Is Alibaba's Supply Chain Ready to Take On Amazon? Andrew Burton/Getty Images

Is Alibaba's Supply Chain Ready to Take On Amazon?

Without its own fulfillment centers or trucks, Alibaba currently lacks the supply chain infrastructure to compete head-to-head with Amazon in the U.S.

Global e-commerce platform Alibaba recently made headlines with its record-setting New York initial public offering (IPO), the largest ever in the United States. The company’s aggressive growth aspirations (“We want to be bigger than Walmart,” said Alibaba founder Jack Ma,) are rooted in the success it has seen in its home country of China, where it is one of the biggest retail players. Alibaba is the Amazon of the Chinese marketplace without equal competition.

But how will the company fare in its expansion in the U.S.? What challenges will Alibaba face and, the question on many people’s minds, what challenges will it have in competing with existing retailers like Amazon? Considering supply chain and fulfillment fundamentals, retail market conditions, and best practices in customer experience, we have mixed views on the matter, and we’ll outline here four factors related to the company’s expansion into the U.S.

Infrastructure

The jury is still out as to how aggressively Alibaba can move into the U.S. market, largely due to the fulfillment and customer satisfaction footholds held by Amazon and other e-retailers such as Wayfair. This is not to mention the e-commerce channels of traditional brick-and-mortar companies such as Macy’s and Walmart. The fact is that Amazon can offer same-day delivery in the markets where inventory lives within their own distribution centers.

Alibaba doesn’t own any of its own assets for lastmile delivery or even fulfillment; they are an online virtual e-commerce platform that tenders orders, more like an eBay. The company will either sell consignment inventory provided by vendors, or goods will be shipped from a vendor warehouse or location. Alibaba’s role is essentially to coordinate track-and-trace logistics, giving coordinate information for delivery, tendering the funders and clearing it—much like what Amazon does when they sell goods for a third party.

Much of Alibaba’s huge share of the market in China is within rural communities, where they don’t have to deliver goods within a day or two. They’ll need to establish partnerships with carriers, affiliates and more infrastructure here in the U.S. Perhaps this IPO is a starting point for that, but without their own fulfillment centers or trucks, they give up the edge to Amazon, who for the past 7-8 years has been aggressively building distribution centers in every state. Amazon also has significant buying power and well developed partnerships with national and international parcel carriers (UPS, FedEx, USPS, Canadian and other postal services) and with local and regional carriers and 3PLs in most markets.

Customer Experience

One major challenge posed by Amazon to its new competitor in the U.S. is its large install base of Prime users. Convincing an Amazon Prime member to switch to Alibaba will be difficult unless the price point, or more importantly, the service is drastically better. And that will be hard to do—the return policy at Amazon in the Prime program is so generous and liberal, and for return shipping the cost is also free thanks to their relationships with UPS and FedEx. With so much volume, Amazon has been able to secure distinct cost and price advantages for both shipping suppliers, and the end consumer benefits.

This premium service creates a strong customer experience and highly loyal members, a difficult combination for Alibaba to break through, especially considering that UPS and FedEx aren’t likely to give the same price breaks to Alibaba due to their existing relationship with Amazon. Someone will have to pay—either Alibaba shows a loss by paying the freight, or manufacturers have to pick up the cost.

Personalization

The most glaring difference between Alibaba and Amazon is the way in which Amazon is able to derive participation from its users. With such a well-articulated process of customer reviews and product reviews, Amazon can be highly targeted in its messaging to the end consumer, e.g., “you’ve purchased this item, others also purchased that item” or “you may also be interested in….” These sophisticated targeting and retargeting activities are hugely valuable in creating a personalized shopping experience.

Amazon excels at multiple customer touch-points, from the point that you order to the point that you return an item, from showing you your shopping browsing history to offering a volume discount. Alibaba will need to quickly visit its customer engagement strategies as well as integrate its technology platform to replicate these core capabilities and share granular data with its logistics partners. Additionally, the millions of reviews and history populating Amazon’s sites is proprietary to Amazon—Alibaba can’t compete with such vast quantities of user-generated information. That said, with such an impressive backing in its IPO, Alibaba could run for quite a while to play catch-up in these areas.

Branding

Those in the technology industry are very familiar with the Alibaba name. However, there is not much brand visibility on Main Street. We see a lot of companies coming into the market such as Wayfair, and thanks to some aggressive U.S. branding efforts, a lot of consumers know Wayfair better than they know Alibaba. Alibaba will have some serious challenges in expanding its brand name in an already populated American e-commerce market. Just like Amazon would have a difficult time going into Asia with the critical mass it has, the opposite would be very true as well.

Much of the media is focusing on the new, big player moving into the U.S. e-commerce space, but they’re strictly thinking about cost. Without a doubt, it will be a big deal if Alibaba can do in the U.S. what it did in China. The challenge? Retailers such as Amazon and Wayfair have such a dominant grip in the U.S. with existing brand awareness, infrastructure, partnerships and customer base that it’s going to be very difficult for Alibaba to stage a coup, unless it figures out how to beat the service and the price of incumbent U.S. e-commerce and retail giants.

Bob Heaney is research director & principal analyst, retail & consumer markets, and Omer Minkara is research director, contact center & customer experience management with analyst firm Aberdeen Group.

Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish