Ebay.S Strategy in China: Alliance or Acquisition

April 12, 2017 Commerce

Table of contents Introduction3 E-Bay Company4 The Chinese opportunity6 The main problem8 Tom EachNet11 Benefits11 Risks12 Critics12 Conclusion14 References15 ? Introduction E-Bay was the first company that made possible to sell products on the internet. Nowadays, internet takes a huge place in business activities and not only for B2C or B2B business but also in C2C. This last point is the main activity of E-Bay.

But this system buyers and sellers never meet, they exchange money for goods and E-Bay doesn’t have to be involved in the most important and expensive part of the e-commerce (or e-business) which is shipping the product (this part is the responsibility of the seller). E-Bay, and in general, all the online auction sites that we have nowadays, are the true embodiment of a ‘frictionless marketplace’. In this case we will see the problematic of E-Bay business expense in China. In fact, this country can’t be tackle as the US market for the cultures and the values of the customers.

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Such system where buyers and sellers never meet and the price only goes up over time was going to have a tough time penetrating the mainstream society. China know a lot of local competitor on the market as taobao. com and alibaba. com and e-commerce in general rose over 60% from 2004 to 2005, which represents a growth from $43 billion in 2004 to $70 billion in 2005. So in this paper we will see a presentation of E-Bay and the Chinese market. Then we will focus on the main problem with EachNet acquisition in order to enter on the market.

To finish we will present the Tom EachNet joint venture which was a solution of E-Bay in order to increase its market share and we will conclude with some recommendations. ? E-Bay Company E-Bay is a US company offering e-commerce, e-payments and internet communication services globally which was founded in 1995 in California. E-Bay is the world’s online market place enabling trade on a local, national and international basis with a diverse and passionate community of individuals and small businesses; E-Bay offers an online platform where millions of items are traded each year.

Thanks to E-Bay, sellers have the opportunity to list products to sell on the website while buyers can browse them and bid in those interested them through auctions. The role of the company is not to make the mediation but just inform the seller and the buyer by e-mail when a bid is exceeding the seller’s reserve price. E-Bay is doing is business by charging fees to the seller when they integrate the product at sale, optional fees are also practiced for making goods more visible and in addition, E-Bay takes as well percentage on the sale. The head office is based in San Jose, in Silicon Valley in California. Meg Whitman is the director.

This company employs 13,000 people and had a turnover worth $7. 67 billion in 2007 and $8. 54 billion in 2008, which represents a benefit of $1. 78 billion in a single year. Also E-Bay becomes an international brand; the company is managed by people with competencies in different part of business as marketing, finance or technology as well but also thanks to a simple and accurate business model where the company takes fees and commissions on transactions done on its platform. The company is developing itself to global market thanks a strategy including acquisitions, alliances and joint-ventures with local partners.

In 2006 the international activity of the company represents the same revenue as the US market: ? The Chinese opportunity China represents an attractive place to make business, with an ongoing economic growth, a gradual integration to the global trading community, an increasing place let to internet and mostly an enormous population. Lasts graphics (exhibit 14 and 15 page 31 and 32) of the Capstone Case show that Chinese people have more and more access to internet and to become more and more interested in the e-commerce applications. But the most interesting is the following:

In this graphic we can see the volume in billion of Consumer to Consumer transaction. In fact we can notice the increase of such services. People used more and more platform in order to sell goods or by it to other consumers. Even if internet is used by a small part of the population (4. 6% in 2002), it represented in 2002 the same number than in US with 59. 1 millions of connected people. In 2006, the penetration rate was 10,6% of the population so 137 millions of people and about 31. 5 of them shop online for reaching a turnover of $2,9 billion.

But the problem is the Chinese market is affected by a slow internet speed, a high internet access cost, an imbalanced economic and technological development in some regions, an absence of reliance in credit system for online payments, corruption, currency problems and a miss of legal transparency in making business online. For this reasons, , E-Bay introduced the Chinese market by taking interests in a local online auctions company called EachNet and by fully entered on it in 2003. EachNet got the same activity as E-Bay and was equipped by a rich business knowledge, a strong domestic and international experience and a well-though strategy.

This concept was mainly used by Chinese early adopters because of the trading culture focused on a combat between retailers and customers to get the best deal, the concept looked such as bizarre. The start-up succeeds on it by adapting the business model of E-bay to the Chinese customers such as payments systems, demographics and customer behaviours. For instance, transactions where only made by cash and buyers and sellers could do it face-to face. Due to this success, the company started to deal with competition with companies such as Taobao a subsidiary of Alibaba.

The local company Taobao gets today 60% of the market share against 29% for EachNet. If EachNet failed with the Taobao success, it’s because of the Taobao service offering trustful platform and has extended its CtoC activity to the BtoC activity as well. Today, E-Bay is losing market share and need to react; the company’s plan is to expand its activity to China through a joint-venture with the China-based online and wireless operator TOM online in which E-bay would have 49 % of ownership. As we said, E-bay is already present on the Chinese market because the company owns Each Net, a domestic online auction company.

