9

4 eBay Inc 5.9 5.2

5 Apple Inc 2.6 2.4

Table 3. Global Non-store Internet Retailing Industry Market Share (Euromonitor, 2018)

The market share data shows the movement of worldwide non-store internet retailing
market share. This data shows that Alibaba is a force to be reckoned with, overtaking the
world with its commerce business unit. Despite coming second trailing after the giant
Amazon.com Inc., to be reminded again is that this data shows global market share in which
takes into account all population in the world, and that Alibaba has successfully claimed
almost 15% of global population.
Another thing to note is Alibaba’s growth rate in this core commerce business unit.
When faced head-to-head with major competitor Amazon.com, the data shows this
movement:

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Figure 3. Core Commerce Growth Rate FY 2013-2017 Comparison (Company Data,
Team Analysis)

Despite the downward movement from 2013 and finally taking a huge hit on its
revenue growth on 2016, but afterwards it has been moving upwards going into the year 2017
and onwards. When compared to Amazon, while it’s true that they’re having constant upward
growth rate, but in general their growth rate is still below Alibaba’s growth over the years.
Looking at the upward growth rate for Alibaba, it’s natural to forecast another increasing
growth rate looking at 2018 and furthermore.

● Cloud Computing
This segment of Alibaba is relatively a newcomer among its cloud computing
competitors (taking an example of the leading service AWS by Amazon which was founded
way back in 2002, while Alibaba Cloud was initially founded in 2009 and offered for public
usage in around 2014). However, being new to the public cloud services market doesn’t stop
Alibaba from soaring as shown in table 4.

Market Share (%)


Rank Company
2016 2017

1 AWS (Amazon) 53.7 51.8

2 Microsoft Azure 8.7 13.3

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3 Alibaba Cloud 3.7 4.6

4 Google Cloud 2.7 3.3

5 IBM 1.6 1.9

Table 4. Global IaaS Public Cloud Services Market Share (Gartner, 2018)

Alibaba is already in third place with increasing market share from 2016 to 2017, with
3.7% and 4.6% market share respectively. Moreover, just recently the new appointed CEO of
Alibaba, Daniel Zhang stated that Alibaba cloud will be Alibaba’s main business in the future
with all the digital enhancement that is happening all over the world. The rate that Alibaba
Cloud is growing is shown in figure 4.

Figure 4. Cloud Computing Growth Rate FY 2013-2017 Comparison (Company Data,


Team Analysis)

The overall IaaS cloud computing market is increasing, and Alibaba is jumping in on
the growing bandwagon. For a relatively new business unit, Alibaba Cloud is showing
tremendous growth rate at 62.7% per year from 2016 to 2017. While it is true that the market
is dominated by rivals Amazon and Microsoft, but Alibaba Cloud’s growth rate is showing
how the business is still small, yet growing and expected to see upward growth movement.

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The Alibaba Ecosystem
Ever since its inception back in 1999, Alibaba founders had already agreed upon a
vision, that Alibaba would “foster the development of an open, coordinated, prosperous e-
commerce ecosystem.” They wanted to make a platform providing all kinds of resources, or
access to resources, that an online business would need to succeed.
This ecosystem was simple at first, which became a place where buyers and sellers of
goods are linked. Over the years, one by one business functions started to be technologically
infused, like marketing, logistics, and finance. The ecosystem expanded accordingly to
accommodate these innovations, and is now an interrelated ecosystem.

Figure 5. The Alibaba E-commerce Ecosystem (Company Data)

The ecosystem comprises of several categories, which are marketplaces, and enablers
or accelerators. The marketplace category beholds all kinds of Alibaba’s marketplaces that
each serves niche markets; Alibaba for global trade, 1688.com for Chinese wholesale
transactions, AliExpress for connecting global buyers with Chinese wholesalers and
manufacturers, Taobao for Chinese retail customers, Tmall for branded sellers, and
Juhuasuan for group buying. Meanwhile, these trades’ transactions and workflow are
facilitated by the enablers, such as Alipay for payment services, Cainiao for logistic services,
UC Browser as a browsing application, and many more. These platforms have created on
integrated ecosystem in which all of their business units complement one another on serving
their customers, a nod to one of their utmost important values that is ‘customer first’.

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Alibaba versus the Others
Alibaba is operating in the wholesale business against some very big competitors like
Amazon and eBay, who have entered the industry prior to Alibaba. Now, the race on
becoming the best and largest e-commerce platforms is on for these players, and even more.
With that being said, Alibaba through the lens of Jack Ma has operated in a way that would
set them apart from its US counterparts. One of the ways they differentiated themselves from
the others are:
● Investments
Alibaba has grown from the plucky startup taking on eBay to China’s most dominant
ecommerce player, and one of the most valuable companies in the world. For the last
two decades, the company has made plenty of investment decisions. The following
chart offers a breakdown of Alibaba’s startup investments to date, both by industry
category and by country of origin. Most of Alibaba’s startup investments are made in
tandem with other investors and the specific amount Alibaba put into the deal
typically isn’t disclosed.
Clearly, Alibaba’s biggest priority is holding its home turf: online shopping in China.
The vast majority of its investments to date have gone to China-based startups and its
favorite industries to invest in, ecommerce and logistics, have direct relevance to its
existing ecommerce business. Aside from US VR firm Magic Leap, Lazada and
Tokopedia were the only foreign companies to make the list.
Breaking the deals down by the total amount funded, Chinese firms were the clear
winners, with US$12.8 billion raised and Indonesian firms were next, with US$3.1
billion. Looking at the money distribution down by industry, ecommerce-relevant
investments came out on top, with over US$10.8 billion of the US$16.5 billion total.
Like its other Chinese tech rivals, Alibaba is big enough to have at least some
investment interest in most tech-related industries, and it has spent money supporting
startups in all the global tech hotspots.

