Question

Read the case study below and answer ALL questions that follow.
Alibaba’s New Chairman Says He Has to Reinvent Retail Before Someone Else Does By Peter Elstrom and Lulu Yilun Chen September 9, 2019, 6:01 AM GMT+2
For months, Daniel Zhang huddled with a small team in an underground garage in Shanghai. The chief executive of Alibaba Group Holdings Ltd. was working on a secret plan that would sound crazy even to many of his own colleagues 100 miles away in Hangzhou. Zhang wanted to launch a startup inside the e-commerce giant that would combine a grocery store, a restaurant, and a delivery app, using robotics and facial recognition to speed up logistics and payment. That project, Freshippo, has since become a major part of Zhang’s blueprint for Alibaba’s future, with 150 stores (and counting) across 17 Chinese cities. On a recent weekday afternoon at a store in Hangzhou, plastic bins shuttle automatically along tracks in the ceiling, collecting goods from around the store for online orders. Deliverymen stand by to transport the goods anywhere within a 1.9-mile radius in as little as 30 minutes.
Zhang is the little-known 47-year-old with the unenviable task of stepping into the shoes of China’s most famous businessman. On Sept. 10 he’ll add the title of chairman of Alibaba after assuming the CEO role in 2015, and he’ll be the first person since co-founder Jack Ma to hold both positions at the same time. Ma is a global figure known for hobnobbing with heads of state and for his fiery speeches at gatherings such as the World Economic Forum. Zhang is slight and soft-spoken, often proceeding haltingly in English during calls with investors. Even in China, he’s largely unknown. At Alibaba headquarters, an employee’s parent mistook him for the janitor.
Yet in his understated way, Zhang is proving as radical as his predecessor. He says Alibaba is uniquely positioned to pull together the online and offline worlds in groceries and beyond, and dozens of his new initiatives are leading Alibaba deeper into fields including finance, health care, movies, and music. Especially in the U.S., where the company’s shares trade, these efforts have baffled some investors, who worry about overreach. In Zhang’s view, they’re a matter of survival. “Every business has a life cycle,” he says during an exclusive interview at Alibaba’s Hangzhou headquarters. “If we don’t kill our existing business, someone else will. So I’d rather see our own new businesses kill our existing business.”
MODULE OPERATION MANAGEMENT IN SUPPLY CHAIN MANAGEMENT
TOTAL MARKS 20 MARKS
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Alibaba’s online marketplace made it China’s largest public company, with a market value of about $460 billion, but recent months have provided several signs of strain. China’s economic growth is slowing, squeezing consumer spending and advertising. Investors have pushed down the company’s share price. And protests in Hong Kong forced the delay of a stock offering that could have raised $20 billion. “He’s got to find new seeds for revenue growth,” says Mitchell Green, managing partner of Alibaba investor Lead Edge Capital. “He’s planting a lot of seeds.”
Born and raised in Shanghai, Zhang followed the path of his accountant father to Shanghai University of Finance and Economics. Early in his career, he saw up close how quickly established institutions can vanish. He was interviewing at Barings Bank when one trader lost more than $1 billion and took the 233-year-old institution under. Instead, he became an auditor at the Chinese affiliate of Arthur Andersen, and was working in the satellite office when Andersen went down in connection with the Enron accounting-fraud scandal.
“This is a very funny story,” he says, with the comic timing of a man who loves bookkeeping jokes. “After I joined Arthur Andersen, I had a joke with him. I said, ‘For many years, you didn’t want me to be an accountant. Then I became an auditor.’ I was never an accountant for even one day.”
Zhang later became chief financial officer at game developer Shanda Interactive, at the time the largest internet company in China. That’s where Alibaba Vice Chairman Joseph Tsai, the next-most influential cofounder after Ma, found Zhang in 2007. “Daniel really understands business,” says Tsai, who recently plunked down $3.5 billion, about a third of his wealth, to buy control of the Brooklyn Nets. “You can’t disrupt unless you really understand what you’re trying to disrupt.”
It was at Alibaba that Zhang truly distinguished himself. When he joined, the company’s hottest website was Taobao, an EBay lookalike that was losing money and full of phony goods. “When I looked at the financial statement, oh Jesus,” Zhang says. “Revenue? Zero. Bottom line? A lot of losses. Then I moved to the balance sheet, even worse.”
Starting in 2008, Zhang took over the development of Tmall, an online marketplace more like Amazon.com Inc.’s that’s now Alibaba’s most lucrative operation. To attract brand names to the site, he furnished top merchants with new levels of information on their customers: who was buying what, where they lived, which kinds of ads worked best. Sales boomed, and Zhang slowly coaxed global brands such as Procter & Gamble Co.’s Tide and SK-II into selling online in China. He showed Alibaba was serious about fighting fakes by installing software to detect copycats, and by giving companies a hotline to report violations. P&G estimates that only about 1% of goods carrying its brands on Alibaba sites are counterfeit on average, though Taobao remains on the U.S. government’s list of “notorious markets” rife with copyright infringement.
In 2009, Zhang and his team created Singles’ Day, an annual deals-fest that coincides with a relatively obscure Nov. 11 celebration of singlehood. Zhang spent months pushing merchants to get on board, then oversaw sales, promotions, and items to be featured on key webpages. Sales hit $135 million the second year, then $5.8 billion in Year 5. Last year the total hit $31 billion, far beyond the U.S.’s big shopping holiday, Black Friday.
