Identifying Threats and Opportunities of Globalization

Question: Discuss about the Identifying Threats and Opportunities of Globalization. Answer: Introduction The report would discuss the opportunities and threats that are created by globalization. The illustration would be supported with the help of an MNC from an emerging market. The report has taken Alibaba.com which is a China based country and has successfully established itself in the international market through its innovation and strategic marketing plans. The report would highlight how Alibaba.com identified the opportunities and threats of global market of Australia to spread its wings in Australian market. Further, the report would contrast the differences between establishing the market in the home country and host country. PESTEL analysis and Porters Five Forces tools would be used in order to analyze the external and industrial factors of China and Australia. PESTEL analysis would help to assess the political, economical, social, technological, environmental and legal factors of China and Australia in order to understand the differences between the macro factors of home and h ost countries respectively. Company Profile Alibaba Group Holding Limited is a China based e-commerce company which facilitates the transaction of services between two entities. The e-commerce company offers consumer to consumer services, business to consumer and business to business sales services through its international website. Another services provided by the company include shopping search engine, electronic payment services and data centric cloud computing services. Alibaba started its operations in the year 1999 by initiating the website alibaba.com which collected the revenue of $ 170 billion in the year 2012. Alibaba has become the largest retailer business in the world with its operations running in more than 190 countries of the world. The e-commerce company has become the most dominating online retailer in the world by achieving sales revenue beyond the worlds most popular companies including Walmart, Amazon and eBay. The strategy deployed by the company is to act as a facilitator between the suppliers and buyers by establishing trust between them. Alibaba has acquired trust of the consumers through its innovative and reliable online platform. The company works on the following core values: SWOT Analysis Strengths 1. Alibaba has developed its services and operations which are in alignment with the latest trend. Alibaba has very effectively incorporated the digital technology in its web portal to establish a large market share in the market. 2. The company has incorporated an effective verification process for its client that build mutual trust between the company and client. 3. Alibaba has developed services which are customer centric and fulfill all their needs. 4. Innovative services have been effectively merged with technology to resolve the need of twenty first century. Weaknesses 1. Alibaba has too many sellers that leads to fierce competition among the sellers. 2. Alibaba offers huge discounts to the customers which creates pressure on suppliers. Opportunities 1. Alibaba has great investment opportunity in China which has been forecasted to grow exponentially in 2016-2020. 2. Alibaba has great opportunity in the emerging countries because of its strong brand recognition in the market. Threats 1. Rising competition from the emerging e-commerce portals is a threat to the company. 2. The profitability of e-commerce industry is declining because of customer demands. Porters Five Forces Barriers to Entry The industry has high returns due to which numerous firms have made efforts to imitate the business model of Alibaba.com. The business to business market segment has increased in the past few years which has encouraged the new players to enter the market. To enter the market of e-commerce, a company first needs to identify the target market for the specific industry. There have been firms such as finechemical.com, textilehome.com for chemical and textile industries respectively. These e-commerce companies target only a small market share of Alibaba.com and do not target a broad market segment. Buyer Bargaining Power The customers strength to pressurize the firm through their authority and power is the buyers bargaining power (Roy, 2011). Alibaba.com has small and medium sized enterprises as their customers who do not have their own websites. Alibaba sets its own standards which govern the small and medium firms and thus, these firms do not enjoy the liberty to set their own terms and conditions. Therefore, these firms cannot put pressure on Alibaba.com. On the other hand, the firms with their own websites are in the position to exert pressure on Alibaba.com for prices and other terms and conditions and thus, they negotiate with Alibaba to have some factors in their favor. Supplier Bargaining Power The suppliers for a firm could be labor, supplier of raw materials and components and services which could exert pressure over the firm (Hill and Jones, 2009). The suppliers could increase the price of raw material for the unique sources or simply say no to work with the firm. Alibaba does not have any suppliers because it is an e-commerce company which completely relies on marketing and advertising for its business. The company advertises itself through magazines, websites and newspapers which can only demand the market prices from the company. Thus, the bargaining power of supplier for Alibaba is limited. Availability of Substitutes When customers find the substitutable products with lower prices, they tend to switch towards them (Hill and Jones, 2009). The product substitute of Alibaba is the websites of companies through which they can easily attract their own customers and especially those customers who