SWOT analysis of Alibaba group

Alibaba Group SWOT analysis- Chinese Ecommerce and cloud player

Alibaba has swiftly grown to become one of the leading ecommerce and cloud players of China. The company was founded by Jack Ma. Apart from growth in its number of monthly active users, the company has also seen its revenue and profits grow faster. However, Alibaba’s presence right now is limited mainly to China. It is struggling to expand its business into international markets. However, the company is investing in research and innovation and partnering other brands to find growth and expand internationally at a faster pace. Ecommerce is the main source of revenue for Alibaba and it is the strongest e-commerce player in the Chinese market. Fiscal 2019 was a financially strong year for Alibaba and apart from its ecommerce business, other segments also enjoyed impressive revenue growth. However, there are several challenges ahead and the brand needs to create stronger recognition at a global level apart from finding new channels of revenue.

Read more about Alibaba group and its strengths and weaknesses in this swot analysis:

Strengths:

Strong recognition in China:-

Alibaba is the leading ecommerce and cloud player in China. Its e-commerce business dominates the Chinese market where there is a major gap between the market shares of Alibaba and its competitors. The brand has been able to create strong recognition in the Chinese market. Apart from customer convenience and service quality, the brand’s focus has also remained on innovation. These are the primary reasons that the brand gained so much popularity in China at a very swift pace. Taobao and Tmall as well as the cloud based services of the brand have seen fast growth in popularity as well as customer base in China during the recent years.

Leading ecommerce player:-

Alibaba has emerged as a strong e-commerce player. While its presence is currently limited to the Chinese market mainly, the brand is also investing in other markets to expand its e-commerce business into other countries in Asia, Europe and Middle East. Its Taobao and Tmall have experienced fast growth in popularity and number of consumers. E-commerce accounts for the largest part of its overall revenue. In 2018 around 82% of the brand’s revenue was from e-commerce. Due to its effective consumer acquisition programs, the company saw a growth of 54% in its core commerce revenue. Total e-commerce revenue of the brand jumped to RMB 78,894 millions in 2019 from RMB 51,287 million in 2018.

Fast growing revenue:-

Alibaba group’s financial position has kept growing stronger year over year. Its core commerce revenue as well as total revenue saw major growth during fiscal 2019. Total revenue of the brand jumped to RMB 93,498 million in 2019 from RMB 61,932 million in 2018. While core commerce revenue of the brand grew by 54% from 2018 to 2019, net revenue jumped by 51%. In this way, Alibaba is gaining at a significant pace and with impressive financial growth, it could also grow its business overseas at a faster rate.

Growing cloud business:-

The cloud business of Alibaba is also seeing faster and impressive growth in the recent years. From 2018 to 2019 there was a growth of around 76% in its revenue from cloud services. Total cloud revenue of the brand jumped from RMB 4,385 million in 2018 to RMB 7726 million in 2019. This is a significant climb in just one year and with its growing investment in R&D, Alibaba might grow its cloud business faster in future.

Research and innovation:-

Another important strength of Alibaba is its focus upon research and innovation. The company has grown its ecommerce and cloud business by virtue of its intense focus on research and innovation. Alibaba group invests a large sum each year in R&D. Its research and development expenses grew to RMB 8,659 million in 2019 from RMB 6,686 million in 2018.

Weaknesses:-

Limited International presence :-

China is the main market for Alibaba group and the company has very limited presence outside the country. While the Chinese economy has been performing well and the company has seen impressive growth in the recent years, still expanding overseas is essential. The company is has invested in Indonesian ecommerce site Tokopedia to find foothold in Indonesian market. Overall, the brand has not been able to gain significant foothold in other major markets including India or the European and Middle Eastern markets. The company’s revenue from international e-commerce was just around 7% of its net revenue.

Overdependent on core business and Chinese market:-

A large part of Alibaba group’s revenue comes from e-commerce business which is its core business. Core commerce revenue was 84% of the brand’s total revenue in 2019. Apart from that the main market of Alibaba group is China and the company earns a very small part of its revenue from the international markets which is less than 10%. The company depends mainly on the Chinese market and its e-commerce business mainly for revenues and profits.

Opportunities:

International expansion :-

Alibaba group can find new opportunities of revenue growth and expanding its customer base by expanding overseas at a faster pace. There are a large number of European, Asian and Middle easter markets that present significant opportunities for both the e-commerce and cloud business of Alibaba. By investing in overseas market and gaining a foothold in other Asian and European markets, the company would also be able to reduce its dependence on the Chinese market as well.

Technological innovation :–

Technological innovation also presents significant opportunities of growth for Alibaba. There is intense competition from leading e-commerce player Amazon which is dominating the global market. Investing in research and innovation helps Alibaba grow its competitive advantage and also lower the barriers to faster growth. Apart from that it will also help the brand create new channels of growth and swiftly expand its customer base. In fiscal 2019, it spent around 1.3 Billion dollars on research and development. However, it is still considerably lower compared to the leading e-commerce player Amazon.

Digital marketing :-

Alibaba should focus upon marketing in both domestic and international markets to grow its recognition stronger at a global level. Its competitors in the international market, are comparatively much aggressive in terms of marketing and promotions. Apart from having a strong marketing and promotions strategy in place, the brand should also make efficient use of the available digital marketing channels for engaging users and growing its customer base.

International partnerships and acquisitions :-

Partnering with other brands in the international market or acquiring smaller brands in China and overseas will also help Alibaba group grow tis business faster. It must seek diverse sources of revenue and extend its business into new lines. Acquiring other brands will help it diversify its business and provide access to new sources of revenue.

Threats:

Competitive pressure :-

There is intense competition in the international ecommerce industry. Apart from the dominance of Amazon in the global market, other regional players also pose a threat to international expansion of Alibaba group. with growing competitive pressure, the challenge to retaining market share and customer base also grows. The result is higher marketing as well as research and development expenses.

Trade barriers :-

Growing tensions in US-China relationships also pose a threat to major Chinese businesses like Alibaba. In the international market, this can translate into significant trade barriers, scaling which can be really difficult. Apart from pressure upon revenue and profits, it has also resulted in slowed growth for major Chinese companies doing business overseas.

Legal threats :-

Legal pressures are also being a major hurdle to growth for large and international technology businesses including Alibaba. Apart from increased concerns related to user privacy, compliance related costs have also increased for the technology brands. Moreover, noncompliance can prove costly and the fines can be a significant share of a brand’s entire revenue.

Conclusion:–

Alibaba has acquired significant growth since its listing on stock exchange in 2014. In fiscal 2019, its overall revenue saw significant growth over the previous year. the company saw its e-commerce as well as cloud revenue grow significantly. Alibaba is dominating the Chinese market with its e-commerce and cloud services. It has acquired popularity as well as strong brand loyalty in the Chinese market. however, growing internationally is still challenging for the brand. Simultaneously, it is crucial to invest in marketing as well as research and innovation to acquire faster growth and build a stringer position. Apart from trying to diversify, the brand should also focus upon reducing its dependence on the Chinese market to find faster and profitable growth in the long run.

Sources:

Alibaba Annual report 2019