American multinational e-commerce corporation

American multinational e-commerce corporation

Background

eBay Inc, an American multinational e-commerce corporation founded by Pierre Omidyar in 1995; by 2006, eBay had expanded into 35 global markets across North and Latin America, Europe and the Asia Pacific (Lu & Tao, 2007). The first-time eBay entered in the Customer to Customer (“C2C”) market of mainland China was in 2002, by acquiring 33% interest in EachNet Inc(Lu & Tao, 2007). As the new C2C business in China, eBay had the first-mover advantages and had captured most of the market share at first.

In May 2003, TaoBao was launched by Alibaba Group as a response to the first move by eBay. EachNet was China’s first online auction website and had acquired more than 50% of the market share, becoming the only significant player in the online auction market in China (Lu& Tao, 2007). Through acquiring EachNet, eBay had a greater chance to become the largest e-commerce company in China. But eBay failed in the market of China to compete with TaoBao.

eBay has steadily been lagging behind TaoBao since TaoBao being founded, and eBay was losing market share; in 2005, eBay only acquired 31.5 percent of the market share compared with TaoBao who acquired 57.7 percent of the market at the same time. eBay chose to close its main website in China and reenter the market by forming a joint venture with a Chinese company for the second entry in 2006(Hafner & Stone, 2006).

This paper aims to demonstrate the failure of eBay’s first entry and how to improve it in order to be successful for the second time. eBay has been successful in America as well as other countries; based on empirical and reputation advantage, eBay should have the confidence and ability to take occupation of China’s C2C market. Although, the reality is the opposite. How can eBay, a successful multinational e-commerce company lose to a local new started e-commerce company, TaoBao?

Cultural Environment

Chinese Customers’ Preference

In this case, there are multiple reasons that could cause the failure of eBay. The most obvious one would be the lack of cultural understanding for China. From a macro point of view, America is a low context culture while China is a high context culture. More specifically, customers from China and customers from America have different values; which also indicates that companies need to prepare different strategies to fulfill customers from different regions.

In the book called Management Across Cultures, it believed that in order to be successful in global and multiculturalism. It is crucial to understand the context of global management which includes Cultural Environment, Organizational Environment and Situational Contingencies (Steers et al., 2016). More specifically in this case; eBay should focus on the Cultural Environment and Organizational Environment when entering China’s market.

Culture might be defined differently but share a similar idea in general. “Clyde Kluckhohn defines culture as the collection of beliefs, values, behaviours, customs and attitudes that distinguish the people from one society from another”(Steers et al., 2016). Clearly, China and American are two different societies with different cultural environments, which also indicates that customers in China have different values and beliefs from customers in America.

Without understanding China’s cultural environment and doing a pre-research about Chinese customer’s preference and value, eBay replicated what they did in America. An article from technical opinion interviewed users of eBay and TaoBao in China. They find out that buyers in China have a strong preference for being able to communicate with sellers online immediately about potential transactions. “In the Chinese context, it is crucial that buyers be in a position to trust sellers before engaging in transactions”(Ou & Davison, 2009). Chinese customers value communication and trust, and TaoBao has captured these features before build its interface.

TaoBao’s interface allows customers to communicate with sellers inside their platform, it also built a reputation system which is the essential rate of reliability of sellers; customers could choose sellers with a high reputation and become more trusting(Ou & Davison, 2009). Obviously, users tend to switch to a platform that is more convenient and more considerate; TaoBao did it by understanding customers.

On the contrary, eBay kept the same interface in America. “eBay(China) does not indicate a seller’s online status, for instance. Also, although Skype is linked to eBay(China), it has to be downloaded and installed as a separate application”(Ou & Davison, 2009). Skype is a popular online communication application in North America, but people in China rarely download and use it. eBay failed at the user interface because of the lack of knowledge about the cultural environment, the user’s value in China and not adaptation to the Chinese context.

