QUESTION 2:Case Study 17,"AliExpress: Can It Mount a Global Challenge to Amazon"- from the textbookCrafting & Executing Strategy, The Quest for Competitive Advantage, Concepts and Cases - Edition 22e (Thompson, Peteraf, Gamble & Strickland, 2019)- pages c184-c190
Instructions:
1. You will need toanalyse the case studygiven from the textbook.
2. Read the case thoroughly.
3. Understand andcritically analyse the case.
4. Refer to"The Ten Commandments of Case Analysis"below to analyse the case study.
5. Reports must be accompanied by a plagiarisms check report. Plagiarisms Similarity Index should be
Aliexpress: Can It Mount a Global Challenge to Amazon? A. J. Strickland The University of Alabama Muxin Li, Faculty Scholar 2018 The University of Alabama mazon had just completed another great Ayear of growth, which included the decision to purchase Whole Foods. There was great excitement in the company, as the top leadership and throughout the company celebrated a job extremely well done. All the business magazines and newspa- pers touted Amazon as \"the best company ever\" and how Amazon dominated the online segment by hav- ing a 40 percent market share in a highly fragmented industry. The following week the celebration continued when the strategic management committee met to consider their next acquisitions. A new member of the team, Megan Turner, who recently graduated from college and had worked for Amazon as an intern in their innovation area, asked a question about a new entrant in the online space called Aliexpress. All the focus in the room turned to the newest team member with a look that suggested, \"Why are you talking about a company that is a gnat compared to Amazon?\" The new hire then found herself charged with the task of looking at Aliexpress to see if it really posed a competitive threat in the years ahead. When the meeting broke up, Megan found herselfalone while the rest of the team continued to celebrate the best year everbecause the stock price once again hit a new high. Everyone on the team participated in the Employee Stock Option Plan, which historically had provided employees a very decent rate of return on their share purchases. Joyce L. Meyer The University of Alabama AMAZON'S COMPANY BACKGROUND In July 1994, Jeff Bezos founded the pioneer of elec- tronic commerce and the biggest online merchan- diser in the United States, Amazon, based in Seattle, Washington, as an online bookshop business. According to the early Amazon logo, being the \"Earth's biggest bookstore\" was their goal. From 1997'r to 2001, Amazon had a successful transition from being an online book- store to being the largest [nternet retailer in the world (by 2001), and the largest Internet retailer of tech products today. Amazon has positioned itself as the world's most customer-centric company, which has become the company culture and goal for their long- term development. From the time Amazon's logo was created which began with the letter A and ended with the let- ter S and a smileAmazon's purpose \"we're happy to deliver anything, anywhere,\" reflected the company's strategic intent to offer consumers everything from A to Z in its online store. In order to achieve the goal, Amazon had launched an ongoing strategic initiative to expand its product line-up and offer an always- increasing range of merchandise to consumers. The strategy of retailing everything from A to Z initially resulted in huge annual losses for Amazon Copyrighf20l3 by AJ. Strickland. All rights reserved. CASE 17 Aliexpress: Can It Mount a Global Challenge to Amazon? C-185 because of the ongoing need to build and operate ALIEXPRESS'S STRATEGY the ever-bigger infrastructure the company needed to execute its strategy. The company expanded its The goal of Aliexpress was to make it easy to do geographic scope by rapidly increasing the number business anywhere. Alibaba started with helping of warehouse and order fulfillment locations and middle and small-sized enterprises. To help these adding more products and services to its menu of enterprises survive, grow and develop, Alibaba soon offerings. Early on, Amazon began expanding its geo- learned that their main issue was the lack of funds graphic by entering new country markets, such as the to develop sales channels. To address this