Post on 26-Dec-2015
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eBay’s Strategy in China:Alliance or Acquisition
Group 3MANSI GARG (PGP/17/092)RAVI KUMAR (PGP/17/108)
ANKITA AGGARWAL (PGP/17/132)SAMYA RAY (PGP/17/164)K PARVATHY (PGP/17/213)
BIRANCHI PRASAD SAHOO (PGP/17/075)
eBay’s History in China
eBay entered China in 2002 by acquiring 33% stake in EachNet
Fully acquired EachNet in 2003
In 2005, eBay acquired Skype, operated in China JV with TOM Online
In 2006, announced JV with TOM, with eBay retaining 49% ownership
Assessing eBay’s choice of market entry strategy for China
Assess the potential benefits and risks of eBay’s JV with TOM Online
Is it right strategy for eBay to succeed in China in the second attempt
Agenda:
The Dotcom BubbleMid to late 1990s – Dotcom hype
Eager to make quick profits, companies heavily invested in the internet
Huge venture capital funds made available to entrepreneurs
Internet valuation soared up
NASDAQ Composite peaked 5048.62 on March 10, 2000 followed by setting in of bear market
By May 2000, NASDAQ dropped 30% and by October 2003, it had fallen down 78% from its peak
End of Dotcom era
Causes of Dotcom Crash
• No previous business experience• Lack of product differentiation• Lack of appropriate promotional strategy
Strategic
• Poor financial management• Vulnerable financial structure• Poor customer support and after sales services
Operational
• Internet security concerns• Concerns about being abused by hackers • Issues of reliability and trust• Web server interruption• Poor webpage design
Technical
• Lower customer confidence• Disparity between expectations and performance• Additional shipping and handling fees• Hassles of wrong delivery and wait for re-delivery
Behavioral
Growth of eBay
September 1995 –
Founded by Pierre
Omidyar in San Jose
1996 – Recruited Jeff Skoll
June 1997 – Benchmark
Capital invested
$6.7m for 22% stake
1998 – Meg Whitman appointed
as CEO
24th September
1998 – Listed on NASDAQ;
IPO helped raise $66m
2001 – International
markets accounted for
18%
2002 - Retreated
from Japan due to Yahoo!
2006 – Expanded
into 35 global markets
• 221.6 million registered users worldwide• $2.2b domestically and $2.1b internationally• 14% market share in e-commerce market globally
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Revenue
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Items
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Number of Registered Users
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Net Revenue
US Marketplace International Marketplace
Customer Services and Support
Personal Shopper• E-mail alerts to potential buyers
Turbo Lister, eBay Blackthrone• Automation of selling process
Picture Services• Users could post pictures to the listings
Shipping Calculator• Calculation of shipping costs
Shipping Labels• Print certain postage and UPS labels
Shipping Tracking• Track shipped packages
PayPal• Facilitation of secured exchange of funds
online
Feedback Forms• Submitted by both parties
Verified Rights Owner Program• Protection of buyers from purchasing
counterfeit products
SafeHabor Program• Ensure harmonious environment for eBay
users
“Efficient, effective and personalised customer support”
eBay’s expansion strategies
Internal efforts
Acquisitions
Alliances
Joint Ventures
Insertion Fee ($0.30 to $3.30)
Optional Features
Fee
Final Value Fee (1.25%
to 5%)
How eBay makes
money?
Chinese e-commerce industry has reached
transactions of $2.9bnOther models of C2C and
B2C & B2B will be integrated to serve
43.1mn existing customers in 2006
Amount spent on e-commerce has increased
from $106mn to $470mn from 2002 to 2004
Internet penetration rate
doubled to 80 million or 6.2%
in 2003
Chinese C2C Market
Business Opportunity Challenges
Corruption and absence of reliable credit system
Imbalanced economic and technological development in different regions
Lack of government regulations
Slow internet speeds and High internet access costs
Internet penetration and e-commerce business staging nearly doubling its growth since 2002 to 2006
250 million strong middle class
First e-commerce company to start business in China in 1999 on the similar marketplace model of eBay
EachNet modified it’s business model with some Chinese characteristics
It allowed client consumer face to face interaction along with exchange of goods and cash
By Feb, 2000 just in six months it had been doing 20000 auctions every dayBy 2002 it was the most significant player in the market
Profile of the e-commerce market in China
Profile of EachNet
Numero uno position of
EachNet in Chinese market
Diversification and capturing emerging markets led eBay to come to ChinaRequirement of market depth and
cultural connect with the country for EBay
Led to acquisition of
EachNet
• Heavily invested in online promotions
• In 2006 $25mn was used to advertise
• Alliances with three Chinese portals namely Sina, Sohu and Netease was completed
• By 2003 the venture was controlling 85% of market share
• company’s valuation from $90mn to $225mn from 2002 to 2003 alone
• 4.3mn registered users by the end of 2003
• $30mn invested in March,2002 to acquire 33% interest
• In June,2003 the remaining 67% was acquired for $150mn
Amount Invested
Impact on market share
PromotionsNew alliances
Acquisition of EachNet by eBay
Initial developments after the acquisition
Stiff competition from local market Rivals
Strongest Rival was TaoBao (Wholly Owned Subsidiary of Alibaba)
By 2006 eBay Eachnet market share was 29% as compared to TaoBao’s 60%
By 2006 TaoBao’s become market leader C2Cand B2C in China
Alibaba strong Presence in China helped the cause of TaoBao’s becoming leader in china
Competition in Chinese Online Auction Market
Charging of listing and selling fees after eBay’s full acquisition of EachNet whereas TaoBao’s offered free services to attract customers
Local Consumers preferred to buy from domestic player than from foreign
Less Efforts to build Trust both towards the company itself and between buyers and sellers
ebay Failed to provide feel of security to customers at each and every step
Initially, ebay did not incorporate Escrow into it’s online payment system
Poor Customer Service as there was no customer service hotline
eBay EachNet: What went wrong
Decision making was centralized which led to the few major local leaders to leave the company
Due to centralised decision making there was inflexibility and lag in response to ever changing Chinese market
Grave mistake of making assumption that they can leverage the Brand Image in China as they enjoy in US
No consistent and correct representation of its brand attributes across its target market
ebay applied its American model in china in terms of simple interface which was considered too empty by Chinese consumers
Lack of Real time handling of customer grievances
eBay EachNet: What went wrong
About TOM Online
Wireless servicesSMS, MMS, WAP, news subscription, games, ring tones, etc. Provided through mobile telecommunication operators, alliances with mobile handset manufacturers & traditional media
Internet ServicesContent channels, search & classified information, online advertising, e-commerce, etc. Provided through tom.com & alliances with other internet portals
TOM Online
Founded in 2000, Became one of the largest wireless service providers & 5th largest internet portal in China
Listed in March 2004 in the US (NASDAQ) & Hong Kong
Shareholders: Tom Group, Hutchison, both led by Li Ka-Shing – one of the Top 10 Richest men in the world (Forbes)
Provided value-added multimedia products & services primarily to young & trendy consumers in China through wireless & internet services
TOM Online & SkypeAlliance (November 2004)
Co-develop a customized, simplified Chinese version of SkypeAttracted more than 3.1 million users making China one of Skype’s top 3 markets
Joint Venture (September 2005)For expansion into the internet communication sectorDevelop mobile internet platform with TOM’s expertise in mobile technology & Skype’s expertise in internet communication
Situation in 2006
89% revenues from value added mobile-phone services
Heavy dependence when its not a mobile telecommunications provider
Providers- China Mobile & China Unicom- ordered by Chinese Government to contact all customers & ascertain if they wished to have these services
Profits in 3rd quarted plunged 59% (US$ 5.28 million) & revenues fell by 15.2% (US$ 38.95 million)
Joint Venture: TOM Eachnet
eBay (49%)
TOM Online(51%)
Contribution
$40 million cash
$20 millionlocal knowledge,
technology, brand value
Benefits
Diversification into m-commerceLocal knowledgePolitical connections
Diversification into online auctionReduce dependence on mobile value added services for revenues
Li Ka-Shing – biggest shareholder of TOM Online, known for his connections with high ranking officials in China & Hong KongWang Leilei (CEO) grandson of a Chinese General*‘Guanxi’ would help businesses become more efficient
eBay’s Future in China
Abandoning the eBay brand- thought as a partial retreat from China
Whitman: Renaming due to stronger recognition of domestic Chinese brands (TOM & Eachnet), than foreign brands like eBay, which was fairly new.
Expected Chinese market to become a significant part of eBay’s business by 2010-15
Competitors: Major rival TaoBao would continue to invest in capital & manpower to boost business
Also, Alibaba could raise upto US$1.5 billion through its IPO in Hong Kong, will spend on affiliates, including TaoBao
Questions to be Addressed
1) eBay first entered Chinese market in 2002 by acquiring 33 % stake in Eachnet, followed by a full acquisition a year later in 2003. Critically assess eBay’s choice of market entry strategy for China.
2) Assess the potential benefits and risks of eBay’s JV with Tom Online. Is it right strategy to succeed in China in the second attempt for eBay? Critically comment.
Market Attractiveness: eBay's market entry to China was inline with it’s
strategy to build a truly global marketplace 250 million strong emerging Chinese middle class
offer great potential E-commerce revenue in China was expected to
grow nearly 12 fold to more than US$16 billion over the next three to four years.
