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Pitfalls in the Market: EBay at the Losing End in China

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    It all started in 2002, just as when almost every American company are racing themselves up to enter the Chinese market. Driven primarily by the Asian country’s booming economy, coupled by low labor costs and liberalized policies towards capitalism, most companies sought out after the opportunity that China promises. Among these is China’s growing online auction industry which holds up $1 Billion by the time and is projected to rise in the coming years (Malik, 2006). What is more fascinating about this is the fact that only 100 million Chinese are hooked up online from about a total population of 1. Billion, more than the market in other nations. Already, China already ranked second to the United States in online usage and is projected to double within five years. For a Silicon Valley company like EBay, it only transcends to one thing: profits (Powell, 2005). This was further prompted by the 1999 Chinese policy of loosening their Internet shutdown policies. The Chinese government saw the importance of the medium in spreading their propaganda to the world and thereby overturning their previous policy and started to open up and the rest they say was wild corporate chaos.

    This became a precursor for EBay, an online auction giant in the United States, to join in the Chinese bandwagon and seek out to penetrate the Chinese market and get a hold of growing opportunities (Malik, 2006). EBay actually has a lot of things to back up the company decision in 2002. It has a stronghold of shares in the United States and a promising operating capital up to $13. 49 Billion (“eBay, Inc. at a Glance”, 2006). Certainly, the company is up to the challenge. They started it by acquiring the minority shares of EachNet, a Shanghai-based company which is engaged in consumer-to-consumer online trading in 2003.

    A year later, they managed to buy out the company for about $100 million dollars. Strict Competition Optimism continued on for EBay in their acquisition of the Chinese company in their goal for supremacy on the Chinese online market (Doebele, 2005). This however was short lived after Jack Ma, considered to be the “Grandfather of the Chinese Online Industry” and CEO of Alibaba. com, challenged EBay by putting up taobao. com in 2004 which caters pretty much the same with what EBay is banking at: consumer-to-consumer online trading.

    An offshoot of Alibaba Holdings, taobao promises to give EBay a run for their money in the Chinese market. This was followed by a decision by yahoo. com to buy shares in taobao to also penetrate the market in 2005 (Munariz, 2005). While this happens, EBay likewise strengthened their position in the Chinese market and was able to gain about 53% of the high volatile market, slightly higher than taobao’s 49% market share. Taobao’s advantage over EBay was its free services local knowledge of the Chinese market.

    EBay started listing several consumer products for a minimal posting fee and was able to bank in about $3. 3 Billion in profits compared to taobao’s $68 million. But it was surprising though to note that with such a small difference, EBay announced its decision to sell 51% of their company shares to TOM Online, also a Chinese company in late 2006 (“eBay to Downgrade presence in China”, 2006). The move was seen by several industry analysts as a sign of ceding to competition right before it even started. EBay can’t afford to loose in China much less from competition.

    For instance, it has already invested more than $100 million dollars in order to develop the online market. Even Chinese analysts are considering EBay as a revolutionary company which helped shape e-commerce in the Asian country. EBay even pulled out of the Japan after yahoo. com beat them out in the industry in order to focus more on the much larger opportunities of the Chinese online market. Right now, with the decisions that EBay is taking, it seems that the opportunities it first saw from China wasn’t as good as it was in the United States after all.

    Lack of Market Knowledge EBay sort of failure in the Chinese market can directly be attributed to the lack of local market knowledge which is important in business transaction overseas. With a wild economy like China’s, an opportunity is tantamount to risks that the company has to overcome and this heavily requires local knowledge. EBay committed this mistake after replacing much of the local Chinese executives in EachNet with mostly foreigners who have not much idea of the Chinese culture after the buy-out in 2004 (Carlson, 2006).

    This became detrimental in the coming years for EBay as it wasn’t able to sustain the market lead it initially had as compared to Taobao who is a local player in the first place (Hafner, 2006). EBay answered this by selling its shares to TOM Online in order to “customize” their market position in China (Charny, 2007). But it was at all different from what other people see of the company’s performance. Although, EBay had a steady market share of 53%, this rate was still far from expectations and EBay is paying more in investments than gaining in profits (Hof, 2006).

    So in the end, analysts say that the recent move for EBay to tie up with TOM Online is as good as saying, “we surrender”. Facing the Truth The future may not at all really look bright for EBay in China. However, the company decisions that they take right now are claimed to reposition its stature in the Chinese market (Kramer, 2006). It may have been defeated right now by its competition but overall, it is still far too early to generalize its fate. The Chinese online industry is still in its childhood stage and many things could still happen in the coming years or months. With the future still positive for this Asian country, EBay may still have a space to fill itself in.

    Reference

    1. Carlson, N. (2006). eBay to Scuttle Chinese Site. Retrieved April 12, 2007, from http://asia. internet. com/news/article. php/3650036 Charny, B. (2007). eBay Suffers Another Setback in China [Electronic Version]. MarketWatch. Retrieved April 12 2007 from http://www. marketwatch. com/news/story/ebays-china-efforts-suffer-another/story. aspx? guid=%7B5F670E9A-BDB1-47EA-8E48-566B12AF27B8%7D. Doebele, J. (2005). Standing Up to EBay [Electronic Version].
    2. Forbes Magazine. Retrieved Aprill 12, 2007 from http://members. forbes. com/forbes/2005/0418/050. html. eBay to Downgrade presence in China [Electronic (2006). Version]. Manila Times. Retrieved April 12 2007 from http://202. 124. 128. 10/national/2006/dec/21/yehey/techtimes/20061221tech1. html. eBay, Inc. at a Glance. (2006). Retrieved April 12, 2007, from http://finapps. forbes. com/finapps/jsp/finance/compinfo/CIAtAGlance. jsp? tkr=EBAY Hafner, K. (2006). eBay is Expected to Close Its Auction Site in China [Electronic Version].
    3. Retrieved April 12 2007 from http://www. nytimes. com/2006/12/19/technology/19ebay. html? ex=1324184400&en=d45cf22a784c63dd&ei=5088&partner=rssnyt&emc=rss. Hof, R. (2006). More Trouble for eBay in China [Electronic Version]. The Tech Beat. Retrieved April 12 2007 from http://www. businessweek. com/the_thread/techbeat/archives/2006/09/more_trouble_fo. html. Kramer, S. (2006). EBay Rethinks China [Electronic Version]. Technologies Retrieved April 12 2007 from http://www. paidcontent. org/entry/ebay-rethinks-china-will-close-own-sites-open-new-one-in-jv-with-tom-online/.
    4. Malik, O. (2006). eBay’s China Syndrome [Electronic Version]. GigaOM. Retrieved April 12 2007 from http://gigaom. com/2006/07/24/ebays-china-syndrome/. Munariz, R. A. (2005). Is eBay Dead in China? Retrieved April 12, 2007, from http://www. fool. com/investing/high-growth/2005/08/18/is-ebay-dead-in-china. aspx Powell, B. (2005). Why eBay Must Win in China [Electronic Version]. Time Magazine. Retrieved April 12 2007 from http://www. time. com/time/magazine/article/0,9171,501050829-1096554,00. html.

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