Company’s Risks Term Paper
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The goals of innovative policy are in explanation of the priorities and directions of innovative development; organization of innovative processes to ensure effective coordination of all subjects of innovation; assessment of the innovative capacity of the company; innovative activities; the selection and implementation of innovative projects that enhance the efficiency and competitiveness of the company; development of scenarios of companies’ innovative activity; concentration of resources in priority areas of development; and other activities to facilitate the implementation of effective innovation (Hisrich, 2010).
Now everyone is talking about how they are going to change the world and make a lot of money, but those who actually do it are exceptional people with breakthrough ideas and innovative thinking and a huge stock of patience. Breakthrough innovation comes from people who break the status quo and pave the own path. In 1999, a modest 35-year-old English teacher from Hangzhou Jack Ma launched a website of online sales Alibaba.com. Formerly Jack could not suppose that in 16 years the number of users exceeds the trading floors of 230 million, and he becomes the owner of the state to $28.6 billion (Browne, 2014). World press dubbed the ideological inspirer and founder of Alibaba Group Jack Ma Chinese Steve Jobs. By his own admission, Ma was a fan of Jack Welch, so it is not surprising that his company is in some respects reminiscent of GE. As Welch, who did not insist on a single strategy or specialization for GE, Ma chose not to give a single job from the centre, however to offer each function the capability to develop its own approach. And as Welch, who offered each of these business units to select one or two essential goals, so Alibaba management inspires its businessunits to pull ahead – each in its industry. Ma says that heads of departments should have sufficient freedom to act according to their commercial desires. His intention is to make them to compete with each other and sought to become the best in the business. In 2003 the company created Taobao, retail Alibaba online platform, and next year (2004) developed its electronic payment system, Alipay. In addition, the corporation established a Tmall platform in 2010, which allowed expanding the sale of goods of Chinese and foreign brands on the territory of mainland China and Hong Kong and Taiwan (Charles and Newcastle, 2014).
As the company operates on the e-commerce market, it is worth mentioning that a distinctive feature of e-commerce is that the initiator of institutionalization here can include any stakeholders of goods movement process, namely manufacturers, dealers or buyers. E-commerce involves the use of the widest range of innovative forms and methods of the sales organization, the list of which is constantly replenished by the inclusion of new target markets and audiences.
Innovations in Alibaba
Established as a B2B platform for small and medium-sized enterprises, as well as online sales, a prerequisite for the formation of which is excess capacity, presence of a large potential demand for its products and the lag in the development of the wholesale sector, the company has become a successful independent trading platform. Along with Amazon and eBay, Alibaba works in the field of e-commerce, which is the only likeness with the mentioned two companies. Alibaba, in fact, does not sell products. This is the mediator who makes its fees and commissions from major retailers and advertisements from smaller ones. As a result of this one of the most scalable and profitable business models on the planet has turned out.
Alibaba for China is more than just an Internet organization, it is an intentional asset. It is known that one out of three Chinese, who has access to the Internet, is an enthusiastic customer of the Alibaba’s assets. Assuming the exceptional role of the organization in the Internet sector of China, as well as the local laws, Alibaba decided not to hold an IPO on the Hong Kong Stock Exchange. Placement in Hong Kong could give potential investors an access to strategic management of the business. However, Chinese external investors cannot possess strategically important assets. That is why the company decided to hold an IPO on the American Stock Exchange, which allowed it to keep the power of the existing management to a greater extent. To do this, the company has used the structure of Variable-interest entity (VIE) that is under the jurisdiction of the Cayman Islands a special legal entity that owns Alibaba Company, but not the majority of the voting shares, has been established. This is still the most expensive IPO in history, but fintech-world holding its breath watches its “daughter” – an AliPay payment system dominates 100 times by all indicators the performance of Apple Pay, and currently the single issue is about the period of its IPO placement. Strategic investors – Yuri Milner and DST fund – actively invest both in Chinese Internet companies in general, and in fintech in particular. In 2015, China will launch a venture capital fund estimated at $6.5 billion to sustain know-how start-ups – with a focus on fintech and biotech.
In addition to trade on the Internet and selling online advertising, Alibaba develops cloud technology and invests in a variety of innovative projects. Among its Chinese assets there are shares in the Weibo social network, AutoNavi provider of digital services and map reading, Youku video portal, UCWeb inventor of mobile browser, and among US – investment in Tango messenger, because investors are now very fond of innovative start-ups (Browne, 2014).
Alibaba is trying to stake out a place in the financial market. In June 2013 the company launched its own fund Yu’e Bao, which by May 2014 attracted more than 87 billion dollars of public funds. The reason for the popularity of the fund is simple: deposit rates of Yu’e Bao are 5-8% per annum, while the at leading Chinese banks citizens can deposit at approximately 3% per annum.
A great advantage for the Alibaba Company is the underdevelopment of traditional retail in China. One Chinese inhabitant is provided with 0.6 square meters of retail place, while for developed countries this figure is at least 2 times higher. This indicates that the retail industry in China has considerable potential for the growth. Moreover, against the framework of reducing growth in China, the government decided to stimulate domestic demand. The strategic goal of China is the transition from an export-oriented economy to a model aimed at domestic demand. To a greater extent from this trend the retail industry will benefit, as rising disposable income will increase customer expenditure. And it is definitely an encouraging effect on the company’s incomes (Charles and Newcastle, 2014).
