Alibaba – How Logistics Factors into the US$400-Billion Company’s Growth Strategy


In 2017, Alibaba amassed a staggering US$25.3 billion in sales revenue1 — not in a year, but in just a day: November 11th, also known as Singles’ Day in China. The story of Alibaba — an online retailer that does not own or hold any inventory — growing from an 18-strong team to one of the world’s largest Internet companies, and becoming the first Asian company to reach US$400 billion2 in value, is truly awe-inspiring.

Amazon versus Alibaba

The global ecommerce market is set to reach US$4 trillion by 20203. Amazon and Alibaba are two of the juggernauts driving this mammoth market. While the two operate on the online sphere, their business approaches and strategies are vastly different. Amazon has a multipronged business model4, its primary revenue source being direct sales. It also offers a platform for purveyors selling less common items that fetch a higher price as well as a subscription-based service where customers pay a fee for perks such as free shipping and access to digital content.

How is Alibaba’s business model different from Amazon’s? In the words of Alibaba founder Jack Ma5, Amazon is “more like an empire” in that it controls everything that it buys and sells, whereas Alibaba aspires to be an “ecosystem”. Buoyed by the brand’s technology, innovation and partners’ strengths, its community of 10 million small-business owners have an edge that allows them to “become Amazon”.

Alibaba Group’s diverse portfolio includes the business-to-business Alibaba.com; business-to-consumer Tmall; consumer-to-consumer Taobao; and flash-sale and bargain website Juhuasuan6. These websites connect buyers and sellers — suppliers list their products on the websites and buyers purchase from them directly. Alibaba’s role is that of a middleman.

Bringing benefits to both customers and partners

So, what exactly does Alibaba bring to the table? The answer: a first-rate supply chain and logistics system. China is the world’s largest ecommerce market7, but many parts of the country are still undergoing urbanisation. To serve different groups of customers, Alibaba works in tandem with third-party providers to offer private-courier and countryside delivery services.

Alibaba also strikes up meaningful partnerships with its network of logistics companies and freight forwarders. For example, when using Alibaba.com, exporters can reserve space on Maersk’s container ships through the OneTouch service8. For small exporters, this helps to ease common woes such as unpredictable costs and booking cancellations — shipping companies tend to prefer dealing with high-volume businesses. Conversely, as Alibaba.com consolidates disparate shipments into larger ones, global logistics firms such as Maersk can now tap into the burgeoning requests by small and medium-sized enterprises while offering lower costs and promising streamlined processes. This is a win-win arrangement for all parties.

Mining logistical data

In September 2017, Alibaba took control of logistics unit Cainiao, pledging to funnel some US$15 billion within a five-year timespan to establish a global logistics network​9 as well as develop smart warehouses and smart delivery. With this move, Alibaba plans to improve ecommerce services in China, fulfilling customer orders within a day and overseas orders within three days.

Besides greater convenience to customers, owning a logistics network brings about a huge benefit. By leveraging on data analyses, Alibaba can select the most suitable logistics company for different segments of the network. On the other end of the spectrum, customers can choose their preferences, be it the fastest, cheapest or safest service, and the logistics company with the relevant strengths will be assigned to deliver the packages10. This helps to optimise Alibaba’s logistics management, making processes run more efficiently.

SOURCE REFERENCES:

1 Alibaba’s Singles’ Day Sale Amassed $25.3 billion, Doubling 2016 Black Friday and Cyber Monday sales combined:hhttps://www.theverge.com/2017/11/11/16637362/alibaba-singles-day-2017-sales-record-online-shopping-black-friday-cyber-monday

2 Alibaba is Much More Than Just China’s E-commerce Platform: https://www.cnbc.com/2017/09/22/alibaba-is-much-more-than-just-chinas-e-commerce-platform.html?view=story&%24DEVICE%24=native-android-tablet

3 Global Ecommerce Markets Will Reach $4 Trillion By 2020. Are You In?: https://www.shopify.com/enterprise/global-ecommerce-markets

4 The Difference Between Amazon and Alibaba’s Business Models: https://www.investopedia.com/articles/investing/061215/difference-between-amazon-and-alibabas-business-models.asp

5 Jack Ma Explains the Difference between Alibaba and Amazon: ‘Amazon is More Like an Empire’: https://www.cnbc.com/2017/01/18/jack-ma-difference-between-alibaba-and-amazon.html

6 A Beginner’s Guide to Alibaba Group: https://www.forbes.com/sites/joshsteimle/2015/01/26/a-beginners-guide-to-alibaba-group/#21dffefe7b4f

7 eCommerce in China – The Future Is Already Here: https://www.pwccn.com/en/retail-and-consumer/publications/total-retail-2017-china/total-retail-survey-2017-china-cut.pdf

8 Alibaba.com Teams with Global Logistics Partners to Help Small Exporters: http://www.alizila.com/alibaba-com-teams-global-logistics-partners-help-small-exporters/

9 Alibaba Takes Control of Logistics Business, Pledges $15 billion to Expand Network: https://www.reuters.com/article/us-alibaba-cainiao-investment/alibaba-takes-control-of-logistics-business-pledges-15-billion-to-expand-network-idUSKCN1C10C2

10 The Seven Reasons for Alibaba’s Success: https://www.digitalnewsasia.com/insights/seven-reasons-alibaba-success