SOLUTION: MIT Chinese E Commerce Firm Challenges & the Way Forward for E Commerce Players Essay

Proposed business topic – examing the challenges of chinese e-commerces firm & exploring the
way forward for e-commerce players
The topic of the report is to study the challenges of chinese e-commerces companies and exploring the
way forward for e commerce players.
E-commerce has become a very promising market in China. Its online retail market accounted for 17% of
total retail sales in 2017 (Arora, 2018). This shows that China’s e-commerce market is huge. So, for such
a market with development potential, the challenges which are intensive competition among enterprises,
small brands cannot be accepted by mainstream electronic business enterprises (Verot, 2017) and how
to satisfy customers’ increasingly critical tastes faces (Consulting, 2018). This report will give
recommendations through the challenges faced by China’s e-commerce, with a view to predicting the
future of China’s e-commerce.
Another focus of this report is the market development of China’s e-commerce, and the market
development direction of its participants such as Alibaba founder Jack Ma. The Chinese e-commerce
market is currently dominated by e-commerce giants Alibaba and JD.com (Williams, 2019). In recent
years, Pinduoduo has emerged as the third largest e-commerce giant in China. (Chang et al., 2019) Then,
how other e-commerce companies will catch up with these three e-commerce giants in the future and
why these three e-commerce companies can dominate the current Chinese e-commerce market is
another focus of the report.
Background information
Alibaba, a well-known e-commerce company in China, was established in 1999 to open the door to its
e-commerce platform. Later, in 2003, Taobao was born, and gradually changed the shopping mode of
Chinese consumers from offline shopping to online shopping. (Chengxi, 2019) So far, e-commerce
platform has gradually stabilized. The reason why e-commerce can be so successful can be attributed to
the shortcomings of China’s traditional retail industry. Alibaba connects small Chinese manufacturers
with customers. For small businesses, online sales are the most direct, effective and simple way to enter
a larger market. For consumers, online shopping is more convenient and faster, and Taobao, operated by
Alibaba, has a relatively complete range of products that can meet the shopping needs of most
consumers, so most consumers will choose online shopping instead of Offline shopping.
In recent years, the three e-commerce companies of JD.com, Alibaba and Pinduoduo have gradually
occupied China’s e-commerce market and become the top three in China’s e-commerce market.
Moreover, these three e-commerce platforms have captured consumers’ preference for buying
discounted goods, and transformed November 11 from a non-traditional Singles Day to a Double 11
Shopping Carnival. Every November 11th, discounted goods will appear on e-commerce platforms for
consumers to purchase. (Walden, 2019) Since 2009, its sales have not disappointed e-commerce
companies every year. Chinese e-commerce companies have bundled online live broadcasts on their
platforms, forming a new consumer trend, that is, selling various products through network anchors. The
advantage of this type of sales is that live broadcast hosts will carefully select products that meet
consumer tastes and a wide range of products according to their fans’ psychology to attract viewers, and
some e-commerce platform hosts often use low prices Distributing gifts to the audience, grasping the
consumer’s price-sensitive psychology to attract consumers, will also increase the urgency of the
audience to purchase through quota sales and attract the audience to shop.
Situation analysis
The benefit of the electronic retail industry for China is that it has brought huge private consumption
growth to China. As consumers acquire a wider range of goods, these expenditures are also
increasing, which accelerates the policy purpose of China to increase private consumption (Dobbs
et al.,2013).
One of the challenges of chinese e-commerce market is that e-commerce is basically dominated by
Alibaba, Taobao and Pinduoduo, which limits the living space of other small companies (Verot,
2017). For these three mainstream e-commerce companies, if they want to enter their e-sales
platform, they must have a corresponding brand effect, that is, large-scale physical retailer
companies. It is basically impossible for small companies to enter its platform without branding.
According to data from the Chinese market in 2011, the large B2C websites accounted for 90% of
the entire retail industry, and more than 70% of the market share was C2C, and few large physical
retailers successfully developed multi-channel sales Channel, this aspect reflects the importance of
small enterprises in promoting industry growth. (Dobbs et al., 2013) If small businesses cannot
survive because of China’s e-retailer environment, the future growth of China’s e-commerce retail
industry is worrying.
