STRATEGIC EARLY WARNING SYSTEM (SEWN)

Alibaba—Threat or Opportunity

A share in the Chinese e-commerce web site, Alibaba, is being offered to US investors in the very near future. For many small to mid-sized businesses, this is the equivalent of Godzilla showing up in your neighborhood. 

Why? Because unlike many other e-commerce sites, Alibaba not only offers products, it offers parts and represents the local Chinese manufacturers of those parts. It provides an easy, inexpensive vehicle for larger manufacturers to access the low-cost labor and parts of the Chinese manufacturing economy. Alibaba has made it easier for American business to “off shore” products.

For comparison to a US web site, Alibaba is a multi-faceted Amazon, only much larger. Yahoo has entered the game and now owns about 28% of Alibaba. Like Amazon, it allows interested buyers to key word search almost any item. The site then provides descriptions, pricing options, sourcing information and comparisons to other products. Beyond that, it has other sites providing payment options through a “PayPal” type process, allowing non-credit card users access to a global customer base and the ability to avoid the headaches involved with international purchase orders.

Alibaba has been in existence for quite a while, and many different types of worldwide businesses have taken advantage of the low cost products offered through its various web sites.  However, the move to the US creates significantly easier access and much deeper market penetration. Alibaba’s goal is to provide products at a significantly cheaper cost and slowly dominate market segments. The threat lies in what the Amazon-type big e-commerce sites have done to small businesses – Amazon destroyed the book industry. This strategy usually creates a scaling down and gradual elimination of many small companies, sub-contractors and service providers in vulnerable business segments.

While not intending to go “off shore”, many prudent buyers explore many cost saving options, including searching on the net. Alibaba uses a very good search engine optimization strategy and usually presents a very enticing economic option that is hard to refuse. Once the process is put in place and the test run is successful, companies (buyers) find it is easier to go down that road again and again. E-commerce has changed the way buyers and sellers do business. Alibaba (founder Jack Wa) has taken advantage of the existing appetite for e-buying and created a Godzilla-scale threat to small and medium-sized American manufacturing companies.

Alibaba has taken advantage of the existing appetite for e-buying and created a Godzilla-scale threat to small and medium-sized American manufacturing companies.

In the history of American business, we have managed to find ways to answer threats and create opportunities. One example was the automotive industry’s response when the Japanese auto manufactures threatened the US car companies based in Detroit. The Toyota manufacturing process became the basis for “Lean Manufacturing” methods, and is still being taught to many different business organizations all across the US.  In almost every case, the American business that “borrowed” shamelessly from this new process, applied its own finger prints to the product and took it to market was successful. Jack Wa didn’t invent the process that made Alibaba successful. He simply applied some out-of-the-box thinking, and created a better version of what was working already.

While any major changes and quantum leaps forward are going to come from a group effort, one of the tenants from lean manufacturing that applies here is continuous improvement. Think outside of the box, move outside of the comfort zone in your own little world and create change one day at a time. If social media and digital marketing have not been working for you, don’t give up on them. Maybe teaming up with other companies with similar products could broaden your exposure and allow different customers to view you in a different way.    

Some changes are not always positive, but they do create momentum and a chance for a different outcome. If you are looking for a different perspective, please feel free to call us at SEWN and we will try to lead you through a change process that has a positive outcome for your manufacturing business.

Contact Gregory Olson, Director, SEWNSE Region, 215-458-7580, , to learn more www.steelvalley.org.