want to directly trade with the manufacturing company without any intermediate. Competition The rival firms are the determinant of the industrial factors for any firm (Hill and Jones, 2009). The rival firms compete with the firm through extensive marketing campaigns in order to attract the customers. Alibaba faces competition from free search engines such as Baidu.com and Google.com. The customers prefer to use these websites instead of Alibaba due to which Alibaba could incur profit loss. Environmental Analysis PESTEL Analysis: China PESTEL analysis would help us to understand the challenges faced by Alibaba in the Chinese market by assessing the political, economical, social, technological, environmental and legal factors. Political Factors Political factors include the government policy structure of the country. China is an emerging market economy and introduced the policy of revolution and opening to give an opportunity to the private players in the country. The country has a communist form of government due to which the private players were facing challenges regarding the credit facilities for the growth of their businesses. The private players of the country have contributed a significant portion of revenue towards the economic growth of the country in the past few years due to which the government directed its attention towards the private players (Orszag, 2014). The government has claimed to offer its full support for the establishment of the private players such as Alibaba.com (Yue, 2016).). Alibaba has been forecasted to grow even faster in the market of China which has been estimated to be one of the largest markets of the world. Economic Factors The economy of China has been growing over the past thirty years with consistency and has made China the second largest economy of the world. The GDP value of the country was $ 9.2 trillion in the year 2013 (Focus Economics, 2017). The growth rate of GDP is more than 9% with very low inflation rate (Focus Economics, 2017). Thus, the growing economy of China has facilitated the growth of Alibaba.com in China. Alibaba.com emerged as one of the fastest growing companies of China and received full assistance from the company to enter international market (Berkeley, 2013). Social Factors China has witnessed the upliftment of living standards of the people because of its rapid economic growth (Trading Economics, 2017). The disposable income of the people rose by 6.3% in the year 2016 and has been expected to grow during the tenure 2016 to 2020 (Xinhua, 2017)). Thus, Alibaba.coms growth has been triggered in China because of the increasing living standards of people. Technological Factors China is the leading country in terms of technological advancement. Thus, the countrys infrastructure supported the online payment and electronic payment system of Alibaba.com Legal Factors China has strict employment and contract laws which posed threat to Alibaba.com in the beginning, but Alibaba strictly adhered to every law and regulation to establish its market (Red Herring, 2014). The company has to ensure that the rights of both the parties are being maintained through the online payment system (China Briefing, 2015). Environmental Factors Alibaba has its major operations in China due to which it has to ensure the sustainability of its operational system in order to maintain the environmental system of China. PESTEL Analysis: Australia PESTEL analysis would help us to understand the challenges faced by Alibaba in the Australian market by assessing the political, economical, social, technological, environmental and legal factors. Political Factors The political factors of a country have a huge impact on the operations of the firm. Australia is a politically stable country with supportive government laws and policies. The government offer complete support to the Alibaba.com due to which it has been able to establish its market in the country. The strong government support of Australia has made the country to rank among the top five countries of world under the category of largest sellers of Alibaba.com (Koehn, 2017). Economic Factors Australia is a developed country and thus, has a stable economy with the growth rate of 2.5% of GDP (Reserve Bank of Australia, 2017). The country has maintained its consistent economic growth for the past 25 years (Scutt, 2016). The country witnessed the highest growth rate of 3.3% during 2016 (Scutt, 2016). In spite of global recession, the country has managed its economic growth. Thus, Australia provides favorable conditions for a business to run its operations within the country. The stable economy leads to increased disposable income of the people which leads to increasing sales for Alibaba.com. Australia is among the top five selling countries in the world. Australia has an inflation rate of 1.5% which benefits Alibaba.com as it is able to sell its product at high prices to the consumers (Reserve Bank of Australia, 2017). The unemployment rate of the country is only 5.7% which indicates that most of the population of the country is employed with weekly earnings of $1, 164 and h ousehold saving ratio of 5.2% (Reserve Bank of Australia, 2017). Thus, high employment rate supports the growth of the company. Social Factors Australia has a population of 24.1 million with 1.4% annual growth (Reserve Bank of Australia, 2017). The Australians have very high standards of life because of their high disposable income. The increasing population growth rate and high disposable income of people provides great opportunity for Alibaba.com because Australians are very spendthrift people when it comes to their standard of living and maintaining the latest trends and lifestyle. Alibaba.com has a diversified portfolio and offers a wide range of products ranging from daily utilities to luxurious products. This