Alibaba (BABA) SWOT Analysis / TOWS Matrix / MBA Resources
Retail (Catalog & Mail Order)
Strategy / MBA Resources
Introduction to SWOT Analysis
SWOT Analysis / TOWS Matrix for Alibaba (United States)
Based on various researches at Oak Spring University , Alibaba is operating in a macro-environment that has been destablized by – increasing commodity prices, talent flight as more people leaving formal jobs, central banks are concerned over increasing inflation, customer relationship management is fast transforming because of increasing concerns over data privacy, challanges to central banks by blockchain based private currencies, competitive advantages are harder to sustain because of technology dispersion, technology disruption,
there is increasing trade war between United States & China, banking and financial system is disrupted by Bitcoin and other crypto currencies, etc
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University, we believe that Alibaba can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Alibaba, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Alibaba operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Alibaba can be done for the following purposes –
1. Strategic planning of Alibaba
2. Improving business portfolio management of Alibaba
3. Assessing feasibility of the new initiative in United States
4. Making a Retail (Catalog & Mail Order) sector specific business decision
5. Set goals for the organization
6. Organizational restructuring of Alibaba
Strengths of Alibaba | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Alibaba are -
High switching costs
– The high switching costs that Alibaba has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Organizational Resilience of Alibaba
– The covid-19 pandemic has put organizational resilience at the centre of everthing Alibaba does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Digital Transformation in Retail (Catalog & Mail Order) industry
- digital transformation varies from industry to industry. For Alibaba digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Alibaba has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Cross disciplinary teams
– Horizontal connected teams at the Alibaba are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Learning organization
- Alibaba is a learning organization. It has inculcated three key characters of learning organization in its processes and operations – exploration, creativity, and expansiveness. The work place at Alibaba is open place that encourages instructiveness, ideation, open minded discussions, and creativity. Employees and leaders at Alibaba emphasize – knowledge, initiative, and innovation.
Innovation driven organization
– Alibaba is one of the most innovative firm in Retail (Catalog & Mail Order) sector.
Analytics focus
– Alibaba is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the Retail (Catalog & Mail Order) industry. The technology infrastructure of United States is also helping it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Sustainable margins compare to other players in Retail (Catalog & Mail Order) industry
– Alibaba has clearly differentiated products in the market place. This has enabled Alibaba to fetch slight price premium compare to the competitors in the Retail (Catalog & Mail Order) industry. The sustainable margins have also helped Alibaba to invest into research and development (R&D) and innovation.
Effective Research and Development (R&D)
– Alibaba has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in – Alibaba staying ahead in the Retail (Catalog & Mail Order) industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Superior customer experience
– The customer experience strategy of Alibaba in Retail (Catalog & Mail Order) industry is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Successful track record of launching new products
– Alibaba has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Alibaba has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Diverse revenue streams
– Alibaba is present in almost all the verticals within the Retail (Catalog & Mail Order) industry. This has provided Alibaba a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
Weaknesses of Alibaba | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Alibaba are -
Need for greater diversity
– Alibaba has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Alibaba is slow explore the new channels of communication. These new channels of communication can help Alibaba to provide better information regarding Retail (Catalog & Mail Order) products and services. It can also build an online community to further reach out to potential customers.
Compensation and incentives
– The revenue per employee of Alibaba is just above the Retail (Catalog & Mail Order) industry average. It needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
High cash cycle compare to competitors
Alibaba has a high cash cycle compare to other players in the Retail (Catalog & Mail Order) industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
Increasing silos among functional specialists
– The organizational structure of Alibaba is dominated by functional specialists. It is not different from other players in the Retail (Catalog & Mail Order) industry, but Alibaba needs to de-silo the office environment to harness the true potential of its workforce. Secondly the de-silo will also help Alibaba to focus more on services in the Retail (Catalog & Mail Order) industry rather than just following the product oriented approach.
Aligning sales with marketing
– From the outside it seems that Alibaba needs to have more collaboration between its sales team and marketing team. Sales professionals in the Retail (Catalog & Mail Order) industry have deep experience in developing customer relationships. Marketing department at Alibaba can leverage the sales team experience to cultivate customer relationships as Alibaba is planning to shift buying processes online.
