International Business Alibaba and Globalization

¶ … Alibaba Group operates what it bills as the world's largest online marketplace, based on two main businesses, the B2B site Alibaba and the B2C site Taobao. The company's service is an interface that connects buyers and sellers. It arose out of a need to connect buyers and sellers within China, but the rapid growth of China as a global goods supplier facilitated the growth of Alibaba. Companies anywhere in the world could use the site to get bids from multiple suppliers, creating an efficient marketplace.

The large number of customers allowed Alibaba to expand globally, so that today it is a network of buyers and sellers that operates globally. Alibaba is now floated on the New York Stock Exchange, giving the company greater access to foreign capital and solidifying its position as an international company. Taobao is the largest online retailer in China. While this site is focused on the Chinese market, this is a large market and as a result Taobao is a significant contributor to Alibaba's earnings.

Alibaba earned $12.3 billion in revenue last year, on transaction volume of $394 billion. Net income is $3.9 billion, which equates to $1.56 EPS. Strategy Alibaba has a transnational strategy. While the company began in China, and focused on that market, it has also had international appeal, in that it would link Chinese exporters with foreign buyers. International trade is a core part of Alibaba's business. A transnational strategy is one where the company has a centralized head office but runs subsidiaries in other countries.

These subsidiaries or units are still subject to strong central control. Alibaba remains run out of China, but has sales offices in foreign countries in order to build the brand and attract business. As such, this is a class transnational company. It retains a high level of centralized control, while having a presence in a number of other countries around the world. They are not global in the sense that the company remains run almost entirely from China, but they are also not multi-domestic.

The fact that the buyers and sellers are from all over the world allows the company to remain operationally focused on China while serving the entire world. This strategy is appropriate for the business model that Alibaba has. Alibaba is an intermediary, a place where buyers and sellers come together. It earns its money either through listing fees or by taking a spread on transactions. The intermediary role is run online, which means that there is not much need for presence in foreign countries, other than sales reps.

The business itself runs globally, even though the platform is almost entirely in China. The nature of the Internet allows for a company to take the transnational approach to this type of business, as the actual performance of the business can be routed through servers and networks that are hosted anywhere and run from anywhere. Alibaba has always seen the international market as an important part of its operations. Not long after it started, it realized that it was selling Chinese manufacturers to foreign firms as much as domestic ones.

All it needed to do was to open its website to foreign companies. Ultimately, the details of moving goods from China to other countries is a matter between the individual companies -- Alibaba was simply serving a role as an intermediary. The company has now expanded its scope to include basically any company anywhere. Because Alibaba does not actually ship anything or produce anything, it has very few barriers to doing business overseas. Foreign Market Entry Modes There are a few different ways that a company can expand internationally.

These include exporting, setting up a wholly-owned subsidiary and joint ventures. Alibaba moves no physical goods, so it has very few barriers to expanding internationally. When one considers the advantages and disadvantages of the different market entry types, they are mostly moot for Alibaba's business model. If it costs more to set up a foreign subsidiary, it is not much more, as Alibaba needs little more than an office and a few servers to set up an international subsidiary.

A joint venture, given the low barriers to international expansion, would be entirely pointless -- why give up a share of the reward when there is almost no risk? Thus, Alibaba is basically an exporter. It maintains its home in China, but has opened its site to any country that will allow it (it is possibly blocked in a place like North Korea or Cuba, but may in fact be open to every country in the world).

This can all be done using talent and technology that is based in China. If Alibaba needs to set up a sales office or some infrastructure overseas, the costs and barriers associated with that will be minimal, such that the traditional disadvantages associated with wholly-owned subsidiaries do not really apply. Thus, Alibaba is using the best method for international expansion. It has low costs in China, and a supportive government.

It has listed on the NYSE to gain better access to global capital markets and to raise its profile, but to date Alibaba's actual international operations are minimal. The company sells to the world, and does so from China. This strategy has allowed it to become one of the biggest B2B marketplaces in the world, while retaining as well its position as the top online B2C retailer in China.

There is no evidence that there are advantages to using any other tactic to enter foreign markets, and the current approach has been incredibly successful for the company. Alibaba's centralized structure aligns with its chosen strategy. Again, the other structures are not designed for an online company that has very low infrastructure needs and which does not deal in a physical good. Alibaba can maintain a centralized structure in China's relatively low cost environment and export its marketplace all over the world.

There is no need for anything other than sales offices overseas. The company has 126 offices in the PRC and 29 offices internationally according to its website. The 29 office internationally represent marketing activities and some revenue collection capacity, but they.