This case was written by Hading Fame , under the direction of Depravity Paraguayans, BIBS Headband. It was compiled from published sources, and is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. 1 J. P. Morgan Securities Inc. , New York City, New York, USA is the nonbinding subsidiary of Comparing Chase. It focuses on activities related to investment banking. 2 Softbank Corporation, headquartered in Tokyo, Japan, is a leading Japanese telecommunications and media company.
It has investments in e-commerce, uncial services, Internet infrastructure, IT-related distribution services, publishing and marketing, and tech oenology services. 3 Bloomberg is a U. S. -based financial news repining company. 4 The Blackstone Group is an asset management and financial services company. S Fain Capital is a Boston-based private-equity firm. 6 Yahoo! Inc. , headquartered in Sunnyvale, California, USA, is an online Panola with a netfork of websites-news, search engine, entertainment, e-commerce, etc.
Its primary source of revenues is through online advertising, but it also offers commercial services such as online marketing, etc. BIB or Business-to-Business e-commerce is trading between two businesses using the Internet. 8 ICC or Consumer-to-consumer e-commerce is trading between two consumers through the Internet. Alabama had several Internet businesses focused o n various e-commerce business models such as Businesses;B SSI nesses (BIB), Consumer-to-Consumers (ICC), and Business-to-Consumers (BBC). It also had a presence In the intensely competitive web search market.
In 20 JOG, the company had also launched a transaction-based wholesale platform, A Express, for Chinese merchants to sell goods to foreign buyers. Being one of the first companies to enter the Chinese Internet industry, Alabama played a major role in bringing about an Internet revolution in the county (refer to Exhibit I for a BRI fee note on the Internet market in Chi Nina). Alabama was launched with the v Sino of serving the small and medium enterprises (Seems) in China and across the world . As of 2011, it had 69 million registered users spread across more than 240 countries. Cacao riding to t he Hang Chou-based, e-conglomeration’s provider China e-Business Research Center, Alabama had been the clear market leader in the Chinese -co amerce market with a market share of 63. 5 percent for the FYI 201 0. Vi However, the company lagged behind in the Chinese online search engine market despite having qua erred Yahoo! China’s operations in 2005. The Chinese search engine market was dominated by players such as Baud. Com, Inc. 10 (Baud) and Google Inc. 1 1 (Google) with market shares of 77. 7 percent and 18. Percent, respectively, in Q of 20 11 according to research Consulting Group 12 (research)_Hi In AUgUSt 20 10, Alabama had acquired Soggy, a search engine of Chinese portal SOHO. Com, in a bid to increase its dominance in the Chinese web search market. It also had ambitious plans of investing IIS$ 157 million in its shopping search engine teat 9 BBC or Business-to-consumer e-commerce relates to business transactions between a company and a customer using the Internet. 10 Baud. Com, headquartered in Beijing, China, is a leading Chinese search engine. 11 Google Inc. Headquartered in Mountain View, California, ASSAI, is one of the leading Internet companies in the world. 12 research Consulting Group is a market research company based in China. It offers companies market research services related to e-concurrence, the Internet, online games, etc. PC-1 PC-2 PART 3 ; COMPREHEND VIVE CASES EXHIBIT I Internet Market in China According to a China Internet Network Information Center 13 (CONIC) re port in June 2010, China had 3638 ms Join broadband users. As of MGM-2011 , Chula was the world’s largest Internet market in the world.
According to DDCD, the number of Internet users in China had reached 508 reunion by the end of 20 11 The Internet users in C hall comprised only a meager portion of the country’s population Of 1. 3 billion, which meant that there was a huge potential for future growth. China was important for Internet comma nines not only because of its large market size but also for its vast tale NT pool. Ap art from the main business activities of Internet companies such as online search, online cacti ones, online communications, and online advertising, special features like blobbing and SMS (Short Messaging Seen. Ice) were also gaining popularity in Chula. Blobbing was a popular feature, especially a mongo Chinese youth. They were attracted to blobs 14 and the Bulletin Board System 15 (BBS) because of the freedom they offered to the m to express their pop onions and get to know those of others. These blobs were posted on a variety f topics, like what clothes to buy, what music to lists n to, and what movies to watch, product reviews, comparison of products and advertisements, etc. Analysts opined that people expressed their Ii ekes and dislikes more strongly in blobs than they would otherwise.