Recently Fast Company American Journal published a list of 50 innovative companies in 2015. Mentioned list seriously amazed global spectators according to Forbes. Firstly, in the list instead of Apple Warby Parker, online store glasses, is the leading (as in previous years Apple had No. 1 position). Secondly, the third place was occupied by the Chinese e-commerce giant Alibaba. In the West, the company is known for its $25-billion IPO last fall in New York, but at home in China, the company of Jack Ma is even more ambitious because gradually subdues the most money market – from banks to entertainment. Considering some examples it can be pointed out about the financial sub-brand of Yu’e Bao offers Alipay customers a higher percentage than the state-owned banks, so the Chinese in the first year invested more than $82 billion; and movie division Alibaba Pictures (former ChinaVision Media Group) plans to produce 8-10 films per year, including hi tech blockbusters and web show (Mourdoukoutas, 2015).
The main threat the company sees for itself in the reduction of the effectiveness of “ecosystem” of business. It is a distinct and efficient organizational structure, which in Jack Ma’s opinion has brought the company such success due to good leadership and decision-making. This refers to the special structure of the corporation, which has no analogues in the world. This structure and corporate culture allowed Alibaba to sidestep all its competitors, which originally had a much higher starting capital. Difficulty for Alibaba also will be in the integration of acquired companies into the overall business, which may require extra expenses. Contrary to this overview, there is a threat reduction of the corporation’s profitability. In addition, the company considers the growth of the regulation of the financial sector in China as a risk to it, because the company is mostly reliant on its payment system, Alipay. Nevertheless, taking into account the fact that the Chinese government has repeatedly stated its readiness and willingness to accelerate the liberalization of financial markets in China, the latter risk can be considered negligible.
At the moment, investors sufficiently appreciate Alibaba Business Corporation. Its market capitalization reached $246.02 billion that is higher than the industry giants such as Google Inc., Amazon.com Inc. and eBay Inc. This high score is justified. Firstly, the net profit margin of the company is significantly higher than that of many competitors (Seeking Alpha, 2014). Second, a key market for Alibaba is China, and the growth and development potential of the online trade sector in China is several times higher than in developed countries. Finally, investors do not consider Alibaba solely as a trading platform.
In general holding manages a set of complementary assets (PR Newsware, 2014):
Alibaba.com – platform of wholesale and small-wholesale B2B-commerce;
Taobao Marketplace – p2p-retail platform;
TMall – a platform for trade in goods of famous brands;
Juhuasuan – group discounts’ service;
1688.com – local wholesale platform for the Chinese market;
AliExpress – global platform of retail trade;
Alibaba Cloud Computing – provider of cloud services and data management systems for holding companies, as well as to third-party customers;
Alipay – online payment platform;
Yu’E Bao – an electronic storage system;
eTao – search engine and sales support;
Alisoft – ready-made solutions to manage trading activities on the Internet.
Therefore, the Corporation has the potential to become a leader in providing a variety of online services not only in China but also worldwide. At emerging markets such as India, Alibaba has the ability to export its business model and build its own brand cheaper, because the cost of attracting customers will be lower and the market leaders will not been still approved, in contrast to developed markets such as the US. In America, the cost of acquiring customers is high and brand building becomes extremely difficult, especially if it starts with zero. Alibaba tries to penetrate some less industrialized markets, for example, China in the period from 5 to 10 years ago. Such development will provide it with a superior chance of prosperity, but it is not clear whether these markets will repeat China’s success or not. Thus, the strategy of Alibaba expansion generates anxiety, as it calls into question the Chinese online trading, which pleased CAGR of 30%. The fear is that Alibaba can become a venture capitalist in this area, if it continues strategic investments. However, expansion will contribute to the growth of revenues from the main activities of the corporation, allowing it to invest in original start-ups and will keep its leadership in the market. Also existing applications and services of corporations, which are not yet commercialized, for example, Alimama.com, have huge growth potential. The rapid growth of the online trade market in China, as well as a unique strategy aimed at diversifying the business within the Internet services, makes the stock of corporation an attractive investment.
Browne, A. (2014). Alibaba IPO: Innovation Chinese Style. The Wall Street Journal. [Online]. Available September 16, 2014, from: <http://www.wsj.com/articles/behind-alibaba-ipo-innovation-chinese-style-1410850438>
Charles, M. and Newcastle, D. (2014). China Wholesale Trader Secrets - The Rise of Alibaba.com and New Entrepreneurs, Kindle Publishing Group.
Hisrich, R. D. (2010). International Entrepreneurship: Starting, Developing, and Managing a Global Venture, New York: SAGE Publications Inc.
Mourdoukoutas, P. (2015).The World’s 50 Most Innovative Companies – Three Chinese Upstarts Beat Samsung. Forbes. [Online]. Available February 22, 2015, from: <http://www.forbes.com/sites/panosmourdoukoutas/2015/02/22/the-worlds-50-most-innovative-companies-three-chinese-upstarts-beat-samsung/>
PR Newsware (2014). Youku Tudou and Alibaba Group Collaborate to Innovate Online Video Marketing. [Online]. Available October 29, 2014, from: <http://www.prnewswire.com/news-releases/youku-tudou-and-alibaba-group-collaborate-to-innovate-online-video-marketing-280874832.html>
Seeking Alpha (2014). Alibaba Is An Exceptionally Profitable Company. [Online]. Available March 18, 2014, from: <http://seekingalpha.com/article/2095673-alibaba-is-an-exceptionally-profitable-company>
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