China's Internet users had topped 33.7 million by the end of last year, up 49.8 per cent over the same period last year
Important driver of ebay’s International growth
Institutional Context: Government regulations & restrictive policies against overseas players Difficulties in establishing business relationships with state-owned
companies Lack of transparency, Corruption & Currency problems Inadequate legal systems to protect the interests of both company and
customers
Distance Factors (Cultural, Admin, Economic):
Lesser knowledge of local Chinese culture, Consumer behavior & preferences, Distribution system
Lesser knowledge of corporate practices Slow internet speed, High internet access cost Imbalanced economic & technological
development in different regions Absence of reliable credit systems for online
payment
Chinese Market Study
Conclusion: Reason for eBay to expand in to Chinese Market – Market Attractiveness
Modes of Entry
Entry Modes Positives Negatives
Exporting Not possible, since it’s an e-commerce venture.
Licensing Not possible, as it’s an e-commerce venture.
Strategic Alliances
Facilitating market entry Risk & reward sharing Technology & knowledge sharing Conforming to local government regulations Access to political connection & local distribution
channels
Conflict over asymmetric new investments & information sharing
Mistrust over proprietary knowledge Performance ambiguity i.e. how to
share the pie Cultural Clashes
Acquisitions Executed in a two stage process- minority stake followed by acquisition would be a good strategy while testing waters in a new market
Founders of Eachnet were Meg Whitman, alums at Harvard - Good personal relationships
EachNet operations as Chinese equivalent of eBay EachNet had good business knowledge & it’s
adaption to accommodate certain aspects unique to Chinese Market ex payment system, demographics, CB
Complex negotiation process High Costs Cultural Clashes Problem of integration & merging with
domestic operations
Analysis of the eBay & EachNet Alliance
Factors Strategy Type of Alliance
Reason
Types of Synergy
Reciprocal Acquisition Ebay’s technology and EachNet’s local knowledge required integral coordination
Nature of resources
Medium Acquisition Both the personnel and technological resources will be integrated into the operations
Extent of redundant resources
Low Non-equity alliance
EBay was just starting its operations in China
Degree of Market uncertainty
Low Non-equity alliance
Growing internet penetration and increasing user base was certainly increasing the scope of online auctions
Level of competition
High Acquisition Many regional players have started operations
Being in technology sector and partnering with a very small firm in a completely new market in China complete control over operations through acquisitions makes sense
Level of competition was certainly going to increase with several international firms also eyeing China’s market potential
Strength: Strong brand image globally & technological leader 14% market share in global e-commerce Unlimited transaction capacity Successful international presence - 221.6M registered
users enabling it to manage large customer base Unique user feedback system No inventory costs Embedded cross-selling opportunities Reputation for non-counterfeit products
Opportunity: China economy growing in leaps Chinese internet users ballooned to greater than
200M Number of online shoppers at 55M and growing
rapidly Transaction value of C2C ecommerce in China 23.1B &
growing Chinese governmental regulations are reducing Opportunity for merger with TOM Online
Weakness: Perception of poor customer service Lack of buyer and seller interaction prior to sale Bidding process unfamiliar in Chinese culture Lack of “trust” as non-local company with short
history Centralized decision-making and lack of local
insight Web-site “too empty” for Chinese taste
Threat: Fierce competition from local rivals Competitive pricing strategies Need for more capital investment Company philosophy and management team
would need to be synergized with eBay Eachnet Dynamic marketplace Chinese government interference/regulations
SWOT Analysis eBay in Chinese Market
Analysis of the eBay - EachNet and TOM Online Alliance
Factors Strategy Type of Alliance
Reason
Types of Synergy
Modular Non-equity alliance
EBay's technology and TOM online local knowledge & mobile services required integral coordination
Nature of resources
Medium Acquisition Both the personnel and technological resources will be integrated into the operations
Extent of redundant resources
Medium Equity alliance
EBay-EachNet as well as TOM had considerable IT-based operations which were bound to overlap
Degree of Market uncertainty
High Equity alliance
Business incentives were basically diversification which didn’t have specific targets
Level of competition
High Acquisition Many regional players have started operations
TOM Online has a huge presence in China and as a established brand could properly support higher penetration of EBay in Chinese market
Secondly both the companies needed each other’s resources to excel in their own competencies which makes equity alliance sensible
Positives
Higher Chinese control will be
effective in homogenizing the business culture
Ebay’s economic muscle will help to thwart small local
competitors
Lesser chances of EBay's competitive
advantage to be replicated by TOM
Online
Access m-commerce could become an early
mover advantage
Negatives
Integration to Ebay’s best
technological practices may take time to implement
Business interests if at all diverged for
the companies can lead to disputes
Analyzing the Pros & Cons of the Joint venture
Recommendation
Make an alliance with Tom Online Provide the dynamic and strong visually oriented graphical interface that
appeals to the Chinese marketplace Institute an escrow system to satisfy the safety concerns of Chinese users and
build trust Provide significantly improved and hands-on customer service Take advantage of Tom Online to make the first move in to m-commerce Eliminate seller listing fees Leverage Tom Online political connections
THANK YOU