Blobs also generated a huge amount of information about customer choices and customer feed back throughout the country, which h could be of great use for companies and the government. SMS was another popular practice in China, generating heavy revenue for Internet portals. Accords Eng to Garner Inc. 16 (Garner), messaging via cell hones a ND hand-held deep ices was a common practice in C hint and local Internet companies like Sins Corporation, SOHO. Com Inc. , and Intense. Com, Inc. Achieved a good amount of revenue fro m the SMS delivered through their portals. Despite the huge opportunities it offered, the Chinese Internet market was not without its challenges. The political environment in Chula had a bearing on the existence and performance of Internet companies in China. The Chinese Internet market was strictly regulated by the government. The government imposed a censorship on pornographic content and content elated to controversial topics like Attainment Square 17, Taiwan independence 18, the Dalai Lama 1 9, etc.
According to media reports, the Chinese government employed around 30,000 people to ensure that such restricted content did not spread in the Chinese Internet space. In addition to complying with the government rules, it was impotent for Internet companies in Chula to know how to successfully launch a Chillness language website or design a search engine that would suit the complex Chillness language. The Chillness language makes extensive use of pictogram’s and ideograms ; The characters are written without spaces between them, which made it hard to distinguish one word or phrase from the next.
Due to all these political, cultural, and linguistic fact torso, many international Internet companies had to seek local help to understand the Chinese consumers and deal with the local nuances. Industry experts felt that many domestic Internet companies had managed to gain popularity and market share because of their familiarity with the local environment NT and customers. Because of their intimate knowledge of the local language, culture, and dealings with the government, the local players had an edge over their foreign counterparts in he Chinese Internet market. Source: Compiled from various sources. 3 The China Internet Network Information Center (CONIC) is the state network informant ion center of China, founded as a non-profit organization in June 1997. The Computer Network Information Center of the Chinese Academy of Sciences runs CONIC. CONIC looks after everything related to the Internet in China like domain names registration, IP addresses, relevant researches, surveys and information services, and international liaison and policy research. 14 A blob is a user-generated website where entries are made in journal style ND displayed in chronological order. 5 A Bulletin Board System allows users to dial into the system over a phone and using a terminal program, perform functions such as downloading software and data, uploading data, reading news, and exchanging messages with other users. 16 Garner Inc. Is a U. S. -based business consulting if arm established in 1979. It delivers technology-related insights to around 10,000 clients around the world. 17 Between April 15, 1 989, and June 4, 1989, there were protests in China against the Communist party of China government.
Ill protests, which were entered TTL inhumane Square in Beijing, were led by students, intellectuals, and labor activists. On June 4, 1 989, the Chinese government dispersed the mobs at 1 inhumane Square using military force, which led to the deaths Of hundreds of protesters. The incident came to be known as the “Attainment Square massacre. ” 18 For years, the Taiwan independence movement was opposed by China, which described it as a separatist movement that would divide the nation and people. The pro-independence groups described it as a nationalist movement. 9 The literal meaning of “Dalai Lama” is “spiritual leader. ” The Dalai Lama is noninsured the supreme head of Tibetan Buddhism. The 14111 Dalai Lama demanded greater autonomy for 1 bet, which is under Chinese control. 20 A pictogram is a character that represents an object, a concept. Or an activity through a picture. 21 An ideogram is a character that represents an idea. CASE 5 ; ALABAMA IN 2011 : COMPETING IN CHINA & BEYOND in order to gain a strong foothold in the online shopping market in China! ; The company was also making efforts to increase its global footprint.
In June 201 0, Alabama acquired Vended Services Inc. 22 (Vended). The site was linked to Alibi’s network of suppliers and buyers. To fuel its global growth, in August 201 0, Alabama acquired Activate to reach U. S. Businesses and connect with buyers and suppliers outside China. In December 20 1 1 , Alabama announced that it was testing a social-networking product. Tills was part of its efforts to expand outside its e- commerce platforms to seek different streams of revenues. Industry experts felt Alabama was devising strategies to fuel its growth and, with the acquisition boohoo! S stake, it would gain a stronger foothold in China since Internet penetration and e-commerce were rapidly growing in C hint. BACKGROUND NOTE Jack Ma (Ma), founder of Alabama, was born in Hangout, a city in China’s Jagging province, in 1964. At the age of twelve, Ma developed a fascination for the Eng shish language. He began learning English by listening to the Voice of Americana and acting as a free guide to foreigners who visited Hangout. Another event that changed Ma was when he traveled to Australia to visit a friend in 1985. He had grown up believing that the world outside C hint was a terrible place to live in.
