Aliexpress and Amazon Global Challenge

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Aliexpress: Can It Mount a Global Challenge to Amazon?

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A. J. Strickland, The University of Alabama

Muxin Li, Faculty Scholar 2018, The University of Alabama

Joyce L. Meyer, The University of Alabama

 

Amazon had just completed another great year of growth, which included the decision to purchase Whole Foods. There was great excitement in the company, as the top leadership and throughout the company celebrated a job extremely well done. All the business magazines and newspapers touted Amazon as “The best company ever” and how Amazon dominated the online segment by having a 40% market share in a highly fragmented industry.

 

The following week the celebration continued when the strategic management committee met to consider their next acquisitions. A new member of the team, Megan Turner, who recently graduated from college and had worked for Amazon as an intern in their innovation area, asked a question about a new entrant in the online space called Aliexpress. All the focus in the room turned to the newest team member with a look that suggested, “Why are you talking about a company that is a gnat compared to Amazon?”

 

The new hire then found herself charged with the task of looking at Aliexpress to see if it really posed a competitive threat in the years ahead. When the meeting broke up, Megan found herself alone while the rest of the team continued to celebrate the best year ever—because the stock price once again hit a new high. Everyone on the team participated in the Employee Stock Option Plan, which historically had provided employees a very decent rate of return on their share purchases.

 

 

Amazon’s Company Background:

 

In July 1994, Jeff Bezos founded the pioneer of electronic commerce and the biggest online merchandiser in the United States, Amazon, based in Seattle, Washington, as an online bookshop business. According to the early Amazon logo, being the “Earth’s biggest bookstore” was their goal. In 1997-2001, Amazon had a successful transition from being an online bookstore to being the largest Internet retailer in the world by 2001, and the largest Internet retailer of tech products today. Amazon has positioned itself as the world’s most customer-centric company, which has become the company culture and goal for their long-term development.

 

From the time Amazon’s logo was created—which began with the letter A and ended with the letter S and a smile, Amazon’s purpose “we’re happy to deliver anything, anywhere,” reflected the company’s strategic intent to offer consumers everything from A to Z in the its online store. In order to achieve the goal, Amazon had launched an ongoing strategic initiative to expand its product line-up and offer an always-increasing range of merchandise to consumers.

 

The strategy of retailing everything from A to Z initially resulted in huge annual losses for Amazon because of the ongoing need to build and operate the ever-bigger infrastructure the company needed to execute its strategy. The company expanded its geographic scope by rapidly increasing the number of warehouse and order fulfillment locations and adding more products and services to its menu of offerings. Early on, Amazon began expanding its geographic by entering new county markets, such as the United Kingdom and Germany. By 2018, Amazon was selling and delivering products and services to consumers all around the world—it was a truly global company.

 

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Alibaba’s Company Background

 

Jack Ma was an English teacher in China who founded “Alibaba Group” with a team of 18 people based in Hangzhou, China in his apartment. It started in 1995 and failed because it was too early to introduce Internet e-commerce for both Chinese consumers and the Chinese government. In 1999, Ma tried to build a digital yellow page service to introduce China to the world in trade, but it also failed because he could not obtain support from his potential customers. Nonetheless, Jack Ma did not give up because he believed the Internet was going to play a big role in economic exchange in the future, although it was not yet accepted in China. In the same year, 1999, he launched the company he named Alibaba, which received an investment from Goldman Sachs for $5 million, and Softbank for $20 million.

 

In 2003, Alibaba launched Taobao, which has Business to Business, Business to Consumer, and Consumer to Consumer sales models via web portals. By starting a business competition with eBay, Taobao improved the company’s visibility in the international media. As a result, Taobao successfully replaced eBay in China’s Internet market, and finally made eBay withdraw from China.

 

Taobao offered services to businesses and consumers to trade on the online store without any fees for three years, which attracted more people to choose Taobao’s platform for transactions. The next move was to go global with Aliexpress. See Exhibit 1.

 

Exhibit1

Top Companies in the World by Market Value in 2018 (in billions of US Dollars)

 

Apple

$926.90

Amazon.com

$777.80

Alphabet

$766.40

Microsoft

$750.60

Facebook

$541.50

Alibaba (Including Aliexpress)

$499.40

Berkshire Hathaway

$491.90

Tencent Holdings

$491.30

JPMorgan Chase

$387.70

ExxonMobil

$344.10

Johnson & Johnson

$341.30

Samsung Electronics

$325.90

Bank of America

$313.50

ICBC

$311.00

Royal Dutch Shell

$306.50

Visa

$295.10

Wells Fargo

$265.30

China Construction Bank

$261.20

Intel

$254.80

Chevron

$248.10

Walmart

$246.20

 

Source: https://www.statista.com/statistics/263264/top-companies-in-the-world-by-market-value/ Used with permission.