The third challenge is that China’s e-commerce competition is fierce. Local and international brands
are competing for the attention of consumers in order to create a better brand effect and increase
company profits. (PWC, 2017) And this fierce competition has also led to the last challenge facing
China’s e-commerce, which is how to satisfy the increasingly demanding consumer tastes. Take
Alibaba, Taobao and Pinduoduo as examples. These three companies have developed
cross-border e-commerce and added overseas sales channels on their e-commerce platforms to
meet the needs of Chinese domestic consumers for overseas products, and for overseas Chinese.
Added overseas e-commerce sites, such as Taobao Overseas Edition. This has met the needs of
some Chinese consumers, which also reflects the changing consumption levels of Chinese
consumers. The ability to keep up with the ever-changing consumer standards affects one of the
key factors for companies to survive this fierce competition.
Proposed freamworks
Alibaba PESTEL analysis
PESTEL analysis is a framework used to analyze the external marketing environment factors that
have an impact on the enterprise. They represent political, economic, social, technological,
environmental, legal factors.
The following is a brief PESTEL analysis of Chinese Alibaba companies:
Political:
China’s current uncertain political situation is one of the threats to Alibaba (MBA Skool Team, 2020).
Alibaba wants to develop the Hong Kong market recently, but the recent security law drafted by the
Chinese government on Hong Kong has deepened the conflict between mainland China and Hong
Kong (FORNIÈS, 2020), which has affected the development of the Hong Kong market by Alibaba.
But for Alibaba’s market in mainland China, the Chinese government encourages regional business,
which is an advantage for Alibaba’s rapidly growing business (Pratap, 2019).
Economic
China’s booming economy has brought high sales and profits to Alibaba, so when China’s
economic situation is good, people will spend more on technology and lifestyle products, which
allows Alibaba to have more client. If the economic situation is not good, part of the sales will be lost
because people do not have too much distributable income (Pratap, 2019). In 2020, China’s GDP
growth rate will drop to 6%, indicating that China is facing an economic slowdown. The impact of
this on Alibaba is that although revenue has increased, the growth rate has decreased. This shows
that Alibaba is losing some customers (MBA Skool Team, 2020). So Alibaba is seeking new areas
to increase their customer base.
Social
In China, a large number of people use the Internet to access online products and services, which
has enabled Alibaba’s electronic trading industry to develop well (Pratap, 2019). And Alibaba’s
mobile application Taobao provides customers with a business platform, and it also has social
media similar functions, customers can share their experience and product reviews (MBA Skool
Team, 2020). This makes more people willing to use it for consumption.
Technological
Technical factors have played a big role in the development of Alibaba. The company has achieved
tremendous growth in the short term, one of the reasons is because the company focuses on
technology and innovation (Pratap, 2019). Alibaba invests a lot of money in research and
development every year, widely using cloud computing, artificial intelligence (MBA Skool Team,
2020), and machine learning technologies to achieve corporate success.
Environmental
Alibaba regards social corporate responsibility and sustainable development as part of its business
model, and the company has been investing in social responsibility and sustainable development
(Pratap, 2019). The corporate social responsibility programs it supports include job creation, rural
development, poverty alleviation, environmental sustainability, etc (MBA Skool Team, 2020). These
measures will maintain customer loyalty for companies.
Legal
Legal factors for companies focus on compliance. That is, in addition to paying attention to the
quality of their products, companies also need to consider labor or other related laws. Alibaba has
formulated measures to protect its intellectual property rights and can respond promptly when
intellectual property rights are infringed.
Value Chain
Value chain analysis can better determine Alibaba’s possible sources of competitive advantage,
help the company discover new opportunities and reduce external threats. And the effective
implementation of the value chain can also flow materials and products (Byrne, 2018). The
company can effectively deal with the bottleneck of information flow through the analysis of the
value chain.
Value chain analysis includes inbound logistics, operations, outbound logistics, marketing and sales,
services, secondary activities, company infrastructure, human resource management, technology
development, and procurement. Through value chain analysis, you can add value and achieve cost
efficiency (Byrne, 2018).
Proposed data resources and plan for completion
The investigation of the development of China’s e-commerce market will take into account the
period from when e-commerce is widely used to 2020. The impact of COVID-19 on e-commerce in
2020 will be one of the factors that need to be considered. For e-commerce, customer needs and
the competitive environment are the basis for the challenges. It is no exception for its participants.
Therefore, the final report will analyze the impact of these challenges on the market from these
aspects. The plan for the next and this quarter will be presented in the following table.
