Alibaba Company’s External Analysis

Industry Definition

Alibaba is a renowned company in the internet industry whose main function is to enable the transaction between businesses, between consumers and sellers, and between consumers. The company has been in the industry for quite some time, which gives it a competitive edge over most of other companies in the e-commerce business. The internet industry is one of the most crowded industries following an increase in the use of technology. People have abandoned the traditional means of operation, thus creating an opportune chance for companies within this industry to grow tremendously. The internet industry provides customers with almost all services in the world, ranging from medical to general household shopping. The internet provides a platform where people from all over the world can freely interact without geographical limitation. For this reason, it is safe to say that companies within the internet industry do not experience geographical boundaries.

Alibaba offers online payment services and provides a web portal for buyers and sellers to interact freely. Additionally, the company offers assistance in the delivery of purchased products for people and businesses within China. The internet industry houses different strategic groups. Different factors, including the porter’s mobility barriers help differentiate groups within the internet industry. Other than similarities in strategies and models of operation, companies within the internet industry are further classified based on their distribution channels, the marketing segment served, and the geographical coverage of an institution. Alibaba is in the e-commerce segment of the internet industry.

Industry Characteristics

The internet industry is one of the rapidly growing industries in the world. The Companies within this industry have the chance to expand at a faster rate than in other industries because of the many opportunities that the growing technology offers. For instance, Alibaba has grown from a simple institution offering one line of product to a multi-billion dollar company serving different areas within the internet industry. Alibaba is one of the most successful companies in the United States in IPO. The company earned twenty-two billion dollars in the IPO business, thus making the industry the leader in such kind of transactions. The scope of the competition is rather high in the internet business because there are few barriers to entry. However, well-established companies in the industry face less competition as compared to new entrants. For instance, Alibaba has a great position in the market and only faces challenges from entrepreneurs in other fields who prefer dealing with clients directly. The internet business attracts all kinds of clients ranging from wholesalers to consumers. Alibaba has different portals that serve different clients, namely business-to-business transactions and consumer-to-consumer transactions. Although almost all institutions have an element of e-commerce in their operation, Alibaba holds a leading position e-commerce business transactions. In China, the company provides sixty percent of all e-commerce transactions.

General Environment

Alibaba has enjoyed an ideal competitive edge in the e-commerce business for a long time because of the company’s general knowledge in matters relating to such businesses. However, the wave is changing, and new entrepreneurs are coming up with better ways to conduct internet transactions. In the internet business, companies tend to reach maturity at a fast rate because, as technology advances, new ways of operation emerge giving new entrants a competitive edge over old businesses. Additionally, in e-commerce, there are very few barriers to entry making it easy for young entrepreneurs to succeed faster. Demographics, technology, and the global trends are some of the issues that pose threats to Alibaba and the entire e-commerce business while presenting the industry with significant opportunities at the same time. Demographic changes will result to more entrepreneurs joining the e-commerce industry, thus raising the number of competitors. On the other hand, global trends present the company with an ideal opportunity to expand into different regions of the world and serve a larger market. The growth of technology as well is an opportune chance for Alibaba to acquire its technology provider for better business transactions.

Porters 5 Analysis

Supplier Bargaining Power

  • Wide delivery channels
  • Volume is significant to suppliers

Buyer Bargaining Power

  • Buyers demand tailored services
  • The product is imperative to consumer
  • Customers are many

Existing Rivalry Intensity

  • Fast industry development
  • Large industry size
  • Fewer competitors
  • Low exit barriers

Threats of substitutes

  • Substitutes are of lower quality
  • Limited number of substitutes

Threats of new competitors

  • Geographical factors, rights and customer fidelity to existing trademarks reduce competition
  • Technology, strong supply network and brand names are essential

Strategic Implication

Potters five analyses indicate that the e-commerce industry enjoys a unique position in the market where threats of substitution do not exist. However, new competition poses a threat to businesses within the industry as new entrepreneurs find their way in internet transactions. Technological advancements also present buyers and suppliers with tremendous information concerning e-commerce business, thus raising the bargaining power of both the buyer and the supplier. The industry is in its maturity stage, and for companies to succeed, they must diversify their product range and customer base. Alibaba, for instance, will need to establish its technology source and expand beyond China for the company to maintain its current position in the market. Low levels of substitutions mean that companies within this industry have a chance to expand by exploiting the industry forces. Strategic planning through external and internal business analysis can help companies within the e-commerce industry overcome the threats posed by demographic changes.

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