Group7CFM@Paris:”Can Alibaba Keep Growing Without Sacrificing High Profit Margins?”

Please find below an interesting article from the Wall Street Journal dealing with the challenges that Alibaba will have to face over the next few months. Indeed since its successful IPO last weekend, high expections loom for the Chinese E-commerce giant.

Through its successful U.S. listing, Chinese e-commerce company Alibaba Group Holding Ltd. became one of the most valuable technology enterprises in the world.
But the real success of Alibaba’s initial public offering will depend on whether it can keep growing without sacrificing its high profit margins of more than 40%. That means deftly shifting its business model to mobile while fending off stiff competition from Chinese rivals.
Alibaba’s shares rose 38% in their trading debut Friday on the New York Stock Exchange, giving the company a market value of $231 billion, higher than Facebook Inc. and Amazon.com Inc. The steep valuation reflects high expectations that Alibaba, which raised $25 billion in its IPO to set a global record, will continue to see strong earnings growth amid a rise in China’s middle class.
“Expectations are very high,” said Peter Luo, an associate portfolio manager at RS Investments, which bought shares in the IPO. “Now Alibaba has to deliver the growth and meet the expectations.”

Hangzhou-based Alibaba’s profit margins are already among the highest in the industry. The company doesn’t sell products itself like Amazon does. It earns a chunk of its revenue by charging merchants for advertisements on its Taobao and Tmall shopping sites. Thanks to a combination of ads and commission fees, Alibaba is more profitable than its U.S. competitors. In the second quarter, Alibaba’s operating margin was 43.4%, much higher than eBay Inc. ‘s 18% and Google Inc. ‘s 27%. Amazon had an operating loss margin of 0.1%.
Alibaba’s high margins are now under pressure as it spends heavily to adapt its e-commerce platform to mobile apps. There also is intensifying competition from Tencent Holdings Ltd. , which is stepping on Alibaba’s toes by connecting its popular mobile messaging apps with e-commerce services.

Still, Alibaba’s shift to mobile is accelerating. Active users for its mobile apps increased to 188 million in June from 136 million in December. About a third of Alibaba’s total e-commerce transaction volume of $81.58 billion in the April-June quarter came through smartphones and tablets, compared with 12% a year ago.
But growth from mobile isn’t without challenges. Alibaba conceded in its IPO filings that merchants are paying lower rates for mobile advertising than they are for PC websites, without giving specific figures.
Many merchants who use Alibaba’s Taobao and Tmall participate in auctions of search keywords. For example, when a shopper enters a keyword like “wristwatch,” part of the search results shows products from merchants who placed the highest bids for the keyword to make their product more visible. Bid prices vary according to how much merchants are willing to pay Alibaba each time a shopper clicks on their products.
Merchants generally pay 3 yuan to 5 yuan (49 cents to 81 cents) a click, said Atsushi Watanabe, a consultant at Shanghai-based T.U. Business Consulting Co., which helps Japanese merchants use Taobao. Apart from search keywords, some merchants also pay for ads that are displayed on the home pages of Taobao and Tmall.
RS Investments’ Mr. Luo said he asked Alibaba executives attending the IPO roadshow in Singapore whether its e-commerce business can be as profitable on mobile phones. Mr. Luo said Alibaba senior executives explained that if consumers spend more time using Taobao’s mobile app for product searches and shopping, merchants will start placing higher bids for mobile search keywords and mobile ads will become more lucrative.

Analysts say Alibaba is under more pressure because Tencent is connecting its popular smartphone messaging apps, WeChat and Mobile QQ, with e-commerce services. WeChat, with more than 400 million users, and Mobile QQ, with about 500 million, allow people to, for exampe, purchase movie tickets or book a taxi in addition to online shopping. Both apps are equipped with Tencent’s own electronic payment system.
Earlier this year, Tencent bought a 15% stake in JD.com, China’s second-largest e-commerce company by transactions after Alibaba, and integrated JD’s online store into its messaging platforms. Tencent also is recruiting small businesses to sell their products through WeChat.

Marco Ma, an e-commerce manager for Factory Five, a bicycle shop in Shanghai that runs an online store on Taobao, received a phone call last month from an official at Tencent’s WeChat messaging app unit who offered to let Factory Five conduct e-commerce through WeChat free of charge.
Factory Five co-founder Drew Bates said “their sales pitch was that WeChat is already an intrinsic part of people’s lives, so bolting on an e-commerce platform is just a logical step.” He said his company started selling some of its products through WeChat last month, in addition to Taobao.
Tencent approached Factory Five with the offer around the same time the bike shop was redesigning its store on Taobao’s mobile app using software tools provided by Alibaba, Mr. Bates said. But so far, Factory Five’s Taobao store generates far more sales than its WeChat store, he said.
Data so far show few signs of threat to Alibaba’s e-commerce dominance. Taobao’s mobile app accounted for 86% of China’s online shopping done through smartphones and tablets in the second quarter, according to iResearch.
But Tencent could be a threat in the future if more consumers warm up to the idea of linking social networks with commerce, Jefferies analyst Cynthia Meng said. “If people are spending so much time on WeChat and Mobile QQ, there will be little time left for other apps,” she said.

Article Source:
The wall street journal: “Can Alibaba Keep Growing Without Sacrificing High Profit Margins?” By JURO OSAWA, Sept. 21, 2014 3:15 p.m. ET.

Other article dealing with Alibaba’s IPO :

http://online.wsj.com/articles/alibaba-ipo-signals-strength-in-u-s-stocks-1411328438​

http://www.newyorker.com/news/john-cassidy/alibabas-ipo-big-picture​

Group7CFM@Paris:”Is turning back the clock to globalization really a good solution?”