Aliexpress’s Strategy

 

The goal of Aliexpress was to make it easy to do business anywhere. Alibaba started with helping middle and small-sized enterprises. To help these enterprises survive, grow and develop, Alibaba soon learned that their main issue was the lack of funds to develop sales channels. To address this issue, Alibaba started to focus on B2B and laid a solid foundation for this business model. Alibaba became the middleman to provide a platform for sellers and buyers to build connections to generate business activities. It empowered merchants to do the business by themselves.

 

Taobao offered plenty of unknown products directly from small manufacturers. Tmall, however, had more well-known brands, usually sold directly by the brand. These two retail sites generated more opportunities for middle and small-sized merchants. Aliexpress is the international version of Taobao. Aliexpress launched in 2010 targeting international consumers in the United States as well as Australia and Russia.

 

By utilizing the market environment and resources, Alibaba expanded business services to new areas: C2C, software services, search engine, auctioning, money transfer, advertising, and logistics. These areas in general covered all different kinds of e-commerce services, which means that Alibaba can provide better and comprehensive support for enterprises. At the beginning, Alibaba offered free membership to gather more merchants to this platform. Today, commissions and fees have become an essential source of income. The more merchants and consumers who participate in this platform, the more transactions can be made. Alibaba is a platform, and does not own any products. Merchants can sell products directly to consumers through Alibaba’s website. In general, Alibaba does not participate in sale processing, but provides a platform and services for merchants and consumers to make transactions.

 

In 2018, there were thousands of well-known brand name product and an even greater number of unknown brand products on Alibaba and Aliexpress, with an incredible selection and low prices for the same products compared to brick-and-mortar businesses and the limited number of online retail sites in China. Both Taobao and Aliexpress apps and websites were well developed in 2018, and the search engines directed consumers efficiently to the products they were shopping for. In addition, Alibaba developed Alipay, an eWallet service that enabled shoppers to easily pay for their purchases. In 2018, there were over 110 countries that used Alipay as a payment option. It was popular throughout a big portion of China and Southeast Asia because of its simplicity, convenience, and safety.

 

Before a consumer makes a purchase they can directly chat with sellers to know the products better and have a quick response for after-sales services. There are a few merchants who still charge for shipping, but the majority of the products listed on Alibaba are free-shipping, even for a small purchase or single item. Aliexpress, as the international market, continued Alibaba’s features and provided free shipping around the world, but it takes longer to get the products. Consumers can track their delivery status.

 

 

Aliexpress had 5.87 million app downloads, and became the second leading shopping app in the Google Play Store worldwide in April 2018. Amazon was fifth with 3.08 million downloads. Aliexpress, as a global retail marketplace, had approximately 60 million annual active buyers in the world in twelve months ending March 31, 2017. See Exhibit 2

 

Aliexpress in Russia

 

With the facilitating conditions of distance, culture, and good terms of trading between China and Russia, Aliexpress targeted Russia as a good market to start expanding their business internationally. By the end of 2014 Aliexpress was the number 1 online retailer in Russia selling essentially Chinese products, and enjoying huge popularity among Russian online consumers who appreciate its low prices and large assortment. The inclusion of additional offers from Russian companies helped Aliexpress close gaps in its product range such as heavy home appliances that are difficult to deliver from China. Given the close proximity between Russia and China, Aliexpress announced a domestic one-day delivery service. At the beginning, the one-day delivery was only for smartphones, notebooks and other electronic products in twenty cities. For other cities, delivering these products took three days.

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 2

Leading Shopping Apps in the Google Play Store Worldwide in April 2018

 

Name Number of downloads in millions
Wish – Shopping Made Fun 16.56
AliExpress – Smarter Shopping, Better Living 5.87
Lazada – Online Shopping & Deals 4.43
Joom 3.44
Amazon Shopping 3.08
Mercado Libre: Encuentra tus marcas favoritas 2.73
Flipkart Online Shopping App 2.27
Club Factory – Fair Price 2.27
Shein – Shop Women’s Fashion 2.02
Pandao 1.74

 

 

Source: https://www.statista.com/statistics/691274/leading-google-play-shopping-worldwide-downloads/ Used with permission.

 

It is essential that consumers have privacy, security and trust when they are making purchases on websites. Based on this premise, factors that will affect consumers’ buying motives include customer service, convenience, price, shipping cost, speed of delivery, quality, wide range of selection, etc. Both Amazon and Aliexpress have a huge range of product options, and their websites are easy to navigate.

 

Singles Day

 

Singles Day is a made-up holiday, designed by college students in China to celebrate being single. (11/11, a group of ones, like a group of singles). Later on, this term spread and became popular on social media. Today, Singles Day is better known as the grand shopping carnival on November 11 in China. This popular 24 hour shopping event was launched in 2009 and has had an impressive growth in sales every year from $10 million in 2009 to $25.3 billion in 2017 for one day. See Exhibit 3. As a comparison, in 2017, Amazon’s Prime Day in July, the biggest sales day in Amazon, generated an estimated $1 billion sales revenue in 30 hours; Alibaba achieved these sales in just two minutes.

