How Alibaba.com Became and Remains the Dominant B2B E-Commerce Platform

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How did Alibaba.com become and still remains a dominant platform in the e-
commerce market?
Technical Report · November 2014

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14

Fall
How did Alibaba.com become and still remains a

dominant platform in the e-commerce market?
Wing Sum AU, Raziun BIN MAMTAZ, Janssen CHAN, Karinda CHUNTAVORN, Byung Yeon
KIM, Urvil Rakesh SHETH, Jonathan YANG

ISOM1380 Fall 2014 Final Group Project Report – Group 3 Coming Soon…
ISOM1380 Fall 2014 Group 3 Final Project Report
Table of Contents
1. Introduction pg. 4
2. Background pg. 4
2.1. What is Alibaba.com? pg. 4
2.2. What are B2B Platforms? pg. 5
2.3. What makes Alibaba.com a B2B Platform? pg. 6
2.4 Alibaba’s Competitors pg. 7
2.4.1. Made-in-China.com pg. 7
2.4.2. Global Sources.com pg. 8
2.4.3. Comparison pg. 8
3. Analysis of Alibaba.com pg. 9
3.1. Stand-alone Value of Alibaba.com pg. 9
3.1.1. Alibaba.com as an Innovation pg. 9
3.1.2. Alipay pg. 10
3.2. Platform Analysis of Alibaba.com pg. 11
4. Improving and Expanding Alibaba.com pg. 14
4.1. Proposed Solutions to Problems faced by Alibaba.com pg. 14
4.1.1. Problem 1 - Fraud pg. 14
4.1.2. Solution to Fraud pg. 15
4.1.3. Problem 2 - Logistics pg. 17
4.1.4. Solution to Logistics pg. 17
4.2. Expanding Alibaba.com – Alibaba.com in India pg. 18
2

