The contemporary world is often characterized by its rapid development and growth in a variety of fields such as trades, communications, technologies, and science. E-commerce businesses are based on the advantages provided by all of these fields as they focus on trades accomplished by means of never stopping and ever-present ubiquitous communications, they are powered by the latest technologies, and rely on the newest discoveries of social sciences. These days, e-commerce businesses are the areas of unlimited opportunities as they practically have no boundaries in the world. E-commerce businesses are a great example of the modern business where something absolutely intangible may generate huge incomes but also provide a wide field for creativity of various scammers. Namely, this case study will focus on the largest e-commerce businesses in the modern days Alibaba and its frequently discussed issues with counterfeit goods sold from the platform in massive amounts.
Alibaba Group Holding Limited is involved in the online commerce and trades using the internet and mobile services to facilitate their operations (“Alibaba Group Holding Ltd (BABA.N)” par. 1). The company is based in the People’s Republic of China, but its clients come from all around the world. The main objective of the company is to provide available marketplaces for retail and wholesale (“Alibaba Group Holding Ltd (BABA.N)” par. 1). The marketplaces united by Alibaba Group include such platforms as Taobao (online shopping website), Tmall (the platform that specializes in the Chinese goods and brands), Juhuasuan (the website that provides the access to the products of high demand employing a system of temporary discounts), AliExpress (a globally known e-commerce website that serves the customers from a variety of countries such as Brazil, Russia, France, and Spain, to name a few); besides, Alibaba Group also includes two large wholesale websites such as Alibaba.com and 1688.com that function on both business-to-business and business-to-consumer levels (“Alibaba Group Holding Ltd (BABA.N)” par. 1).
In addition to all the versatile and large marketplaces, Alibaba Group also provides a series of services enabling and powering its business. Among such services, there are cloud and storage computing, online payment system Alipay, internet infrastructure and domain registration services for the further expansion and partnerships. Moreover, Alibaba Group provides entertainment services being an owner of TV programs and even creating motion pictures through its affiliate Alibaba Pictures. Finally, the company offers mobile browser services and launching mobile applications and games (“Alibaba Group Holding Ltd (BABA.N)” par. 1).
As seen from the description above, Alibaba Group has managed to expand geographically to multiple countries and also to increase its coverage of services and goods generated and provided. This rapid growth occurred within 16 years only. The leader of Alibaba Group, Jack Ma is now considered one of the wealthiest people of the planet and the richest man in China. Today, Alibaba Group and its incredible success are the living illustrations of the new approach to competition in business practiced by the Chinese companies. The most important features of this approach include the pursuit of leadership in a number of different and fast growing platforms, penetration of multiple rapidly developing markets, reliance on innovation, the use of the latest technologies, and purposeful risk taking (Baeder 4-16). Perhaps, the heavy presence of counterfeit goods on the Chinese e-commerce websites can be characterized as one of such risk that exposes the businesses to criticism from the manufacturers and the competitors and also undermines their brand image.
The founders of Alibaba Group are 18 people led by a well-known businessman of China Jack Ma in 1999 (“History and Milestones” par. 1). The leader of this group is an outstanding personality whose story is admired by millions of people. Ma is a charismatic visionary who has managed to build a diverse career that began with teaching English and providing tours and eventually brought him to the position of a CEO of one of the largest e-commerce platforms in the world with rapidly growing brand recognition, fast global expansion, and huge revenue. Ever since the very beginning of their collaboration, the founders of Alibaba Group agreed that the internet is the main driving force for the small commerce businesses that will allow them to expand and, therefore, strengthen their performance on the domestic level (“History and Milestones” par. 1). The group created its own website that targeted the Chinese entrepreneurs and exporters providing them with an opportunity to cooperate with the foreign businesses and consumers. A year later the Alibaba Group was founded its leaders managed to raise 25 million dollars from such investors as Goldman Sachs, Softbank, and Fidelity among others. The first profits occurred in another year in 2002, and in the following two years Taobao and Alipay platforms are established (“The History & Timeline of The Alibaba Group” par. 1). Consequently, the growth of the company attracted a number of prestigious partners and facilitated the growth of the company’s popularity, and as a result within the next few years the Group has generated such platforms as Tmall, Taobao Market, Alimama (the advertising company), Alisoft, Alibaba Cloud Computing.
Description of Services and Market Dynamics
The products sold from the multiple e-commerce platforms included in Alibaba Group are extremely diverse. Visiting one of the company’s shopping one may find anything from cars and airplanes to socks and undergarments. The popularity of the Chinese shopping websites such as AliExpress and Taobao is explained by multiple discounts, special offers, and generally low prices. The participation of a multitude of manufacturers creates a great versatility of goods presented at these websites. That way, searching for unique or unusual products that are hard to find on websites such as Amazon.com or brick and mortar stores, one is likely to locate them on AliExpress at a relatively low cost.
The quality is a well-known issue. The legends about unmatched expectations of the customers purchasing goods from the Chinese shopping websites are well-spread in the internet. The accidents of the clients receiving the products different from those presented in the pictures are rather common, and China holds the reputation of the country that produces the largest amount of low-quality goods and counterfeits within the shortest time flooding the world with its products. It is only logical that the e-commerce platforms widely offering partnership to various Chinese entrepreneurs would sooner or later become the marketplaces for knockoff manufacturing businesses.
