Introduction
Major business enterprises can utilize various frameworks to evaluate their marketing strategies and their outcomes. Examples of those frameworks are the MBA matrix, the PMI matrix, and the CAGE model. This case study aims to apply these theories to Alibaba, the largest e-commerce corporation in China. Thus, the paper separately discusses three questions related to Alibaba’s business activity. First, it considers whether acquiring eBay would be the best strategy for Alibaba to increase its presence in the USA with reference to the MBA matrix. The study concludes that acquiring eBay for Alibaba is not a profitable strategy. Second, the paper analyzes how Alibaba should manage its hypothetical eBay acquisition with reference to the PMI matrix. If management chooses the acquiring eBay approach, the symbiosis model will be the best option. Finally, Alibaba may face cultural and legal challenges if it decides to increase its international presence in Egypt.
MBA Matrix: The Best Strategy to Increase the Presence in the USA
The first question of this case study relates to the best potential strategy for Alibaba to increase the company’s presence in the United States. The (MBA) matrix is applied, which stands for “Make, Buy, Ally,” or “Buy, Ally, Do-It-Yourself.” The “make” component means that the company invests its own resources to achieve the desired goals (Van Rijnsoever et al., 2017). If Alibaba decides to utilize the make strategy, the company will have to use its own knowledge, resources, and connections in the United States to improve its presence with the help of its additional facilities and enterprises. Thy “ally” component suggests that the primary firm and external American stakeholders form a joint venture, an alliance, or engage in collaborative projects, increasing the firm’s presence in the country (Van Rijnsoever et al., 2017). Thereby, Alibaba will have to collaborate with eBay as two international e-commerce corporations. Finally, the buy strategy refers to the acquisition of eBay by Alibaba, buying the company out of the market (Van Rijnsoever et al., 2017). This particular strategy represents the highest level of interest in the case study.
The MBA matrix analyzes three main aspects of business decisions when applied to a particular project associated with choosing the best strategy: urgency, uncertainty, and capabilities. According to the MBA matrix, the only situation when the buy strategy is the best choice is when the project is urgent and certain, and the company has enough capabilities to complete it (Regner et al., 2019). Although Alibaba seems capable of acquiring eBay, the aspects of urgency and uncertainty do not favor the buy strategy. Regner et al. (2019) state that the company currently struggles to ensure home-market dominance. Therefore, it will be challenging for Alibaba to maintain a successful business after acquiring eBay and ensure Chinese dominance simultaneously. Even Alibaba’s founder, Jack Ma, says that eBay – Alibaba’s rival – is “a shark in the ocean; we are a crocodile in the Yangtze River; if we fight in the ocean, we will lose, but if we fight in the river, we will win” (as cited in Regner et al., 2019, p. 61). Everything mentioned above demonstrates that the buy approach is not the best strategy for Alibaba in this case.
PMI Matrix: Managing Alibaba’s Hypothetical Acquisition of eBay
The next question to be discussed refers to the best potential management of the hypothetical acquisition of eBay by Alibaba. In the acquisition and merger process, it is imperative not to allow the business to assimilate under the new model of the acquiring company (Bodner & Capron, 2018). Philip Haspeslagh and David Jamison proposed an integration model in which two essential criteria must be preserved: strategic independence and organizational autonomy (Bodner & Capron, 2018). The Integration and Acquisition Approach Model provides guidance in understanding this complex process. To understand the appropriate merger strategy for the hypothetical acquisition of eBay by Alibaba.
The most important goal is to achieve strategic interdependence, directly affecting value creation. Alibaba and eBay can share resources through consolidations at the operational level. Because eBay and Alibaba are popular services with significant customer bases, value can be created using the market power and overall purchasing power. Management can also create value through improved understanding, coordination, and control. The exchange of information, the mutual exchange of employees, the transfer of more experienced to leadership positions, using the entire human resource base of the two organizations.