5. Conclusion pg. 22
6. References pg. 22
7. Appendix pg. 28
3
1. Introduction
As of September 2014 [1], Alibaba Group Holding Ltd. was valued at approximately
USD$160 billion. Analysts continued to observe history in the making as they raised
$25 billion in its Initial Public Offering (IPO), ranking it as the biggest global IPO to
date [2]. Its formidable success the company has shown to the world is nevertheless
attributed to its vibrant founder and chairman, Jack Ma, who has a current net worth
of $25 billion [3], and thus making him currently the richest man in China. Alibaba
has been the success story for many Chinese factories, suppliers and buyers. But how
did Alibaba.com become one of the most valuable companies found on a global scale
in just a span of 15 years? How did it become and remains to be a leading dominant
platform within the e-commerce market? This report will analyse and investigate the
profound impact that Alibaba has had on the e-commerce industry through the B2B
platform, Alibaba.com, the threats that pose for the company in the near future as
well as some recommendations for the company to sustain its position as a leading
dominant platform.
2. Background
2.1 What is Alibaba.com?
According to Appendix A, Alibaba.com is currently “China’s largest global online
wholesale marketplace” that provides an international trading platform connecting
Chinese suppliers to both international buyers (via Alibaba.com), and domestic buyers
(via 1688.com). It does not sell any products by itself, but instead acts as a mediator
for all ongoing transactions. The main sellers on Alibaba.com are manufacturers and
4
distributors based in China, although they also come from other countries such as
India, Pakistan, United States and Thailand [4].
Alibaba earns money through a margin of the transactions performed on their
website. Alibaba.com connects brands and retailers with factories in China and
elsewhere. According to Appendix B, Alibaba.com charges its suppliers through
membership premiums such as the gold supplier membership, which will be discussed
later on. Meanwhile, this enables Alibaba.com to charge very low prices, and offer
discounts and bonuses for buyers. It is no surprise that the number of buyers from the
US have surged from 2 million to 7 million in a span of three years. Cross-border
buyers place more than 10,000 orders daily, with a total worth about 250 million
HKD. Alibaba’s local market alone was worth more than 300 million HKD in 2013.
Alibaba also provides useful and accurate statistics in the form of analytical services to
its clients [5].
2.2 What are B2B Platforms?
Business-to-business transactions, otherwise known as ‘B2B’, refer to the transactions
that exist between two companies, where one company may provide goods and/or
services to another [6]. It can be seen as a congregation of distinct companies willing to
adopt a product or service of another business based on their stand-alone
technological values as well as the strong and positive network effect that has been
created between them.
A B2B platform is distinguishable from its B2C (Business-to-Consumer) or even B2G
(Business-to-Government) counterparts as it purely targets businesses. Although
5
Alibaba is an e-commerce company, the business itself hosts a variety of different
platforms spanning across diverse sectors in the technology field. Its three main
platforms consist of Alibaba.com, TMall and Taobao, as well as other interests in
electronic payments, streaming entertainment such as YouKu, supply-chain
infrastructure and investment funds.
The reason for choosing Alibaba.com as the core focus of this report is to analyse the
role that Alibaba had specifically in terms of a B2B platform. After all, it is a
considerably newer and fundamental foundation that would occur before most B2C
operations like Alibaba’s TMall or even Taobao (Consumer-to-Consumer, C2C). Not
only that, Alibaba.com was the initial platform that contributed to Alibaba’s overall
success.
2.3 What makes Alibaba.com a B2B Platform?
Alibaba.com is a B2B platform as it lets exporters post product listings that buyers
from other businesses can browse through their website. This idea was relatively new
and unheard of in China at the time, which allowed this trading platform to prevail
and seek opportunities in connecting the two groups of main users, which in this case
are both international and domestic buyers, to the local suppliers to formulate a two-
sided network. Alibaba.com is able to attain a leading position and higher returns of
scale partially through solving the so-called ‘Catch 22’ problem in bringing enough
numbers of both end-users into the platform. They do this mainly through expanding
one side first, such as the buyers, through low prices through a subsidy of which the
can afford by enforcing a subscription fee among its local suppliers and additional fees
for the quality assurance label ‘gold suppliers. If buyers can see that more reliable
6
suppliers at a reasonable price, there is a large enough customer base (in terms of
businesses) that more suppliers will inevitably join as well and thus expanding its
overall network effect.
This was particularly useful and helped Alibaba quickly gain a lot of support from
around the world. Consequently, the company attracted and attained major investors
like Goldman Sachs and Softbank, a Japanese Telecom company, to support their