He was taught that China was the richest country in the world and that the Chinese were the most contented people in the world. According to Ma, “Everything I’d learned in China was that China was the richest country in the world. When arrived in Australia, realized it’s totally different. Started to think you have to use your own mind to judge, to think. “xii In 1 988, Ma earned a degree in English from the Hangout Teacher’s Institute and began teaching English and international trade at the Hangout Electronic and Engineering Institute.
In 1 992, he foe need an English translation agency in Hangout and soon built up a good reputation for his language skills. In 1 995, Ma was sent to Malibu, near Los Angels, by a Celanese businessman. Ma was to mediate in a dispute between the businessman a ND his American counterpart who had not put in the money he had promised into the man’s firm. Ma approached the American ready to mediate but to his shock, he was locked up for a couple of days in the American’s house. Ma was released only after he promised the American that he would start an Intimate company in China in association with mom.
Though this joint venture never actually happened, Ma was able to leave. The same year, Ma went to Seattle with a trade delegation as an interpreter. This was to become a turning point in Ills life. During the visit, a reined introduced him to the Internet. Ma typed in “beer” in the search engine. It yielded results like German beer, Japanese beer, and American beer. Mottling called Celanese beer came up. He then typed in ‘China” and “beer” but this gave no results. This made Ma decide to start a company to bring information regarding Celanese companies to the Internet.
After returning to Hangout, Ma resigned from his teachable job, borrowed LOS$ 2,000 from his relatives, and launched China Pages, China’s first commercial website, in 1995. About launching tills website, Ma said, “At 9:30 we launched the home page, and by 12:30 1 had six e-mails. Aid, ‘Whoa! Interesting! ‘ If I could help Celanese companies list on the Internet and help foreigners find their websites, that might be a good thing. “xiii The website contained a list of companies operating in China. The Hong Kong media called Ma the “father of the Chinese Internet” and credited him with bringing about an Internet revolution in China.
In 1998, Ma moved to Beijing to work for the Chi nest Ministry of Foreign Trade and Economic Cooperation (MOPPET) as the Head Of the Information Department of the China International Electronic Commerce Centered (ICE). He designed a website for MOPPET. This became the first government website in China. Alfalfa IN ITS INITIAL YEARS In 1 998, Ma left MOPPET and returned to Hangout to fulfill his dream of establishing his own e-commerce company. He said, I realized that you can never expect a government company to grow. So I left to set up my Ma gathered 18 people in his apartment to explain his vision to them.
He warned his colleagues who wanted to join him that his venture was a risky one and that they would be paid only Reminds 26 (ARM) 500 every month. He gave them three days to think it over. He was touched when, finally, all 18 of them decided to follow him to Hangout. Ma and his colleagues put in some money. This money, which came up to IIS$ 60,000, was used to stabilizer from Ma’s apartment in Hangout in March 1999. Asked why A Libra had been chosen as the name, Ma said, “The name [Alabama], taken from the Arabian Nights, was chosen because it’s universally well known and is easy to spell. Xv In August 1999, the Chinese Bureau of Industrial and Commercial Administration registered Alabama as a computer company since the company’s business could not be classified under any other category. Because of the strict PIP regulations in Beijing, Alabama was suggested in Hong Kong. At the same time, Ma started looking out for potential investors of r the venture. But since the business model was new, the investors initially did not believe in the venture. However, by September 1999, a few venture capitalists approached Ma, attracted by the novel concept of the business.
Ma told them frankly that launching Alabama was a risky proposition and that he expected it to make hardly any proof TTS during the initial years. Some of the prospective investors were still eager to lend. Ma said, ” I told them at the very first meeting, Don’t push us. We know what we are doing. ‘”xvi Initially, Ma rejected offers from 38 venture capitalists. Later, he accepted an offer from a group of investors including The Goldman Cash 25 22 Vended Services Inc. Is a U. S. -based e-commerce site. As of June 2010, it hosted services for 80,000 small businesses in the U. S. 3 Active offered listing and marketing tools to vendors on e-commerce sites. 24 Started in 1942, Voice Of America is an international radio and television broadcasting service of the U. S. Government. PC;3 China International Electronic Commerce Center (ICE) was founded in 1996 o build and operate a secure network for government communications and commerce. It provided services related to e-commerce and e-government that are used by government agencies in China. 26 Renaming is the currency of the mainland of the People’s Republic of China. Its principal unit is called the Yuan.
