Wednesday, September 21, 2016

Alibaba's e-commerce

Information technology and the Internet have had a major impact on business operations. Companies are making large investments in e-commerce applications but are hard pressed to evaluate the success of these e-commerce systems (DeLone & McLean, 2014). This also had a huge impact on Alibaba, led my Jack Ma. Alibaba is part of Alibaba Group Holding Limited, which is a Chinese e-commerce company that provides different sales services, include business-to-business (Alibaba.com), business-to-consumer (Tmall.com) and consumer-to-consumer (Taobao.com). Jack Ma is reportedly the first to have launched a commercial website in China (TechNode Inc., 2016). 

Development of Alibaba
Alibaba.com is the first commercial website launched in China. In September 1995 Chinapages.com, a directory of companies, goes online and within ten years Jack Ma grows it in one of the most successful Internet companies of China. At a certain point Jack Ma decided to hire foreign experts to come in and help the company globalize. Attracting these experts to run the company was an important step, because the people in China had very little management experience. Alibaba has been very successful in the Chinese domestic market. The initial business model of Alibaba was very simple, namely to facilitate a 24/7 platform for suppliers and buyers around the world. From its start Alibaba did not only connect them, but the second goal was to connect importers and exporters around the world with each other (TechNode Inc., 2016). 

Alibaba's founder Jack Ma
The road to success has been a long one and sometimes painful for Alibaba. Jack Ma personifies the saying ‘failure is the key to success’. When Ma founded Alibaba in 1998, he had to face a lot of obstacles. In the first three years of its establishment, the company made no profit (Diligent Media Corporation Ltd., 2016). One of the company’s main challenges was that it had no way to do payments, and no banks would work with him. Therefor Jack Ma decided to start his own payment program called ‘AliPay’. The program transfers payments of different currencies between international buyers and sellers. “So many people I talked to at that time about Alipay, they said; this is the stupidest idea you have ever had, I did not care if it was stupid as long as people could use it” said Jack Ma. Nowadays 800 million people use AliPay (CEO Lifestyle, 2015). 

Alibaba´s (inter)national competitors
Alibaba’s primary competitor is JD.com Inc. in the e-commerce space in mainland China. In contrast to Alibaba’s e-commerce services, JD.com warehouses, markets and ships merchandise directly to Chinese customers through its own national network. JD.com has recently made impressive gains in the market to become the largest online direct-sales retailer in China. This was made possible due to the direct control JD.com have over its supply chain, together with the developed reputation for authentic, reliable products and fast shipping. 
Logo of JD.com, Alibaba's primary competitor
Next to JD.com there are several smaller national competitors across China. Alibaba’s two biggest international competitors are Amazon.com and eBay (Investopedia, 2016³). Amazon.com Inc.’s model is much closer to the traditional style of retailing, as it indulges in direct selling, owning distribution centres and warehouses, unlike Alibaba.  Amazon had built a powerful reputation among its consumers by serving satisfactory consumer experience and service. The competitor eBay is closer to Alibaba in its model, as both e-commerce companies are bringing buyers and sellers together on the platform, and provide them a payment system, called AliPay (Alibaba) and PayPal (eBay). Though Alibaba and eBay have similar models, it would be hard for Alibaba to decrease eBay’s good brand recognition. These companies are likely to compete with each other for markets outside the United States and China, but it is unlikely that these brands will unseat each other from their homeland (Investopedia, 2016²).

Failures of eBay to enter the Chinese market
In 2004, eBay had entered China and was planning to dominate the Chinese market with eBay EachNet. Alibaba was at that time a local Chinese company that helped small- and medium-sized enterprises conducting business online. EBay began with aggressive campaigns to dominate the market and counterwork competitors. Soon after Alibaba’s Taobao was launched, eBay signed exclusive advertising rights with the intention of blocking advertisements from Taobao. Taobao’s was focused on the consumers, to make it as user friendly as possible, also free of charge. Unlike eBay EachNet, which charged its sellers for listing and transaction fees (Forbes, 2010).  After Taobao was established it did not take long before in 2005 Taobao overtook its U.S. rival eBay, the previous market leader in the consumer-to-consumer market in China (TechNode Inc., 2016). 



Consumer-to-consumer market leader; from eBay to Taobao (source: JingLiang, 2014)
Will Alibaba sets foot out of China?
As described before, it is unlikely to unseat competitors from their homeland. Alibaba will not be able to be a daily go-to-site, but instead just the name of an exotic stock with growth potential. Jack Ma is on record as planning to use the newfound inflow of money to expand his idea to the West (Investopedia, 2016¹). This expansion led to an announcement that Alibaba will open its first office in Melbourne, Australia. This first office is part of a company’s globalization strategy to reach two billion customers in the next two decades (Forbes, 2016). This all leads towards the fact that Alibaba is expanding their market. Alibaba is a confident organisation and will become even a bigger by expanding outside of China.