work which helped them raise over 25 million USD in its very first year of operation
[4].
2.4 Alibaba’s Competitors
As can be seen from Appendix C, Alibaba as a B2B e-commerce platform has
dominated the largest proportion of the market share in Q2 2014 (about 45%). The
pie chart also shows a range of other similar companies, of which two were selected
for comparison: Made-in-China.com and GlobalSources.com.
2.4.1 Made-In-China.com
Founded in 1996, Made-in-China.com is the main B2B platform for Focus
Technology Co., Ltd. Its main focus is to help improve international trade and
advancement into new markets for businesses in China, by providing accurate and up-
to-date information on products manufactured and suppliers based in China to global
buyers [7]. Thus, Made-in-China.com’s main business is foreign trade promotion
(more than 70% of its visitors come from the English site). By the end of May 2009,
25.8% of all the buyers are from Europe, 22.2% are from North America, 16.5% are
from the Middle East and 14.6% are from Southeast Asia [8].
7
2.4.2 GlobalSources.com
Global Sources’ is a multi-channel B2B media company. Its core business is to
facilitate trade in the Mainland China region through its English-language media,
which includes online marketplaces (GlobalSources.com), printed and digital
magazines, and trade shows. Because of this the company acquired a large number of
high quality international buyers [8]
2.4.3 Comparisons
It is important to identify the differences between what the 3 companies offer as
services. Alibaba.com caters for global markets and is an ideal platform for exports
enterprises that are just starting out to do e-commerce. Its use of Alipay for
transactions also differs from Made-in-China.com and GlobalSources.com, who use
more traditional payment methods such as pay pal and online transfers.
Meanwhile, Made-in-China.com currently has no overseas websites, so its
international influence is not as prevalent as Alibaba. However, its main market is
products made in china for global buyers, so it does still have an influence among the
overseas buyers group. Made in China is overall an ideal platform for SMEs with
limited capital budgets and relatively low pricing mechanisms.
GlobalSources.com has high quality buyers, which requires the supplier to have a
certain scale of operation, production capacity and financial strength, and so it is
more likely that medium and large industries would benefit from using this platform
[8].
8
3. Analysis of Alibaba.com
Alibaba.com’s dominance can be interpreted in two ways – its superior technological
utility and its installed base. In other words, Alibaba.com may have a larger stand-
alone value compared to other B2B platforms to begin with. It can also increase its
installed base (number of users) by providing exclusive or complementary services to
members, which would increase switching costs. Alibaba.com’s network effect will also
be analyzed below.
3.1. Stand Alone Value of Alibaba.com
3.1.1. Alibaba.com as an Innovation
Objectively, there does not exist a concrete definition of innovation, but for this report
innovation is defined as a product, service or process that creates new value for
customers, overall achieving profitable deployment. Alibaba.com possesses the highest
market share, roughly 45%, in China’s B2B market making it the most dominant B2B
platform in China; thus, it can be said that Alibaba.com is a commercial success. One
of main attributes of Alibaba’s success is its stand-alone value, which can be classified
into the different types of innovation, as listed below.
Alibaba.com can be considered a radical innovation since it was a relatively new type
of service (at least within China) at the time of its initiation. Prior to Alibaba.com, the
infrastructure for commerce in China was considered to be immature compared to its
more developed counterparts in the west. Ma has stated that e-commerce was only
regarded as a supplement in western commerce [9], however, since China’s
infrastructure for commerce was not as developed, e-commerce thus had the potential
9
to become its main form of commerce. Alibaba.com’s success has somewhat proved
this theory true, facilitating the transition to e-commerce in China.
With its high market share and international notoriety, Alibaba.com can be also
considered a product innovation. As mentioned in the previous paragraph, one reason
that factors into Alibaba.com’s success is its state of commerce. Another reason is the
included services the company provides to complement user needs. Unlike its
competitors, Alibaba.com uses a SEO (search engine optimization) [12], much like
Google, to ensure that the investor can easily find and categorize the products he/she
may be looking for. Furthermore, a lot of supplier information is given, such as the
main products it produces, the total revenue and the response rate. It is even possible
to chat with the supplier and negotiate transaction details. By adding these features, a
strong positive network effect can be generated between the supplier and
manufacturer.
3.1.2 Alipay
Alipay is the main online payment service used by the Alibaba group. It works
differently from other online payment services such as pay pal as it handles online
payments in escrow, a safe payment system where a third party holds the money.
A typical purchase through Alipay works like this: When the buyer decides to buy a
