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ALIBABA PEST ANALYSIS

Name

University

Professor

Date
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Alibaba Pest Analysis

Q1.

Alibaba group is the largest Chinese e-commerce company and one of the world’s

biggest Internet Company that gives business to consumer, business-to-business, and consumer-

to-consumer sales services through the website. The company also provides payments services

through an electronic system, data-centric and cloud computing services, and search engine for

shopping services. The company started at Hangzhou city in the year 1999 with the founder Jack

Ma. Jack Ma found the website Alibaba.com, a firm -to-firm portal to join Chinese producers

with overseas consumers. The firm mostly works in the People's Republic of China (PRC). At

the end of the date of its initial public offering (IPO), 19 September in the year 2014, Alibaba's

market share was US$231 billion. The company has several stakeholders that include China

Yahoo, cloud computing, Alipay, Taobao, Ali Health among others (Lee, 2015).

China Yahoo

The partnership between Alibaba and Yahoo started in the year 2005 when Yahoo!’s

Jerry Yang exchanged $1 billion investment and Yahoo! China with Alibaba Group’s Jack Ma

for a forty percent stake in Alibaba Group. China Yahoo mainly focuses on the internet services

such as email, search, and news.

Alipay

Alipay is an online payment platform that does not charge transaction fees. This service

was launched in the year 2004, has the biggest market share in China with 300 million

consumers, and controlled just below half of China's online payment marketplace in February
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2014. Additionally, Alipay offers escrow service in which consumers can prove whether they are

contented with goods they have bought before discharging money to the seller (Lee, 2015).

Cloud computing

The Cloud Computing was launched in September 2009. The objective was to establish a

computing service platform, as well as e-commerce data customization, data dispensation, and e-

commerce data mining. Alibaba operates in Beijing, Hangzhou, and Silicon and has R&D

centers (Lee, 2015).

Taobao

Taobao was founded in the year 2003. It is the biggest buyer-to-buyer online shopping

podium in China. The platform offers diverse merchandises for retail sale. No transaction fee

charged in the platform and registering is free. About 85% of the company’s revenue is earned

through advertising of products (Lee, 2015).

Ali Health

Ali health was established in the year 2014 when Alibaba and Yunfeng Capital, a private

equity company, purchased a 54% proportion in Citic 21CN. The positions itself has a

pharmacological e-commerce business and health services. In April year 2015, the organization

also reached an agreement to handover its online B2C pharmacy, Small Medical, to Ali Health.

The combination provides consumers the broadest variety of pharmaceutical and health products

offered in China.
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Q2.

Environmental Factors

The environmental factors of business as outlined in the PESTEL framework includes;

political, economic, social, and technological environment.

Political environment refers to some influential aspects that businesses should pay

consideration to during the business like country laws, governmental policies and authorities.

These factors influence companies or individuals performance to some extent but when the

political environment is taken good care of, it generates new opportunities to businesses

(Schlevogt, 2000) The political atmosphere comprises the factors such as the property of the

country party, the social system of a country, regulations, laws and norms. Different country has

the different social system, and the different social system has the various claims on the

company. The governmental guidelines, organizational attitude, and political inclination changes

in the different periods as well as the consistent social policy of a state. Governmental policy has

a substantial influence on business control, consumption capacity and other company related

activities. The political organizations, laws, and procedures can always hamper or change

company’s set-up behavior, particularly the long-term investment behavior (Schlevogt, 2000).

Economic Environment

The Economic environment comprises of country’s economy development, international

economic status, and the industry’s business environment (Zhang and Liu, 2010). Individual’s

ability to purchase is affected by salary and saving, the price of goods and credit accessibility.

The level of economy development differs in different countries where some country economy

grows faster than others. Additionally, the economic system of a state regulates the associations
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between land and business and then uses several management devices to control and affect social

economy’s scale, content, and methods. General economy circumstances and trend are also

imperative for a company's success. Salary, price changes which are led by providers and

governmental policy will affect product’s production cost and their selling condition. All of these

economic factors might end in the internal industry competition or make the company not to

catch the development speed of other companies.

