Topic: (International Business) eBay: Expanding into China and its Ultimate Failure

| April 30, 2014

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To discuss the decisions and actions that a firm has to undertake to sustain a
competitive advantage, especially when pursuing international growth.
Case Synopsis
Since its inception in 1995, eBay had enjoyed strong revenue growth, and was a
dominant player in the worldwide online auction industry. EBay created revenue from
three sources through multiple online products and services: eBay’s marketplace
received merchandise fees from items sold either by auction or fixed-price transaction;
the payment division received financial transaction fees from its PayPal service; and
communication fees were received primarily via customer use of Skype. In 2010, CEO
John Donahoe reported revenue of $9.15 billion, with a 23 percent increase from 2009
in revenues from payment services, primarily PayPal.
Despite eBay’s outstanding growth performance, achieved mainly through both foreign
and U.S. acquisitions, the company still faced a number of challenges in both domestic
and international markets. As a growth strategy, eBay had created options and targeted
distinct market niches to distinguish itself from competitors. This was particularly
important because as e-commerce and Internet usage rates continued to grow, so
would the market opportunity for eBay. eBay had grown to successfully compete in
certain international markets, including Europe and Latin America, but was still a
relatively small player in the Asia Pacific market, specifically in China.
eBay’s joint ventures in Asia, first with Tom Online in China, and then with Gmarket in
South Korea, had not yet allowed it to achieve significant market share in the online
auction business. Considering that the Asia Pacific region had more than 50 percent of
the world’s population and was experiencing some of the largest online usage growth
percentages in the world, tapping into this market was critical for eBay to expand. The
2010 partnership of eBay’s PayPal with China’s UnionPay would eliminate a major
payment barrier, and allow international retailers to sell to a large base of Chinese
customers. This would allow eBay to focus on exports and cross-border trades involving
China rather than competing directly in the domestic market against Alibaba Group’s
powerhouse auction house Taobao.
E-bay failure in China
When eBay entered the China market, Jack Ma, founder and CEO of Alibaba, was
alarmed that “someday, eBay would come in our direction.” He knew too well that
was no clear distinction between small businesses and individual consumers in China. As
a defensive strategy, Ma decided to launch a competing consumer-to-consumer (C2C)
auction site, not to make money, but to fend off eBay from taking away Alibaba’s
A new Web site named Taobao—meaning “digging for treasure”—was launched free of
charge for individuals buying and selling virtually any consumer goods, from cosmetics
to electronic parts. In 2004, one could easily feel the heat of fierce competition between
eBay EachNet and Taobao. Nevertheless, most industry observers were suspicious about
Taobao’s future, particularly its sustainability. Unlike eBay EachNet, which charged its
sellers for listing and transaction fees, Taobao was free to use. According to a Morgan
Stanley report, Taobao was more customer focused and user friendly than eBay
EachNet. With most users not sophisticated about auctions, the majority of Taobao’s
listings were for sales. Only 10 percent of its listings were for auctions, while eBay
EachNet had about 40 percent of its listings for auctions. Taobao had also better terms
for its customers: it offered longer listing periods (fourteen days) and let customers
extend for one more period automatically. EBay EachNet did not have this flexibility.
By March 2006, Taobao had outpaced eBay EachNet and became the leader in China’s
consumer-to-consumer (C2C) market, with 67 percent market share in terms of users,
while eBay EachNet had only 29 percent market share. “The competition is over,” Ma
exclaimed. “It’s time to claim the battlefield.”
On December 20, 2006, Meg Whitman, eBay’s then CEO, flew to Shanghai to take part in
a press conference to announce a new joint venture with Beijing-based Internet portal
Tom Online, which provides wireless value-added multimedia services. It was, in reality,
a formal announcement of eBay’s withdrawal from the online auction market in China.
EBay shut down its China site, eBay EachNet, and took a back seat to a company with
only $173 million in revenue and no experience in the online auction business.
Discussion Questions
The eBay case is an investigation of a company that chose to pursue growth into an
international environment where it had little experience. There are a number of themes
that the group needs to address the initial intent of the company expand into the
Chinese market. The group is required to use at least one theory of International
Business to address the following main themes;
1. What are the strategic imperatives that prompted eBay to expand globally in the
manner that it has done?
2. How did e-bay pursue International Expansion?
3. Rationalise the mode of market entry and expansion currently pursued by e-Bay.
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4. What source of competitive advantage does eBay have, and is that position
supported by its resources and assets? Does eBay deal effectively with its
external environment in Asia?
5. How would you implement e-Bay’s expansion? Rationalize your choice.
It is recommended in order to address the above 5 themes the groups also take into
consideration the following factors that need to be addressed in the context of the main
questions outlined earlier;
(a) What is strategic management and strategic competitiveness? How have the
characteristics of the 21st century competitive landscape influenced the strategic
competitiveness of firms? Discuss these, and the effect they may have had on e-Bay.
(b) What role does the external environment (EE) have in firm performance, and which
elements of the EE have been of crucial importance for e-Bay?
(c) What role does the internal environment (IE) have in firm performance, and which
elements of the IE have been of crucial importance for e-Bay?
As for the structure of the group report, it is suggested that the following structure (or
Table of Content) be used;
Structure: Use the following headings.
required to write 1500 words for following structure:
1. Strategic management and strategic competitiveness.
2. International Business.
Required to write 1500 words for following structure:
3. Modes of Global Expansion
4. Company Description
Required to write 1500 words for following structure:
5. e-Bay Global Expansion.
6. e-Bay’s mode of Global expansion
7. References
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