product via Alipay, rather than deduct money from the buyer’s account immediately,
Alipay keeps the money as escrow and notifies the seller that a purchase has been
made. Therefore at this point in time neither the buyer nor the seller has control over
10
the money. It is only after when the seller sends the product to the buyer and that the
buyer confirms he or she received it, then Alipay will send the money to the seller.
What happens if the buyer doesn’t confirm that they received their product? Alipay is
able to track and monitor the status of a large number of deliveries. If the buyer takes
no action in a week or two weeks since the product was “signed and received”, the
product will automatically be confirmed by the system and the money will be sent to
the sellers’ account [13]. Overall, we can see that Alipay values both buyer and seller
protection, which increases trust for the company.
3.2 Platform analysis of Alibaba.com
Over the years Alibaba.com has seen a significant increase in popularity in the e-
commerce market. As discussed in the previous section, Alibaba.com already has a
strong stand-alone value compared to its competitors, with particular features such as
an advanced SEO and the ability to order without a credit card (cash on delivery).
However, these features alone would not attract buyers and sellers to the platform. In
order to become a leading platform, Alibaba.com should expand its user base and
retain the users by creating a strong positive network effect. To achieve this,
Alibaba.com provides complementary services such as Fair Play Fund, AliSourcePro
and Gold Supplier membership, which are exclusive only to members who decide to
join Alibaba.com. Therefore, they increased and retained the number of users by
increasing switching costs and multi-homing costs.
Alibaba.com considers quality assurance to be very important; it is a means of
establishing trust between manufacturers and buyers. Therefore ‘gold supplier’
11
memberships are provided to entrusted and authenticated suppliers. For this to be
done however, the factory must pass an audit [17], where Alibaba purchases a specific
good from different factories and performs a series of quality checks to determine the
most cost-efficient supplier that can deliver on time without any conflicts. The supplier
who passes this test will be granted a ‘gold supplier’ title [14]. Thus suppliers with a
‘gold supplier’ status can enhance business relations with investors through
Alibaba.com. Meanwhile, investors will more likely purchase products from suppliers
that are trustworthy and reliable. This essentially, resolves the chicken and egg
problem as it can be said that this complementary service will increase the base of
both the buyer and seller side. Furthermore, it raises the switching cost for both sides.
Sellers will lose their reputation and popularity as a gold supplier if they decide to
switch platforms. Buyers who benefited from convenient transactions with a trusted
seller would lose this relationship if they switch. Gold membership and factory
auditing are therefore one of the effective exclusive services that explains Alibaba’s
dominance.
Another important factor is safety. With a large number of sales and deals being
made, it is likely that there will be some fraudulent suppliers, taking advantage of
small-scale buyers. For instance, sellers may not supply all the parts, or would run
away with the money, or even supply deteriorated parts of a product. For this reason,
Alibaba.com offers Fair Play Fund, where investors receive certain amount of
compensation for the losses incurred by purchasing defected goods, or by incomplete
orders. For instance, “Claimants with losses of US $1,400 or less are eligible for 70 percent of
amount lost” [15]. This is in fact, quite a significant amount and buyers are confidant
that Alibaba.com will acknowledge and respond to their complaints. In fact, in 2013,
12
more than 2 million USD was compensated for the 2700 complaints made in that
year. That amounts to 700 USD returned per complaint, which is quite a high return
[16]. Moreover, Alibaba.com directly stripped suppliers off their gold member title if
they were found to commit fraud. This instantly lowered the risk and trading cost of
buyers with this complementary service they provided, and was an incentive for
investors who wanted to make safe business transactions at a low cost.
Finally, Alibaba.com provides personalized services for buyers, such as AliSourcePro.
Buyers are able to send out tailor-made requests to sellers if they want to order
customized goods, or goods with certain specifications. AliSourcePro grants the buyer
the freedom to describe what he or she requires with exact specifications, making it
easier to find a suitable supplier that can cater for the buyer’s exact needs.
Furthermore, it only takes 2 business days [17] to receive quotations from suppliers,
complete with specifications and detailed diagrams of the design. With this convenient
personalized service, many buyers will be reluctant to join other platforms. At the
other end of the spectrum, in the process of replying to request of buyers,
AliSourcePro provides a chance for suppliers to design and create their own models,
serving as a source of open innovation. It is an incentive for suppliers to increase the
diversity of products supplied. Overall, it can be concluded that Alibaba.com has been
