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International Management Project Topic - Amazon vs. Alibaba - who will win and why?
Examine current international management issues that challenge organizational leaders to resolve critical issues involving competition, operational management, as well as serious political matters.
(1) Identify the key issues facing management,
(2) What impact the international environment has on these issues, and
(3) Strategies management should use to overcome these issues,
(4) How these strategies will impact the overall organizational operations, and
(5) Identify the potential costs and risks to the organizations of implementing the newly developed strategies.
Solution - ALIBABA vs. AMAZON
Both Alibaba and Amazon are Ecommerce giants, who have been competing with each other. Alibaba is a pioneer in Chinese market whereas Amazon was able to survive in a highly competitive market of America, where already many online platforms have emerged. The paper tries to analyse the ecommerce companies Alibaba and Amazon, in order to find out the winner among the two companies.
Using value chain analysis both Alibaba and Amazon are analysed
Alibaba follows an improvised version of value chain model, while Amazon follows the traditional value chain model. Through Alibaba, Suppliers and buyers are allowed to list their products and services that they are willing to offer to customers. Amazon serves only business to consumer platform and is not supplier friendly. Alibaba platform enables both the suppliers and buyers to engage in communication with buyer's ad also perform transactions online. This helps the suppliers to build long term relationships with consumers and identify several retailers also. Both the platforms tries to gather information and then the information is organised and selected according to the needs of the users. The inbound logistics of Alibabais its relationship with suppliers and outbound logistics reveal that products are distributed through air freight, sea freight and ocean freight services. Amazon follows the same outbound logistics but they also have Warehouses to assist in storage operations. Cargos and container services are part of the operations process of both the companies. My Alibaba account looks after the financial activities and buying and selling operations .Online forum and open events form part of the marketing operations and Trade related transactions form the tools and resources of the company. As regards Amazon there are additional fulfilment centres and they seem to concentrate more on marketing and promotion activities than Alibaba. Outsourcing and esourcing are additional operations of Amazon unlike Alibaba. Moreover Amazon uses single platform for selling and outsourcing whereas Alibaba platform uses multiple platform for serving different market segments. Taobao platform for Chinese business dealings and Taobao mal for serving buyers and Taobao mascot for dealing with international customers are the platforms. Amazon sells products after collecting and storing them from suppliers in warehouses and then transports them to the consumers. Alibaba employs less number of people than Amazon and their training centres are not in par with Amazon.
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Alibaba and Amazon faces international competition from American companies like Walmart, Priceline and eBay. .The digital connectivity of Walmart with its logistics operations, gives the user a convenient destination to shop. The concentration of Priceline platform is on products related to travel that helps it to target specific group of customers. EBay also provides B2C and C2C supported platform and it also has a major share in the Chinese economy along with international expansion in thirty countries. Amazon also faces competition from the companies but it has a better global presence when compared to Alibaba.
The support of Government is very much significant for businesses operating in any country. This defines the political framework for any organisation. Restrictions brought by the government has significant impact on the functioning of any organisation. In this context Alibaba is well supported by the Chinese government but controversy created by Huawei Companyin USA, has resulted in strained relationships with other Chinese companies like Alibaba with the US government.
This can affect the company's further prospects in European countries also.USA Government has introduced protective trade, which does not support foreign firms operating in the country. (Diamond J, 2017)
Amazon being an American company remains unaffected. Also the chances of prospering in UK or European countries is more for Amazon as the US government has already decided to enter into trade agreements with UK post Brexit and this will also be an eye-opener for the European course. (Gichrist K , 2017)
The status of the global economy along with the position of the regional economy, in which company operates, lays an important role in determining the profits that any organisation can earn. A growth oriented economy will have less unemployment and the disposable income in the hands of consumers are very high which enables them to buy more goods and services, through online platforms. The ever-growing and vast economy of China is a reason for the success of the Alibaba.
Amazon has resorted to use of Artificial intelligence for which it has been blamed for creating unemployment but reports also show that, the company has been employing more number people in UK and USA (Vandevelde M , 2017). By following new era business model the company is welcomed by people in developing and educated countries (Denning S, 2017)
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The buying culture of any country determines the channels through which they want to buy the products. An educated and growing economy will mostly opt for online platforms for buying and selling. The technological advancement seen in China has been supportive for the rise of Alibaba as it supports both Chinese and English languages. The success was mainly seen in China but it failed to prove itself in other countries.