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Figure 6. Alibaba’s investments segments

Figure 7. Alibaba’s investments by country

● Captive Market of China


Alibaba’s understanding of the local Chinese market has always been its valuable
asset. Alibaba continues to lead retail e-commerce sales in China with the market
share of 58,2%. The company is playing a dominant part in China’s economy with its
international scope of business line. Its customer base is gigantic, considering the 1.4

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billion people that inhabit China. Alibaba acts as a middleman, allowing businesses
and people to offer their products in auctions.
Over the past few years, the dynamic marketplace in China has welcomed some new
players that are offering branded products, which are popular among consumers, but
forecast ranking of top 10 e-commerce predicts that Alibaba will continue to dominate
China e-commerce market, followed by JD.com with 16.3% share.
And this is an important edge to have because as seen on figure x, the global retail
sales is a zero sum game where it shows that while the US has decreasing global retail
share, it shows an increase in Asian market, as the current comparison is already 16%
US and 84% Asia and the rest of the world, with the expected rate to be decreasing
even more in the future. Alibaba has already conquered the gigantic Chinese
ecommerce market, but soon US and European marketplaces may be targeted.

Figure 8. 10 Largest E-commerce Markets (Nielsen, 2017)

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Figure 9. The shift of US and Asian Retail Ecommerce Sales (Euromonitor, 2017)

Figure 10. China Retail E-commerce Sales (Statista, 2018)

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EFE Matrix
Upon identifying Alibaba’s opportunities and threats, we have concluded with sets of
facts and data included in our External Factor Evaluation Matrix. After the identification is
done, we created this EFE Matrix and score accordingly.

No. Key Internal Factors Weight Rating Weighted


Score

OPPORTUNITIES

1. China fully support Alibaba's operations that causes 0.10 4 0.40


abroad companies (Google, FB, Twitter) to exit the
country thus Alibaba can earn high revenues ($129
million in only half part of 2017) and growth (58%
average growth from 2010-2018)

2. Data anticipates 246,15% increase in global e-commerce 0.15 4 0.60


sales which presents massive opportunities in this
industry, and Alibaba welcomes this with investing more
than 100 billion yuan to build the technical backbone for
a smart logistics network

3. Ability to attract international skilled workforce due to 0.20 3 0.60


attractiveness of China company’s career path and better
job prospects

4. Growth of Internet Users, the number of Internet Users 0.06 3 0.18


growth steadily each year, and in January 2018, it was
recorded that there was 7 % increase in the number of
internet user from the previous year, recorded 4.021
billion internet users in January 2018

5. Increasing product categories, there's a wide variety of 0.09 4 0.36


product in Alibaba Group, from various product made by
small to medium businesses that provided by
Alibaba.com to various branded product provided by
Tmall.com.

THREATS

1. Increasing competitiveness of alternative cost-effective 0.06 2 0.12


source locations (e.g. India)

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2. Increasing regulation from the Chinese government 0.04 4 0.16
over its market activities due to Alibaba monopoly
market power

3. Currency fluctuations due to global economy and 0.20 3 0.60


superpower countries influence towards foreign
exchange market

4. Shortage of experienced labour in China 0.08 4 0.32

5. China’s five-year environmental policy plan to reduce 0.02 3 0.06


pollution will limit Alibaba operational activities

TOTAL 1.00 3.40

Table 5. EFE Matrix for Alibaba (Team Analysis)

The results shows a mighty 3.40 as Alibaba’s EFE results. This is showing how
Alibaba is really strong on using its opportunities to counter its threats. This is a way above
average results and therefore, Alibaba appeared really great on the External Audit and they’re
really good at handling their external features.

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INTERNAL AUDIT

IFE Matrix
Internal factor evaluation matrix is one of the best strategic tool to perform internal
audit of any firm. IFE is use for internal analysis of different functional areas of business
such as finance, marketing, information technology, operations, human resources, and other
depend upon the nature of business. Based on our analysis of Alibaba’s internal factor
evaluation matrix we have gathered regarding relevant informations needed to realize the
evaluation techniques. Here are our findings:

No. Key Internal Factors Weight Rating Weighted


Score

STRENGTHS

1. Market Leader in China e-commerce business, 0.18 4 0.72


Alibaba has 58,2% market share in China, larger
that their other local competitors (Financial).

2. Provide many platform outside e-commerce as 0.13 4 0.52


Alibaba has 25 business units (Marketing).

3. Strong R&D performance through its own DAMO 0.07 3 0.21


Academy and Alibaba Cloud Computing (R&D).