issue, United Kingdom and Germany. By 2018, Amazon Alibaba started to focus on B2B and laid a solid was selling and delivering products and services to foundation for this business model. Alibaba became consumers all around the world-it was a truly global the middleman to provide a platform for sellers and company. buyers to build connections to generate business activities. It empowered merchants to do the busi- ness by themselves. ALIBABA'S COMPANY BACKGROUND Jack Ma was an English teacher in China who EXHIBIT 1 Top Companies in the founded "Alibaba Group" with a team of 18 people World by Market Value based in Hangzhou, China in his apartment. It in 2018 (in billions of started in 1995 and failed because it was too early to introduce Internet e-commerce to both Chinese U.S. dollars) consumers and the Chinese government. In 1999, Ma tried to build a digital yellow page service to Apple $926.90 introduce China to the world in trade, but it also Amazon.com 777.80 failed because he could not obtain support from Alphabet 766.40 his potential customers. Nonetheless, Jack Ma did Microsoft 750.60 not give up because he believed the Internet was Facebook 541.50 going to play a big role in economic exchange in the Alibaba (Including Aliexpress) 499.40 future, although it was not yet accepted in China. Berkshire Hathaway 491.90 In the same year, 1999, he launched the company Tencent Holding 491.30 he named Alibaba, which received an investment JPMorgan Chase 387.70 from Goldman Sachs for $5 million, and Softbank ExxonMobil 344.10 for $20 million. Johnson & Johnson 341.30 In 2003, Alibaba launched Taobao, which has Samsung Electronics 325.90 Business to Business (B2B), Business to Consumer Bank of America 313.50 (B2C), and Consumer to Consumer (C2C) sales ICBC 31 1.00 models via web portals. By starting a business compe- Royal Dutch Shell 306.50 tition with eBay, Taobao improved the company's vis- ibility in the international media. As a result, Taobao Visa 295.10 successfully replaced eBay in China's Internet mar- Wells Fargo 265.30 ket, and finally made eBay withdraw from China. China Construction Bank 261.20 Taobao offered services to businesses and con- Intel 254.80 sumers to trade on the online store without any fees Chevron 248.10 for three years, which attracted more people to choose Walmart 246.20 Taobao's platform for transactions. The next move was to go global with Aliexpress and further grow the Source: https://www.statista.com/statistics/263264/ market value of Alibaba. (see Exhibit 1). top-companies-in-the-world-by-market-value/.C-186 PART 2 Cases in Crafting and Executing Strategy Taobao offered plenty of unknown products EXHIBIT 2 Leading Shopping Apps directly from small manufacturers. Tmall, however, had more well-known brands, usually sold directly by the in the Google Play Store brand. These two retail sites generated more opportu Worldwide in April 2018 nities for middle and small-sized merchants. Aliexpress Number of is the international version of Taobao. Aliexpress Downloads launched in 2010 targeting international consumers in Name in Millions the United States as well as Australia and Russia. By utilizing the market environment and Wish - Shopping Made Fun 16.56 resources, Alibaba expanded business services to AliExpress - Smarter Shopping, 5.87 new areas: C2C, software, search engine, auctioning, Better Living money transfer, advertising, and logistics. These areas Lazada - Online Shopping & Deals 4.43 in general covered different kinds of e-commerce Joom 3.44 services, which meant that Alibaba provided better Amazon Shopping 3.08 and more comprehensive support for enterprises. In Mercado Libre: Encuentro tus 2.73 the beginning, Alibaba offered free membership to marcas favoritas gather more merchants to this platform. Today, com- Flipkart Online Shopping App 2.27 missions and fees have become an essential source Club Factory - Fair Price 2.27 of income. The more merchants and consumers who Shein - Shop Women's Fashion 2.02 participate in this platform, the more transactions Pandao .74 can be made. Alibaba is a platform and does not own any products. Merchants can sell products directly to consumers through Alibaba's website. In general, Source: https://www.statista.com/statistics/691274/ leading-google-play-shopping-worldwide-downloads/ Alibaba does not participate in sale processing, but provides a platform and services for merchants and consumers to make transactions. the world, but it took longer to get the products. In 2018, there were thousands of well-known Consumers were able to track their delivery status. brand name products and an even greater number of As shown in Exhibit 2, Aliexpress had 5.87 mil- unknown brands on Alibaba and Aliexpress, with an lion app downloads and was the second leading shop- incredible selection and low prices for the same prod- ping app in the Google Play Store worldwide in April ucts compared to brick-and-mortar businesses and 2018. Amazon was fifth with 3.08 million downloads. the limited number of online retail sites in China. Aliexpress, as a global retail marketplace, had approx- Both Taobao and Aliexpress apps and websites imately 60 million annual active buyers in the world in were well developed in 2018, and the search engines 12 months ending March 31, 2017. directed consumers efficiently to the products they were shopping for. In addition, Alibaba developed Alipay, an eWallet service that enabled shoppers to ALIEXPRESS IN RUSSIA easily pay for their purchases. In 2018, there were With the facilitating conditions of distance, culture, over 110 countries that used Alipay as a payment and good terms of trading between China and Russia, option. It was popular throughout a big portion of Aliexpress targeted Russia as a good market to start China and Southeast Asia because of its simplicity, expanding their business internationally. By the convenience, and safety. end of 2014, Aliexpress was the number one online Before a consumer made a purchase they chatted retailer in Russia selling essentially Chinese prod- directly with sellers to know the products better and ucts, and enjoying huge popularity among Russian have a quick response for after-sales services. There online consumers who appreciated its low prices and are a few merchants who still charged for shipping, large assortment. The inclusion of additional offers but the majority of the products listed on Alibaba were from Russian companies helped Aliexpress close free shipping, even for a small purchase or single item. gaps in its product range such as heavy home appli- Aliexpress, as the international market, continued ances that are difficult to deliver from China. Given Alibaba's features and provided free shipping around the close proximity between Russia and China,CASE 17 Aliexpress: Can It Mount a Global Challenge to Amazon? Aliexpress announced a domestic one-day delivery service. At the beginning, the one-day delivery was only for smartphones, notebooks, and other elec- tronic products in 20 cities. For other cities, deliver- ing these products took three days. It is essential that consumers have privacy, secu- rity, and trust when they are making purchases on websites. Based on this premise, factors that affected consumers' buying motives included customer ser- vice, convenience, price, shipping cost, speed of delivery, quality, wide range of selection, etc. Both Amazon and Aliexpress had a huge range of product options and their websites were easy to navigate. SINGLES DAY Singles Day is a made-up holiday, designed by college students in China to celebrate being single (11111, a group of ones, like a group of singles). Later, this term spread and became popular on social media. Today, Singles Day is better known as the grand shop- ping carnival on November ll in China. This popu- lar 24-hour shopping event was launched in 2009 and has had an impressive growth in one-day sales every year from $10 million in 2009 to $25.3 billion in 2017 (see Exhibit 3). As a comparison, in 2017, Amazon's Prime Day in Julythe biggest sales day for Amazon generated an estimated $1 billion sales revenue in 30 hours; Alibaba achieved these sales in just two minutes. C-lS'l' AMAZON'S STRATEGY Differing from Alibaba, Amazon adopted a self- employed approach and participated in every step of the sale. The most well-known Amazon business model was Fulllment by Amazon (PEA). Most of the buying and selling process was through Amazon, which utilized their big networking and fulfillment centers to quickly pick, pack, ship, and provide cus- tomer service. Amazon owned its own products, and