In recent times, we have been witnessing the cons of globalization over weighing its pros , especially in the Occidental world. Globalization undeniably implies globalization risks and people who have suffered from the 2008 economic crisis have begun to fear it. Last May, the results of the European elections with the increase of Euroscepticism have clearly reflected it. Indeed rejecting the European Union is like rejecting globalization. However, is turning back the clock to this new world really a better solution? As Obama said in his 2008 speech in Flint, the only chance to survive is “to embrace this future” [globalization]. Obviously globalization can lead to outsourcing and consequently a threat to local jobs, but the recent success story of French companies at international levels like BlaBlaCar proves that there are still ways to be competitive in this globalized world. Nowadays, no country can flourish without international trade. Would Apple and Carrefour be the giants they are today without globalization? Above all we cannot deny the fact that globalization led to the creation of employments not only in OECD countries but also in the emerging markets. To conclude, we need to embrace globalization and best avoid its disastrous effects by creating a good collaboration between governments and international institutions. The reason we have the impression today that, nothing changes maybe owed to the fact that institutions still follow traditional methods of corporate governance. Indeed lots of international economic and political institutions have been created after the World War II. Taking new and more adaptable measures or remodeling them could be the key to face to the new challenges of globalization.

Group7CFM@Paris:”The failure of Starbucks in Australia”

We choose to deal with the failure of STARBUCKS expansion in Australia . Please find below a resume , articles and video which explain why Starbucks did not appeal to the Australian market and where they went wrong .

Starbucks closed 70% of its Australian stores in 2008 , with 24 remaining stores now be located in Melbourne, Sydney and Brisbane CBD areas only. However, the Withers Group, which is one of Australia’s largest convenience and independent petrol retailer, will take over all remaining 24 stores.

Facing to this tragedy, Starbucks president Howard Schultz announced that “Challenges are unique to the Australian market.”

“Starbucks entered late into a highly competitive market.” Australia, which is known as an immigration country, has a strong coffee culture, which mixed with Italy, France, Turkey and Hungary. “We’ve actually got, not just superficially but deep in our culture, a great knowledge and appreciation of coffee and certainly a mythology about it.” says Andrew Brown-May, a senior lecturer in history at Melbourne University and author of a book on Melbourne’s coffee past. Starbucks coffee culture cannot be compared with its Australian coffee culture, so failure is inevitable.

“Starbucks expanded too quickly and forced itself upon an unwilling public.” Starbucks opened its first shop in Australia in 2000 and expanded to 84 in 8 years, which “violated the economic principles of cultural scarcity”, says Temple University historian Bryant Smith. In the influence of immigration, coffee sales everywhere in Australia. Besides, coffee can be sold a variety of ways. It can be seen in each corner, like coffee shop, desert shop, restaurant and bar. People can even buy coffee at the ice cream shop, sushi shop, bookshop or flower shop, and it always fit the local people’s taste.

As its competitor, the local coffee chain is usually opened in the vicinity of shopping centers, airports, metro stations and other large urban plaza passenger area, but Starbucks has chosen the wrong place to open its first shop and also has fewer shops and places to stay. Moreover Starbucks is a little expensive than the local coffee shop, which is also a reason cause its failure in Australia.

All in all, if Starbucks wants to achieve its international strategy, it needs to focus more on local culture and potential coffee market, the two fatal causes responsible for its failure in Australia.

Sources :

http://www.businessweek.com/articles/2014-05-27/starbucks-has-an-australia-problem

http://www.marketingmag.com.au/news/can-a-local-operator-succeed-where-starbucks-failed-in-australia-by-opening-more-stores-54136/#.VBn4AihRhOw

Video to watch : http://www.youtube.com/watch?v=DSerk5urTsY

Group7CFM@Paris : Corporation’s tax evasion in the global economy

Introduction

1/ How globalization has increased corporations’ tax evasion ?
=> Case of VAT fraud in European Union
=> Rise in power of tax heavens

2/ Corporations and tax optimization
=> Ways used by companies to pay less taxes
=> Case study

3/ An international cooperation to struggle against tax evasion

Conclusion

Group7CFM@Paris : Globalization 2014-2030, how will it impact your gameplan?

Globalization and its quickness from today to 2030 is certainly a very delicate incognito of this challenging and selective job market. Nowadays, more than ever, young professionals are required to think globally in order to reach the careers that they have targeted. Obviously, the geopolitical turmoil and the looming crisis that we are living have increased complexity for our professional future. But we cannot deny the positive aspects of globalization.

Indeed, it has encouraged liberalized trade, study and work internationally but above all it offers much more job opportunities. Moreover, The Chinese students explained, how they really saw the benefits of globalization in their studies since China entered the WTO in 2001. Indeed the Chinese government has paid more attention to the cultivation of global talents and promoted Chinese companies to go international. Even if it is getting tough, this gives them much more career opportunities than before.

Each one in our multi-national group agrees to the fact that, an extra international knowledge is required to stand out in the crowd. That is why we have made the choice to complete a master degree in an international environment. With Skema, a global business school that manages to level the huge gap between the academic hemisphere and the job market, we will have the requirements to understand better, globalization and its effects.

However in the current updating and evolving world, we must be conscious that this is no longer enough if we are competing globally. We truly believe that our determination, our mindset and our skills are essential to tick the right boxes required by companies and organizations.

To put it in a nutshell, globalization gives us great challenges in our professional career but we have to be optimistic and embrace this challenges and its positive sides if we really want to succeed.