4. Automated warehouse system runs by 80 robot that 0.10 3 0.30


covers 705 of warehouse work (MIS/Value Chain).

5. Global Market. Alibaba is expanding their operation 0.12 4 0.48


into global market, one of their way is by acquiring
other e-commerce such as Lazada and Daraz, which
already have presence in the respective market
(Lazada is Southeast Asia and Daraz in Pakistan).

WEAKNESSES

1. High number of employees causes a hindrance in 0.11 2 0.22


doing internal audit that are clear, correct, and
competent (Management Function)

2. Marketing effectiveness depends heavily on the 0.08 2 0.16


product made available by Alibaba’s partners
(Marketing)

3. Alibaba’s foreign investment are still limited to 0.07 1 0.07


companies and industries which relate strongly to
Alibaba’s business unit (Financial)

26
4. The lack of self-automated machine in their 0.09 1 0.09
operating sector holds back potential improvement
on logistics and customer support (Operation)

5. The uneven distribution of the benefits across 0.05 2 0.10


members as the network grows in size

TOTAL 1.00 2.87

Table 6. IFE Matrix for Alibaba (Team Analysis)

Internal factor evaluation matrix of alibaba shows a result of 2.87, which means that
Alibaba’s internal strengths and weakness are showing great evaluation score. Nevertheless,
Alibaba still needs to improve their performance in some aspect to makes Alibaba better and
also makes innovation about their business to maintain their position a market leader in e-
commerce.

CPM Matrix

Alibaba Amazon
Critical Success Factor Weight
Weighted Weighted
Rating Rating
Score Score

Advertising 0.2 3 0.6 2 0.4

Product Quality
0.1 2 0.2 4 0.4

Price Competitiveness 0.1 4 0.4 2 0.2

Management 0.1 3 0.3 4 0.4

Financial Position 0.15 3 0.45 4 0.6

Customer Loyalty 0.1 4 0.4 2 0.2

Global Expansion 0.2 3 0.6 4 0.8

Market Share 0.05 3 0.15 4 0.2

Total 1 3.1 3.2

27
Table 7. CPM Matrix for Alibaba (Team Analysis)

According to Alibaba’s CPM Matrix, when we compare Alibaba with Amazon,


Alibaba still located in the second place with a total weight of score of 3,1 while Amazon,
lead in the first position with a total weight of score of 3,2. The result of the CPM Matrix,
while we can say that Amazon still lead the race between the two giant tech companies, it
doesn’t necessary means that Amazon is better than Alibaba, but instead, it means that
Amazon had better performance in some areas than Alibaba. In fact, in some areas such as
advertising, price competitiveness, and customers loyalty, Alibaba had better performance
than what Amazon had done in that area.

28
STRATEGY GENERATION

SWOT Matrix

SWOT Helpful Harmful

Internal Strengths Weaknesses


1. Scale of operations 1. Too many sellers (~8.5 mill.
2. Market share (58%, ~2015)
2015) 2. High discounts
3. Visionary leader 3. Biggest profit is generated by
4. Partnerships adds on the site
4. Cheap reputation

External Opportunities Threats


1. Aggregator model 1. Overall rising competition
2. Government support (Amazon, eBay, JD)
(high lobbyism) 2. Internet security
3. Growing E-commerce 3. Stability of the economy (Alibaba
4. Strongly established in relies on the cheap products)
China, possibilities for enter 4. Rising demand in service
new markets

SO Strategies
● Emphasize the aggregator model by the scale of operations and the market share.
(S1,S2,O1)
● Emphasize on the visionary leader and seek new markets (S3,O4)
● Keep strong partnerships and use the strong market position in China as leverage
(S4,O4)

WO Strategies
● Use the aggregator model to keep track of sellers (W1,O1)
● Use more precise E-commerce, and personalize discounts (W2,O3)

29
● Apply for governmental support (W3,O2)

ST Strategies
● Seek opportunity of Partnerships with competitors (S4,T1)
● Sell more premium products (S1,T3)
● Improve service and increase staff (S3,T4)

WT Strategies
● Improve website safety and control (W1,T2)
● Hence economy is getting stable, make less discounts (W2,T3)
● Increase product quality, make requirements for sellers (W4,T4)

These above strategies have been conducted from the SWOT. It both shows where to
improve operations but also where to seize opportunities and avoid or mitigate threats.

SPACE Matrix

Internal Strategic Position Ratings External Strategic Position Ratings

Financial Position Stability Position

Return on Investment 6 Rate of Inflation -4

Leverage 6 Technological Changes -2

Liquidity 5 Price Elasticity of Demand -5

Working Capital 6 Competitive Pressure -2

Price Earnings Ratio 5 Barriers to Entry into Market -1

Y - Axis 2.8

Competitive Position Industry Position

Market Share -2 Growth Potential 7

Product Quality -3 Financial Stability 5

30
Customer Loyalty -2 Ease of Entry into Market 4

Technological Know-how -1 Resource Utilization 6

Control over Suppliers and -2 Profit Potential 4


Distributors

X - Axis 3.2

Table 8. SPACE Matrix Dataset

From the analysis on all four spectrums yielded the results of both axises, being 3.2
for the x-axis and 2.8 for the y-axis. These results placed Alibaba on the Aggressive quadrant
on the SPACE Matrix as shown on figure 6.

Figure 11. Alibaba’s position in SPACE Matrix

First, we must also identify what kind of profile Alibaba is in this aggressive
quadrant. Given the coordinates of (3.2 ; 2.8), it’s showing that Alibaba is operating in a
good, growing industry but haven’t seen much financially gaining results. This gives Alibaba
several recommended strategies, such as integration strategies, market penetration, market
development, and both related and unrelated diversification.

31
BCG Matrix
In the analysis of BCG Matrix, we identified three main segments of Alibaba’s
business portfolios which are retail commerce, wholesale commerce, and cloud computing.
The sales percentage, relative market share and industry growth of the three segments are as
stated as table x. However, the profit percentage aren’t able to be shown because there are no
data in regards to segmental profit that each segment makes.

Percent Relative Market


No. Divisions Industry Growth
Sales Share

1 Retail commerce 77% 82% ▲ 24.8%


2 Wholesale commerce 8% 100% ▲ 25.4%
3 Cloud computing 4% 7% ▲23.3%

Others 11% - -

Total 100%

Table 9. BCG Matrix Dataset

Upon doing analysis on the dataset from table x, we got the BCG Matrix for Alibaba
as shown in figure x.

Figure 12. Alibaba BCG Matrix

From the results, both retail commerce and wholesale commerce are located in the
Star quadrant, while the growing cloud computing is located in the Question Marks quadrant.
These two different locations signify two different kinds of set of strategy recommendation.

32
For the more established core commerce segment, the strategy recommendations are the
integration strategies and the intensive strategies that consist of market penetration, market
development and product development. This is shown by the segment’s high relative market
share position and the high-growth within their industry as well. Meanwhile, for the cloud
computing segment the strategies varies from intensive strategies to divestiture. This is
caused by the fact that cloud computing currently has quite a low relative market share
position, yet is being in a high-growth industry, and it’s also stated that they have yet to gain
any profit so far. However, with the possibility of high growth upon this segment it is more
advisable for Alibaba to go with the intensive strategy.

IE Matrix

Figure 13. Alibaba IE Matrix

Alibaba analysis about Internal Factors Evaluation (IFE) and External Factors
Evaluation (EFE), Alibaba can conclude their Internal External Matrix. Alibaba IE Matrix be
in column II based on score on IFE and EFE. IFE scores of Alibaba show on 2.87 and EFE
scores of Alibaba show on 3.40. Alibaba has positioned on grow and build strategy. Strategy
that Alibaba should do as intensive and integration. Intensive strategies could be doing with
market penetration, market development, and product development and then for integration
strategies Alibaba either forward, backward, or horizontal integration.

33
Grand Strategy Matrix
This Grand Strategy Matrix has become a popular tool of for formulating strategy, All
organizations can be positioned in one of the Grand Strategy Matrix four strategy quadrants.
The Grand Strategy Matrix based on two evaluation dimensions : competitive position and
market (Industry) growth. Firms located in Quadrant I are in an excellent strategic position.

Figure 14. Alibaba Grand Strategy Matrix

Based on analysis and result that we already have from 2 factors : competitive
position and market growth. Alibaba Grand Strategy be on quadrant I. Alibaba have strong
position on the market based on Alibaba is the biggest e-commerce and also the market
leader. Alibaba have their own commerce ecosystem that provide Logistic, Travel,
Entertainment, Communications, and many more. Alibaba on quarter ending June 2018
posted revenue growth by 61%. Therefore, suitable strategy that should adopt by Alibaba
could be related diversification, product development, and integration strategy.

34
STRATEGY SELECTION

For

ont

Rel
rke

rke

uct

ate

ate
Ma

Ma
wa

wa

Ho

Un
Matrix Used
Ba

od

rel

D
riz
ck

Pr

v
rd

i
d
t

t
SPACE
✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
Matrix

Grand
Strategy ✓ ✓ ✓ ✓ ✓ ✓ ✓
Matrix

IE Matrix ✓ ✓ ✓ ✓ ✓ ✓

BCG
Matrix

● Retail
commerce
✓ ✓ ✓ ✓ ✓ ✓

● Wholesale
✓ ✓ ✓ ✓ ✓ ✓
commerce

● Cloud
computing
✓ ✓ ✓ ✓

Total 5 5 5 6 6 6 2 1 1

Table 10. Strategy Recommendation Recap

Based on the strategy generated from each matrix use in the strategy generation, we
found that most of the matrix recommends Alibaba to choose either market development or
product development. Our team found that Alibaba has already defined what their market
development and product development strategies would look like. Alibaba’s market
development strategy is to expand their market globally, deeply into other countries,
especially in South Asia countries and for their product development, Alibaba planned to
open a smart physical store in China.