References

CEO Lifestyle (2015). 5 stories of massive failures that lead to success. [Retrieved from http://www.ceolifestyle.io/blog/2015/9/6/5-stories-of-massive-failures-that-lead-to-success on the 20th of September 2016]

Delone, W. & McLean, E. (2014). Measuring e-Commerce Success: Applying the DeLone & McLean Information Systems Success Model. [Retrieved from http://www.tandfonline.com/doi/abs/10.1080/10864415.2004.11044317 on 20th of September 2016]


Diligent Media Corporation Ltd. (2016). Alibaba’s Jack Ma was rejected by nearly 30 companies before he set up shop. [Retrieved from http://www.dnaindia.com/money/report-alibaba-s-jack-ma-was-rejected-by-nearly-30-companies-before-he-set-up-shop-2123055 on 20th of September 2016]


Forbes (2010). How eBay failed in China. [Retrieved from http://www.forbes.com/sites/china/2010/09/12/how-ebay-failed-in-china/#38e40a237abf on 20th of September 2016]


Forbes (2016). Australia is the next stage for Alibaba’s global expansion. [Retrieved from http://www.forbes.com/sites/greatspeculations/2016/07/21/how-significant-is-australia-for-alibabas-global-expansion/#2d4d68491edc on 20th of September 2016]


Investopedia (2016¹). Alibaba’s Goal: Supplant eBay, Amazon and Paypal. [Retrieved from http://www.investopedia.com/articles/markets/092314/alibabas-goal-supplant-ebay-amazon-and-paypal.asp on 20th of September 2016]


Investopedia (2016²). Alibaba’s Top Competitors. [Retrieved from http://www.investopedia.com/articles/investing/110714/alibabas-top-competitors.asp on the 20th of September 2016]


Investopedia (2016³). BABA: Who are Alibaba’s Main Competitors? [Retrieved from http://www.investopedia.com/articles/markets/042716/baba-who-are-alibabas-main-competitors.asp on 20th of September 2016]


JingLiang (2014). Who is Alibaba? [Retrieved from https://www.linkedin.com/pulse/20140909090202-9546435-who-is-alibaba on 20th of September 2016]


TechNode Inc. (2016). A brief history (and future) of Alibaba.com. [Retrieved from http://technode.com/2009/01/22/a-brief-history-and-future-of-alibabacom/ on 20th of September 2016]


Friday, September 09, 2016

China's developing outbound travel

In the first quarter of 2016, more than 30 million border crossings took place. This is an increase of almost 2,5 percent in comparison with last year, which is the lowest growth since 1997. Although, many Chinese people travelled in 2015, to be specific, over 120 million people (Arlt, 2016). These outbound tourists are travelling all over the world, as well to the Netherlands. To anticipate to this, it is important to know what trends and developments are current and which are upcoming. After analysing the trends and developments, opportunities and possible threats can be described.

Trends and developments
As noted in the introduction, the outbound travel from China is over 120 million. Many forecasts were made, but could not say something valueble according the Chinese outbound tourists, until Premier Li Keqiang gave a speech during the First World Conference on Tourism for Development in Beijing in may 2016. Prognoses indicate that by 2020, both the travel times of Chinese tourists and tourism revenue will double on the current basis (XINHUANET.com, 2016).

Chinese premier Li Keqiang giving a speech during the First Wirld Conference
 on Tourism for Development in Beijing, China
In 2014, the amount of Chinese outbound travellers who stayed overnight is 249.000 Chinese persons. Compared to the year before, it shows an increase of 15 percent. The travel motive to visit the Netherlands was divided into three purposes, referred as business, leisure and other. The primary purpose to travel to the Netherlands was business; in fact 55 percent of the Chinese outbound travellers had this purpose. 44 percent of the Chinese had leisure-purposes and only 4 percent had other reasons to visit the Netherlands. More than half of these travellers have the intention to visit the Netherlands again, and an additional 23 percent will probably travel to the Netherlands in the future (NTBC, 2015).

The Chinese outbound tourists, who are visiting the Netherlands due to leisure purposes, undertook several activities. The top five activities they undertook during their stay is respectively shopping, walking, visit a museum, walk through the city and visit the Red Light District in Amsterdam. The main important activity is to have a walk through the city (NTBC, 2015).