successful in becoming and preserving the leading B2B platform position.
13
4. Improving and Expanding Alibaba.com
4.1 Proposed Solutions to Problems faced by Alibaba.com
Alibaba.com is clearly a dominant player in its field, especially within the market in
Mainland China. However, it can further improve on certain aspects to increase its
dominance and become a highly desirable B2B platform. Two possible suggestions
specific for Alibaba’s improvement in China include: reducing cases of fraud and
improving the efficiency of local logistics. Furthermore, Alibaba also has a large
potential for expanding globally, especially in an emerging and fast-developing
country such as India.
4.1.1 Problem 1- Fraud
The AliSourcePro, Fair Play Fund and Gold Supplier membership services are not
100% efficient. Even after the implementation of the Gold Supplier membership,
Alibaba still faces several problems with fraud. There are two identified ways in which
a buyer could potentially get scammed in Alibaba: payment frauds and delivery of
damaged/defective goods [1].
Payment frauds occur when scammers hack the buyer’s email account and change
invoice details so that the buyer will send the money to the scammer’s bank account
and not the supplier’s. In most cases, when the scam is recognized, the scammer
would be almost impossible to trace.
The delivery of damaged or defective items usually arises from the buyer not
informing the supplier to meet clear product specifications. In such cases, the supplier
14
is free to make any changes on the product he/she wishes. This is because suppliers
based in China have a very small profit margin and thus, spending time to make sure
a product is compliant takes up additional time and money (i.e. opportunity costs).
There were 1,219 identified cases of fraud in 2009 and 1,107 in 2010 with an average
value per less than $1200 [19]. In 2011, 36 arrests were made in connection to
operating frauds associated with Alibaba.com, where the suspects opened fake
accounts to scam overseas buyers of over $6 million. Therefore, it is evident that fraud
is an issue that remains as a threat, and needs to be properly addressed by the
company.
4.1.2 Solution to Fraud
One way to tackle and avoid the issue of fraud is by simply using Alibaba’s protection
services correctly and effectively. To achieve this, it is necessary for potential users to
be better educated and aware of how the system works, when the service should be
used, and how to be aware of scam possibilities as early as possible - ideally before
they choose to use Alibaba’s services.
There are mainly two protection systems provided by Alibaba.com, which users
should be made aware of: Alipay and Fair Play Fund. Alipay prevents payment fraud
that may arise from email account hacking. Customers are to pay from Alibaba.com’s
official escrow page [20], and the money is held safely until the transaction is complete-
when the buyer confirms the purchase of the product. However, to effectively use this
service, people must know the exact procedure of how the system works. Buyers must
be aware that in order to complete a transaction, the ‘Release Payments’ button must
15
be pressed. Also, they must realize that even if they do not click ‘confirm order’ the
money held by escrow will automatically go to the seller after one to two weeks. These
are some of the potential risks of being unaware of the payment procedures.
On the other hand, Fair Play Fund reduces the risk of defected goods fraud. It ensures
certain amount of compensation for the losses due to defective goods, thereby
decreasing the risk of buyers ending up with wrong products. With regards to Fair
Play Fund, certain information should be clarified [21]. First of all, this compensation
is only for transactions between the buyers and the gold supplier. This means that the
losses from defected goods for normal suppliers cannot be compensated. Secondly, the
buyers must have tried several times to complain directly to the supplier about the
losses incurred. Third, there is a limit to how much loss is covered. Most importantly,
the enquiry for compensation must be made within one month with all relevant
documents prepared. This makes it rather difficult for a buyer to sue a seller via
Alibaba.com, and so he or she must be prepared with documents and a strong
argument, well in advance.
Currently, accessing essential information related is relatively difficult. The user guide
by Alibaba.com only provides basic information about the services and would require
further in-depth research by users need to find out more. To enhance the
understanding of the users, one solution would be for Alibaba to first, provide tutorials
for any new users who create an account. These tutorials should include the
procedures, limitations, conditions, and benefits of the specific services. In this
manner, investors would be more aware of the risks of a faulty transaction. Secondly,
appropriate and timely alerts should be provided. When there is a modification in a
16
contract or guideline, the updated information should be notified to users via email or
SMS so that users are aware of this change.
4.1.3 Problem 2- Logistics
Logistics management is an essential requirement for Alibaba.com; China had to
spend 18% of its GDP on logistics in 2013 [22], and its geopolitical and economic
structure makes this a challenge. Undeveloped infrastructure such as poor roads