35
Market Development
Alibaba planned to expand their market globally, and at the present day they aimed to
increase their market in South Asia country. One of the move used by Alibaba in this strategy
was to acquiring foreign e-commerce services that already have presence in the respective
market, for example, when Alibaba started to expand their market to Southeast Asia
Countries, Alibaba acquire Lazada, which at that time in 2016, already become one of the
largest e-commerce services in Asia. Currently, Alibaba aimed to expand their market shares
in South Asia country, and like what they had done when expanding their market into
Southeast Asia market, they acquire company that already have presence in the South Asia
market.
In May 2018, Alibaba acquire Daraz, which is an e-commerce services that serves
market in South Asia countries. In India, Alibaba invest in some of the India’s e-commerce
services, such as Paytm, which is India’s largest mobile payments company with more than
200 million users, snapdeals, the third most popular e-commerce retailer in India by app
downloads, and in 2018, Alibaba invest their money to Xpressbees, an e-commerce logistics
firm, and into BigBasket’s Series E, an online grocery store. Despite this, Alibaba expansion
into India was wasn’t without challenges and until now, they still battled with Amazon for a
domination in India’s market shares.

Product Development
Alibaba planned to expand their product into brick and mortar shopping in China, but
it’s not a conventional retail store, but instead Alibaba want to create a physical store that
combine its physical store operation with their online operation. In fact, Alibaba has already
open this smart physical store which is known as Hema. Hema incorporate some of the
feature that the customer usually found on Alibaba e-commerce services, such as payment
using their Alipay account by scanning their faces at the kiosk, the ability for customer to
order the groceries online, and see product information in their phone by scanning the
respective product barcode.
Beside use as retail store, Hema also had a restaurant, which is serves by robot and
used as warehouses for online orders. Alibaba itself intended to reach their 100 stores in
December 2018, and until now, it’s already operate in 16 cities, and according to Alibaba in
their 2018 Investor Day, Hema had already served 10 million customers. As Alibaba focused
to open this smart physical store in tier 1 and tier 2 cities in China, we found that at this
moment Alibaba won’t face major challenges from other domestic competitor in China, as

36
currently they’re still the market leader in China e-commerce businesses and with the tight
regulation imposed by the Chinese government which cause many abroad companies to exit
the country, means that Alibaba also won’t face major challenges from foreign companies
that try to open the same smart retail store in China.

QSPM Matrix

Open Physical Expand


Key Internal Factors Weight
Store (PD) Globally (MD)

STRENGTHS AS TAS AS TAS

Market Leader in China e-commerce


0.18 4.00 0.72 1.00 0.18
business

Provide many platforms outside e-


0.13 3.00 0.39 2.00 0.26
commerce as Alibaba has 25 business units

Strong R&D Performance through its own


DAMO Academy and Alibaba Cloud 0.07 4.00 0.28 2.00 0.14
Computing

Automated warehouse system runs by 60


0.10 4.00 0.40 2.00 0.20
robots that covers 70% of warehouses work

Alibaba is expanding their operations into


global market by acquiring e-commerce
0.12 1.00 0.09 4.00 0.28
services that already have presence in the
respective market

WEAKNESSES

High number of employees causes a


hindrance in doing internal audit that are 0.11 0.00 0.00 0.00 0.00
clear, correct, and competent

Marketing effectiveness depends heavily on


the product made available by Alibaba’s 0.08 0.00 0.00 0.00 0.00
partners

Alibaba’s foreign investment are still limited


to companies and industries which relate 0.07 3.00 0.21 1.00 0.07
strongly to Alibaba’s business unit

The lack of self-automated machine in their 0.09 1.00 0.09 3.00 0.27

37
operating sector holds back potential
improvement on logistics and customer
support

The uneven distribution of the benefits


across members as the network grows in 0.05 0.00 0.00 0.00 0.00
size

OPPORTUNITIES

Tight regulation from Chinese government


causing abroad companies to exit the
0.10 4.00 0.40 1.00 0.10
country, making Alibaba able to gain high
revenues

Increase in global e-commerce sales which


Alibaba welcomes by highly investing to
0.15 2.00 0.30 4.00 0.60
accommodate a one-stop shopping
ecosystem

Ability to attract international skilled


workforce due to attractiveness of China
0.18 3.00 0.54 4.00 0.72
company’s career path and better job
prospects

Growth of internet users 0.06 1.00 0.06 4.00 0.24

Wide variety of product categories in


0.09 0.00 0.00 0.00 0.00
Alibaba Group

THREAT

Increasing competitiveness of alternative


0.06 0.00 0.00 0.00 0.00
cost-effective source locations (e.g. India)

Increasing regulation from the Chinese


government over its market activities due to 0.04 1.00 0.04 4.00 0.16
Alibaba monopoly market power

Currency fluctuations due to global


economy and superpower countries 0.20 3.00 0.60 1.00 0.20
influence towards foreign exchange market

Shortage of experienced labour in China 0.08 2.00 0.16 3.00 0.24

China’s five-year environmental policy plan


0.02 1.00 0.02 3.00 0.06
to reduce pollution will limit Alibaba

38
operational activities

STAS 4,30 3,72

Table 11. Alibaba QSPM Matrix

According to our QSPM analysis, we found that it’s more attractive for Alibaba to
implement their product development strategy which is to open their smart physical store
instead of implement their market development strategy. The reason of this strategy selection,
according to our analysis, as the physical store were built in China, Alibaba could maximize
their current strength and opportunity, mainly their high market share and government
support. In addition, Alibaba R&D in the present day which is focused on the development of
Artificial Intelligence are aligned with the development of the physical store which require
the use of Artificial Intelligence on its operation .
Alibaba would also found less threat when they’re opening their physical stores in
China, as some of the threat face by Alibaba was imposed because their international
operation, such as currency fluctuation and challenge presented by other e-commerce
businesses when they are operating overseas, such as Amazon, which is considered as
Alibaba main competitor, especially when it comes to their market share in India.