As of December 4, 20 II, IIS$ I was approximately equal to ARM 6. 32. PART 3 ; COMPREHENSIVE CASES Group Inc. 27 (Goldman Cash), Fidelity Investments,28 Investor ABA,29 Templeton Dragon If ND Inc} O and Transplant Industrial Holdings Linefeed 31 and was able to raise US 5 million from them in October 1999. In January 2000, Ma successfully persuaded Softbank to invest IIS$ 20 million in his venture. Xviii Softbank was, at that time, the largest global investor in Internet businesses, owning stakes in hundreds of Internet companies such as Yahoo! , Connotation Corporation (CDC), etc.
In return, Peter Sutherland, Chairman of Goldman Cash, and Mashies Son (Son), CEO of Softbank, were made me embers of Alibi’s board of advisors. In 2000, Ma moved the company’s headquarters from Hangout to a new building in Shanghai. Alabama concentrated on small and medium-sized Chinese firms that aspired to go global but of undo it very expensive to do so. Ma aimed at connecting these Chinese manufacturers with small and medium-sized buyers from across the world. Ma said, “We want to help Seems from all over the world grow thee r business and benefit from cross-border trade.
Alabama. Com is like the World Trade Organization for Seems. “xix Alibi’s mission was “to help small and medium enterprises (Seems) grow. ” Commenting on its focus on Seems, Ma said, ‘Simms are the future of Asia, and the future of C hint a. Many people believe in big companies, saying we should get more money from big companies, we should do transactions with them, etcetera. But I disagree. Asia is Asia. China is China. Unfortunately, in Asia, the market is too fragmented that we have no standard. There is no standard for e-commerce, Seems, or BIB. Our job is to establish the standard.
We cannot create beautiful Overprints, but We know how to listen to our customers. “xx During the late sass a ND early sass, the Internet had not yet become too popular in China and banks were not networked. Credit card usage was limited and providing logistics service in the country was difficult, to say the least. In this scenario, Alabama thought it wisest to limit its equines model to connecting buyers and suppliers. Suppliers were allowed to list their products on the website who el buyers could post Ethel; requests on the bulletin boards. Deals were struck TTL;cough e-mails or offline messages.
The services were offered for free and no other value-added services were offered. Ma believed that Alabama was still in its infancy stage and had to build a Jolly customer base before it started charging for its services. Initially, Alabama had two websites-www. Alabama. Com, an English website for international BIB trade, and www. China . Alabama. Com for BIB trade in China. However, the company soon 27 The Goldman Cash Group Inc. , headquartered in New York City, New York, USA is a leading investment banking, securities, and investment management firm. 8 Fidelity Investments, headquartered in Boston, Massachusetts, USA is an investment products and services company. 29 Investor ABA, headquartered in Stockholm, Sweden, is an investment company whose key products include core equity, private equity, operating and financial investments. 30 Templeton Dragon Fund JNI. , headquartered in Fort Lauderdale, Florida, I-SIS. Is a non-diverse feed, closed-ended investment company. 31 Transplant Industrial Holdings Limited, headquartered in Singapore, is an investment holding company providing venture capital to private companies. 2 Connotation Corporation, headquartered in Hong Kong China, is a leading provider of business solutions, enterprise software solutions, and mobile and Internet applications. Noticed that despite Japan being China’s biggest trading associate, the online business candied out from that country was less compared to enterprises from the U. S. , South Korea, India, and Europe. Alabama therefore launched winnable. Co. JP, a Japanese site for Japanese traders, in 2002. According to Ma, “Chinese and Japanese entrepreneurs have a digital ditch on the Internet.
We want to help them stride this ditch with Alabama Japan Website. “xix Also, the Japanese preferred to use the site in Japanese. David Wee (Wee), CEO, Alabama, said, “They prefer to use the Japanese language as their commercial language, and with China and Japan as each other’s second-largest trading partner, there was a big demand. “xii Ma found that Seems were hesitant about using the Internet, as they assumed that it would require;e some expertise in computer use. Ma ensured that Alibi’s websites were simple and easy to browse through.
He considered himself a non-technical person, and this, he believed, helped him keep the websites more girlfriend’s. According to Ma, “l use my computer for two things, e-maim I and surfing the Web. Most of our customers are not heighten people, so we have always tried to make the technology invisible.