makes it difficult for Alibaba.com to deliver to and from rural areas efficiently. The
highway system and transportation of goods are uneven and most main roads don’t
reach the rural areas. Furthermore, the railway system concentrates more on
passengers rather than on freight. These problems essentially increase delivery time,
and businesses dependent on Alibaba’s deliveries face higher logistical costs.
More than half of China’s population resides in rural areas [23], including small
enterprises that are unable to locate to urban cities due to the high property prices.
This implies that there is an uncovered economic potential by trading with rural
areas. However, as it turns out, many of these rural areas are inaccessible because of
the mountainous topology. Due to the fact that 70% of China’s topology consists of
hills, mountains and slopes [24], Alibaba may have difficulties in accessing the
businesses located in these regions. Therefore, a key step for Alibaba is to address
these issues so that its logistics can be improved.
4.1.4 Solution to Logistics
A possible solution to address the logistics issue is to establish warehouses at
centralized points between the source and destination area. In fact, Jack Ma himself
17
recognized improving China’s warehouse logistics as a priority [25]. Since the property
prices in urban areas are very high, these warehouses can be established near the rural
or mountainous areas where many small medium enterprises are located. For
example, Urumqi is a city located in Northwest China with a significant cement
industry (See Appendix D). Many cement producers may want to supply their cement
to larger companies and factories in Shenzhen, but it would be too costly to travel all
the way. By installing warehouses at a location between Shenzhen and Urumqi, for
instance, producers could drop off cement at these warehouses. Workers could then
organize these goods and distribute them to delivery vehicles by Alibaba.com, who
then could finally deliver products to investors. This could create jobs for the
unemployed in Urumqi, and bring economic benefits for both suppliers and investors.
The main problem, however, is the cost of building such warehouses. It has been
estimated that around 2.5 trillion USD [25] in investments is needed to buy land and
build warehouses for the next 15 years. Nevertheless, despite the large costs in
maintaining the warehouse and financing the workers, there will be large savings in
time and money because of more efficient and convenient deliveries. Trade between
the producers and investors will be greatly enhanced because of the warehouses, and
Alibaba.com will eventually breakeven. In the long term, the benefits would overcome
the costs, making the strategy both profitable and economically more sustainable.
4.2 Expanding Alibaba.com - Alibaba.com in India
Alibaba clearly has significant dominance in China, but with competition increasing
rapidly, it cannot sustain growth by controlling only its local market. Thus,
18
Alibaba.com has to lower its dependence on the local market by broadening its global
horizons.
Alibaba.com needs to target developing economies to continue its success. One such
country that promises growth and development is India, because it already has an
ideal economic environment. Specifically, India is one of the largest manufacturing
hubs and fastest growing economies in the world. Its abundant agricultural and
natural resources and the million SMEs [26] (small to medium sized enterprises) makes
the country a great target for Alibaba’s expansion, where millions of jobs can be
created. Moreover, India’s economy is already quite compatible with China’s. With
low labour costs and a large pool of local talent, trade between China and India looks
very convenient. 18% of Indians can speak English, as opposed to only 1% in China
[27]. Alibaba.com in India can employ Indian employees to overcome the language
barrier and establish strong global networks with business across the globe from India.
In short, the opportunities India offers for Alibaba are unparalleled elsewhere.
However, there are also challenges and threats that Alibaba.com should consider
while expanding overseas. Alibaba.com already has an operating B2B branch in
India, called India.Alibaba.com. Despite this, it has not been able to dominate the
online trade market. The many challenges the e-commerce sector faces include
accessibility to internet, low security, and corruption.
First of all, India’s internet penetration rate in India is relatively low [28]. Despite its
1.2 billion population, only 200 to 300 million Indians are Internet users. This implies
that there is a generally low level of technological understanding. As a result, India’s
SMEs, who are not accustomed to internet based trading, prefer trading by traditional
19
means. It will be difficult to completely transform the majority of businesses in such a
short period of time.
Another issue is security; secured transfers are still a serious issue and as there has
been history of online security breaching. With India housing a talented population,
many hackers, who are tempted to earn extra money, can easily carry out online theft
and hacking. Alibaba.com needs to establish trust and understanding and accurately
follow India’s market demands and to effectively tap into the market.
Yet another major issue is financial flow; it is not easy to transfer money out of India,