In addition, E-Bay also owns Skype, a global online communication company, which was already integrated indirectly in China through a joint-venture with TOM online. TOM online is a local online company well-implemented in the Chinese market with a very good experience and a knowledge of the market and with interesting political connections. The company hopes to reach a new growth with the joint venture with TOM online because establishing a business in China is not so easy. The main problem will be partners. If any company wants to be on the local market, they have to be in relation with local partners.

Normally local partners will be well establish and with good relation with government, but also you have to bring something to the country (knowledge, currency… ) if you want to be accept. The main problem Buying EachNet was not really the good solution for E-Bay in order to tackle China. In fact if we look the service propose, EachNet is less competitive in comparison to Taobao, it’s also because the first one is charging listing and selling fees that the second one doesn’t ask. Also Chinese customer behaviour trend to be more confident in a famous local company that in an international company in development. The fact that Chinese consumers felt that E-Bay EachNet had not made much effort in building trust both towards the company itself and between buyers and sellers further exacerbated the problem. ” By this, way, it appears that E-Bay didn’t make enough effort in building up a trustable relation with Chinese customers while Taobao did it. In addition, E-Bay missed to secure enough all the buying process when it entered first in China because they didn’t include an escrow in the payment system while Taobao did it as well and even they did that after, it was too late.

Also, when Taobao allowed its customer to interact directly between buyers and sellers, EachNet didn’t allow it. The last point of the EachNet would be the poor customer service proposed; they didn’t for example propose an instant message system. “I like to be able to haggle directly with the seller when I buy DVDs. It makes the process go more smoothly as I build up relationships with the sellers. So I have switched from E-Bay to TaoBao now. ” – TaoBao customer (Male, 18) Even if E-Bay is a strong international brand, the brand image was not strong enough to tackle the Chinese market.

E-Bay applied the US business model to China and it didn’t work because in Chinese website were loaded of a lot information, links, graphic, banners and multimedia when EachNet looked too much empty. In addition, the brand image wasn’t enough coherent, the company emphasized auction and transaction processes, also rather to have an hotline support, the company just proposed online guidelines and there wasn’t forums for enabling users to help each others, this was considered as a bad customer service where in China, doing it alone is not well considered.

The decision of E-Bay to centralize all the decisions making in United States represent a lack of flexibility and adaptation to the Chinese market. “One problem is that some executives at headquarters do not know [much about] what is going on in China They only have experience in mature markets where a rule of law exists, so when they see management in China localizing and modifying corporate practices, they get upset”. – Professor Juan Fernandez, China-Europe International Business School The main problem of E-Bay EachNet was really a problem of adaptation of the Chinese market.

E-Bay did not understand the behaviour of the Chinese costumers and also it did not tackle the market with the good locale team which understands the particularity of the Chinese market. That why today E-Bay is not considered as a confident brand for the Chinese consumers and this is the key of its market share lost. Buying EachNet gives to E-Bay an access to the Chinese market but not the elements and the actors able to succeed on it. To sum up, this first strategy of E-Bay in China was a failure. Even if E-Bay try to be careful, this cautious strategy was very unusual for E-Bay.

The acquisition of a respectable and well establishes brand seems to be the good opportunity to expand E-Bay business in Asia. In 2002, EachNet seems to be the good “candidate” for this acquisition, and when E-Bay acquired 33% shares of EachNet in 2002, it seemed to be hugely successful, because in year 2003 the value of EachNet had doubled and market share had rocketed to 85%. That’s why E-Bay concludes the full acquisition of EachNet later. While acquisition of EachNet meant many advantages for E-Bay, it also implied serious disadvantages. Advantages of EachNet acquisition: EachNet had strong financial backing from large venture capital companies •High EachNet market share (about 50%) in year 2002 •Immense market potential – 1. 23 billion Chinese language speakers all around the world •Wide range of different items sold through EachNet •Only significant player in online auction market in China by year 2002 was EachNet •EachNet in essence was an imitation of E-Bay , adjusted to fit Chinese customer needs, but with much greater recognition in China •Increasing popularity of shopping online (also by using Each Net) in China. •Well established image of EachNet in China Rapidly increasing number of internet users in China – increasing number of potential customers Disadvantages of EachNet acquisition: •Cultural differences and buying habits of Chinese. •Emerging competitors – TaoBao (Alibaba subsidiary), which outcompeted E-Bay EachNet in future, by better adjusting to Chinese customer needs and buying habits •EachNet failed to create customer trust in future, while TaoBao succeeded •Comparatively poor customer service •Unpredictability of the fast-changing Chinese market – huge risks •Chinese refusal of adopting traditional E-Bay practices (Pay Pal etc. ) •Huge investments required Alibaba had more established presence in China and much better knowledge of Chinese customers – reason for increasing lack of consumer trust in E-Bay EachNet in future •Lack of interaction possibilities between buyer and seller, provided by E-Bay EachNet – important for Chinese, TaoBao was much better in this aspect Tom EachNet “The joint venture will provide an enhanced user experience, tailored for the China market, and will capitalize on our companies’ strengths in the emerging e-commerce sector. ” – Wang Leilei, CEO of TOM Online The joint venture formed by E-Bay EachNet and Tom Online presents some benefits as ell as some risks Benefits The first benefit we can find is that TOM Online is a Chinese domestic brand, which is much better for consumers of China. In fact Chinese consumers mostly like well know Chinese brands even in the Internet. Tom Online is a well know company in China, leader in sphere of mobile value-added services, and its internet portal, www. tom. com, is one of the biggest and most popular in China. This brand is recognized throughout China and the internet. One of the problems of E-Bay EachNet was the communication and telecommunication services.