High dependence on Alibaba ‘s star products
– The top 2 products and services of Alibaba still accounts for major business revenue. This dependence on star products in Retail (Catalog & Mail Order) industry has resulted into insufficient focus on developing new products, even though Alibaba has relatively successful track record of launching new products.
No frontier risks strategy
– From the 10K / annual statement of Alibaba, it seems that company is thinking out the frontier risks that can impact Retail (Catalog & Mail Order) industry. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
Workers concerns about automation
– As automation is fast increasing in the Retail (Catalog & Mail Order) industry, Alibaba needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Alibaba supply chain. Even after few cautionary changes, Alibaba is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Alibaba vulnerable to further global disruptions in South East Asia.
Skills based hiring in Retail (Catalog & Mail Order) industry
– The stress on hiring functional specialists at Alibaba has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Alibaba Opportunities | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities of Alibaba are -
Changes in consumer behavior post Covid-19
– consumer behavior has changed in the Retail (Catalog & Mail Order) industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Alibaba can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Alibaba can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Retail (Catalog & Mail Order) industry, but it has also influenced the consumer preferences. Alibaba can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Alibaba is facing challenges because of the dominance of functional experts in the organization. Alibaba can utilize new technology in the field of Retail (Catalog & Mail Order) industry to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Alibaba in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Retail (Catalog & Mail Order) industry, and it will provide faster access to the consumers.
Use of Bitcoin and other crypto currencies for transactions in Retail (Catalog & Mail Order) industry
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Alibaba in the Retail (Catalog & Mail Order) industry. Now Alibaba can target international markets with far fewer capital restrictions requirements than the existing system.
Using analytics as competitive advantage
– Alibaba has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in Retail (Catalog & Mail Order) sector. This continuous investment in analytics has enabled Alibaba to build a competitive advantage using analytics. The analytics driven competitive advantage can help Alibaba to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Learning at scale
– Online learning technologies has now opened space for Alibaba to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Creating value in data economy
– The success of analytics program of Alibaba has opened avenues for new revenue streams for the organization in Retail (Catalog & Mail Order) industry. This can help Alibaba to build a more holistic ecosystem for Alibaba products in the Retail (Catalog & Mail Order) industry by providing – data insight services, data privacy related products, data based consulting services, etc.
Low interest rates
– Even though inflation is raising its head in most developed economies, Alibaba can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Alibaba can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Manufacturing automation
– Alibaba can use the latest technology developments to improve its manufacturing and designing process in Retail (Catalog & Mail Order) sector. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Better consumer reach
– The expansion of the 5G network will help Alibaba to increase its market reach. Alibaba will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Developing new processes and practices
– Alibaba can develop new processes and procedures in Retail (Catalog & Mail Order) industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Threats Alibaba External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats of Alibaba are -
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Alibaba.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Alibaba can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate Alibaba prominent markets.
Easy access to finance
– Easy access to finance in Retail (Catalog & Mail Order) industry will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Alibaba can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
High dependence on third party suppliers
– Alibaba high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Technology acceleration in Forth Industrial Revolution
– Alibaba has witnessed rapid integration of technology during Covid-19 in the Retail (Catalog & Mail Order) industry. As one of the leading players in the industry, Alibaba needs to keep up with the evolution of technology in the Retail (Catalog & Mail Order) sector. According to Mckinsey study top managers believe that the adoption of technology in operations, communications is 20-25 times faster than what they planned in the beginning of 2019.
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Alibaba in Retail (Catalog & Mail Order) industry. The Retail (Catalog & Mail Order) industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Alibaba needs to understand the core reasons impacting the Retail (Catalog & Mail Order) industry. This will help it in building a better workplace.
Consumer confidence and its impact on Alibaba demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in Retail (Catalog & Mail Order) industry and other sectors.
Shortening product life cycle
– it is one of the major threat that Alibaba is facing in Retail (Catalog & Mail Order) sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Alibaba will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, Alibaba may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Retail (Catalog & Mail Order) sector.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Alibaba in the Retail (Catalog & Mail Order) sector and impact the bottomline of the organization.
Weighted SWOT Analysis of Alibaba Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers at Alibaba needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of Alibaba is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of Alibaba is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Alibaba to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Alibaba needs to make to build a sustainable competitive advantage.