Social Environment

The social environment comprises of demographic factors such as nationality, age,

gender, education level, population distribution density, and religion (Shigang, 2010). Every

company considers its marketing activities to avoid going contrary to their customers’

expectation, therefore affecting their lifestyle and decisions. Most of the large-scale companies

usually use the demographic statistic data to locate their target consumers then try to apply them

in researching. Demographic factors have a substantial influence on the decision-making process

of business development strategy.

On the other hand, social environment will also have the tremendous effect on the social

supplying structure and corporate producing structure. In addition, the condition of company’s

human resources always affected by local educational level (Shigang, 2010). As for consuming

psychology, it has the irreplaceable influence on enterprise strategy as well. Customer changes

whenever he wants. For example, some of the consumers are attracted by the novelty instead of

the practical utilization, so it will help a lot of company have different kinds of goods to meet the

important demands of the customer. Then is the aspect of attitudes and values. It means the

evaluation standard of people’s behavior. The values are diverse in different states and regions.
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Technological Environment

Technological environment refers to the entire current level of technology, technological

changes, and social trends, technological developments impact on innovations, as well as the

shared effect between technology and public environment (Harvie and Lee, 2002)

It is common that market progressed with the help of technology but some fundamental

elements of the market at the same time. Each appearance of a new technology will bring some

destructiveness to the market. However, the contribution of technology to economic growth also

cannot be ignored (Savioz, 2002).

The advancement of basic producing tech helps enterprise with a more efficient analysis

of market and custom. For example, if a firm can use the database and automatic system to

collect the mass data, they will get the rather precise information for analyzing. The emergence

of new technologies and emerging industries increased social demand for the given industry's

products and services then make the company have more opportunities to enlarge their business

operation scale and market (Savioz, 2002)

Q3.

The social environment has the highest impact on the internet industry and on the

companies that operate in the industry. China has the largest population in the world, and more

than half of the residents are well conversant with the modern technology. In addition, more than

fifty percent of the population is comprised of youths who are the largest consumer of internet

services.
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The head offices of Alibaba are located in Hangzhou, where the capital of Zhejiang

province is located. In Chinese tradition, traders from this area always have the characteristics of

“Speed”, “Good at innovating” and “have the exceptional wealth made model”. Under the

influence of indigenous business culture, the growth of Alibaba gained a rapid progress (Lee,

2015).

Starting a business online has become a widespread phenomenon in China. This is as a

result of people gradually accepting the online shopping model. For example, Taobao provides

the largest consumer-to-consumer platform for shopping. In this platform, retail products are

advertised, the potential consumers buy the product online, and the product is delivered to them.

Companies progressively increase their reliance on the internet to be their significant distribution

channel, some of which even regard the B2C platforms as their first choice.

As the biggest B2B platform of the world, Alibaba has over 500 million registered users

and more than 60 million fixed website visitors per day. Furthermore, the number of online

products, which customers can buy whenever, they want, has exceeded 800 million, with an

average of 48,000 goods sold per minute. Since the year of 1978, China started to admit the

market economy policy to regulate and guide the domestic market. There is a great deal of SMEs

in Zhejiang area having the imperative needs to expand market and sale their goods. Information

unevenness is one of the reasons that blocks, the market develop successfully, and this

phenomenon continued, so Alibaba just captures this precious business opportunity to realize the

self-promotion (Lee, 2015).

The high population of China provides ready marked for the products that lead to the

increase in production of the company. The population is distributed all over the country making
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it easier for the company to locate its offices in different regions near the consumers. Since the

age structure of the population determines the demand structure of the society, Alibaba faces

high demand for its products because more youths comprise the people of China and are the

largest consumers of online services. Additionally, the attitude of the community towards

particular products has an impact on the social environment of a given business. China people

appreciate the online services very much and have a positive attitude towards the services. This

is what Alibaba captured first, and the company prospered well (Lee, 2015).