Since Alibaba and eBay are pretty different in terms of the audience and customer base they serve, the merger process’s approach needs to give eBay some serious autonomy, at least initially. Managers must understand what kind of autonomy is allowed in a given situation and in what areas it can be allowed without strategic losses. In addition, Alibaba’s leadership must focus on keeping the source of material gain intact.
Based on the Philip Haspeslagh and David Jamison matrix, recommendations can be generated for selecting an appropriate integration strategy. Preservation implies little interdependence and a high need for eBay autonomy. When choosing this strategy, more serious efforts are needed on the part of the acquired company. The merged business will preserve old strategies, systems, and cultures (Bodner & Capron, 2018). This option is acceptable since eBay is a world-famous company whose name can be used as a marketing ploy. The disadvantage of the preservation strategy is the low integration and low influence of Alibaba’s management. Preservation is an acceptable strategy, at least at the initial integration stage.
Low autonomy and low independence are offered by the type of business integration in the form of a holding. In this type of acquisition, the acquired entity remains relatively dormant and does not undergo significant changes (Bodner & Capron, 2018). A holding is a commercial organization that includes a parent company and several smaller subsidiaries. The first owns a controlling stake and exercises control over the work of all structural divisions. A significant advantage of the holding is the savings in management costs (Bodner & Capron, 2018). The primary company exercises centralized management of all enterprises that are part of the holding. Another advantage is unified tax and financial planning. However, the holding implies turmoil associated with document flow and bureaucracy. It is challenging to manage several different companies simultaneously, coordinating their activities to achieve one common goal.
The acquisition strategy implies strong strategic interconnection and little need for organizational autonomy. The acquisition is an approach in which it is easy to correct the course of the acquired enterprise (Bodner & Capron, 2018). In an acquisition, the acquiring company is able to quickly adapt the team, goals, and vision of the major business. A serious disadvantage of the strategy is the dissatisfaction of both the employees of the purchased organization and the client base.
The symbiosis approach implies a robust strategic relationship while maintaining a high autonomous need. Benefits accrue to both the acquired and the acquired entity. Both businesses can learn from each other’s best qualities and share experiences (Bodner & Capron, 2018). Frontline employees of both organizations can hold leadership positions. The symbiosis strategy is predominant for Alibaba because large business like eBay needs autonomy and the ability to use already developed strategies. In addition, eBay’s name can be used in order not to lose regular customers of this Western service.
Although the Alibaba-eBay symbiosis is the most appropriate strategy for a possible merger, it comes with significant challenges. The main goal is to expand sales markets and global influence, working for a Western audience. A merger is not a good strategy because the possible costs of acquiring a company as large as eBay will not bring the desired profit. The management approaches are seriously different, and Alibaba does not have profound experience in the Western market. Merging with eBay carries significant risks and may not be worth the investment.
CAGE Framework: Establishing an International Presence in Egypt
The last question to be discussed is related to the challenges Alibaba may meet when establishing a stronger international presence in Egypt. The CAGE distance framework is applied, helping a company “gauge the distance that the target country is from the firm’s home country on four dimensions” (Jamison et al., 2020). Those dimensions include cultural distance, administrative distance, geographic distance, and economic distance. The CAGE model suggests that the risks get higher, and the opportunities for success decrease when one or several distances increase, and vice versa (Jamison et al., 2020). This case study section addresses Alibaba’s establishment of a stronger international presence in Egypt in relation to all four dimensions.
The first challenge Alibaba may meet is the cultural distance, which refers to the cultural differences between the home country (which is China in the case of Alibaba) and the target country (which is Egypt as per the case study under discussion). Differences between the cultures increase the corresponding distance, while similarities bring them closer and the situation can be explained by the relationships’ history of the two involved countries (Jamison et al., 2020). In addition, societal customs, beliefs, and values coherent for a particular state may significantly impact the cultural distance. For example, language differences can play a critical role and directly impact the success of a company that attempts to improve its international business by increasing its presence in another country (Jamison et al., 2020). In this case, the official language of China, Alibaba’s home country, is Chinese, while the Arabic language is primary in Egypt. The members of Alibaba’s top management should consider the cultural differences between China and Egypt to successfully establish a stronger international presence in the latter state.