As a customer to customer platform, it also needs to focus on users who registered as sellers. As the article called it the key determinant of TaoBao’s success; ” the free-to-charge business model”(Ou & Davison, 2009). It is totally free for the user to become a seller on TaoBao, the low entrance level attracts many users to register as a seller; with enough sellers, a large group of buyers also being attracted to the e-commerce platform. By comparison, eBay chooses to set a relatively high entrance level for sellers, sellers need to pay a monthly basis selling few; fees depend on the numbers and types of listing sellers have posted(). This means that sellers on eBay need to pay first then make money; most Chinese who are eager to become a seller find it less attractive than TaoBao. This is why the cultural environment has affected eBay’s success in China.

Organizational Environment

eBay’s Strategy and Decision-Making Process in China

The Organizational Environment is another factor that eBay should consider changing; which includes global strategy means how to benefit the company’s stakeholders and decision-making processes (Steers et al, 2016).

Before entering another country’s market, organizations often need to come up with an objective and follow with a strategy in order to be successful. Steers et al have mentioned, “Mission determines strategy, which in turn determines structures, which governs the management practice, which ultimately determines the extent to which the organization succeeds in achieving its mission”(Steers et al, 2016). An appropriate strategy is key to be successful.

The strategy eBay chose to use was the acquisition of the first adventure in China. By investing US$30 million in March 2002 for the 33% interest of Eachnet which proved to be a successful move at first; by 2003, they had commended 85% market share of China and they rebranded the name as eBay EachNet (Lu & Tao, 2007). eBay EachNet was dominant at first until they competed with TaoBao. Despite reasons regarding cultural environments, the failure of eBay when competing TaoBao also because of the organizational environment.

Lu and Tao indicated in their article that “Chinese consumers preferred to buy from big-named, foreign companies which had a long-established presence in China and tended to hold those that were new in distrust. However, given a choice between a new foreign company and a domestic one, they would opt for the latter”(Lu & Tao, 2007). At the time when eBay entered China, the history of eBay was less than 10 years and not familiarized by the majority of Chinese. Without enough reputation and recognition in China, the acquisition and name rebranding was an unsuccessful strategy when competing with a domestic company like TaoBao.

The other factor of the organizational environment is the decision-making process; eBay EachNet had a centralized decision-making process even for the office expansion, causing inflexibility and a lag in response to the ever-changing Chinese market (Lu & Tao, 2007). The centralized decision-making process might be working well in America but in China, this type of process could make every decision tardiness to implement. Às professor Juan Fernande said “One problem is that some executives at headquarters do not know (much about) what is going on in China. They only have experience in a mature market where a rule of law exists, so when they say management in China localizing and modifying corporate practices, they get upset” (Lu & Tao, 2007). Because of the centralized decision-making process, every idea or move eBay EachNet will have to wait for the headquarter of eBay in America to make a decision before implementing it; eBay EachNet will need extended time to finish problem-solving for customers. Therefore, the inappropriate strategy causing customer service another shortage for eBay in China when competing with TaoBao.

Walmart

Go-native, Go Up-market & Leadership Strategy

Walmart Inc, a company that attained legendary status in the American business world, nearly 7000 stores and 1.8 million employees worldwide by 2007; as one of the world’s most successful retailers, Walmart’s quest in China was not smooth but successful overall (Gereffi & Ong, 2007). Though Walmart is a multinational retailer corporation while eBay is a multinational e-commerce corporation; eBay could learn strategies Walmart has applied when entering the market of China.

Walmart confronted three strategies in order to be successful in China: go global, go native and go up-market (Gereffi & Ong, 2007). Go native and go up-market could be reference strategies for eBay; “Wal-mart’s strategy in China is to “go native.” Local adaptation is a key reason for Carrefour’s success, and Wal-mart has also adapted its model to the Chinese market” (Gereffi & Ong, 2007). More specifically applied in the grocery section of its store, instead of offering meat and seafood in America style in plastic-wrapped; Walmart chose to bring Chinese wet market indoors where customers could pick out their own dinner, cause Walmart realized that Chinese customers tend to buy fresh meat and seafood where they can choose themselves and even watch seafood wriggle (Gereffi & Ong, 2007). This is a very specific idea of Walmart to go native, a very important strategy regarding is a pre-research where eBay could use for reference: “When opening stores in a new city, Wal-Mart teams arrive five months early in order to research local consumption habits and to fine-tune store merchandise” (Gereffi & Ong, 2007). Apply to the case of eBay, before entering the Chinese market, eBay should do research regarding Chinese customers’ buying habits, preferences and so on; eBay could also sending out surveys to acquire information about what kind of user interface Chinses customers may like and would they have interested in being a seller on eBay if they know the conditions.

