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Alibaba: Innovative Business Model To Achieve Profit Growth

2009/4/30 14:25:00 42079

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When the global economic downturn began to impact on China's export industry, Alibaba's fast-growing internet trading company took a series of measures to enable the company to continue to grow and maintain profitability in the face of overall decline in China's exports.

Alibaba Network Limited is positioning itself as a virtual middlemen between Chinese small and medium-sized exporters and foreign buyers.

So last autumn, when the global economic downturn began to impact on China's export industry, the fast-growing internet trading company seemed to face a gloomy gloom.

However, Alibaba, one of China's most famous Internet companies, has taken a series of measures that will enable the company to continue to grow and maintain profitability in the face of overall decline in China's exports.

Alibaba charges the seller's catalogue and other services on his website.

It has lowered the charging standard for its core customers and set up a loan business to help customers get through the financial crisis. This business has actually expanded the target market of Alibaba.

In the first month after the price reduction measures were launched, the number of paid members of Alibaba jumped by 12000, which is more than 10 times that of the "gold supplier" member in the first 9 months of the year.

Despite the price cut, the company's revenue in the 4 quarter of 2008 increased by 27% over the same period last year, reaching 80 million 590 thousand yuan ($11 million 800 thousand).

At present, David Wei, chief executive of Alibaba network, predicts that the gold medal supplier will almost double in 2008-2011 years.

He also said that Alibaba plans to increase 2000-3000 employees this year and expand its workforce by at least 25%.

Brush C, an Internet analyst at Hongkong Internet company's chief executive Wei Zhe Citigroup, said that this is a company that customers rely on for external exports, mainly for exports to the European and American markets.

Knowing that their customers will be in a difficult position for quite some time, and the situation will become very, very bad, Alibaba decided to change its business model.

Brush C said that Alibaba will become bigger, stronger and stronger when China gets rid of the current economic downturn.

The website now provides product catalog services on its exporter's website and provides plation services to buyers of Chinese goods.

Without such services, these buyers will have to go to China to attend product fairs or to buy and sell through real middlemen.

Sellers anywhere in the world can pay to become members.

Most of the paid members come from China.

In China, sellers pay higher sums and enjoy additional services, including assisting them in providing product image displays or factory videos on their product catalog pages.

Alibaba network cable company is the Hong Kong listed companies of Alibaba group.

Yahoo Corp holds 39% of Alibaba group.

In recent years, Alibaba network company has developed rapidly.

But in the first quarter of 2008, company managers noticed that their core customers, 50-500 employees, and Chinese exporters facing the European and American markets began to be cautious and began to be less active in the renewal of membership.

The growth of new member registration is slowing down.

Last year, some Chinese manufacturers began to reduce orders.

They hoped that business could pick up again after the August Beijing Olympics, but that didn't happen.

In November, China's monthly exports declined for the first time since 2001.

Alibaba knows that the annual membership fee of $50000 ($7300) will be less attractive to small businesses facing pressure from rising costs and reduced orders.

As a result, they have launched a new "export pass" to simplify service content, which is 60% cheaper than the original "gold medal supplier".

Although the price cut means a decline in profit margins, the company believes that this approach will enable Alibaba to expand its penetration among small exporters during the period when Wei Zhe called the economy "severe winter".

Wei Zhe estimates that China has more than 1 million small and medium-sized enterprises engaged in export business. After the Alibaba launched its export link last year, its membership accounts for only 3% of this figure.

He expects that the market share of the company will increase substantially in the next few years.

He said that exports will definitely attract new customers that we didn't touch before.

Wei hopes that companies can earn more profits by selling additional services over time, such as letting members choose to purchase search keywords, so that buyers of specific products will be able to see their catalog first.

To attract more buyers to the website, Alibaba has increased its marketing expenses, including the $30 million budget for marketing in the European and American markets.

Wei Zhe said the company is also testing a function that allows users to convert the entire website into 6 languages. The company also plans to allow buyers and sellers to trade on Alipay's website through Alipay's online payment system.

The operation of Alipay is similar to that of eBay Inc. PayPal.

Buyers and sellers can only find each other on the Alibaba website and contact each other, but they can not conduct actual pactions.

Yu Minhua is a new customer who is attracted by "export pass".

He is the general manager of Hangzhou name Zhuang textile company.

The company sells towels and other household textiles.

Before last November, Alibaba's membership fees had been prohibitive for Yu Minhua, because his company's annual export revenue was only $10000.

Ming Zhuang has a free directory on the Alibaba website, but few buyers are inquiring about it, because there are dozens of other sellers in front of them.

Now, the name Zhuang is in the front page of the catalogue.

Yang Yanping, the company's export sales manager, said that after spending 19800 yuan on the "export pass", the company began to receive several phone inquiries every week.

By March this year, enquiries had increased to about 10 per week.

Alibaba has also launched a service to help customers get through the financial crisis.

As of February, the company has worked with 4 banks to help 800 members apply for loans totaling 1 billion 400 million yuan.

Wei Zhe expects that with the introduction of this service in more provinces, the scale of loans that Alibaba will assist member applications this year will reach 6 billion yuan.

Wei Zhe said that without this service, these companies would not be able to get loans from banks.

These funds are used to help businesses increase inventories, giving sellers greater flexibility in providing customers with trading quotas.

Alibaba's profit margins have been squeezed by lowering the fees charged by junior members.

In the fourth quarter of last year, Alibaba's profit margin dropped from 45% at the peak of the year to 27.7%.

Some of the older members chose the lower fee membership when renewal was signed, and the income from the former highly qualified members was lost.

But Wei Zhe said that most of the old members continued to retain their original membership.

Many analysts are optimistic about Alibaba's shift in strategy, which is necessary for continued growth.

Ji Weidong, an analyst with Morgan Stanley in Hongkong, said that with the expansion of Alibaba's market share, it will be in a favorable position when the export market recovers.

He said that in a time of low market prices, low priced exports attract the price sensitive businesses.

Editor in chief: Du Jun