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Alibaba: China’s answer to eBay and Amazon

Alibaba has grown from humble beginnings in 1999 to one of China’s largest e-commerce providers. An initial public offering (IPO) on the Hong Kong stock exchange is rumored to happen before the end of 2013, with initial estimates valuing the offering at between $60-120bn. In terms of transaction volumes, the company easily surpasses both eBay and Amazon globally. The company shows no signs of slowing down, with acquisitions in social media and logistics announced in 2013, and even the possibility of expansion elsewhere.

Alibaba began in 1999, and in 14 years has grown to become an indomitable presence in the Chinese e-commerce market. It has expanded to offer both business to business (B2B) and business to consumer services, consumer to consumer, third party online payment, and web platforms related to merchandise. Taobao, one of the group’s websites, is one of the most visited globally. The Chinese market in itself has grown inexorably, providing fertile conditions for the company’s expansion and Alibaba has established itself as a dominant force in the domestic market.  It has also been able to tap into the Chinese consumer’s psyche. Following years of successive growth, the company now looks to rival many Western online companies, such as Facebook and Amazon.

Alibaba’s success means that it now has its sights set on an IPO in the near future, with the prospect of buying back shares from Yahoo. The IPO would provide the company with dilution of Yahoo’s influence, following much bad blood with Alipay. The IPO would also provide further capital flows, although the company is far from insolvent at present. The company looks to continue diversifying to secure revenues with expansion into social media and logistics to further cement its presence in the Chinese market, by exploiting the social trends of Chinese consumer behavior and improving its distribution network. Alibaba may also have its eyes beyond the domestic market, with scope for expansion in South America, Asia, and Africa.

The Chinese market is Alibaba’s source for expansion, but it also presents many challenges. While dominating e-commerce domestically, Alibaba is not without rivals in China. Many are much smaller, but Tencent, another internet firm, could constitute a serious challenge. Whilst western rivals have fared badly in the Chinese market, any pushes to compete internationally will see them resist. The IPO’s feverish valuations may present similar problems to Facebook’s experiences, and any moves in international capital will face the scrutiny of the Chinese government, long anxious to control flows. International expansion may also be thwarted by Chinese counterfeiting tendencies; until recently the US government had the company’s Taobao website on its “notorious markets” list due to an abundance of vendors selling counterfeit goods. Alibaba has been attempting to aggressively crackdown on pirate vendors, working with international bodies (hence its removal), but it remains a serious problem.

Find this interesting? For more read our business case study Alibaba: China’s answer to eBay and Amazon

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