Walmart’s next strategy in China is to go up-market. In the United States, Walmart chose to target low-income consumers with its “everyday low price” slogan; while in China Walmart focus on the growing middle-class consumers, as a result, merchandises are more upscale and aligned with middle-class materialism than in the United States (Gereffi & Ong, 2007). By changing its target market, Walmart fits more into the Chinese market. Apply to eBay, it should determine its main target market or stakeholders, which also contains within the pre-research step. The target market group should be the largest user group of online C2C platforms, people who are young and familiar with the internet.

Finally, the last strategy Walmart has worked with is the leadership strategy. When Walmart entering the Chinese market, they were searching for a new leader who comes from China. Walmart believed that they need local experience to take its Chinese expansion to the next level, and chose a HongKong businessman named Ed Chan as the new head of Walmart in China (Gereffi & Ong, 2007). The leadership strategy of Walmart could relate back to the decision-making strategy of eBay; Walmart chose to have a Chinese leader to make decisions for their business in China while eBay had a centralized decision-making process that leaders in America making decisions about their business in China. In order to be adapted to the new market and local culture, eBay should also search for Chinese employees to help them or even find a suitable Chinese leader to take charge of eBay’s business in China.

Walmart has been stable in the market of China for years, several strategies Walmart has applied was proven to be successful. The key successful point of Walmart is to custom different strategies when entering different markets, especially a country that possesses a distinct culture than its original country.

The Joint Venture

eBay’s Second Chance

eBay formed a partnership with TOM Online for the second entry in the e-commerce market of China in December 2006, where eBay had 49% ownership and TOM Online had 51%. In 2007, eBay Eachnet transferred to a new platform and renamed as TOM EachNet (Lu & Tao, 2007). eBay has gained some valuable lessons from the first entering China, as the Chief executive of the internet auction leader Meg Whitman said: “Whatever we do elsewhere to assure trust and safety, in China, we have to do more” (Shannon, 2007). In the Cultural Environment section, there is evidence showed that Chinese consumers value communication, trust and safety when using the online C2C platform; this is the first change regarding cultural differences. The joint venture decision is also a clear change of the strategy eBay used for the Chinese market; the decision that eBay decided not to use their own brand, and rebranding the name as TOM EachNet also based on the knowledge they gained during the first entry that Chinese consumers prefer and found a strong recognition of domestic Chinese brands (Lu & Tao, 2007).

It is clear that eBay has made some changes in order to fit more into the Chinese market, eBay still has a long way to go; changing strategies and understanding consumers preferences are the first step toward success, there are increasing numbers of competitors in the e-commerce as the Chinese market developing. According to the press reports: “TaoBao, eBay’s major market rival to which it had lost much of its market share in China, would continue to invest capital and manpower to boost its business” (Lu & Tao, 2007). To be able to adapt and compete in the Chinese market, eBay has to put more effort into it.

eBay’s issue is a lack of understanding of China, Chinese consumers and the market of China; never make assumptions about another country is key for eBay to comprehend. The method to deal with this issue is to do pre researches like Walmart did whenever they need to enter a new city.

Conclusion

It is never easy for an organization to enter a foriegn market with a different cultural environment, a different type of consumer and a different group of competitors. The differences between the new market and the original one also need to be determined before entering the new market. The most effective and efficient way to succeed in a foriegn market is to be localized in that country; to adapt, to integrate. In the case of eBay, it failed for the first time caused by the failure of the identification of differences between China and America. Once an organization realizes the importance of cultural differences, there are multiple ways to fix it. Despite the methods mentioned above, eBay could either search for a local leader for business in China or train managers form America about culture in China to help them understanding.

There are several setbacks of eBay’s adventure in China and eBay has learned from past mistakes, though eBay has to make improvements and acquire new knowledge. The path of eBay’s future in China is hopeful overall.

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