What is the contribution of Alibaba.com to global trade? What are some of the potential limitations?

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kipling2448 | (Level 3) Educator Emeritus

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The introduction of Alibaba.com on an international level could have serious implications for those internet shopping services that have heretofore been able to dominate the online shopping industry, especially Amazon.com.  Amazon.com’s emergence revolutionized the shopping industry.  While catalog mail-order shopping had been around for a hundred years (mainly through Sears, Roebuck and Company), the ability to shop online while enjoying lower prices and, usually, avoiding state sales taxes increased the convenience and efficiency of shopping by an order of magnitude.  That was the contribution made to the retail shopping industry by Jeff Bezos, founder of Amazon, which debuted in 1994 (with one of this educator’s coworkers introducing the rest of us to this new service by ordering and having immediately delivered a large box of glazed doughnuts).  While the rest of the retail service industry eventually followed Amazon’s lead by increasing its emphasis on online shopping opportunities for customers, Amazon has continued to dominate the market, accounting for almost a quarter of all online sales.

Now, the question was specific to Alibaba, not to Amazon.  The above emphasis on Amazon, however, is intended to illuminate the impact Alibaba could have on Amazon’s share of the total international market and on the broader category of retail sales.  China, as we all know, has a population of around 1.3 billion people.  Its middle class is estimated at around 300 million, the size of the entire U.S. population. Its upper, wealthier class could account for millions more, with a total online presence estimated at 400 to 450 million people.  (See: “Marketing to China’s Middle Class,” http://www.chinabusinessreview.com/marketing-to-chinas-middle-class/)  That’s a lot of prospective customers, and the Chinese are sufficiently nationalistic (as are most people) that they can be expected to favor a Chinese company like Alibaba.  This means that the global market for online retailers can be expected to continue to grow (and we haven’t even factored in other developing countries with growing middle classes and increasing online presences), and with it Alibaba’s share of the market.  Whether Amazon and other online shopping services can retain their existing share of the market in both absolute and relative terms remains to be seen.  To the extent nationalism plays a role in consumer decisions – and it often does – then Alibaba’s success will come at Amazon’s expense.

Potential limitations associated with Alibaba’s entry into the industry mainly revolve around the age-old problem of market saturation.  In other words, is the global online retail market sufficiently large and growing to allow for an additional entrant into that market?  It probably is, but, again, it is too soon to tell.  A look at Alibaba’s website indicates that it may take a while to really penetrate foreign markets, including the United States and Europe. Its current brand selection is limited and, for the most part, alien to Western consumers.  All Alibaba has to do, however, is secure its home market and it will probably succeed.

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