The momentum from Tmall and Singles’ Day “basically made the company the retail giant that it is today,” says Duncan Clark, author of Alibaba: The House That Jack Built. Jerry Yang, a member of Alibaba’s board and a co-founder of Yahoo! Corp., says Zhang’s low-key style is a plus. “Daniel’s results speak louder than words,” says Yang. “He’s all about execution.”
Subsidiaries such as Freshippo are part of what Alibaba is calling, optimistically, “new retail.” The combo stores were conceived by Freshippo CEO Hou Yi, who was planning to create the company on his own when he met with Zhang in 2014. Over coffee, Zhang persuaded him to join Alibaba instead and gave him $100
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million to start with no expectations of profits for the first two years. “Then I knew how determined he was,” says Hou. “This is the equivalent of Daniel’s second startup. He said after so many years, he finally saw a project that could surpass Tmall.” Only now is Hou working out a business model.
Freshippo is far from a guaranteed success. Margins are woefully thin in the grocery business, and several well-funded startups are competing with Zhang’s effort. An Alibaba delivery venture called Ele.me is also bleeding money in its battle against Meituan. Wang Xing, Meituan’s founder, told Bloomberg Businessweek earlier this year that Alibaba wouldn’t be able to keep up the fight into 2020. Zhang says he’s wrong, and that Alibaba is determined to take at least 50% of the market in food delivery to obtain an advantage in related businesses, such as digital-payments services. Expansion abroad may be the biggest challenge. Ma pledged that Alibaba would one day generate at least half its revenue from outside China, a target Zhang says he’ll pursue. But foreign sales are far from the goal, and gains are proving expensive. Alibaba has already sunk $4 billion into Singapore’s Lazada Group to expand in Southeast Asia, but it has struggled in key markets such as Indonesia. In March, Lazada got its third CEO in nine months.
While Alibaba’s spending raised few questions as consumer demand surged in China and capital markets rallied, it’s looking tougher to maintain. The company’s shares more than tripled from the time Zhang took the CEO role in September 2015 through June of last year. Since then, they’ve lost 15% of their value.
The new initiatives take a toll on Zhang, too. Even by the standards of China’s tech industry, which views working “996”—9 a.m. to 9 p.m., six days a week—as normal, his schedule is intense. During the week in Hangzhou, it amounts pretty much to work, eat, and sleep, according to a former colleague. On weekends, Zhang usually meets two or three CEOs. Besides trying to out-hustle his rivals, he’s also got to contend with the memory of Ma; successors to iconic chief executives often get pushed aside when the business hits a rough patch and nostalgia sets in. “It’s always hard to follow founders,” says Jeffrey Sonnenfeld, senior associate dean for leadership studies at the Yale School of Management. “It’s even harder when you’re following someone with global stature.” —With Philip Glamann   
Source: https://www.bloomberg.com/news/articles/2019-09-09/alibaba-s-new-chair-says-he-ll-find-the-wayto-kill-his-business   
1.1 REQUIRED: Answer each of the following questions:
“For months, Daniel Zhang huddled with a small team in an underground garage in Shanghai. The chief executive of Alibaba Group Holdings Ltd. was working on a secret plan that would sound crazy even to many of his own colleagues 100 miles away in Hangzhou. Zhang wanted to launch a startup inside the e-commerce giant that would combine a grocery store, a restaurant, and a delivery app, using robotics and facial recognition to speed up logistics and payment. That project, Freshippo, has since become a major part of Zhang’s blueprint for Alibaba’s future, with 150 stores (and counting) across 17 Chinese cities.”
In light of the above observation, identify and critically discuss the strategy underpinning the “new retail” that Alibaba Group Holdings Ltd. is pursuing under Daniel Zhang, the chief executive and chairman. In your discussion, highlight the main characteristics of the strategy as well as a brief SWOT analysis of Alibaba, using the information provided in the article. 1.2 Yet in his understated way, Zhang is proving as radical as his predecessor. He says Alibaba is uniquely positioned to pull together the online and offline worlds in groceries and beyond, and dozens
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of his new initiatives are leading Alibaba deeper into fields including finance, health care, movies, and music. Especially in the U.S., where the company’s shares trade, these efforts have baffled some investors, who worry about overreach. In Zhang’s view, they’re a matter of survival. “Every business has a life cycle,” he says during an exclusive interview at Alibaba’s Hangzhou headquarters. “If we don’t kill our existing business, someone else will. So I’d rather see our own new businesses kill our existing business.” Based on the above extract, Alibaba’s new chairman appears to be implementing a strategy meant to reinvent retail as a matter of survival. Identify and critically discuss any TWO (2) types of managerial strategic decisions that could be used by Alibaba to “kill [its] existing business,” innovate its operations and optimise its offerings. As part of your discussion, define and explain the two strategic decisions you have identified and highlight the potential role they could play in Daniel Zhang’s bundle of new initiatives which are “leading Alibaba deeper into diverse fields such as finance, health care, movies, and music.”