39
STRATEGY IMPLEMENTATION

Marketing
There are seven aspects to Marketing which are product, promotion, price, place,
Physical Evidence, Process, and People.

- Product
Alibaba is operating in online space as the one of the largest online e-
commerce in the world. Alibaba is where businesses go to source manufactured
products, both cheaply and in bulk, that they can resell or private label for their own
businesses. One of the best qualities of using the Alibaba website is that anyone, with
or without their own business, can browse through their database of suppliers,
manufacturers and products.
Alibaba product is simply put to provide medium for manufacturer and
consumer in one place so Alibaba can makes them to make deals easier which
benefits both the seller and the consumer.
Alibaba should implement and execute the new retail concept. which
combines the online shopping convenience and traditional shopping experience.
Alibaba will help traditional retailers to restructure and enhance the way they operate,
which can touch everything from customer experience, to inventory management, and
retail spaces. By implementing New Retail, whether it be across a grocery store, a
mall or even a car vending machine, requires experimenting, implementing and
harnessing the power of three important concepts; Cloud Commerce, Digital
Shopping Experience, and Location Data Analytics.
Cloud Commerce mastery is important to help Alibaba’s analysed data needs
to be processed quickly and securely at an unprecedented scale and in coordination
with every other system a given retailer employs. Digital Shopping experience will
enhance the user of Alibaba’s new retail experience and convenience so the customer
will have higher satisfaction. Location data and analytic tracking used real-time data
processing via the cloud and real-time application activity of users and employees
combine to better understand the feasibility of location of the new retail and how
Alibaba can implemented it successfully.
- Place

40
Alibaba operates in over 200 countries and territories, Alibaba is the world's largest
retailer, one of the largest Internet and AI companies, one of the biggest venture capital firms,
and one of the biggest investment corporations in the world. The company hosts the largest
B2B (Alibaba.com) and B2C (Taobao, Tmall) marketplaces in the world.
Alibaba also has main offices in many countries and regions, including China, Hong
Kong, Singapore, the United States and the United Kingdom. In addition, we maintain data
centers in a number of countries including Indonesia, Malaysia, India, Australia, Singapore,
Germany, Japan and the United States to help Alibaba coordinated their worldwide operation
Alibaba’s new retail concept will first be implemented in China and then expand
around the world, starting from India and other developing countries around Asia and then
expand worldwide to developed countries with the experience from few years of
implementation.

Figure 15. Alibaba Global Expansion up to 2015

- Price
The pricing strategy that Alibaba uses is penetration pricing as it seeks to enter
newer and newer markets. It therefore offers discount for both supplier and consumer.
Some of the services that they offer do not involve any transaction cost. Some of the
services like Aliexpress have no registration fee as well.
The main revenue of Alibaba is through the advertisements that are done on
their site by businesses. The secondary revenue is from customers who take

41
membership. It also sometimes employs competitive pricing to offer products at
prices similar to the competitors to drive the sales.

- Promotion
Alibaba promotes through a number of channels. Alibaba advertises through
traditional channels like print media, radio and TV and Social Media. It advertises
through catchy taglines. As most of the services offered are online Alibaba promotes
through digital media as well. They have also been the sponsors for international
events like Beijing Olympics. It has also sponsored Australia-China Business Week
which was one of the high-profile events in the business world. The other ways in
which it promotes itself is through offers, discounts, festive sales and cashbacks for
purchases on its ecommerce platforms.

- Physical Evidence
The physical evidence of Alibaba includes the intangible aspects of service
like the delivery schedule which has to go as promised. The products delivered should
be as per the order and quality desired. The transactions should be smooth and
trustworthy and the ecommerce platforms should be user friendly and attractive.
These aspects form the physical evidence of the company.

- Process
Alibaba offers shopping platforms and the way the whole process takes place
is simplified. The shopping can be done on a wholesale basis, group shopping, or
customer to customer. The manufacturers make the products according to the order
quantity and ship them. The customers who want to sell, sell the products directly to
other customers. The transactions can be done through either Alipay or Western
Union and similar platforms.

- People
Alibaba is mainly divided operations, finance, marketing and customer service
departments. The lowest level is the one having manufacturers and sellers. The
organization has a major emphasis on the engineering department where they hire
only from top institutes. The engineers are extremely skilled in their domain and

42
adaptable to the changes in technology as it is the department which is at the core of
the business. This completes the marketing mix of Alibaba.

- Perceptual Map of Alibaba

Figure 16. Alibaba Perceptual Map

Finance
According to Forbes.com, over the past two years Alibaba has been buying physical
stores, engineering a bold experiment to revamp China’s entire retail landscape. Alibaba is
currently integrating their online-offline shopping experience for its consumers by developing
their physical stores with the use of online technology. Alibaba has budgeted ¥1,799,148,000
in 2017 for this newly implemented program. This fund is used to open up their new brick
and mortar stores and investing in its technology to run the new retail experiment. Alibaba
predicts that from this new retail initiatives, it will grow Alibaba’s total addressable market in
e-commerce.
We have several information about Alibaba and the general economy in which the
firm operates its business. Alibaba’s operating margin in 2017 is reported to be 30.65% of
their sales. Alibaba also has an interest rate in range of 15%-20% and its tax rate is 29.00%.
By the end of 2017, the amount of share outstanding is 1,363,170,000 shares with their most

43
recent closing price is ¥997.41 or 144.32 USD. We also have the information of their 2017
capital structure that consists of 56% equity and 44% debt.
By using the information above, we can make an EPS/EBIT analysis to determine
which financing alternatives that Alibaba can use to implement their new retail initiatives.
These are the list of the data used for the analysis:
❏ Amount of Capital Needed : ¥1,799,148,000
❏ EBIT Range (calculated by using the revenue in 2017):
❏ Recession : ¥170,934,840.00 (using revenue growth 8%)
❏ Normal : ¥174,100,300.00 (using revenue growth 10%)
❏ Boom : ¥177,265,760.00 (using revenue growth 12%)
❏ Interest Rate : 17%
❏ Tax Rate : 29.00%
❏ Stock Price : ¥997.41
❏ #Shares Outstanding : 1,363,170,000 shares

The calculation for the EPS/EBIT analysis is presented below in the form of table and
graph:
Common Stock Financing Debt Financing
Recession Normal Boom Recession Normal Boom
EBIT ¥170,934,840 ¥174,100,300 ¥177,265,760 ¥170,934,840 ¥174,100,300 ¥177,265,760
Interest ¥0 ¥0 ¥0 ¥309,093,626 ¥309,093,626 ¥309,093,626
EBT ¥170,934,840 ¥174,100,300 ¥177,265,760 -¥138,158,786 -¥134,993,326 -¥131,827,866
Taxes ¥41,520,073 ¥42,288,963 ¥43,057,853 -¥33,558,769 -¥32,789,879 -¥32,020,989
EAT ¥129,414,767 ¥131,811,337 ¥134,207,907 -¥104,600,017 -¥102,203,447 -¥99,806,878
# Shares ¥1,364,973,820 ¥1,364,973,820 ¥1,364,973,820 ¥1,363,170,000 ¥1,363,170,000 ¥1,363,170,000
EPS 0.0948 0.0966 0.0983 -0.0767 -0.0750 -0.0732
Table 12. EPS/EBIT Analysis (Formulated by the writer)

Stock 56% Debt 44%


Recession Normal Boom
EBIT ¥170,934,840 ¥174,100,300 ¥177,265,760
Interest ¥137,237,570 ¥137,237,570 ¥137,237,570
EBT ¥33,697,270 ¥36,862,730 ¥40,028,190
Taxes ¥8,185,067 ¥8,953,957 ¥9,722,847
EAT ¥25,512,203 ¥27,908,773 ¥30,305,343
# Shares ¥1,364,172,924 ¥1,364,172,924 ¥1,364,172,924
EPS 0.0187 0.0205 0.0222
Table 13. Conditional Financing Analysis (Formulated by the writer)

44
As we can see from the calculation and graph above, the most ideal financing
alternative for Alibaba’s newest retail initiatives is by doing a 100% equity/stock financing.
For each economic condition and EBIT range (low to high), the 100% equity financing
option is still the best pick as it generates the highest EPS value for Alibaba. This result
suggest that Alibaba should not put more strain in their debt as they have a quite high interest
rate. Since Alibaba does not do dividend payment and the current stock price is rising, the
equity financing can be the best option.

Research and Development


Alibaba in 2017, invest more than $15 Billion over the next three years ($5 Billion a
year, about 14% Alibaba projected annual sales) for global research through a program
called as Discovery, Adventure, Momentum and Outlook — DAMO Academy, which will
set up seven research labs in Beijing, Hangzhou, San Mateo and Bellevue in the U.S.,
Moscow, Tel Aviv and Singapore, and recruit 100 researchers to staff them. According to
Jeff Zhang, Alibaba Chief Technology Officer), Alibaba are looking for talented and driven
researchers to join them in the quest for new disruptive technologies that would advance
everyday lives, benefit small businesses and narrow the technology gap to make our world a
more inclusive place. According to DAMO in 2018, they plan to develop those disruptive
technologies over the next five years and this Disruptive technologies are Artificial
Intelligence, Internet of Things, financial technology, and quantum computing and and
human-machine interaction.

Management Information System


Alibaba Group in 2009 has established a management information system that calls
Alibaba cloud. Alibaba cloud is a subsidiary of the Alibaba group. It provides cloud
computing service to online business and Alibaba group’s own e-commerce ecosystem.
Alibaba cloud not just provide a cloud for Alibaba, it also provides a comprehensive suite of
global cloud computing service to power both our international customers online business.
that international operation is registered and headquartered in Singapore and has international
teams stationed in many countries.

