The Crocodile in the Yangtze River, Kuhn and a New Lexicon (Part 2 of 3)

 By: Siyanda Pali

The retail e-commerce space is a single but highly significant arena in which Alibaba is a market player. As is evident below, the arena has shown steady growth over the last few years, starting from 2014, with annual sales of aproximately $1.3 trillion USD to the estimated annual figure of $4.1 trillion USD in 2020. This figure is projected to soar to $4.9 trillion USD in 2021.

(Shopify)

The Coronavirus pandemic has upended traditional or conventional life as we know it. This has been the case not only for individuals, but also for all manner of business, organisations, countries and continents at large. It has also highlighted, rather fascinatingly, how different countries have provided different solutions for the same problem, with varying degrees of success. Similarly, different regions and countries have a specific profile when it comes to e-commerce sales. According to data by Statista, the 10 largest markets globally in terms of 2019 sales are as follows:

1. China ($740 billion USD) 
2. United States of America ($560 billion USD)
3. United Kingdom ($93 billion USD)
4. Japan ($87 billion USD)
5. Germany ($ 77 billion USD)
6. South Korea ($ 69 billion USD)
7. France ($ 55 billion USD)
8. Canada ($ 44 billion USD)
9. Russia ($ 19 billion USD)
10. Brazil ($ 16 billion USD)

From the above, it is clear that China, which is Alibaba's domestic market, is the world's largest e-commerce market, with aproximately $740 billion USD in sales in 2019. Not too far behind is the United States of America, at an estimated $560 billion USD. What is a pertinent insight to glean from the above is that of the 10 largest e-commerce markets globally, 3 are emerging market economies, namely China, Brazil and Russia.

(Search Laboratory)

From a strategy perspective, the latter-mentioned as well as the above could hold some keys for the captain of an e-commerce player. From the above, one can deduce that potential sales or significant opportunities exist in emerging markets, which could be a pre-cursor of the composition of the market in the future. Of the above, only Spain is an outlier, coming in at an annual growth rate which is below the global average of 9.6%. Every other country exhibits forecasts which will outstrip the global average. Leading the pack is India, with 19.9% estimated growth. This is followed closely by Indonesia at 17.7% as well as South Africa at 13.7%. Mexico, Turkey, China, Argentina, Saudi Arabia and Brazil are all expected to grow at between 10.7% and 12.6% for the foreseeable future. 

From the above, Alibaba's dominant market position in China is clearly evident. It had 58.2% of market share for the 2018 year. This is followed by Jingdong (JD.com) at 16.3% as well as Pinduoduo at 5.2%. What is rather interesting to see from the above is that Amazon China has been pulverised by Alibaba in China, with less than 1% market share in e-commerce sales. Fortunately or unfortunately, eBay has had similar fortunes in China, having to eventually exit the Chinese market. It goes without saying then, that within China, Alibaba's strongest competition comes from other domestic players such as JD.com and Pinduoduo.

Alibaba vs Amazon

Alibaba and Amazon are constantly paired together in the e-commerce space. This is, without a doubt, because the two are arguably the most influencial market players the world over. From the above, it is glaringly obvious that although Amazon may not possess any noteworthy market share in China, it is certainly a leader, or has positioned itself to be a leader, not only in the US, but in other markets globally. From the above, it is also clear that Amazon surpasses Alibaba in various streams of revenue in 2020 by several multiples, eg its core commerce revenue, cloud revenue as well as other revenue. However, when analysing operating profit, there is no distinct difference between the two companies, with about $1 billion US seperating the two.

 It is worth noting that the two companies seem to be pursuing different strategies in their approach to achieving their goals. Amazon seems to seek to control every aspect of the value chain, accumulating large amounts for PPE (Property, plant and equipment) for example, with it's massive distribution facilities. Alibaba, on the hand, seems to focus more on providing the technology which will enable the movement of goods between parties. Both models are certainly intriguing, and it will be interesting to see how both companies continue to serve their customers.