By continuously innovating and bringing in up-to-date technology Amazon was able to become a leader in the industry. (Sindi S and Roe M , 2017).The Company invests much in Research and development and mainly uses Cloud data centre. This has helped the company to earn massive profits. Hub rolled out technology that enables Amazon to deliver products doorstep even if the consumer is not there, shows that they are continuously adding new updated technology in their service. (London A, 2017)They have also added more employees in their Research and development wing showing that there is more investment in this area. (Ruddick G, 2017)
The CSR rating of Alibaba has been exceptional, as it has been engaging itself in projects that are fruitful to the society. One such project is the reunion system which supports the cause of searching and finding children who got separated from their parents. Environment friendly supply chain activities and supporting women entrepreneurs are some other activities. Amazon has been reported to have caused certain amount of gas emissions recently. Also Amazon has failed to give a corporate sustainability report, showing lack of concern for the government. (Gunther M , 2016)
Often Business can encounter legal issues in case of high taxes on its incomes and violation of law of operating in a particular country. Alibaba has not faced such issues till now, whereas Amazon has been blamed for giving undue discounts on many products (Bartz D , 2017).Also the company has been criticised for selling products to terrorists. This has also been a blow to the company from the political side. (Gov, 2016)
Regarding the operational management, Alibaba is lagging behind up gradation of technology and investment, when compared to Amazon. Amazon has single platform which gives it easy global recognition and usage of English language makes it more user-friendly. Alibaba is more recognised as a Chinese online platform. Alibaba uses multiple platforms unlike Amazon, which may not be user friendly for the international community. Alibaba makes the customer pay through the Alibaba payment system unlike Amazon which uses other financial arrangements for payment. This could be a problem for Amazon users. The operational management of both the platforms reveal that, Alibaba is more favourable for suppliers and retailers while Amazon provides a more consumer friendly business.
On analysing the political scenario Amazon seems to have a better hold because of US imposed restrictions on Chinese companies. Alibaba follows a Chinese culture which may not be acceptable to the global population but has the benefit of a large Chinese economy and government support. Noncompliance of legal procedures and environmental policies are affecting Amazons popularity as an online platform. The political framework seems to support Amazon more than Alibaba. Other than cloud data centre not much technology innovations are used by Alibaba.
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The issues identified and recommendations for the same are detailed below.
- Lacking corporate social responsibility
- Non adherence to business ethics
Triple bottom line approach
John Ellington, the founder of the approach has suggested three main criteria to be followed by companies in order to attain corporate social responsibility in business. People profits and environmental aspects are the three points to be considered. Profits have been the major aim of business that is shown in the income statement of the companies. The people aspect shows the social value that the business must consider while functioning in the society. Environmental aspects of the business is also important, as because the business is operating as a part of the global network.
- The company can collect additional finances for this purpose. A collaboration with the urban partnership bank can help the company to acquire more finances for developing the society and by adopting environment friendly approach in package and distribution of products the company can increase its goodwill. This can be costly to implement but Amazon can get better results in the long run.
- The company needs to follow the corporate business ethics as well. For this the company has to follow the guidelines given by the Global reporting initiative. The guidelines states that the company must submit a report as regards the various departments of the organisation Amazon must try to submit an environmental audit report, basing on the guidelines, so that they are recognised as a company that follows ethical standards in business. This is cost effective
- As regards the companies Packaging material, the company can collaborate with Blue sign, a company that manufactures environment friendly packing materials, using special clothing material. In order to further support the environmental cause, the company can collaborate with ten tree, a company that facilitates the use of package friendly materials and also tries to plant trees for every product they sell. These initiatives can help Amazon to address the issues concerned.
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- US restrictions on Chinese companies
- Multiple business platforms
- Chinese culture
- Less investment in technology
- Less Global expansion
Total global strategy
This strategy must be focussed on both the suppliers and buyer segments of Alibaba. The strategy must be exclusively implemented for global expansions and development of the companies research and development centre. Alibaba must try to practice Cross cultural management techniques to gain more easy international access.
- Firstly, Alibaba must try to invest more in Research and development activities, so that it is in par with is competitor Amazon. The company must identify areas where there is a large number of employees, whose technical knowhow can be an advantage for improving the technological issues. Establishing research and development centres in these areas can be profitable in the long run, but initially the company will have to bear the costs.
- In countries like USA, where the Chinese companies are facing restrictions, partnership with foreign multinational companies can prove fruitful. An example can be of the partnership that Chinese company Ztec had with Ericsson and Switch core in order to support its technological needs. Insuch situation the company can enter into partnership with the China development bank. This can gain the company additional funds for international expansion. Huawei has been supported by Chinese government in this manner. This will gain the company additional funds and so is cost effective.
- As a solution for cultural barriers between the USA and China, Chinese companies like Alibaba, must try to cover the cultural gap that exists between the Chinese and American culture. This mainly includes cross cultural communications. For this, Qtok app can be useful for the company, which can provide translations to many languages. The differences in the high context and low context cultures must be taken into amount buy the cross cultural leaders, in order to survive in the US market The Company must bring in practice of including diverse culture with the company so that it naturally becomes a practices within the organisation. Ozone play, an application that supports video gaming programs that are aimed at bringing employees together through various competitive games is suggested for the purpose of team building in the cross cultural environment. Installations of these applications will involve minimum costs.
Drawing inferences from the analysis it can be concluded that, Amazon is better placed in the international market than Alibaba. There is no doubt that Alibaba is a leader in the Ecommerce platform, but it hasimitations of being labledas a Chinese company and added political issues has restricted its scope for further international expansion.
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