3 Reasons Why Alibaba Group Holding Ltd (BABA) Can Stagnate in China

The high commissions that Alibaba Group Holding Ltd (NYSE:BABA) charges from its Chinese seller; the huge number of sellers on its e-commerce websites; and the inability of Alibaba Group Holding Ltd (NYSE:BABA) to control prices on its websites are among the top three reasons which could hamper the company’s growth in China. In an article on The Wall Street Journal, Wei Gu explained how Alibaba could be a victim of its own success.

There are two ways in which Alibaba Group Holding Ltd (NYSE:BABA)’s price structure is hurting the sellers on Tmall and Taobao, the two main platforms that Alibaba uses for its e-commerce. Firstly, Alibaba Group Holding Ltd (NYSE:BABA) has been increasing its commissions. This can be seen from the 72% increase in Alibaba’s revenues against a 62% increase in value of merchandise sold during the fiscal year through March 2013, according to Gu. In the past, Alibaba had used its low commissions to drive off competition in China’s e-commerce scene. Now the trend is reversing as sellers seek another home for their merchandise.

The second way in which the e-commerce giant is forcing its sellers to foot bigger bills is by forcing them to offer more discounts. In her article, Gu quoted Mr. Yang Gao who is a co-founder of an online furniture shop and was forced to start his own venture when Alibaba kept on pushing him to offer more discounts on his merchandise.

Moving on to the second reason for Alibaba Group Holding Ltd (NYSE:BABA)’s possible stagnation, namely, the vastness of its network. According to Gu, there are 8.5 million sellers on Tmall and Taoba. As sellers find it almost impossible to stand out among their rivals, they are taking their business to other e-commerce platforms.

Lastly, Gu explains that as Alibaba doesn’t own any merchandise, it has limited control on the goods that it sells. This has led online sellers like JD.com and Dangdang to outsell Alibaba in electronics and books respectively by offering better prices.

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