gives an edge to the e-commerce company and it is able to cater to a large segment of market in the country. Technological Factors Technology is growing in Australia with great speed and the nation has adapted itself with the changing technological trends. The government of Australia is making consistent efforts to develop the latest and advanced technology in the country by estimating the impact of technology on future of the country (ACOLA, 2015). The Australians do most of their shopping online and rely on their debit card and credit cards for the payments. The country has great technological infrastructure which supports online and electronic payments which is a favorable condition for the company. Thus, there is an existing target segment for the company and Alibaba did not have to make great efforts to establish its empire in the country. Further, it also received great response from the buyers in the country and has occupied the topmost position for selling nutrition products, milk powder, dietary supplements and snacks and coffee and beverages. Legal Factors The relationship of China and Australia has been evolving over the years. Earlier, China did not open the channel of export market for Australia due to which Alibaba.com could not flourish in Australia. It was on 20 December 2015 when China opened the doors of trade channel for Australia in the China Australia Free Trade Agreement (Australian Embassy China, 2017). China and Australia have now become trading partners through the treaty and China has been reported to be the largest goods export and import destination. Thus, Alibaba gained from this opportunity of the agreement and incurred huge sales last year. Alibaba faces challenges and threats due to strict laws of the country such as Intellectual Property Tax and IP rights protections, privacy and consumer rights. IP tax is paid from the pockets of Alibaba which impacts the profit of the company (The Tax Institute, 2012). The company had to make an investment in order to protect its IP rights. The company also has to strictly abid e by the consumer rights of the people in order to maintain its sustainable operations in the country. Environmental Factors Since Alibaba.com does not have its core operations established within the country due to which environmental factors does not have a huge impact on the company. Though, Alibaba.com recently opened its office in Australia in the year 2016, so the company has to ensure that the packaging material does not harm the environment of Australia (McDuling, 2016). Globalization Threats and Opportunities for Alibaba.com Opportunities Threats 1. Growing and stable economy. 2. Increasing disposable income of consumers. 3. Emerging technology in the country. 4. Increasing usage of online and electronic payments in the country. 1. Strict laws for IP tax, IP rights protection. 2. Strict consumer laws. 3. Faced the challenge of trade barriers before 2015. Recommendations After assessing the environmental factors for Alibaba.com it can be construed that the success of an organization depends on the political and economic stability of the country. Further, the government relation of host and home country are also of vital importance. Alibaba.com could not enter the market of Australia before chATFA, 2015. Disposable income and standard of living of consumers is also a crucial factor to determine the success of the organization in the market. Consumer awareness of the product or service also facilitates the growth of company in the global market. Since the Australians were already using online payment services, therefore, Alibaba.com did not face great difficulty to enter the market of Australia. Further, legal factors of the market also pose threat to the company. An organization must review the laws and regulation of the country before setting its foot in the market. For a service based company, consumer laws carry great significance and cannot be ign ored. Conclusion The report has successfully identified the threats and opportunities which are created by globalization. The discussion revolved around the market of Australia in order to assess the threats and opportunities for Alibaba.com. Alibaba.com is an e-commerce company which emerged in the growing market of China. Porters Five Forces evaluated that Alibaba.com does not face any threat from the suppliers because the company does not rely on supplier. The major threat faced by the e-commerce company is from the substitutability of the product and the website of large companies could hamper the business of Alibaba.com. PESTEL analysis evaluated that Alibaba.com received full support from the external environmental factors of China. The growing economy of China propelled the e-commerce company to grow in the Chinese market. The rise in standard of living of the people of China was supported by increasing disposable income of China which triggered the growth of company. Emerging technology in the country again acted as a support for the company due to which Alibaba.com could introduce the system of online and electronics payment system. PESTEL analysis with respect to Australia suggested that Alibaba.com faced the major challenge because of Chinas relationship with Australia which was reformed by chAFTA in 2015. The consistent economic growth of the country and increasing disposable income of the people supported the growth of Alibaba.com. The major threat faced by the company was the strict laws and regulations of the country including IP taxes, IP rights protection, privacy and consumer rights. Though Alibaba.com has been able to overcome those challenges and threats and made Australia one of the top five selling nations of the world. References ACOLA. (2015). Technology and Australias Future. 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