The following aspect of the CAGE framework is the administrative distance, which refers to the differences between the legal systems and political regulations of each country involved in the process. Significant administrative distance between the two countries under discussion is associated with their political systems. As it is known, China is a communist republic, and Egypt is a democratic republic, which is why the corresponding distances increase, creating more uncertainty (Jamison et al., 2020). It may be challenging to ensure appropriate compliance and do business effectively when the home country and the target country have many different laws. The issues that may occur on Alibaba’s path include government of contract compliance, labor laws, civil rights of the citizens, and other crucial factors (Jamison et al., 2020). Moreover, according to the Transparency International rankings, the Egyptian government is particularly corrupt, with a corruption perception rating of 33 and 117th place in the table (2022). Alibaba can experience significant difficulties when dealing with government contracts. The CAGE framework suggests that it will be difficult for Alibaba to deal with the administrative distance between China and Egypt since the differences in political systems are highly significant. That is why Alibaba should consider taking a careful approach if it decides to establish a stronger international presence in Egypt.
The third component of the CAGE framework is the geographic distance – literally, the physical distance between China and Egypt, in this case. In terms of business undertakings, geographic distance can be divided into two primary components: mileage and ease of communication. The mileage between the home and target countries determines the time and financial resources required for business communication between them; for example, the difficulties may relate to shipping goods from one state to another (Jamison et al., 2020). There are more than four thousand miles between China and Egypt, which is why it may be challenging for Alibaba to maintain a smooth business flow. The second component of geographic distance – the ease of communication – is not an issue in most cases due to the advancement of online communications and mobile phones (Jamison et al., 2020). However, the distance between China and Egypt means that there are almost twelve different time zones between the countries, and the absence of synchronization between work schedules may hamper communications for Alibaba.
Finally, the last aspect of the CAGE framework is economic distance, which stands for the differences in economic factors coherent for the home country and the target country, respectively. The greater the differences, the more difficult it will be for Alibaba to succeed in establishing a stronger international presence in Egypt. For example, GDP per capita may be utilized as a determining factor to measure the economic distance and analyze chances for success. In the case under discussion, China has almost thrice as high a GDP per capita as Egypt, and the opportunities for Alibaba’s success are low since it will be difficult for the company to work in Egypt (Jamison et al., 2020). GDP per capita is associated with many critical economic components, such as the disposable income of the country or its purchasing power. Thereby, Alibaba should act precisely and pay much attention to the planning stage to ensure that the projects aimed to increase the company’s international presence in Egypt are compatible with the country’s economy.
Conclusion
Overall, several primary conclusions can be made based on the analyses conducted in the case study. Firstly, acquiring eBay would not be the best strategy for Alibaba to increase its presence in the United States. Secondly, in order for the hypothetical acquisition of eBay to be successful, Alibaba has to ensure a smooth transition between project stages, including initiation, planning, execution, performance control, and closure, while following the principles of consistency, clarity, collaboration, continuity, and communication. Thirdly, Alibaba will meet many cultural, administrative, geographic, and economic challenges if the company decides to establish a stronger international presence in Egypt.
References
Bodner, J., & Capron, L. (2018). Post-merger integration. Journal of Organization Design, 7(3), 1-20. Web.
Jamison, E., Manning, K., Simpson, J., Kumar, P., Kemp, A., Reed, K. B., & Awate, K. (2020). Strategic management. Virginia Tech Publishing.
Regner, P., Johnson, G., Whittington, R., Angwin, D., & Scholes, K. (2019). Exploring strategy. Pearson Education.
Transparency International. (2022). 2021 Corruption Perceptions Index – Explore the results. Transparency.Org. Web.
Van Rijnsoever, F. J., Kempkes, S. N., & Chappin, M. M. (2017). Seduced into collaboration: A resource-based choice experiment to explain make, buy or ally strategies of SMEs. Technological Forecasting and Social Change, 120, 284-297. Web.