Thursday, July 26, 2012

Why eBay struggled in Japan, China, and other Asian markets

Key Factors
In the eagerness to remain competitive in the global market, eBay realized that they should to turn their attention to global markets or cede them to Amazon, Yahoo, or local startups. Therefore, by the summer of 1999, mini eBays were springing up all over the world (Schonfeld, 2005). However they fail to understand that just because they had users from well over 50 countries using in English, a completely American site, it doesn’t mean that whole countries are going to use the same replicated international eBay model without significant adaptation to the local context. As Jack Ma said in the case “they underestimate the differences”, they really underestimated the differences between the Asian and U.S. markets (Keegan & Green, 2011 pg. 516).
            First of all, by taking its cue from eBay’s early development in the U.S. they failed to understand that in Asia there's a stigma against buying used goods In some parts of Asia, even among siblings, people don't even pass down their clothes (Schonfeld, 2005). Even though the need to trade is a basic human urge, according to Rothaermel et al ( 2006), there is significant variation in beliefs, attitudes, perceptions, and Internet buying behavior across geographic regions that eBay should have understood.
            Second, they failed to understand difference in cultural values between the U.S. and the target country which can provide an additional level of uncertainty and economic risks (Rothaermel et al, 2006). In Asia one of the most important values in trade is “trust”, thus the business model of online transactions is not a purely transactional one. Instead, it encompasses another critical step – communication, which is necessary if trust is to be built between buyer and seller (Xiaojuan Ou & Robert, 2009). Indeed, in China there is a propensity to distrust unknown others, therefore, it is critical that buyers be in a position to trust sellers before engaging in transactions. However, according to Xiaojuan Ou & Robert (2009) the eBay platform in Asia did not have tools which enable buyers to locate online sellers so as to communicate with them immediately about potential transactions. eBay actually, had limited opportunity for buyers to contact sellers immediately online. Rather, they have to use non-integrated channels such as email and Skype which made the process more difficult and less trustful.
            Finally, the key determinant that has caused eBay to struggle in Japan, China, and other Asian markets is the fact that they charge a commission on each transaction. On the other hand competitors local and global were using free-of-charge business model, allowing them a competitive advantage to successfully develop a critical mass of buyers and sellers. Companies which wish to succeed with their e-commerce ventures in China must pay attention to local cultural norms and preferences in their interface design, customer relationship management facilities and business models if they are to realize the fabled riches (Xiaojuan Ou & Robert, 2009).

What Competitors did?
            In Asia, the eBay strategy was straightforward: “Get in first and fast” (Sellers, 2004). Under the management of Meg Whitman, eBay learned a tough lesson in Japan in 2000 when eBay launched an online trading business there five months after Yahoo. According to Seller (2004) Yahoo had a business's first-mover advantage and therefore, eBay couldn't compete so then they closed down the business. Actually, they missed the point that they were not adapted enough for the local environment in Japan and because of this they lost the competition with Yahoo. Yahoo in other hand had acknowledged the fact that they did not have enough expertise to develop the Asia market, thus their strategy was to get local partners and set up joint ventures in China  for instance with Alibaba and in Japan with Softbank. Yahoo got benefits from those partnerships and as a result according to Schoenberger (2009) in 2008 Yahoo was already Nielsen-ranked as the eleventh most recognized brand in Asia, where 60% of Asian Internet users were already visiting Yahoo.
            Despite the setback in Japan, in 2003 eBay expanded in China by acquiring Eachnet, a popular Chinese consumer auction site. Once again they imposed their own culture and they did not establish proper partnership. While Yahoo bought a 40 percent stake in Alibaba which operates with and introduced the C2C market successfully, achieving market share of 83.9% in China in 2009 against the 8.7% of Eachnet, according to CNNIC ((Xiaojuan Ou & Robert, 2009).
            Through partnerships Yahoo had adopted a local perspective: learning from their own global standards and adapting them to local context. eBay in other hand had a critical need for a greater appreciation of local values and characteristics: they ignored them in Japan and repeated in China which lead them to failure. Even though the Internet context can overcome barriers, it appears that national cultural values are important guideposts for internationalization decisions above and beyond cultural distance. Managers of eBay should have strived to leverage supportive cultural values in Asia to reduce detrimental cultural values like uncertainty avoidance.
 A joint venture with Tom Online
2          After struggling in Japan eBay was determined to achieve success in international online trade in China, thus, when eBay bought China's EachNet in 2003 the pressure to succeed was even higher. However, the inability to adapt its U.S. model and management style to local conditions caused eBay to lose market share and fail to dominate the China online market. In an effort to change the situation one more time in 2006, eBay abandoned its solo effort and folded eBay EachNet into a joint venture with Tom Online. According to Murphy (2007) Tom Online will have a 51 per cent majority stake, with eBay subsidiary eBay EachNet taking the remaining 49 per cent creating a new online auction site to replace eBay's main China portal.
            The joint-venture initiative, will not only give eBay he access to Tom Online's user base of 75 million, it will also give access to its local market expertise (Balfour, 2006). Additionally, in the same way that the rival Taobao have the power of Alibaba CEO and founder Jack Ma, Tom Online and its parent are controlled by Hong Kong billionaire Li Ka-shing, who has valuable local connections on the mainland and an uncanny sense of timing for deals (Balfour, 2006). 
            While Tom brings in a lot of content areas that eBay will be able to leverage, such as wireless value-added services, services to mobile-phone users, instant messaging and music downloads, some of the on-the-ground expertise is the real gain to eBay (Balfour, 2006). Tom Online's CEO Wang Lei has shown considerable skill in negotiating the regulatory shoals thrown in his way (Balfour, 2006). eBay’s shift to giving control of its main China operation to Tom Online signifies a fulfillment of the gap in the need for localizing practices, which has blinded eBay’s executives previously.

            Since different cultures might have dissimilar expectations of what makes a Web merchant trustworthy (Rothaermel et al, 2006) and on the internet, technology consumers often need to divulge personal information and therefore they must  have trust in the web site. Trust in Asia is part of the culture and more often than not needs to be developed on an individual-to-individual basis prior to engaging in business. Therefore, an additional strategy which eBay could use in the Asian market is to develop a very safe online platform where Asian customers can have a high level of trust to do their transactions. A safer platform could reduce the levels of uncertainty and risk that Asian people have related to online activities. A safer platform would include not only the payment plan but also access to the company as well as easy access between buyers and sellers and an easy path for first time users. First time users can be an opportunity for eBay because it is expected that every year about 30 million Chinese customers would go online to shop for the first time. According to Datamonitor (2011) by 2015, they would each be spending about $1,000 a year, about what Americans spend online now.
            Additionally eBay should create a space where Asian people could interact between groups with the same interests. In Asia, as a collective culture, interpersonal relationships play an important role in business transactions (Rothaermel et al, 2006). Therefore it would be good for eBay to create a greater emotional interdependence at a personal level between the users. In creating this relationship between customers, eBay could be stronger against competition because it will involve much more than merely the buy or sell transactions.
            Finally, it would be interesting if they could make more local partnerships to reduce associated transaction costs in Asian and then provide the service for free or reduce the charges. Particularly because they also face viable host country competitors such as Taobao which offers similar service for free.

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