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Founded in 1999, Alibaba was created by Jack Ma and other eighteen co-founders in an apartment in Hangzhou. In 2016, Alibaba has become the largest retail transaction platform in the world. What has it done? What is the secret behind Jack Ma’s success?
Chinese E-commerce: Alibaba’s Merger and Acquisition
Since 2005, Alibaba has acquired and invested in a considerable amount of firms, intending to improve its digital presence. Alibaba has acquired at least 26 large-scale companies, the most prominent of which has been Yahoo company, the US web search engine. It had cost Alibaba $7.1 billion in cash and stock to buy half of the American online firm’s holding. Since then, Alibaba kept the pace of purchasing one company every year. In 2013 and 2014, Alibaba focused on investing in domestic companies, including Weibo, AutoNavi, and Yintai. The Youku and Tudou investment in 2014 were especially interesting. Alibaba purchased a one-fifth stake in the two leading video websites for $3.6 billion, thereby getting better access to Youku-Tudou’s user base.
Alibaba Group Holding Limited (BABA) already has a huge number of businesses that operate in the firm’s ecosystem. The different companies owned by the group concerns nearly every digital field, including searching companies, navigational apps, fund companies and social networking sites. Yahoo Company was bought by Alibaba as the representative of a searching company. There are navigational apps such as AutoNavi and Kuaidi (The Chinese version of Uber, offering ride-hailing services). The firms are generally unique, technology-based, and cover every online retail segment. There are also some fund companies such as Tianhong Fund and Social networking sites including Weibo, Momo, and UC. Moreover, Alibaba has expanded to companies that are barely associated with its own business, including post office branch, sports, music, food, travelling, entertainment and so on. The scale of the companies can be as small as an unknown app, but it can also be as large as a nation-level company such as the Singapore Post.
However, the wave of acquisitions has been met with many criticisms. Billions of dollars have been invested in companies with little or no connection to Alibaba’s core e-commerce business, including a Hong Kong film studio and a soccer team. Even though it is a public company, at times it seems Alibaba is being run solely for Chairman Jack Ma. The corporate structure gives control to insiders, not shareholders, while the Chinese government has a strong influence over Alibaba’s decisions. Recently in May 2016, the U.S. Securities and Exchange Commission began investigating the accounting for many of Alibaba’s online sales transactions, stirring, even more, worry amongst shareholders.
What Are the Motives?
Alibaba is enhancing its core competitiveness to become a worldwide group. On one hand, through purchasing or investing in other companies, Alibaba can eliminate some competitors and increase its market standing. In 2005, Taobao, a C2C platform, was under the threat of other e-commerce platforms, such as Yipai which occupied about 7.29% of the whole market. However, Alibaba purchased Taobao and ceased Yipai’s service and operation.
The variety of companies and their services also contribute to Alibaba’s success. For instance, Alibaba bought Baozuncompany, a famous marketing agency and has since used its marketing, logistics and CRM services. This acquisition has benefited Alibaba’s C2C and B2C platforms.
Alibaba wants to perfect the e-commerce and even the whole market system. 2011 has been a watershed for the group. Before 2011, Alibaba was focusing on increasing its own core competitiveness by expanding its own business. After 2011, Alibaba aimed to form a market system featuring multi-context and multi-mode to improve the information circulation. At first, Alibaba paid attention to social networking sites, aiming to append information about e-commerce from those social networking sites and to develop it. For instance, the investment on navigational apps has been made to create the real connection between the physical shop and the Internet.
Consequences of the Chinese e-commerce
What is surprising is that Alibaba’s stock price has been continually decreasing since 2014, the exact time when it began its investment and acquisition. Both Alibaba’s stock price and market value had declined for 10 months in a row by the end of 2015. The market value plummeted by 140.7 billion dollars.
The major reason is the skeptical attitude from American investors. American investors are usually reserved in terms of transactions. However, in the whole Chinese market, the growth rate of GDP has declined and the exchange rate of RMB is fluctuating. Moreover, Alibaba owns too many different and diverse companies that are not even related to its major business.
Alibaba has a wide range of businesses, and within those businesses, the company offers many different products and services that cater to every aspect of retailing, from sourcing of goods to selling to individual consumers to helping with the exchange of payment and logistics. This ecosystem is truly self-sustaining and keeps getting more comprehensive with each new business launched. Alibaba is gradually building its edifice in the world of Internet.
Daxue Consulting and its Client
Daxue Consulting has helped its clients to understand the Chinese online consumer’s behavior in order to implement actionable insights. It has helped the client to identify the most promising target groups, with the online research panels. The research probes buying behavior, usage, and satisfaction at every stage of the consumer lifecycle.
To know more:
- China Apps Market
- Youku, the leading Video Sharing Sites in China
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— Daxue Consulting (@DaxueConsulting) December 10, 2015