Alibaba Porter Five Forces Analysis
Five Forces analysis of Alibaba covering threat of new entrants & substitutes, bargaining power of buyers & suppliers and competitive rivalry.
Threat of New Entrants:
The eCommerce marketplace model works on economies of scale to become a profitable and sustainable business model. As Alibaba and other eCommerce players have massive capital investment and distribution networks, it is difficult for new players to enter this market. Merchants would not be willing to lose their volume buying profits as they enjoy Alibaba or certain e-commerce players. Also, due to economies of scale, Alibaba or more prominent players would provide cost-benefit to both merchants and consumers, requiring switching costs to shift to a new marketplace. However, existing players like Amazon expand their reach in broader markets and dive in to analyze consumer purchases and make its product. Amazon also has a warehouse model for faster delivery, offering a threat to the Alibaba model by expanding its reach among the markets with speedier delivery time. So, the threat from new entrants is low, but existing players remain a threat in the future.
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This concludes the threat of new entrants in the Alibaba Porter Five Forces Analysis.
Threat of Substitutes:
Below are the threats of substitute products of Porter’s Five Forces analysis of Alibaba:
Many substitutes in the e-commerce marketplace give competition to Alibaba, including Amazon, eBay, Walmart, Tencent, etc. All these players have a large flow of investment behind them and offer the global marketplace to the consumers.
But these platforms are less focused on the wholesale segment. Due to the broader reach of Alibaba in the Chinese market and its suppliers, it enjoys a more cost-competitive product and supplier network. Another set of substitutes for the eCommerce site can be the domestic manufacturers or retail outlets that provide direct products to the consumer. Others can be the big Chinese firm with their distribution networks and deal directly with the customers. But through the unique set of offerings, Alibaba is still the most significant player in this segment, growing its presence day by day making the consumer loyal towards them. The threat of substitutes products is medium to high.
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Bargaining Power of Customers:
In the Alibaba Porter Five Forces Analysis the bargaining power of the customers can be explained as:
Alibaba works on both models, B2B and B2C, and it enjoys a significant stream of revenue through its B2B business. Let's look towards the option available to the consumers that it has several options in the B2C marketplace, in which the primary player is Amazon. Walmart can provide the choice and great offers to the consumers to shift. Also, they tend to offer faster delivery due to a warehouse type of model, so consumers in their B2C segment have the bargaining power to change to another marketplace. On the other hand, in the B2B marketplace, Alibaba enjoys a monopoly and has no main competitor. Consumers on Alibaba can buy the wholesale product for their production units at the lowest price globally and have no significant incentives to shift to other things. So, consumer bargaining power in the B2B segment would be lower.
Overall, the bargaining power of consumers would be low to high.
Bargaining Power of Suppliers:
Following is the bargaining power of suppliers in the Porter’s Five Forces analysis of Alibaba:
Alibaba is a global marketplace generating a significant chunk of revenue through its b2b wholesale goods sale worldwide. This is the only platform with a worldwide reach and broader distribution network for a bulk deal worldwide. Alibaba's primary suppliers are the merchants that sell on this platform and pay a commission to Alibaba for their sale and listing of their product. It facilitates a global marketplace between merchant and consumer, and it offers customers to buy at the best place with premium quality and lower prices. Their distribution network also enables the easy delivery of bulk goods at a minimal cost. All of these help the merchant get the better price as it would have gained in their domestic market and give them the volume sale with delivery support, thereby increasing their profit. So, merchants would have low bargaining power with Alibaba as it enjoys several merchants ready to provide them the commission they want.
Competitive Rivalry:
The impact of key competitors in the Alibaba Porter Five Forces Analysis is as follows:
Rivalry in the eCommerce industry is high among the players. China is one of the largest eCommerce markets globally (even larger than the US) and the middle-class segment, which is the major part of the customers, is growing taste for more international brands. Companies like Target, ASOS, Amazon and Walmart provide competitive B2C products with different varieties to attract customers. Alibaba on the B2B segment enjoys the low-cost Chinese manufacturers and is price competitive for the business segments but being connected to Chinese products as substandard quality has made consumers deal with other countries like Japan at certain higher prices.
So, rivalry among the eCommerce is medium to high.
To conclude, the above Alibaba Porter Five Forces Analysis highlights the various elements which impact its competitive environment. This understanding helps to evaluate the various external business factors for any company.
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