and pay advertising fees in order to promote and market their shops. Alibaba also generates revenue through selling more favourable search result positions on their websites. With more than seven million merchants using Alibaba, sellers pay promotional fees in order to stand out from competing firms located on Alibaba’s sites (Osawa, 2013). These businesses have a low bargaining power as Alibaba already operates major online marketplaces, thus it is difficult for them to switch to a different platform provider. Low to Medium Bargaining Power of Suppliers : The platform users, SMEs and third party retailers, are also Alibaba’s suppliers as they provide value to Alibaba’s websites through their product listings. Since Alibaba dominates the Chinese E-commerce market, SMEs have few choices other than Alibaba if they want to create a visible and profitable online store. If Alibaba wants to expand its operation internationally, then vendors can have a choice between Alibaba and eBay, which will increase their bargaining power as suppliers. Low to Medium Rivalry among Competitors : In the short term, Alibaba will continue focusing on Chinese operations to leverage its strong market position (Backaler, 2014). Thus, among existing domestic firms
4 the threat of rivalry is low, as Alibaba has captured 80% of the market (Lajoie & Shearman, 2014). If Alibaba expands operations globally in the future, the threat of rivalry would increase to medium because there are other existing competitive companies in the industry, such as eBay and Amazon. Low Threat of New Entrants : There are several significant entry barriers such as extensive capital re- quirements, proprietary product technology and high switching costs of buyers. The barriers to entry also lie in network effects and critical mass, as they are able reach a large number of customers while having an immense number of SMEs promoted on their websites. This is what creates value for SMEs and cus- tomers and would take considerable resources and effort for an entrant to emulate. High exit costs exist for new entrants as they must invest significant capital in order to be competitive. Currently, as the market is dominated by eBay, Amazon and Alibaba it is difficult to steal the market share from these companies. Low to Medium Threat of Substitute Products : E-commerce involves all the buying and selling transactions online. Therefore there are few substitutes for online transaction as the other options include selling at physical stores or using company websites to sell products directly to customers. However, selling through physical stores is costly as SMEs must purchase shelf space and would have to compete with large firms. Directly selling to customers off of company websites is also problematic because SMEs may not possess the technology to provide a secure marketplace for consumers and also lack the convenience of comparing products off of one website.
- Summer '19
- Management, Alibaba, Alibaba Group