Tom Online has a good experience in cooperation with Skype and the result was pretty good. Tom Online succeed with Skype and it has the knowledge to present new product in the market and how to increase its market share. Tom Online has a strong knowledge of the Chinese market which is that E-Bay is looking for in order to gain market share and notoriety on the Chinese market. And as we said earlier, in order to tackle the Chinese market companies need a partner in order to have the political access, and Tom Online political connection could be very helpful for E-Bay success in China. Risks Risks on this joint venture exist for E-Bay.

In fact there is a risk of devaluation of the E-Bay Brand in the Chinese market because customers will be focus on the Tom Online and/or EachNet brand, product and services. Also there is a financial risk. E-Bay can lose some money because Tom Online has 2% bigger ownership, but in amount of money, E-Bay invests two times more than Tom Online, and the success will depends more of Tom Online company than E-Bay work. Also a last risk could be the target of E-Bay and Tom Online. Tom Online is focused on mobile value-added services and their target audience is generally young consumers, but E-Bay target audience is a little older.

Critics The first thing we can say about E-Bay EachNet and Tom Online’s joint venture is that is a success. Although E-Bay is a big company and success in US and around the world, China is a particular market where the better can lose. E-Bay had some difficulties to launch its business due to the cultural differences and moral values. Chinese people are more “nationalist” and still trust their own companies more and respect them. The good thing for E-Bay is that Tom Online is a successful company with a good reputation on the Chinese market.

Their activity area is also not far from E-Bay’s – mainly internet and other IT services, and mobile entertainment. Tom Online known also a business expansion and cooperation with Skype, and today they also know a decrease in revenues so joint venture also was an opportunity for them. But we can ask us about the percentage of the participation. Why the participation is 49% for E-Bay and 51% for Tom Online? And also why E-Bay invests more than Tom Online? And why does the E-Bay brand disappear on the Joint Venture (Tom EachNet)? We can try to explain this situation thanks to several factors.

About the brand we know that Chinese trust more in a local brand. That why E-Bay not appears on the joint venture name. E-Bay prefers having two well known local brands (Tom and EachNet). Also in this joint venture, Tom Online invest US $ 20 million and brings the knowledge of the local market, the technology and the brand value, which could be more important than money in order to tackle a market. Moreover TOM Online has very important persons among their shareholders. This joint venture would open a whole new market segment for both – E-Bay and also TOM Online, allowing them to fulfil and widen significantly together.

Why not launching E-Bay in the mobile world? As we said before, China is a difficult market to tackle and launch a sustainable company on this market is a hard work. But this market gives the opportunity of customers which could increase the revenues (approximately US $ 1. 5 billion). The stacks are so important for E-Bay and Tom Online that the Tom EachNet joint venture was a good answer for their difficulties in China. ? Conclusion The main problem for E-bay was the misunderstanding of the Chinese culture and value. The fact that E-Bay didn’t “play” with local actors for tackle China make customers afraid of this brand.

It was not responding of customers’ expectations. The solution was finding with the joint venture with Tom Online which know very well the market. Tom Online is a local partner which brings to E-Bay its knowledge of the market, its notoriety and customers. But E-Bay has to increase its revenues by capturing more customers. China has a huge potential due to the population. They have to keep in mind what they learn with EachNet experience and try to focus on the customer’s loyalty by making E-Bay as a Chinese brand. Also in 2010 E-Bay was trying to develop PayPal in China thanks to a partnership with China UnionPay .

E-Bay has to adapt it payment system into the culture and the Chinese law. Also develop PayPal in China will resolve the problem of credit card payment (few of Chinese have one). One last point will be that E-Bay should use its joint venture Tom EachNet to develop an application for special auctions in the mobile phone and PDA market ? References •Capstone Case •http://www. journaldunet. com/ebusiness/commerce/paypal-signe-avec-china-uniopay-0310. shtml •http://www. journaldunet. com/cc/04_ecommerce/ecom_marche_asie. shtml


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