Why Ebay Failed in China

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A report on Ebay and Taboo. Ebay v/s Taboo Critically evaluate eBay’s chosen market entry strategies, into the Chinese ‘ICC’ market, determining the shortcomings of the strategies deployed during the case study period. When entering into a new market, there are many aspects that must be considered in order for a company to be successful. Through this case study we will look at how eBay developed their market strategy using the concept of six key factors timing, location, marketing, HARM, logistics and ownership (Penn ; Meyer, 2011) and obtain results on how the company fell apart into the China’s ICC market.

EBay entered into Chinese market via acquisition of Accent, a Chinese online auction established in 1999 by Chinese entrepreneurs Tan Hamlin and Shoo Hobo. It acquired one -third of Accent’s shares, in 2002 by investing $30 million. The other investment of $1 50 million for the other two-thirds was made in a year later. In total, eBay spent $180 million for buying Accent (McGregor, 2003:29) equivalent to 225 million ARM. This acquisition was named as Brownfield Investment and all the decision making at eBay China was centralized to eBay headquarters in the U. S. Which turned the table or Ebay in the Chinese market as this led to change of one of the factors mentioned as ownership and also a new COO was appointed with German origin and reassignment of Shoo Hobo came as mistrust for the people towards the company. Although eBay’s market entry strategies such as Joint ventures, licensing, and acquisition are very effective and made eBay successful in global market and become the world’s largest online market place, the situation in Chinese market was totally different. EBay was popular and had a very good reputation in the U. S. And international market, but Chinese people did not know much about eBay.

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Even though it was still a very effective strategy of eBay to enter Chinese market via acquisition and it should have followed the policy of “THINK GLOBALLY, ACT LOCALLY but failed to do so which resulted in the downfall of the company. Ebay never really left China and came up in 2012 with Joint venture with xii. Com. The shortcomings of eBay’s strategies were: * EBay’s lack of understanding of Chinese market and culture – Instead of adapting products and services to meet the local customers’ need, eBay stuck with their global platform (American business model) which was not suitable for Chinese customers.

This demonstrates a vital failure in ‘marketing and ‘location’, two of the foundational blocks in entry strategies. The lack of local management knowledge and local connection stifled eBay’s expansion and effectiveness. It made eBay waste a lot of money making mistakes, and doing the wrong things, for instance, eBay brought in upper management from outside the country who did not understand the local market which shows poor human resource management, another key section of entry advertising on websites, as small businesses in China and many Chinese people did not use internet as much as other countries eBay had entered did (Double, 2005).

It made a timing error when entering into Chinese market. EBay was not aware of local rival Taboo, they did not know that they had to face very tough competition in China. * Another mistake was that eBay still charged fees despite their competitor used no-fee model. This does not quite fit into any of the six foundational areas for market entry perfectly, but rather it shows a lack of understanding of the market and also a lack of willingness to change.

Papal, a payment system which eBay thought it would help making a payment easier for customers, also presented a problem teeming from a lack of understanding and unwillingness to change as in China (due to Chinese government’s tight control of financial service providers) Papal was prohibited from offering international transactions. Many customers were often confused by Papal and An If tong, another payment system developed by Accent. This confusion was one of eBay’s largest problems and it gave Taboo an advantage over eBay (Yeah, 2007).

As you can see, eBay made some vital mistakes with their entry strategy with China. EBay used ineffective marketing methods (through websites), not eyeing able to respond to what customers wanted from a ICC market place, and, most critically, being unaware of rivals and their emergence in the market. Appendix 1 shows an analysis of the environment eBay was entering into, and illustrates some vital aspects that better market research could have highlighted for eBay (threat of substitute and internal competition with Taboo, for example).

After analyzing the external environment of eBay using Porter’s five forces model, the next step is to focus internally at eBay’s core competencies in order to determine whether those strengths provide them with competitive advantages. In order to define these core competencies as competitive advantages or disadvantages, a BRIO analysis must be used. This technique measures each capability against whether it creates value for the company, it is rare in the industry, it is costly to imitate and if it is exploited by the organization.

Each core competency identified for eBay is listed in Figure 2 in Appendix 1. Taking complete control of Accent through full acquisition and therefore having access to all resources of the Chinese Market could have been a successful strategy and would have been if it had properly researched the Chinese Online Auction market. However eBay failed because it didn’t take into consideration the advantages of being the first mover in the China’s ICC market, its quick mode of entry and less political and economical risk due to local partner.

They ignored these strengths and failed to use it to their advantage. Compare and contrast Taboo’s business model to the one(s) used by eBay during the reference period, in the case study. Discuss the reasons for the preference of Taboo’s over eBay’s. Learning organizations [are] “organizations where people continually expand their capacity to create the results they truly desire, where new ND expansive patterns of thinking are nurtured, where collective aspiration is set free, and where people are continually learning to see the whole together. (Sense 1990: 3)*1 Three important characteristics off learning organization are team-based structure, empowering employees and sharing information. (Daft et al. 2010)*2 organization, except one, usually the CEO, is subordinate to someone else within the organization. The layout consists of multiple entities that descend into the base of staff level employees, who sit at the bottom of the pyramid. (Colette L. Mean, Demand Media)*3 We can relate eBay with hierarchical structure. And Taboo with the learning organization. *1, *Austin Double, “Standing Up to a Giant,” Forbes, April 25, 2005, http:// www. Robes. Com/global/2005/0425/030. HTML (February 1 1, 2008), p. 1 . Other reasons * Taboo integrated an instant messaging service, helping sellers and customers to contact each other before finalizing the deals. This service was appreciated by Chinese traders as it allowed them to get a sense of the party they are dealing with. * Pricing strategy is the most evident difference between eBay and Taboo. Taboo’s service for buyers and sellers are completely free, while eBay charges “insertion fees”, “final value fees” and “gallery feature fees”.

Though “gallery feature fees” have been cancelled since February 2008 and “insertion fees” are much lower, they are still not competitive with Taboo’s completely-free-listing strategy. By offering free listings, the listings on Taboo reached 10 million in September of 2005, while its competitor, eBay China, only had 1 million listings (Wang, 2005). Also, among online sellers in 2007, 65. 7 percent sold on Taboo and only 7. 5 percent sold on eBay (China Intelligibility, 2008). Taboo’s success comes from its proper analysis to Chinese online market.

Just as Jack Ma, Chairman and CEO of Alabama, said, “No charges is the right business model for China’s current conditions (China Daily, 2005). ” * The home page of eBay is functionally. Consumers can get to the product easily and directly by using the searching bar and category list. EBay’s home page is also designed to be clean and fresh. With more big picture and less words, it is much easier for the customers to link the brand (eBay) with the imagine elegant and high class, which eBay always try to achieve. Taboo’s home page is more like a traditional Chinese market which is noisy but energetic.

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