also allowed third-party sellers by collecting sales commissions. Affiliated merchants either sold prod- ucts by themselves, or they chose to use Amazon's ful- fillment services. Amazon provided warehouses, and merchants prepared the products. The FHA method attracted merchants in different countries, decreased costs, and provided good delivery services. However, it was not a good option for Alibaba As the middle- man, Alibaba empowered merchants to process sales by themselves. rIhis was a very different orientation compared to Amazon. The number of merchants on Alibaba was huge, with most of them from China. Since there was no guidance for the majority of these merchants to expand businesses out of the country, it was difficult for Alibaba to move forward to the global marketplace as a whole. To maintain good fulfillment centers and warehouses globally, Amazon spent mas- sively to support them which resulted in lower prots. Amazon had a customer service number where you could talk to a representative, or leave a message, EXHIBIT 3 Alibaba's One-Day Gross Merchandise Volume on Singles Day from 2011 to 2017 (in billions of U.S. dollars) In billions of us. dollars 2011 2012 2013 2014 2015 2016 201? Year Source: hitpsdfwwwstatistamomfstatisti:5I554543faIibaba-singles-day'I 11 'l -gmvf. (\"-188 but you might wait as long as two days for a response. Compared to Amazon, Aliexpress offered a chat line, which allowed consumers to ask the seller any ques tions they may have before they actually purchased the products. This made the communication between retailers and consumers easier. With low prices and wide selections, Amazon dominated the U.S. online shopping market. With Amazon Prime, members got free two-day delivery (one-day, same-day, and two-hour in some areas), streaming music, video, and readings from Amazon for a $119 annual membership fee. More than 100 mil]ion people were Amazon Prime members globally, and nearly half of U.S. households paid for Amazon Prime membership. Even without Prime, consumers could still have free shipping for a pur- chase of $25. Since the majority of products were fulfilled by Amazon, Amazon was always reliable. Customer Service took less time to satisfy customers, and items shipped from Amazon could be returned within 30 days of receipt in most cases. In addition, Amazon's website and app were easy-to-use, which provided a uent shopping process. For Amazon, its quick, high-efficiency, ontime delivery and price were their main strategic focuses. Amazon Prime offered an option for those consumers who needed speedy shipping to pay for this service, with a promised two-day delivery or less. Aliexpress had the same low-price strategy as Amazon, but it was less expensive than Amazon and there was no sales tax. At the same time, Aliexpress offered free shipping for everything, even for consumers who purchased only one-dollar items. However, the shipping time was much longer than Amazon, typically 15 to 40 days. Some would say that there were sellers of coun- terfeit merchandise on Aliexpress and the customer service experience for returns and refunds was not satisfactory. Some merchandise going to rural areas was stolen or misplaced in transit, which affected efforts of Aliexpress to make inroads in other coun- tries such as India. RETAIL ONLINE MARKET The retail market had shifted rapidly from brick and mortar to online because of price, convenience, and somewhat easy return capabi]ity. Wahnart entered the online market with the acquisition of Jet, and other retail operators moved rapidly into their own online markets or contracted PART 2 Cases in Crafting and Executing Strategy with Amazon to provide the mechanism to handle their fulfillment. Shopping malls became less popu- lar as online shopping grew. Google announced they, too, were entering the competitive arena in a big way. Substitutes for online segments such as grocery, clothing, automobiles, etc., were still attracting the customer who wanted to have the hold and feel abil- ity. However, the online segment made it easier to shop for groceries with the use of Amazon's Echo smart speaker. With the growth of smart devices such as the Smart Speaker and Smart Device, the purchase decision for online got easier. With both face and voice recognition, the buying decision was as simple as saying, \"Alexa, buy my favorite coffee.