Q4.

Suggestions

a. Product differentiation. China population is primarily comprised of youth. The needs

the youths significantly differ to those of the elderly. The online service provider should be in a

position to differentiate their products in order o to satisfy the two groups. Additionally, there is

that person whose hearing is impaired and blind. The company needs to come up with high-tech

gadgets that these people can use with much ease.

b. The opening of new branches. Alibaba needs to open more branches all over the

country to improve their customer services. This is much needed especially when a technical

assistance is required. The B2B market share benefits of Alibaba primarily concentrate in some

big cities, like Beijing and Shanghai, at present. While in some small and medium cities, even in

rural areas, emerging small and medium e-commerce enterprise master the bigger fighting

advantages, they may own a wider potential market because the awareness of e-commerce has

been gradually awakening.

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c. Product customization. Some consumers may need products with special features.

The company should provide this to increase their customers’ satisfaction.

d. Security. With the growth of technology, the cases of cyber crime and hacking of

websites and personal accounts has also risen. This is evident in what happened to China Yahoo

whereby people's email accounts were hacked. The company should put in place that will ensure

the security of the users.

e. Alibaba needs to purchase a large amount of software and hardware products to

establish their robust e-commerce platform. As for hardware, Alibaba always chooses to buy or

rent service devices, so they may have many providers for selecting. On the other hand, the core

software of Alibaba mainly come from their own researching and development department or

some related companies, so provider’s negotiation capacity cannot be seen as a significant threat.

Q5.

How the Company will perform in the Future

Large development potential of B2B market

The major capitalized banks and credit companies have entirely participated in the area of

e-commerce, and it opens the way for further EC development. The shares of B2B market has

been highly concentrated the competition between comprehensive B2B e-commerce platform

and vertical B2B e-commerce platform is so high.

Alibaba occupies over 70% of the market share and has a leading status. The survival and

improvement of a huge amount of SMEs and Alibaba have been closely guaranteed, for this
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reasons, Chinese government designed a slew of policies to nurture and support the development

of these emerging industries (Ahamed, 2013).

The financing problems of SMEs

SMEs only have a constricted channel to funding, in most cases; their investment

development mainly depends on the internal accumulation, which leads to the exorbitant endo

genesis-financing rate. It is a common phenomenon that SMEs lack the long-term stable funding

sources and credit supports, and the asset size is the decisive factors in deciding whether the

company can obtain the capital loans from banks. Based on this, Alibaba launches the joint

guarantee loans, and it will bring the large development opportunities for companies, and help

them to deal with the financing problems in the future (Duan and Bin Chik, 2012)
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Reference List

Ahamed, F. 2013, China Business Model : Does it Improve Business Environment ?. MEJB,

8(3), pp.35-40.

Duan, H. and Bin Chik, A. 2012, Institutional Environment, Political Connection and Financial

Constraints---Evidence from Private Enterprise in China. Business and Management

Research, 1(1).

Harvie, C. and Lee, B. 2002, Globalisation and SMEs in East Asia. Cheltenham, UK: E. Elgar.

Lee, N. 2015, Development and Growth Factors of Chinese On-line Business Industry Focused

on Alibaba. The Korean Logistics Research Association, 25(1), pp.169-183.

Savioz, P. 2002, Technology intelligence in technology-based SMEs. Zürich.

Schlevogt, K. 2000, Doing business in China I. The business environment in China?getting to

know the next century?s superpower. Thunderbird International Business Review, 42(1),

pp.85-111.

Shigang, Y. 2010, Competitive Strategy and Business Environment: The Case of Small

Enterprises in China. Asian Social Science, 6(11).

Zhang, Q. and Liu, M. 2010, Local Political Elite, Partial Reform Symptoms, and the Business

and Market Environment in Rural China. Business and Politics, 12(1).