The Crisis of Buyer Search Cost Reduction Based Business Model -- An Investigation of the Alibaba Electronic Market Place
Date Issued
2007
Date
2007
Author(s)
Huang, Hai-Sheng
DOI
en-US
Abstract
China’s biggest Electronic Market Place (EMP), Alibaba.com, has prime effects on its economic developments; because Alibaba.com helps connect small and medium size firms (SMEs) to regional and global supply chains. The United Nations Conference on Trade and Development (UNCTAD) pointed this out as the short-cut to prosperity for developing countries. Because of its potential, Alibaba.com announced its IPO plan to be rolled out in Fall 2007. However, this study found out Alibaba.com is now facing two serious problems now: losing web traffic, as well as daily page views dramatically.
Causes of the problems could be explained by the ‘Move-to-the-Middle-Hypothesis’ proposed by Clemons. In 1989, Malone proposed the Electronic Market Hypothesis which reckoned that with the development of IT, coordination cost between business entities was reduced, hence more and more business activities would be coordinated by Market mechanisms (Market Coordination) rather than Hierarchy mechanisms (Hierarchical Coordination). As a result, firms would source products from markets as opposed to producing them by themselves and therefore EMPs such as Alibaba.com would be prosperous. However, Move-to-the-Middle-Hypothesis argued that hidden-cost in bi-lateral transactions couldn’t be addressed by IT alone; thus firms would not rely completely on markets for sourcing. Firms do outsource but only to a limited number of suppliers and tend to develop long-term relationships with them. Alibaba.com once generated economic value by reducing “buyer search cost.” However, the model doesn’t work anymore since its members have found business partners to maintain long term relationships with. Alibaba.com must recognize the change in members needs and launch new services to match the needs of its current members.
Based on literature review, EMPs create economic value in three ways: buyer search cost reduction, supply chain integration and providing business services. This study found that thanks to Chinese characteristics such as SMEs, a prime constituent of the Chinese economy, and lack of IT infrastructure and informality in business conduction, supply chain integration is not practical. However, the same characteristics produce a strong need for business services because SMEs lack cross-border trading knowledge.
In summary, the research investigated the current operational model of Alibaba.com, the crisis facing it, the cause of the crisis and possible solutions to the crisis.
Subjects
阿里巴巴
電子市集假設
趨中化假設
電子市集
個案
買方搜尋成本
商業服務
供應鏈整合
Alibaba.com
EMH
Move-to-the-Middle-Hypothesis
EMP
Case
Buyer search cost reduction
Business Services
Supply Chain Integration
SDGs
Type
other
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