As for the services provided by Alibaba Group, the strategy in this aspect is often compared to those of some Western giants such as Apple, Amazon, and Google. However, such comparison is doomed to failure as the only common feature of the western giants, and those of China is their size. That way, regardless of their growth Google is still mainly perceived as a search platform, and Amazon – with online shopping (Wohlsen par. 14.) At the same time, the strategy of the Chinese companies is different. Wohlsen notes that “Alibaba and its primary competitors in China aim to insinuate themselves into as many aspects of customers’ online and offline lives as possible (par. 14). In other words, Alibaba Group’s emphasis on the integration in a list of different markets is its main strength. The fact that their e-commerce aspect is flawed by the presence of counterfeiters does not make a large impact on the company’s revenues.
As a market, e-commerce has been showing some of the most impressive growth results. After their IPO, Alibaba Group has experienced a massive growth in stocks (about 60%) (“Here’s Why Changing Market Dynamics Should Worry Alibaba’s Investors” par. 1). The experts are convinced that within the nearest couple of years the e-commerce coverage of Alibaba Group will expand even more and become larger than those of the UK, France, the USA, Germany, and Japan combined (“Here’s Why Changing Market Dynamics Should Worry Alibaba’s Investors” par. 1). However, there is anticipation that after the rapid rise, the business-to-consumer stocks of Alibaba Group could drop significantly due to the growing competition and the development of the consumer-to-consumer market.
Problem: Counterfeit Goods
Knockoff goods sold on different online shopping websites of Alibaba Group is one of the most commonly discussed flaws of the company and its business. Ever since the beginning of Alibaba Group’s e-commerce business, it has been known for its mild policies welcoming all kinds of entrepreneurs to use the platforms for the expansion of their businesses (Buchwald and Neckes par. 2). As a result, as noticed by the experts, the current revenue of Alibaba Group e-commerce websites is based mainly on the activities of the resellers of counterfeit goods that can be identified as “black” or “gray” market income (Buchwald and Neckes par. 2).
Unlicensed and fake luxury goods that can be found throughout the platforms of Alibaba Group are the largest issue for the manufacturers specialized in selling the real brands. In fact, Alibaba Group has been sued by some of the companies from all around the world. Namely, the companies that expressed major dissatisfaction were the American Apparel & Footwear Association (AAFA), Yves Saint Laurent, Gucci, and Dahon (Chu par. 3; Raymond par. 2; White par. 2). All of the luxury brands intended to press charges against Alibaba Group due to the presence of a large percentage of knockoff products looking identical to those of the original manufacturers. For instance, in the case of Dahon folding bikes, at least half of the ones available on Taobao are fake, and this costs Dahon Company several millions of dollars in sales annually (Chu par. 2-3). Apart from producing a negative effect on the incomes of the original brands, the counterfeits sold via platforms run by Alibaba Group are also an infringement of the intellectual property of the luxury manufacturers. That way, their dissatisfaction is understandable.
Even though Alibaba attempts to address the problem and ban pirated and fake goods, this action creates a dilemma as the sales of knockoff goods comprise a huge percentage of overall revenue generated by the e-commerce platforms such as AliExpress and TaoBao. The best solutions that are beneficial for both the luxury manufacturers and Alibaba Group are based on the collaborative approach. For instance, several years ago, Ray Ban, a well-known producer of luxury sunglasses has established its own official store on Taobao (“The History & Timeline of the Alibaba Group” par. 2). This solution maintains the inflow of original goods on the website and allows the consumers to differentiate between the authentic and knockoff products. Another way for Alibaba Group to avoid the loss of revenue is to establish a “take down notice” policy that will allow the authorities of the platform to take down counterfeits without having to compensate their distributors (China IPR 1). The fake products can be easily identified with the help of careful monitoring of the content of the shopping websites paying attention to the appearances, names, licenses, and prices of the goods that copy well-known originals. The disadvantage of this solution is that it is likely to minimize the overall inflow of goods for sale as well as the number of partners as many of those trading through Taobao and AliExpress are involved in counterfeiting.
To sum up, the development of Alibaba Group was incredibly fast. Over just a few years, the company has managed to integrate multiple markets and win millions of customers all around the world. The revenues of this company are massive, but they come from the sales of counterfeit goods online. Today, Alibaba leaders attempt to address this issue by banning pirated and fake goods, but these actions are likely to deprive the company of large capitals in the future.
Alibaba Group Holding Ltd (BABA.N). n. d. Web.
Buchwald, Brian and Joshua Neckes. Op-Ed | Alibaba’s Catch-22. 2014. Web.
China IPR. How to Remove Counterfeit Goods from E-Commerce Sites in China. 2013. Web.
Chu, Kathy. Alibaba Revamps Fake-Goods Procedures. 2015. Web.
Raymond, Nate. Alibaba sued in U.S. by luxury brands over counterfeit goods. 2015. Web.
The History & Timeline of the Alibaba Group. 2014. Web.
White, Michael. Chinese E-commerce Giant Faces Counterfeit Charges. 2015. Web.
Wohlsen, Marcus. Chinese Giant Alibaba Is Ready to Become the Next Google. 2014. Web.