 

 

 

Exhibit 3

Alibaba’s Gross Merchandise Volume on Singles Day from 2011 to 2017 (in billions of US dollars)

 

 

 

 

Source: https://www.statista.com/statistics/364543/alibaba-singles-day-1111-gmv/ Used with permission.

 

Amazon’s Strategy

 

Differing from Alibaba, Amazon adopts a self-employed approach and participates in every step of the sale. The most well-known Amazon business model is Fulfillment by Amazon (FBA). Most of the buying and selling process is through Amazon, which utilizes their big networking and fulfillment centers to quickly pick, pack, ship, and provide customer service. Amazon owns its own products, and also allows third-party sellers by collecting sales commissions. Affiliated merchants can either sell products by themselves, or they can choose to use Amazon’s fulfillment services. Amazon provides warehouses, and merchants prepare the products. The FBA method can attract merchants in different countries, and can decrease costs, and also provide good delivery services. However, it may not be a good option for Alibaba. As the middleman, Alibaba empowers merchants to process sales by themselves. This is a very different orientation compared to Amazon. The number of merchants on Alibaba is huge, with most of them from China. Since there is no guidance for the majority of these merchants to expand businesses out of the country, it raised difficulty for Alibaba to move forward to the global marketplace as a whole. To maintain good fulfillment centers and warehouses globally, Amazon spends massively to support them. This has resulted in lower profits.

 

Amazon has a customer service number where you talk with a representative, or leave a message, but you might need to wait as long as two days for a response. Compared to Amazon, Aliexpress offers a chat line, which allows consumers to ask the seller any questions they may have before they actually purchase the products. This makes the communication between retailers and consumers easier.

 

With low prices and wide selections, Amazon dominates the US online shopping market. With Amazon Prime, members can get free two-day delivery (one-day, same-day, and two-hour in some areas), streaming music, video and readings from Amazon for a $119 annual membership fee. More than 100 million people are Amazon Prime members globally, and nearly half of US households pay for Amazon Prime membership. Even without Prime, consumers can still have free shipping for a purchase of $25. Since the majority of products are fulfilled by Amazon, Amazon is always reliable. Customer Service takes less time to satisfy customers, and items shipped from Amazon can be returned within 30 days of receipt in most cases. In addition, Amazon’s website and app are easy-to-use, which provides a fluent shopping process.

 

For Amazon, its quick, high-efficiency, on time delivery and price are their main focus on strategy. Amazon Prime offers an option for those consumers who need speedy shipping to pay for this service, with a promised two-day delivery or less. Aliexpress has the same low price strategy as Amazon, but it is less expensive than Amazon and there is no sales tax. At the same time, Aliexpress offers free shipping for everything, even for consumers who purchase only one-dollar items. However, the shipping time is much longer than Amazon, typically 15-40 days.

 

Some would say that there are sellers of counterfeit merchandise on Aliexpress and the customer service experience for returns and refunds is not satisfactory. Some merchandise going to rural areas is stolen or misplaced in transit, which has affected efforts of Aliexpress to make inroads in other countries such as India.

 

Retail Online Market

 

The retail market had been shifting rapidly from brick and mortar to online because of price, convenience, and somewhat easy return capability.

 

Walmart entered the online market with the acquisition of Jet, and other retail operators were moving rapidly into their own online markets or were contracting with Amazon to provide the mechanism to handle their fulfillment. Shopping malls were becoming less and less popular as online shopping grew. Google recently announced they, too, were entering the competitive arena in a big way.

 

Substitutes for online, segments such as grocery, clothing, automobiles, etc., were still attracting the customer who wanted to have the hold and feel ability. However, the online segment was making it easier to shop for groceries with the use of Amazon’s Echo smart speaker. With the growth of smart devices such as the Smart Speaker and Smart Device, the purchase decision for online was getting easier. With both face and voice recognition, the buying decision was as simple as saying, “Alexa, buy my favorite coffee.”

 

Both Alibaba and Amazon built their own mobile apps to allow consumers to complete purchasing. Alibaba recently started using new biometrics to handle purchase confirmations, such as “Smile to pay,” which uses facial recognition technology to confirm the online purchase. Gross consumer spending on mobile apps in 2017 in Americas was 17.5 billion US dollars. In 2022 consumers are projected to spend over $34 billion on mobile apps.

 

While technically it was not difficult to enter the online segment, the time to build a brand and a system to take on an Amazon was formidable. An exception was Etsy that sold crafts and showed great growth until Amazon quickly countered by starting a new online operator named Handmade.

 

Suppliers of goods to be sold were not in a good bargaining position because Amazon could control both price and quantity due to their strong bargaining power. Technology suppliers suffered the same with Amazon’s in-house technology group.

 

Exhibit 4 is the financial comparison of Amazon and Alibaba. Alibaba does not account publicly for the financials of just Aliexpress.

 

 

 

 

 

 

 

 

 

 

Exhibit 4: Financial Comparison of Amazon and Alibaba, 2015-2018

 

Selected Financials (in millions, except per share data)

 

 

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