Jack Ma celebrates as the Alibaba stock goes live during the company’s initial public offering at the New York Stock Exchange 

The three main websites of Alibaba are Taobao, Tmall and Alibaba.com, and they dominate the online shopping market in China with an 80 percent share, collectively handling more business than any other e-commerce firm. But it doesn’t stop there for the Hong Kong-based firm, as the ambitious founder, Jack Ma, would have the business stretching far further afield.

Alibaba’s rapid expansion over a relatively short period has been a phenomenal success and a testament to Ma’s perseverance. There have been occasional setbacks along the way, some significant, but this has not stopped the group’s expansion; with the-sky’s-the-limit aspirations, a tactical strategy and growing diversification, the world appears to be Alibaba’s oyster.

David vs. Goliath
Ma’s pioneering plans to bring the internet revolution to his home nation began in 1995 with the country’s first internet firm, China Pages. At the time it was still too early to get the government and public on board with an internet company, and so the project was destined to fail. While working in the government’s e-commerce division, Ma gave the dream another go. In 1999, the online business marketplace Alibaba.com was launched from his apartment with the help of 17 friends.

The dynamic entrepreneur set off on domestic tours to persuade businesses to use the internet – this time around the environment was a little more open to what he had to offer. By October of that year, Ma had successfully raised $20m in funding from SoftBank and $5m from Goldman Sachs. “In the early 1990s, there were no markets to efficiently match both sides [buyers and sellers], other than annual trade shows. Alibaba’s online platform appeared at the right time and filled the void”, says Dr Chiang Jeongwen, Professor at China Europe International Business School.

After five turbulent years Alibaba officially began earning revenue, but then came the biggest battle in the group’s history to date – defeating eBay, which at the time ruled the industry in China with an 85 percent share of the market. Alibaba launched its consumer-to-consumer sales site, Taobao, and Ma declared war, announcing that sellers could list their goods for free for three years and even had his team don army gear in an orchestrated stunt for free publicity.

“eBay is a shark in the ocean. We are a crocodile in the Yangtze River. If we fight in the ocean, we will lose. But if we fight in the river, we will win”, Ma famously said at the time. Although Alibaba was the underdog in terms of resources, Ma knew the market far better than his US counterpart. The website was made more appealing to Chinese users and a softer approach was implemented in order to gain consumer trust.

It worked, and by 2005, Alibaba and eBay had equal market shares. “Alibaba cultivated Chinese consumers’ online purchasing habits. Before the emerging of Taobao, Chinese consumers seldom shopped online”, says Ivy Jiang, China-based Research Analyst at Mintel. In an indication of his epic aspirations, overtaking the biggest competitor was simply not enough; Ma announced another three-year period for free services, forcing eBay to exit the market completely.

Supporting growth
Years later, Ma’s ambitions have magnified. In 2014, Alibaba.com partnered with the San Francisco-based peer-to-peer financing company Lending Club, to provide an e-credit line that allows buyers in the US to apply for funding of $5,000 to $300,000. In line with Ma’s global ambitions, the service is also due to expand to other markets. As well as capital, the e-credit line provides trade assurance, which allows refunds for purchases that are received late or are different from the online description.

This is an important feature that was implemented as a result of criticism for facilitating the sale of counterfeit products. “Recent fake product issues have caused its stock price [to drop] like a rock, which angered shareholders and promoted multiple lawsuits”, says Dr Jeongwen. In another concerted effort to clamp down on the issue and squash rumours of its dealings with counterfeit traders, last year Alibaba purged around 90 million suspicious listings from its sites.

With the intention of augmenting its already commanding domestic presence, Alibaba is also bolstering its logistical framework in China, particularly in small villages and isolated areas. In order to achieve this operational feat, last year Alibaba formed a partnership with China Post, the world’s largest postal network.

New storage facilities, processing centres and delivery outputs will be established for mutual use, while the two colossal organisations are also collaborating on business ventures, e-commerce, finance and information security.

In addition, China Post is due to open around 100,000 service points, which will provide delivery and pick up services for both buyers and sellers. “People there have less pressure from high housing prices and tight work schedules compared with those who live in mega-cities in China, so the consumption power in lower-tier cites cannot be underestimated”, said Ma at the signing ceremony.

