Report on the case study based

On Alibaba and
40,000 Thieves

23rd of April,2021
Prepared by: Rochak Bhatta Submitted to: Imran Hossain
AIBT, Hobart AIBT, Hobart
Introduction
Alibaba.com is Alibaba Group's major company which is the world's leading online
business-to-business trading platform which connects suppliers with customers.
Alibaba.com was established by Jacky Ma in Hangzhou in eastern China in 1999.
The business model of the group offers a Business-to-Business (B2B) marketplace
focused on the Internet, where sellers can reach buyers globally. Alibaba is a
major Chinese e-commerce powerhouse that has the world’s biggest online
shopping site. But since its establishment , it has been haunted with a bad
problem. Both consumers in China and across the globe consider it to be riddled
with fake products
This case is contextualized by the risks the company Alibaba must face due to
counterfeit goods traded through its e-commerce channels. Alibaba has been
accused of having constructed its empire to a significant degree on illegal,
counterfeit products. Since then, Jack Ma, the founder and CEO of Alibaba, has
embraced himself in the position that he is an avid fighter of counterfeits and has
also taken some measures towards fraud risk monitoring and management.

Legal issues
The main legal framework concerning this case refers to laws aimed to protect
intellectual property and to prevent counterfeit products, not only in China,
where Alibaba is located, but also in the USA, probably the most important
market for Alibaba international sales. Alibaba has been accused of having built
its empire on illicit, counterfeit goods to a large degree. The magnitude of the
fakery is huge; provided millions of suspicious items for sale at any given time,
from handbags to car parts, sportswear to jewelry.
The U.S. Trade Representative’s Office has listed Alibaba's marketplace as a
"Notorious Market," a classification for the world's greatest IP, patent and
copyright infringers. Falsifications have been one of the major economic
challenges of this period. Meanwhile, legitimate brands' reputations are being
ruined, and customer trust in e-commerce is being tarnished.
In the U.S., federal law protecting trademarks makes it illegal to knowingly traffic
counterfeit goods, which includes the production, sale and transport of such
goods. The U.S. Department of Justice, however, has stated that federal law
doesn’t prohibit an individual from buying a counterfeit product for personal use,
even if they do so knowingly.

Standard
From 2013 to 2014, $160 million were spent in operations devoted to combat
counterfeit products, including 2000 employees dedicated to this operation, and
antifraud software. The company also works with the local police, which dedicates
officers to help on the operations, and it keeps a system by which the brands can
file take-down requests when the find illegal replicas of their products being sold.
The company has created an Official Alibaba Anti-Counterfeiting Alliance (AACA).
Alibaba noted that members work together in six areas: online monitoring and
security, a product test-buy scheme, offline audits and compliance measures,
training seminars for market regulation, legal tactics and public awareness
initiatives. AACA members are divided into industry working groups to facilitate
greater exchange of knowledge across their industries, while an AACA advisory
board has been established to allow members to provide input on areas such as
IPR compliance approaches, policies and procedures, as well as emerging market
developments and e- platform activities.

Risk areas, Types and responsibility

This risk affects directly the commercial area, as it is estimated that one fake
product leads to the loss of five customers. Also, this risk penetrates the legal
area, as counterfeit product are illegal, motivating legal actions from the
companies responsible for the original brands.

The kinds of risk evolved are legal and financial. The main issue reported in this
case, counterfeit products, is considered fraud, and motivate legal actions
worldwide. Not only the lawsuits represent a cost by itself, but also the
antifraud measures will be undeniably expensive. Moreover, the fraudulent
products listing affects the company brand and image, thus causing a loss of
customers. Risks such as Operation risk, credit risk and investment risk are
some of the common risks.
It is responsibility of the board of directors, management and operational
management to protect its website, ensuring fraudulent activity of any kind is
prevented, and implement the internal control process to avoid the potential
factors that may have harmful impact on the company. But ultimate
responsibility for the risk belongs to Jack Ma. What he stands for will be what
the company stands for, especially in Alibaba’s case, where the company’s
image is too much related to his founder’s image. He is the face of the
company and the main responsible for the culture, vision and standards for the
enterprise.

Stakeholders
External Stakeholders:
Government: Taxation, VAT, legislation, employment, truthful reporting,
legalities, externalities.
Customers: Value, quality, customer care, ethical products.
Suppliers: Providers of products and services, equitable business opportunities.
Shareholders: Profitability, longevity, market share, market standing,
succession planning, raising capital, growth, social goals.