\" Both Alibaba and Amazon built their own mobile apps to allow consumers to complete purchasing. Alibaba started using new biometrics to handle purchase confirmations, such as \"Smile to pay," which used facial recognition technology to confirm the online purchase. Gross consumer spending on mobile apps in 2017 in America was $17.5 billion U.S. In 2022, consumers are projected to spend over $34 billion on mobile apps. While technically it was not difcult to enter the online segment, the time to build a brand and a system to take on an Amazon was formidable. An exception was Etsy that sold crafts and showed great growth until Amazon quickly countered by starting a new online operator named Handmade. Suppliers of goods to be sold were not in a good bargaining position because Amazon could control both price and quantity due to their strong bargain- ing power. Technology suppliers suffered the same with Amazon's inhouse technology group. Exhibit 4 provides the nancial comparison of Amazon and Alibaba. Alibaba does not publish financials for its Aliexpress business unit. THE FUTURE OF THE ONLINE INDUSTRY According to recent statistics from the U.S. Department of Commerce, total e-commerce sales for 2017 increased 16 percent from 2016. Ecommerce sales increased to 8.9 percent of total sales in 2017, compared to 8.0 percent in 2016. The online indus- try has had good growth years. High-speed Internet technology development along with the \"Internet of Everything" rapidly changed the buying model for CASE '17 Aliexpress: Can It Mount a Global Challenge to Amazon? C-189 EXHIBIT 4 Comparison of Selected Financial Data for Amazon and Alibaba, 2015-2018 (in millions, except per share data) Amazon Fiscal Years Ending Alibaba Fiscal Years Ending December31 March 31 Selected Statement of Operations Data Revenue $177,866 $135,987 $107,006 $ 39,898 $22,994 $15,686 Cost of revenue 11 1,934 88,265 71 ,651 17,065 8,642 5,328 Gross prot 65,932 47,722 35,355 22,833 14,352 10,358 Operating expense 61,826 43,536 33,122 11,783 7,371 5,845 Operating income 4,106 4,186 2,233 11,050 6,981 4,513 As a % of total revenue 2% 3% 2% 28% 30% 29% Nonoperating income [300) [294) [665) 4,957 1,740 8,122 (expense) Income before income taxes 3,806 3,892 1,568 16,007 8,721 12,635 Tax expense and other 773 1,521 972 6,216 2,732 1,552 related expense Net income $ 3,033 $ 2,371 $ 596 $ 9,791 $ 5,989 $1 1,083 Earnings per share Elasic $6.32 $5.01 $1.28 $4.00 $2.55 $4.51 Diluted $6.15 $4.90 $1.25 $3.91 $2.47 $4.33 Weighted average number of shares Basic 480 474 467 2,553 2,493 2,458 Diluted 493 484 477 2,610 2,573 2,562 Selected Balance Sheet Data Total current assets $ 60,197 $45,781 $35,705 $ 40,949 $26,516 $20,792 Total assets 131,310 83,402 64,747 1 14,326 73,630 56,521 Total current liabilities 57,883 43,816 33,887 21,651 13,623 8,071 Total liabilities 103,601 64,1 17 51,363 44,270 26,542 17,767 Total shareholders\" equity 27,709 19,285 13,384 69,578 46,654 38,700 Cash Flow Data Net cash provided by [used in) $18,434 $17,272 $12,039 $419,955 $11,670 $8,815 operating activities Net Revenue by Region North America $105,110 $79,785 $63,708 cnina $29,290 $17,403 $13,077 International 54,297 43,983 35,418 3,322 1,938 1,183 Web sewices [and others) 17,459 12,219 7,880 7,286 3,653 1,426 [ Con tin ued) (3-190 PART 2 Net Revenue Percentage Cases in Crafting and Executing Strategy by Region North Am erica 60% China International 30% Web services [and others) 10% 59% 60% 74% 76% 83% 32% 33% 8% 9% 8% 9% 7% 1 8% 1 5% 9% Sources: Amazon Inc. 10K Report. 2015, 2015, and 2017: Aliba ha Group Annual Report, 2015, 201?, and 2018. the consumer. In the future the smart refrigerator will be automatically purchasing groceries as needed. Compared with traditional retail, one of the advantages of electronic commerce based on the Internet is to obtain big data, which is used to ana- lyze the customer's purchasing power, purchasing behavior, and other relevant customer data After researching the growth of Amazon and Alibaba and its subsidiary Aliexpress, Megan was ready to make her recommendations with sound justifications on what strategic position Amazon should make to counteract Aliexpress's inroads to the Amazon market. \f\f\f