By reaching all corners of a population boasting 1.35 billion potential customers, there is still room for unprecedented growth. Last December, the group invested $240m in a Haier Electronics subsidiary that has an extensive network of warehouses and distribution sites in 2,800 counties, as well as over 17,000 service points. “China will see the emergence of online platforms that can handle transactions of more than 10 trillion yuan ($1.6trn) a year. We need to make sure that the development of a logistics system in China can support the surging development of e-commerce”, Ma said during his speech.

Threat to the West
As the eBay vs. Alibaba battle illustrated, the home advantage often wins; as such, an in-depth knowledge of the market and consumer behaviour is invaluable, particularly as trends continue to evolve. “The success of Alibaba is attributed to its understanding of the local market and consumer needs, as Alibaba is associated with the attribute, ‘relevant to me’ by Chinese consumers”, says Jiang.

The online market therefore seems impenetrable to Western firms attempting to weigh in on the growing action (see Fig. 1). Furthermore, China’s push for greater internet balkanisation, in which the internet is splintered into smaller closed nation networks, could be the final nail in the coffin for Western tech companies looking to expand in the East.

Ma is also boosting the group’s presence in Western markets, with a particular focus on the US market. When Alibaba was listed on the New York Stock Exchange late last year, the announcement captivated Wall Street – at $25bn, it was the largest tech IPO of all time.

Investors saw this as an opportunity not merely to invest in the biggest online marketplace in the world, but to invest in Jack Ma – the man who made it happen against all odds. The group offers the US market something unique; a chance to reach out to every trader in China, no matter the size. The variety of products on sale, as well as their competitive prices, makes Alibaba an enviable platform.

The group is also broadening its portfolio and enhancing its overseas business with investments in US companies, such as the messaging and free-calling app, Tango, and the mobile-app transportation network, Lyft. “Alibaba can invest or buy companies just like Apple or Google. In that sense, they compete against each other for those companies wanted by all of them”, says Dr Jeongwen.

In this respect, the size and therefore level of manoeuvrability that the group is capable of is astounding. If this pattern continues, Western tech companies may soon find themselves overshadowed by Alibaba’s global network.

Potential pitfalls
It is important to note that Alibaba’s previous endeavour to go public in 2007 was unsuccessful; Alibaba.com lasted on the Hong Kong Stock Exchange for just five years before the company bought back its shares. This setback highlights the vulnerability of the firm to slowing growth, and its fallibility despite its size.

In addition, even those who dominate the market face competition, and this is also true for Alibaba. Namely, domestic rival JD.com has recently gained traction in the market and is also targeting lower-city penetration, having teamed up with more than 10,000 convenience stores across western and central China.

There are various other challenges that also exist for Alibaba, particularly in terms of its plans to expand further into new markets and industries. “They can duplicate this model only in developing countries like Indonesia or India. They would not have a chance in the developed countries like US where law and order is much [more] strict”, says Dr Jeongwen. The regulations for business in China compared with the West are markedly different, making China-based companies vulnerable to inconsistencies that are not relevant in the domestic market.

For this reason it is vital for the group to ‘over-disclose’ everything – complete transparency will keep it from pitfalls and misunderstandings – and so is key when operating in foreign markets. The business recently suffered such a setback, when in March Taiwanese authorities announced that Alibaba had to exit the market after discovering that the firm was listed as a Singaporean company. Although this is currently a small market for the group, the move is a slippery slope within the international arena.

Competitors may very well look for opportunities to force the corporation out of various markets. Having the right staff on board can eliminate such risks; internal auditors, accounting personnel and an apt risk management team can help to avoid major errors, which are bound to happen given the company’s rate of growth.

There still exists an unprecedented scope for expansion for Alibaba Group. Indications of continued growth are rife, from recent investments into new industries, to creating the infrastructure for full market penetration in China, and opening revenue outlets in untapped markets. Tactical approaches and dubious manoeuvres have been used before, thereby illustrating a Machiavellian approach to business, which could be used to reach even greater heights for the company.

Considering the group’s history so far, it’s clear that Ma’s ambitions are not to be underestimated. Alibaba’s astonishing success shows the potential for Chinese entrepreneurship; Western firms do indeed have reason to fear the group’s continued expansion and, as such, better suit up for battle.