Q uarter 3
A genda
W eeks
1~ 2
3
4
5
6
7
8
9
10
absence
subject to determ ine & thoughts on the proposal
research inform ation to com plete proposaldraft report
m odify the proposaldraft report & search m ore inform ation of chinese e-com m m erce
m odify the proposaldraft report & search m ore inform ation of theories and tools
com plete the proposalreport
subm it the proposalreport
search fream w orks of A libaba & thoughts on the progress report
find the problem s on the progress report
W eeks
1
2
3
4
5
6
7
8
9
10
Q uarter 4
A genda
com plete the progress report & finalreport introduction
com plete the background of finalreport
search inform ation of finalreport theories and tools analysis
w illbe com plete the analysis of A libaba in finalreport
com plete the conclusion and recom m ended of finalreport
com plete draft finalreport and prepare the presentation
integrate finalreport
presentation
check and m odify allof finalreport follow the feedback of presentaion
subm it report
References
Arora, G. (2018). The continued momentum of e-commerce growth in China | China
eCommerce Trends | Mobile Payments in China | PwC India. [online] PwC. Available
at:
https://www.pwc.in/consulting/financial-services/fintech/fintech-insights/the-continue
d-momentum-of-e-commerce-growth-in-china.html.
Briefing, C. (2019). China’s Crackdown on Daigou Merchants, New e-Commerce
Policies. [online] China Briefing News. Available at:
https://www.china-briefing.com/news/chinas-crackdown-daigou-cross-border-e-com
merce-policies/.
Byrne, T. (2018). Value Chain Analysis Of Alibaba. [online] Essay48. Available at:
https://www.essay48.com/value-chain-analysis/13652-Alibaba-Value-Chain-Analysis
[Accessed 31 Aug. 2020].
Chang, Y., Wong, S.F., Libaque-Saenz, C.F. and Lee, H. (2019). e-Commerce
Sustainability: The Case of Pinduoduo in China. Sustainability, 11(15), p.4053.
Chengxi, Y. (2019). World Internet Conference: A brief history of China’s
e-commerce war. [online] news.cgtn.com. Available at:
https://news.cgtn.com/news/2019-10-20/World-Internet-Conference-A-brief-history-o
f-China-s-e-commerce-war-KWeXsv3wL6/index.html [Accessed 14 Aug. 2020].
Consulting, A. (2018). Opportunities and Challenges in China Cross-Border
E-Commerce. [online] www.azoyagroup.com. Available at:
https://www.azoyagroup.com/blog/view/opportunities-and-challenges-in-china-crossborder-e-commerce/ [Accessed 31 Aug. 2020].
Dobbs, R., Chen, Y., Orr, G., Manyika, J., Chui, M. and Chang, E. (2013). China’s
e-tail revolution: Online shopping as a catalyst for growth. McKinsey Global
Institute.
FORNIÈS, D. (2020). “Many are concerned that soon Hong Kong will become just
another Chinese mainland city.” [online] Nationalia. Available at:
https://www.nationalia.info/interview/11319/many-are-concerned-that-soon-hong-kon
g-will-become-just-another-chinese-mainland-city [Accessed 31 Aug. 2020].
MBA Skool Team (2020). Alibaba PESTLE Analysis | PESTEL Analysis of Alibaba.
[online] MBA Skool-Study.Learn.Share. Available at:
https://www.mbaskool.com/pestle-analysis/companies/18041-alibaba.html.
Pratap, A. (2019). Alibaba group PESTEL Analysis – Notesmatic. [online] notesmatic.
Available at: https://notesmatic.com/2019/05/alibaba-group-pestel-analysis/.
PWC (2017). eCommerce in China – the future is already here.
Verot, O. (2017). The 5 biggest Problems of Chinese E-Commerce. [online]
www.linkedin.com. Available at:
https://www.linkedin.com/pulse/5-biggest-problems-chinese-e-commerce-olivier-vero
t/ [Accessed 31 Aug. 2020].
Walden, M. (2019). Half a billion shoppers expected to participate in Singles Day —
here’s what you need to know. [online] www.abc.net.au. Available at:
https://www.abc.net.au/news/2019-11-10/singles-day-2019-china-ecommerce-taylor-s
wift-australia-join/11669184 [Accessed 14 Aug. 2020].
Williams, D. (2019). E-commerce in China: A present and future market overview.
[online] Verdict Retail. Available at:
https://www.retail-insight-network.com/features/e-commerce-in-china/.
Running Head: ANALYSIS OF CHINESE E-COMMERCE MARKET
Analysis of Chinese E-Commerce Market
Name
Institution
Authors Note
1
Analysis of Chinese E-Commerce Market
2
Introduction
China has a gigantic market structure that has always strived to fit all its needs in one
accord. The landscape has seen various e-commerce companies build up and penetrate the vast
population within its territories—the best competitors in e-commerce include; Alibaba, Taobao,
JD.com, and Pinduoduo (“E-commerce in China: A present and future market overview”, 2020).
Being a wide matric with some companies such as JD.com battling critically against Alibaba with
its self-acclaimed quality assurance and the high efficiency of well-reserved logistics structure, the
existence of the four companies (Alibaba, Taobao, JD.com, and Pinduoduo) will be analyzed using
Ansoff Matrix Analysis and Porters Five Forces Model Analysis.
Ansoff Matrix Analysis (ALIBABA)
Market penetration
Strength if various companies differ in terms of penetrating the market. Alibaba is a well
know company that penetrates the market using the third party platform. So the company does not
take inventories (JIANG, 2019). The company also uses the WeChat post to gain more clients by
posting products and listing some properties to join the WeChat team to influence the price.
However, Alibaba does not take inventories to fulfill market orders.
Product development
Developing a product to sell to the existing market is the key motive of product
development. Product development has forced many companies that rely on e-commerce to shift
during this time of the pandemic negatively. Many people have strict preferences, and shifting into
new products has proved a hard initiative (JIANG, 2019). People in China are picky, so Alibaba
attaches new products to certain goods and get the new product free of charge within a specified
time spectrum. This is done to get people into liking the new product.
Analysis of Chinese E-Commerce Market
3
Market development
The main ideology of making a product for most companies is profitability. For
profitability to thrive, there must be many users willing to buy a company product. Alibaba
maintains the structure and reputation of its culture by dictating the rate of public participation
towards a given product (JIANG, 2019). Alibaba conquers the domestic market has always thrived
at being the giant in the Chinese market before invading the overseas market. Alibaba also tries
their best to ensure that they have the best price and a faster logistics department to maintain the
competition against its competitors. This is the only way to attract new customers through market
development.
Diversification
Diversification is the modal development of the new product to sell into new markets. It is
among the risky initiatives in e-commerce. Basically, developing a new product means a need for
new beginnings, from advertising it to the marketing strategies needed to see it through. If it
succeeds in the market structure, new customers are diverted to the company hence a new direction
for the company (JIANG, 2019). It also means that the competition is stiffer among its competitors.
Alibaba has always relied on diversification to revert the traffic of potential customers from their
competitor.
Porter’s Five Forces Model Analysis (JD.com)
Fierce competition
Fierce competition can either strengthen a company or wipe it out from the market. In
China, Alibaba, Taobao, JD.com, and Pinduoduo are always in constant competition. This is
because they rely on the same selling structure of e-commerce. The four companies also face
Analysis of Chinese E-Commerce Market
4
competition from overseas companies such as Amazon. So they have to constantly update their ecommerce game periodically to keep up with the diversified market structure. JD.com compete
among other ecommerce companies in the Chinese market. Such competition reduces each other’s
market ratio, reduces profits, and paralyze the small scale ecommerce entities (“Jd Sports Fashion
Plc Porter Five (5) Forces & Industry Analysis [Strategy]”, 2020). For continuity purposes, the
companies must ensure that they have something unique to attract customers within China.
The threat of new entrants
JD.com has a fear of new entrants, just like other companies. New market entrants impose
threats to existing market players. When a company is profitable, the barriers to enter the industry
remain low hence attracting more players. JD.com reduce threats of new entrants because t is well
placed in the ecommerce sector (“JOYBUY.com”, 2020). The Chinese regulatory framework also
reduces new entrants by imposing strict rules for people posing to form a large scale business
empire. New entrants also get discouraged when access to the distribution channel is restricted.
JD.com had developed brand loyalty and has a long term contractual relationship.
Suppliers bargaining power
Bargaining power reflects the pressure exerted by suppliers on various businesses.
Suppliers’ bargaining power is very high when the suppliers concentrate in a specific region,
thereby having a higher concentration than their potential buyers. Suppliers’ force becomes
stronger when it is costly to switch from one supplier to another because this makes it expe …
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