given India’s political structure. Although India is considered as the largest democratic
nation, a corrupt government has always been an issue [29]. India ranked 94 in the
Corruption Perceptions Index scoring 36/100 in 2013 where 100 implies a
corruption-free country. The high degree of corruption suggests that a lot of money
from global investors is absorbed, misdirected or redirected by the government or
public officials, before reaching the suppliers. Similarly, Chinese suppliers who want
to provide goods to Indian buyers will be heavily taxed, increasing the price of their
exports significantly. This could severely affect ties between China and India.
While discussing the penetration of Alibaba.com into the Indian market, the Sino-
Indian diplomatic relationship plays a crucial role. China and India, the two
heavyweights of Asia, are both rapidly growing economies but they do not share a
peaceful diplomacy. While China has developed good relationship with India’s
neighboring countries like Pakistan, Bangladesh, Nepal and Sri Lanka it is also trying
to restrict India’s emergence as a power beyond South Asia [30]. The Sino-Indian
border dispute has been quite apparent over the years and recently both parties have
20
not taken significant measures to resolve it. Because of India’s stringent trade barriers,
the flow of goods and cash has been restricted in and out of India. This makes foreign
investors, including those in China, reluctant to invest into Indian resources.
Another important factor is Foreign Direct Investments (FDI) which for India the
greater net inflows shows that the prospects of foreign investors in the country (See
Appendix E). Alibaba.com must provide an incentive for small business to join its
platform. It can do so by focusing on specific industries and understanding India’s
culture better. Because of India’s diverse culture and climate, each state specializes in
different commodities, be it spices, leather, rice or textiles (See Appendix F). In this
manner, Alibaba in India should strategically target suppliers from specific states,
known as industry clusters [31]. Agriculture comprises 15.7% of India’s GDP making it
the second largest contributor to the economy. Alibaba.com should cooperate with
local manufacturing mills of India to market their product domestically and export
these products globally to investors worldwide. Delhi, in North India, is best known
for the rice it exports. If Alibaba.com can garner trust from the local farmers and
manufacturing factories, it can earn tremendous profits from trading rice alone.
Alibaba.com can implement its factory auditing service to rice mills in India; it can
also enhance security by enforcing the Fair Play Fund to restrict fraudulent activity.
Alibaba.com should build branches in agricultural states and specialize in exporting
crops from local mills to nationwide states and even ship it to foreign countries. SMEs
will be more willing to join the platform, and the potentially rapidly increasing user
base will hopefully establish and enhance a strong, positive network effect in the future
21
5. Conclusion
In conclusion, this report has analyzed in depth the key factors contributing to
Alibaba’s local and global dominance. Specifically, it has analyzed the network effect
of the B2B platform, Alibaba.com. Alibaba.com has clearly dominated its competitors
in the Chinese market (Made-in-China.com and GlobalSources.com) mainly because
of the exclusive services it offers. AliSourcePro, Gold Supplier membership and Fair
Play Fund provide trust, security and satisfaction, increasing multi-homing costs for
small and medium enterprises. However, sustaining the dominance locally seems to be
a daunting task, given China’s competitive and challenging environment.
Nevertheless, large-scale improvements in logistics are underway. Meanwhile, it is
recommended for Alibaba.com to continue its global expansion into promising
economies such as India. Despite political and technological limitations, Alibaba.com
will prevail by targeting specialized suppliers in each state.
6. References
[1] D’onfro, J. (2014, September 14). How Jack Ma Went From Being A Poor School
Teacher To Turning Alibaba Into A $160 Billion Behemoth. Business Insider.
Retrieved from http://www.businessinsider.com/the-story-of-jack-ma-founder-of-
alibaba-2014-9
[2] Baretto, E. (2014, September 22). Alibaba IPO Is Officially The Biggest Ever At
$25 Billion. Business Insider. Retrieved from
http://www.businessinsider.com/alibaba-ipo-world-record-at-25-billion-2014-9
22
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23
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24
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fact-sheet.html
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25
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27
7. Appendix
Appendix A
Alibaba’s global network effect
Source: The Network Effect on and across Our Marketplaces. (2014, May 6).
Retrieved November 27, 2014, from
http://www.sec.gov/Archives/edgar/data/1577552/000119312514184994/d70911
1df1.htm#toc709111_1
Appendix B
The Alibaba.com platform
28
Appendix C
China’s B2B Market Share in Q2 2014
Source: China Online B2B E-commerce Market Overview in Q2 2014. (2014, August
21). Retrieved November 27, 2014, from
http://www.chinainternetwatch.com/8290/online-b2b-ecommerce-q2-2014/
29
Appendix D
China’s industry map.
Source: (n.d.). Retrieved November 25, 2014, from