Opportunities
Blogging is known all over the world, as well in China. One of the opportunities for the Netherlands, that emerge from the trends and developments, is the Chinese webblogs. In 2011, the Netherlands is mentioned almost half a million times in these Chinese webblogs. The popular subjects the blogs are about, are attractions such as the Red Light District, the Navy Museum, the Van Gogh Museum, the Dam Square and the National Museum. The added photographs were taken from the typical Dutch culture, for example the windmills, tulips, canals and wooden shoes (NTBC, 2015).  

The famous windmills of the Kinderdijk in the Netherlands
Another great opportunity for Europe and the Netherlands is the growing populairity of Europe. The current market is at an early stage and the outbound travel market of China is growing very rapidly, also due to the easing of visa applications (China Travel Trends, 2012). Together with the growing consumer interest in visiting less European countries during their tour, the future demand will result in longer stays at single destinations, which will double the overnight stay in the Netherlands (Saxion, n.d.).

Threats
Besides the opportunities for Europe, an unforgettable threat is the fact that Chinese tourist will choose other destinations to travel to. Forbes Media LLC (2016) mentioned that recent terror attacks and the unresolved refugee situation have resulted in many European destinations taking a hit as the Chinese visitors are being scared away from travelling to Europe. Even the quite calm Switzerland received almost 20 percent fewer Chinese visitors in the second quarter of 2016 compared to 2015. In the case of leisure travellers, the Chinese tourists seem to look for a safe destination, New Zealand for instance. This development has resulted in more Chinese tourists to Australia and New Zealand.  

Chinese tourists in front of the Opera House in Sydney, Australia
As described, the Chinese outbound is growing; the forecasts tell that in 2020 the Chinese outbound will be doubled. More than half of the Chinese leisure travellers have the intention to visit the Netherlands again, and 23 percent will probably travel to the Netherlands in the future. A big opportunity for the Netherlands are the Chinese webblogs, as the Netherlands is mentioned almost half a million times, in 2011. Together with the Netherlands, the European popularity is increasing, as the outbound is growing, as well due to the easier visa application. Unfortunately a threat for the Netherlands and the rest of Europe; the Chinese tourists seem to look for a safe situaton, due to the terrorist attacks in Europe. That is the reason for the growing Chinese outbound to New Zealand and Australia.



References
Arlt, W.E. (2016). 30.2 Milion Chinese Outbound Trips In The First Quarter of 2016. [Retrieved from http://www.forbes.com/sites/profdrwolfganggarlt/2016/05/23/30-2-million-chinese-outbound-trips-in-the-first-quarter-of-2016/#30b4478639a1 on 8th of September 2016]

China Travel Trends (2012). Essential China Travel Trends 2012. [Retrieved from http://sete.gr/_fileuploads/entries/Online%20library/GR/120423_Essential%20China%20Travel%20Trends%202012.pdf on 8th of September 2016]

Forbes Media LLC (2016). Chinese Tourists Choose New Zealand Over Europe Amidst Terror Concerns. [Retrieved from http://www.forbes.com/sites/profdrwolfganggarlt/2016/08/10/when-remoteness-becomes-an-opportunity-chinese-tourists-choose-new-zealand-over-europe/#522f90b22f30 on 8th of September 2016]

NTBC (2015). MarketScan China 2015. [Retrieved from https://leren.saxion.nl/bbcswebdav/pid-1311649-dt-content-rid-9623716_4/institution/HBS/HBS-breed/CHIN/MarketScan%20China%202015%20NBTC.pdf on 8th of September 2016]

Saxion (2016). Tourism from China: trends and developments.

XINHUANET.com (2016). Full text of Premier Li Keqiang's remarkt at First World Conference on Tourism for Development. [Retrieved from http://news.xinhuanet.com/english/2016-05/20/c_135376068.htm on 8th of September 2016]

Friday, September 02, 2016

Introduction to 'PRC Talk'

Welcome to my blog about China and doing business with China! The blog is called PRC Talk. PRC stands for People’s Republic of China, the official name of China. 

My name is Bas Soetekouw and I am a fourth year Business Management Studies student. Currently I am following the minor ‘Doing Business with China’ to get to China better, to learn their language (Simplified Chinese) and to visit China in a couple of months. This blog will be written in the context of the minor. 

My first name (Bas) in Chinese calligraphy
The name of the blog is chosen to give a first impression; talk about the PRC. The target group will be people who are interested in China and doing business with China. The upcoming blogs will have all kind of different subjects, for instance trends and developments, consumer behaviour, social media and internet innovation, e-commerce and m-commerce, legal aspects and sourcing and CSR. 

If you have any questions about the minor, the context, the subjects or the blog, please do not hesitate to contact me or use the possibilities to comment below the blog. 

Kind regards,
Bas Soetekouw.