Answer 1

SWOT of Alibaba from the case above :

Strengths

1. Financial muscle

2. Technology and knowhow

3. people : Alibaba seems to have the right kind of people or has hired the right kind of people with the dedication and devotion to being at the top of the game.

4. understanding of E-commerce and China Market - the drivers for growth etc

WEaknesses

1. Inability to root out fakes : implies loss of trust as well as revenues

2. inability to find new ways of supplementing revenue and derisking balance sheet

3. centralisation : there is not enough information in the case by Zhang's punishing schedule, meeting of CEOs over week end ; 3 CEOs at Lazada in 9 months implies a certain degree of centralisation of decisions

Opportunities

1. freshippo looks like a gamechanger if it works

2. newer markets outside China : esp with Tmall

3. deepening the relationship with Chinese consumer through greater share of delivery , payment apps and allied businesses like event bookings, banking , bill payments etc.

Threats

1. Failure of new products : since these are tech enabled, the cost of development is high and a failure may be a huge loss with impact on stock prices

2. Loss of business to hyper local rivals - the business model of freshippo is traditionally better done by hyper local vendors and this danger of losing the race to them exists

STRATEGY UNDERLYING FRESHIPPO

In addition to E-commerce and online market places , today the fight is for the neighbourhood . Many products and services are bought locally from neighbourhood stores and facilities. examples would be Ordering in food ; groceries and produce which are required quickly without having to wait , movie tickets ,other products that are needed in a hurry. Most customers will not wait for more than a couple of hours to get these items. The only way to make it happen, then, is for an efficient delivery service to pick it up from a local store or a "dark" store and deliver to the customer . To enable this, the delivery service has to know the following :

1. Predict the demand per item, per geogrpahy as accurately as possible

2. Be aware , in real time, the inventory per item per geography

3. Maintain riders /pickers who will pick up from the designated store and deliver

4. There is an opportunity in payment as well which many players are quick to exploit which is that of a payment apps ...which enables a player like Alibaba to get a better idea of customer buying behaviour and share of wallet as well as get a small comission per transaction as the enabler fee.

Hence the freshippo is a great idea. A lot will depend on the company;s ability to

1. Understand customer requirement and predict the same

2. Fulfill the orders accurately without stock outs

3. Managing costs

4. Managing Quality

5. Managing a seamless integration of online with offline

The 2 strategic initiatives identified by me are :

1. Freshippo - given that Alibaba has a delivery app ele.me bleeding money , freshippo offers a fresh hyperlocal perspective to get this opportunity right - if played well, it could potentially disrupt the e-commerce platform and take the fight right into the neighbourhood

2. A comprehensive B2B logistics solution - using its expertise in managing Alibaba and Tmall and now freshippo , Alibaba can develop a comprehensive B2B logistics model and offer it to brands to optimise inventory and store at a lower cost.

3. A comprehensive Delivery solution on demand for consumers to be offered to other businesses - lots of smaller E-commerce players struggle with the last miile delivery to customers. using the might of Alibaba and its expertise, they can leverage Freshippo to fulfill the orders of even competition