Internal Stakeholders:

Employees: Rates of pay, job security, compensation, truthful

communication
Directors: Profitability, longevity, market standing, succession
planning, raising capital, growth, social goals.
SWOT Analysis.
The SWOT Analysis:

communication
The main communication with press and public relations in general come from
Jack Ma himself, with also the CEO. External stakeholders and internal
stakeholders such as government, customers, shareholders, company executives
and business departments as well as risk related departments should effectively
communicate financial risks which may be triggered on a regular basis and adopt
appropriate means to manage financial risks as soon as possible.
For government and legal stakeholders, general meetings and electronic
communication can be used. For customers and shareholders, several means can
be used in order to communicate such as website, electronic communication, mail
letters and phone calls. Finally, for internal stakeholders, the more appropriate
communication methods can include workplace meetings, electronic
communication, website and intranet.

Risk Assessment
The major risk Alibaba faces if its suppliers continue to sell duplicate goods is that
it will lose lots of customers who are willing to put top dollars for a genuine
product. And the other risk it faces are legal problems both in China and in
countries it supplies, which is most corner of the world.

Likelihood of this problems arising again.

The loss of costumers because of fake product, was extremely likely to happen
again, as there was no counterattack on counterfeit products. Now that some
standards have been established, the likelihood was reduced. However, the
reduction of the risks for new lawsuits has been reduced as well, but it is still a
factor as the systems the company provide for the brands to report fake products
is not enough reliable yet.

Possible consequences of the risk

 Less purchases from international markets, so less income and profit.
 Damages to the brand image.
 Less offer and sales when not making fake products available, thus reducing
income and profit.
 Direct expenses with lawsuits and penalties, resulting in less profit.
Evaluation and priority for the risks
The risks associated with loss of income should be prioritized, with top
priority to those which can have medium to long term harm such as brand
image harm. The risks of harming the income or raising expenses should be
equality considered, as the affect the profit results.

Risk Minimization
 The risk of losing sales of counterfeit products needs to be compensate
by the growing the margin of sales of better-quality products, especially
when considering overseas markets where the public sensibility to fake
products are higher.
 The brand image needs to shift from a cheap replica products supplier
that acts with negligence to an owner of a responsible brand, looking
into offering best quality and legal products to its customers around the
world.
 Alibaba should set up and continuously improve a more rigorous
process to punish, ban or red-flag breaching shops, as the flaws in the
current system allow companies to keep offering a wide range of illegal
replicas through the system.

Risk action plan

Some of the steps Alibaba should take are as follows.
Stricter penalties
The wrongdoing companies can easily get a clean record based on the current
system rules. Existing shops that provide illegal products get no more than simple
warnings initially.
Crackdown on shops
There is no good system to track the new taboo shops that open every day.
Nearly 100.000 new online stores emerge daily with no information at all about
the products they are going to offer and their reliability.
Improvement of the report system
Companies that hold valuable and famous brands, such as Lacoste, Nike, Adidas,
Apple or Louis Vuitton, for instance, can report counterfeit products.

Documentation
The importance of maintaining the documents is crucial as this is the basis of data
collection to identify the company's risks. The reports and documents to be
maintained include risk analyses, preventive instructions and preventive
intervention plans, as well as minutes of action plan meetings.

Stakeholders Communication
Meetings with the managers will occur monthly. Supervisors' meetings will take
place biweekly. However, employees are encouraged to report and/or
communicate with supervisors and managers whenever they feel necessary or
desirable.

Conclusion and Recommendations

This report assesses the financial risk management of Alibaba. By assessing the
causes of the financial risk management problems, it also provides some
opportunities to optimize the financial risk management of the company.
Alibaba needs to act to be free from its bad reputation, to slowly create a new
picture of credibility and confidence for customers and vendors around the world.
Therefore, breaking the situation and taking more regulations and restrictions on
online sellers is necessary and urgent for Alibaba.
Reference
Alibaba Group. 2018. Alibaba Group ESG Report 2018. [ONLINE] Available at:
https://www.alibabagroup.com/en/ir/AlibabaGroup_ESG_Report_2018.pdf. [Accessed 8 April
2021].

Chen, K., 2016. Counterfeit as a Challenge to Chinese E-Commerce Platform. Counterfeit as a

Challenge to Chinese E-Commerce Platform - The Case of Alibaba, [Online]. 40.
Available at: http://www.diva-
portal.org/smash/get/diva2:929950/FULLTEXT01.pdf [Accessed 6 April 2021].
FindLaw https://consumer.findlaw.com/consumer-transactions/buying-counterfeit-goods-laws-and-
resources.html