While many companies have successfully forayed into Asian markets, such as China and Korea, eBay has had a tough go of it. There are a number of reasons for this. First, eBay crashed in China when the decision was made to move operation say-so from China to California. EBay also underestimated the strong ties that Asians felt toward the online auction media already in place. In addition, eBay failed to understand the political implication of doing business in China. Ebay entered the Asian market in 2003 with the purchase of EachNet. Ebay, through EachNet cornered 90% of the market share for online auctions in China at the time.
Loyal EachNet users kept coming back. Then, decision making responsibilities moved to eBay headquarters in the United States. Critics say that the breakdown in communications that followed created an environment where it could take weeks just to get a misspelled word corrected on the website (So & Westerland, 2009). In addition, the servers were moved to the United States, which caused slower connection times. When this happened, it caused a drastic drop in eBay users. Ebay also underestimated the strong ties that the Chinese felt towards the systems already in place.
When eBay bought the Chinese online auction site EachNet, they initially kept the homegrown technology used by EachNet; however, eBay’s CEO at the time (Meg Whitman), wanted all eBay users to use the same interface and be able to bid on items all the world over. The term used to describe this process was called “migration”. When the transition occurred, eBay lost over 50% of their registered users (So & Westerland, 2009). While eBay was trying to put down roots in China, the Chinese government was busy trying to find ways to regulate internet traffic into the country.
The Chinese government succeeded in creating what became known as “The Great Firewall of China”. Internet users in China have always endured censorship. The Chinese government has laws regarding what can be viewed or posted on the internet inside their country. Ebay failed to consider this when diving into the consumer to consumer, or C2C, market. American businesses operating in China must do so through locally owned firms. This creates complex partnership and ownership questions that can limit a company’s flexibility.
This has resulted in a loss of market share to Chinese versions of the same type of websites. In eBay’s case, they lost out to TaoBao. Conducting business in a foreign country can be a daunting task. Ebay found out the hard way when it attempted to enter into the Chinese market. They may have had marginal success had they kept operations local, kept the current auction format in place, and understood the legalities of conducting business in China, where websites are censored. Ebay’s failures in these areas led to their pulling the plug on their Chinese operations in 2006
Barboza, D & Stone, B (January 15, 2010) China, Where U.S. Internet Companies Often Fail. NY Times. Retrieved from: http://www.nytimes.com/2010/01/16/technology/16failure.html?pagewanted=1&_r=1
So, S & Westerland, C. J. (2009) How eBay lost the China market. Alibaba.com. Retrieved from: http://news.alibaba.com/article/detail/business-in-china/100151761-1-how-ebay-lost-china-market.html.