http://www.lib.utexas.edu/maps/middle_east_and_asia/china_industry_83.jpg
Appendix E
Foreign Direct Investment and GDP of India from 2009 to 2013
2009 2010 2011 2012 2013
FDI, Net Inflows (% of GDP) 3 2 2 1 2
FDI, Net Outflows (% of GDP) 1 1 1 0 -
GDP (in current Billion US$) 1,365 1,708 1,880 1,858 1,876
Source: Data | The World Bank. (n.d.). Retrieved November 27, 2014, from
http://data.worldbank.org/
30
Appendix F
India’s industry map
Source: North Region. (n.d.). Retrieved November 27, 2014, from

http://india.alibaba.com/clusters?spm=5386.1294297.712806.3
31
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Technical Report · November 2014

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How did Alibaba.com become and still remains a

2.1. What is Alibaba.com? pg. 4

2.2. What are B2B Platforms? pg. 5

2.3. What makes Alibaba.com a B2B Platform? pg. 6

2.4 Alibaba’s Competitors pg. 7

2.4.1. Made-in-China.com pg. 7

2.4.2. Global Sources.com pg. 8

2.4.3. Comparison pg. 8

3. Analysis of Alibaba.com pg. 9

3.1. Stand-alone Value of Alibaba.com pg. 9

3.1.1. Alibaba.com as an Innovation pg. 9

3.1.2. Alipay pg. 10

3.2. Platform Analysis of Alibaba.com pg. 11

4. Improving and Expanding Alibaba.com pg. 14

4.1. Proposed Solutions to Problems faced by Alibaba.com pg. 14

4.1.1. Problem 1 - Fraud pg. 14

4.1.2. Solution to Fraud pg. 15

4.1.3. Problem 2 - Logistics pg. 17

4.1.4. Solution to Logistics pg. 17

4.2. Expanding Alibaba.com – Alibaba.com in India pg. 18

2.1 What is Alibaba.com?

According to Appendix A, Alibaba.com is currently “China’s largest global online

wholesale marketplace” that provides an international trading platform connecting

India, Pakistan, United States and Thailand [4].

Alibaba earns money through a margin of the transactions performed on their

elsewhere. According to Appendix B, Alibaba.com charges its suppliers through

US have surged from 2 million to 7 million in a span of three years. Cross-border

its clients [5].

2.2 What are B2B Platforms?

Business-to-business transactions, otherwise known as ‘B2B’, refer to the transactions

services to another [6]. It can be seen as a congregation of distinct companies willing to

adopt a product or service of another business based on their stand-alone

created between them.

A B2B platform is distinguishable from its B2C (Business-to-Consumer) or even B2G

(Business-to-Government) counterparts as it purely targets businesses. Although

Alibaba is an e-commerce company, the business itself hosts a variety of different

platforms consist of Alibaba.com, TMall and Taobao, as well as other interests in

electronic payments, streaming entertainment such as YouKu, supply-chain

infrastructure and investment funds.

operations like Alibaba’s TMall or even Taobao (Consumer-to-Consumer, C2C). Not

2.3 What makes Alibaba.com a B2B Platform?

overall network effect.

2.4 Alibaba’s Competitors

As can be seen from Appendix C, Alibaba as a B2B e-commerce platform has

for comparison: Made-in-China.com and GlobalSources.com.

Founded in 1996, Made-in-China.com is the main B2B platform for Focus

to-date information on products manufactured and suppliers based in China to global

buyers [7]. Thus, Made-in-China.com’s main business is foreign trade promotion

Global Sources’ is a multi-channel B2B media company. Its core business is to

which includes online marketplaces (GlobalSources.com), printed and digital

high quality international buyers [8]

It is important to identify the differences between what the 3 companies offer as

transactions also differs from Made-in-China.com and GlobalSources.com, who use

Meanwhile, Made-in-China.com currently has no overseas websites, so its

international influence is not as prevalent as Alibaba. However, its main market is

limited capital budgets and relatively low pricing mechanisms.

certain scale of operation, production capacity and financial strength, and so it is