We present the case of the entry of eBay on the Chinese market and discuss the company's strategy. The case pertains to the period between 2002 and 2006, during eBay's entry on the Chinese market when it had adopted several different strategies in order to tap and snatch a share of the Chinese market.
When eBay decided to enter the Chinese market, the company decided to adopt a gradual and careful expansion strategy. The main reason why eBay decided to tap the Chinese market was because China represented a huge opportunity to develop the company's business aboard by its growing economy and also because the Chinese market has a huge potential with its 250-million-strong emerging middle class. However, the company was aware of some risks that the Chinese market represented. Indeed, at this time the Internet technology was not really well-established in the country and this caused some problems related to low internet speeds, high Internet access costs, and imbalanced economic and technological development in different Chinese regions. Moreover, as it was still a new technology, there was the absence of a reliable credit system for online payment. The Chinese government also resulted in some problems regarding regulations. Other factors were also taken into account. Indeed, the country had to tackle issues of corruption, currency problems as well as a lack of transparency and an adequate legal system to protect the interests regarding Chinese companies and customers.
Due of these reasons, the company decided to "test" the Chinese market by investing a minority stake in a domestic online auction company. Hence, in 2002, eBay decided to acquire a 33% interest in a domestic online auction called EachNet, China's first online auction website. In its initial days, EachNet was partly acquired and was fully acquired in 2003.
Later, in 2005, eBay decided to acquire Skype in order to expand its presence into the online communication sector. Skype is the pioneering global internet communications company which that offers for anyone with an internet connection to make free phone calls to anyone with an internet connection all over the world. in the same year and beyond Skype's acquisition by eBay, it had made a joint venture with TOM online Inc, China's leading wireless Internet Company.
EBay could forsee a huge and logical opportunity to create a partnership with TOM online Inc. Indeed, by already being a partner with its subsidiary Skype, it was established on the Chinese market and possessed local knowledge and established political connections. EBay saw a solution to remedy to its failing business and to boost development in China
EBay is a global brand founded in September 1995 by Pierre Omidyar in San Jose, California. According to the company's website, http://www.ebay.com/, eBay could be defined as "The World's Online Marketplace, enabling trade on a local, national and international basis. With a diverse and passionate community of individuals and small businesses, eBay offers an online platform where millions of items are traded each day". In other words, the success of eBay is that it has created a virtual platform to individuals where all kinds of goods are bought and sold.
[...] Indeed, the growing Chinese market is a very appealing market and has included companies from all over the world and operates in all kinds of industries to tap the Chinese market. The problem regarding the dotcom companies is that they had unrealistic expectations about the Chinese Internet opportunities and these entrepreneurs were not experienced enough regarding the Chinese market in terms of strategic decision-making, business modeling, finance, marketing, distribution and inventory. This shortfall could be explained by the fact that the skills of these entrepreneurs were devoid of any strategic vision or without having a real entrepreneur profile. [...]
[...] Thus, with a decision-making management localized in the United-States, it was a real handicap for the Chinese entity. 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 Fernande, China-Europe International Business School F. A standardized strategy When eBay decided to tap the Chinese market, the company thought that it could apply its global strategy to China as well. [...]
[...] It is a strategic decision in order to give all the possibilities in the Chinese market to this new entity. Indeed, by not incorporating the brand eBay in the joint venture's name, the new entity will commence from the beginning and in the customer's mind, the entity will not be a part of eBay. This is an excellent opportunity regarding the position of eBay in China and covers the company's several failures. The main benefits of the joint venture are: -Creation of a new strong entity, thanks to cash injections and experience, local knowledge, technology and brand value of both companies - New diversifications for eBay and TOM online - EBay will save its business in China and regain its lost market share from local competitors. [...]
[...] Competition in the Chinese Online Auction Market The Chinese market has seen the number of local auction companies increasing at the beginning of 2000. When eBay EachNet was launched, this increasing number of domestic competitors caused many troubles to the company regarding its market position. The fact is that these local rivals have taken more and more power on the Chinese domestic market, which has caused eBay EachNet's market share declining. eBay EachNet's most dangerous competitor was TaoBao, a subsidiary of Alibaba. [...]
[...] The Chinese market: an emerging market regarding the Internet technology Despite the huge potential of the Chinese market with its 250-million- strong emerging middle class, the Chinese market in the Internet domain was not mature and not well equipped. Indeed, at this time the Internet technology was not really well-established in the country and caused some problems of low internet speeds, high Internet access costs, and imbalanced economic and technological development in different Chinese regions. Moreover, as it was still a new technology, there was a quite important absence of a reliable credit system for online payment. [...]
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