45
Figure 17. Alibaba Cloud services

Alibaba cloud offers many aspects to help improve online business all around business such
as high performance, elastic computing power in the cloud. Service that Alibaba cloud gives
could be available on a pay as you go basis and include data storage, relational database, big
data processing, anti-DDoS protection and content delivery network (CDN). Alibaba
committed to help the research and development of a large database system and advance big
data technologies. Their R&D has the effort to keep develop their MIS from the advancement
of an Internet of things technology, virtual reality, smart homes, and cloud-based mobile
device operating system. Alibaba cloud helps global infrastructure from an online business
technology aspect, this cloud already operates in 49 availability zones in 18 regions around
the world that makes data connected from one to other and keeps updated.

46
STRATEGY MONITORING

Balanced Scorecard

Area of Objectives Measure of Target Primary Strategy


(KPI) Responsibility

Financial Performance

1 Profitability of The Increased in RoA Finance Doing lots of promotion


Company and RoE to attract existing and
new consumers

2 Revenue of The Increased in Net Marketing Increase sales by raising


Company Income transaction volume

3 Cost Efficiency Increased in Profit Top Management Create an efficient


Margin financial planning and
execute it effectively

Customer

1 Obtaining New Increased in # of Marketing Utilize the use of


Customer New Customer promotion mix

2 Customer Loyalty Increased in % of Marketing Create loyalty programs


Customer Loyalty and membership
Index

Operations/Process

1 Quality of Service Increased in % of Operation Doing regular


Delivery On-time Delivery supervision and
implement reward &
punishment system

2 Customer Service Increased in HRM Customer service


Customer training and customer
Satisfaction satisfaction survey

Community/CSR

1 Social Welfare for Increased in % of Top Management Helping local


Local Community CSR Expense community through
technology and
infrastructure

2 Promoting Emerging Increased in # of Top Management Create new opportunity


SMEs New Sellers in for SMEs to develop
Alibaba Platform their product and
expand their market

47
Table 14. Alibaba Balanced Scorecard

48
CONCLUSION

The strategy that Alibaba should implement is the Product Development through the
brand new concept that is New Retail. This strategy is great to re-capture their home market
and to maintain their position as number one in the country. This chosen strategy is also in
line with the mission statement that Alibaba has, which is to make it easy to do business
anywhere. By integrating both online and offline aspects of shoppings, they are literally
making it easy for everyone to conduct business anywhere.
This strategy will not be easy to market nor will it be easy to be funded, but Alibaba is
known for taking calculated risks upon operating and this strategy is one of them, therefore
we would recommend for Alibaba to further implement the Product Development strategy
that takes form in the New Retail concept.

49
APPENDICES

Projected Income Statement 12/31/2018 12/31/2019 12/31/2020


Revenues ¥246,905,880 ¥385,173,173 ¥600,870,150
Cost of Revenue ¥91,355,176 ¥142,514,074 ¥222,321,955
Gross Profit ¥155,550,704 ¥242,659,099 ¥378,548,194
Operating Expenses ¥71,602,705 ¥111,700,220 ¥174,252,343
EBIT ¥83,947,999 ¥130,958,879 ¥204,295,851
Interest Expense -¥5,342,000 -¥8,013,000 -¥10,684,000
EBT ¥89,289,999 ¥138,971,879 ¥214,979,851
Tax ¥21,429,600 ¥33,353,251 ¥51,595,164
Non-Recurring Events ¥0 ¥0 ¥0
Net Income ¥67,860,399 ¥105,618,628 ¥163,384,687

Projected Balance Sheet 12/31/2018 12/31/2019 12/31/2020


Assets
Cash and Equivalents ¥416,676,603 ¥642,424,333 ¥925,938,122
Accounts Receivable ¥8,776,000 ¥13,164,000 ¥17,552,000
Inventory ¥0 ¥0 ¥0
Other Current Assets ¥8,370,000 ¥12,555,000 ¥16,740,000
Total Current Assets ¥433,822,603 ¥668,143,333 ¥960,230,122
Property Plant & Equipment ¥40,412,000 ¥60,618,000 ¥80,824,000
Goodwill ¥250,840,000 ¥376,260,000 ¥501,680,000
Intangibles ¥28,216,000 ¥42,324,000 ¥56,432,000
Other Long-Term Assets ¥1,908,000 ¥2,862,000 ¥3,816,000
Total Assets ¥755,198,603 ¥1,150,207,333 ¥1,602,982,122
Liabilities
Accounts Payable ¥93,958,000 ¥140,937,000 ¥187,916,000
Other Current Liabilities ¥0 ¥0 ¥0
Total Current Liabilities ¥93,958,000 ¥140,937,000 ¥187,916,000
Long-Term Debt ¥153,670,000 ¥230,505,000 ¥307,340,000
Other Long-Term Liabilities ¥2,580,000 ¥3,870,000 ¥5,160,000
Total Liabilities ¥250,208,000 ¥375,312,000 ¥500,416,000
Equity
Common Stock ¥5,048,204 ¥7,572,306 ¥10,096,408
Retained Earnings ¥176,418,399 ¥282,037,027 ¥445,421,714
Treasury Stock -¥5,646,000 -¥8,469,000 -¥11,292,000
Paid in Capital & Other ¥329,170,000 ¥493,755,000 ¥658,340,000
Total Equity ¥504,990,603 ¥774,895,333 ¥1,102,566,122
Total Liabilities and Equity ¥755,198,603 ¥1,150,207,333 ¥1,602,982,122

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