Kara Duygu The 5th March 2012
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Case study 3 : Ebay’s strategy in China : Alliance or acquisition ?

1. Ebay acquired EachNet in order to expand itself in the Chinese market. The acquisition proved to be a success and the market share increased a lot. In order to capture users, the company formed alliances with the top 3 Chinese internet portals (Sina, Sohu and NetEase). However, eBay EachNet soon faced the obstacle of increasing competition from local market rivals. The company did not escape the fate of seeing its market position encroached by domestic competitors (the most significant was TaoBao).
In fact, 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. The key word is the trust because it was particularly important in China, due to the lack of an adequate legal system. The problem was that eBay, as a foreign company in 1995 with less than 10 years of history when it first set foot in the Chinese market in 2002, was fairly new to Chinese consumers. Regarding the trust, the fact that Chinese consumers felt that eBay EachNet had not made much effort in building trust both towards the company itself and between buyers and sellers further exacerbated the problem. When eBay entered China, it did not incorporate an escrow into its online payment system (Paypal) while TaoBao made it an important component of its AliPay system. An escrow helped ease consumers’ concern by introducing third-party monitoring throughout the transaction process. Although eBay EachNet introduced an escrow later, it was not able to regain its lost market share. While eBay EachNet did not initially allow direct interaction between buyers and sellers until a sale had been confirmed, TaoBao enabled them to communicate directly and haggle over prices in real time, which helped in building trust between both parties. Another negative point is the eBay EachNet’s poor customer service. Many customers switchet to TaoBao because of the lack of a customer service hotline on eBay EachNet. However, consumers overwhelmingly agreed that eBay EachNet did a better job than TaoBao in monitoring and protecting its users from purchasing counterfeit items from its site.
Furthermore, the senior management had not felt respected by their US headquarters, which had not given them enough autonomy and had directed them from afar instead. This sentiment had been particularly acute among the original EachNet management team who had felt that their American colleagues were looking down on them. So the arrogance contributed to eBay’s failure in its China efforts.
The big mistake of Ebay was to enter China with the assumption that its brand image in the US as an industry leader could be transfered to the Chinese market without any modification. However, eBay had done a good job in localising its websites (creating market-specific websites in local languages and currencies and providing location-specific information) and it attempted to protect its brand image worldwide. eBay applied its American model to China and used a similarly simple interface which was different to other local websites. Consequently, Chinese consumers considered eBay EachNet ‘s website too empty. In addition, eBay EachNet provided topic-specific guidelines and links to Frenquently answered questions instead of a customer service or technical support hotline. It also provided users’ community bulletins /forums to enable users to help each other if they could not resolve their problems by themselves. This was considered bad service by consumers in China where do-it-yourself was not appreciated.

2. Ebay and Tom Online announced a joint venture and both parties could benefit through diversifications. On the one hand, eBay would be able to venture into the m-commerce sector in China where Tom Online had been a marker leader and on the other hand Tom Online could expand into online auction and divert itself from its reliance on mobile value-added services for revenues. eBay intended to save its flagging business in China through the joint venture and to regain its lost market share from local rivals because the partnership would allow the company to take advantage of Tom Online’s political networks in China.
The abandoning of the eBay brand suggested a partial retreat from China.