Q1. EBAY’s choice of market entry strategy for china
Advantages
• Reducing risk – Acquiring 33% of the company for 30M$ allows a slow and gradual entrance to the Chinese market. –After assuring success, the value had grown by 2.5 times, with a market share of 85%, they acquired the rest of the company for 150M$. • Established domestic company – EachNet was a significant player in the Chinese online auction market and controlled more than 50% of the market share. EachNet was the Chinese EBAY, with sensitivity to differences between the US and Chinese market. • Using well founded company with hard resources in china – Warehouses, shipping company, contracts with local supplier Etc. This will let Ebay, a smoother entrance to the market.
Disadvantages
• Trust issues – The Chinese customers hadhard time trusting new foreign companies, changing the brand name to EBAY EachNet emphasis this fact. • Chinese/ US culture difference – The Americans executives had a hard time adjusting to Chinese way of doing things. For example: service that was offered to the customers was a DIY, where the Chinese expected a service hotline. • “be first of nothing”, EBAY’s usual strategy, was not implemented , they didn’t have the experience nor control they were used to.
Q2. Potential benefits and risks of the joint venture with TOM online:
Benefits
• Connections – In china connections to officials are very important for business. TOM’s biggest shareholder was well connected with high ranking officials in China and Hong Kong. • Local name & Brand -Tom's brand name and local knowledge are a key factor. • Diversifying–This joint venture allowed EBAY to enter the mobile commerce market, their users could participate in online auctions using their mobile phone, PDA etc, a sector in which TOM had been a market leader. • Enhance trust – To avoidetrust issues with foreign companies, like EBAY encountered with Eachnet, EBAY didn’t add their brand name to the company’s name and controlled only 49% of the joined venture. • Adding value to Eachnet website – the Chinese people found EachNet website "empty", lacking of banners, multimedia, graphics etc,all of which TOM online was a leading provider.
Risks
• Culture difference - EBAY is an American company, different than the Chinese in the way of thinking and doing things. This might cause EBAY a hard time adjusting to the Chinese market needs, and trust issue (even though they tried to resolve it by owning only 49% of the company). • Financial risk - 89% of TOM's revenues came from mobile phone services, without being a mobile provider. That is a heavy dependence.
Q3. EBAY-TOM ONLINE respective percentage stake decision was based on the following:
Even though the E-commerce market on China was growing rapidly (exhibit 15), EBAY EachNet was losing market share rapidly, in 2006 the market share decreased to 29% from 85% on 2003. One of the problems was trust issues caused by the fact they were a foreign company. Other problems adjusting their business model to the Chinese needs (for example: payment, most Chinese people didn’t have credit card, no face to face bargaining, "empty" website Etc). Avoiding being the main stake holder and abandoning the brand name EBAY, they could regain the public trust and perform a makeover to Eachnet. EBAY got the maximum stock share they could without getting involved with the problems they encountered in the past.
TOM was the market leader in the Multimedia products and services, and had a lot of connections and local knowledge. In July 2006 the profits fell by 59% and the revenues by 15.2%. Joining EBAY allowed them to diversify to new markets and learn from the world’s leader in online auctions – EBAY. In addition EBAY launched new platform for the joined venture and invested another 40M$.
Q4. EBAY’s diversifications moves were in 2 levels: • Geographic – Between the years 1999-2006 EBAY expanded to 35 global markets in south and North America, Europe and Asia pasific. About half of the market entrance was done through an acquisition and the other half through affiliated customized website. Only in Japan, Australia and new zeland they tried joined venture.
We can generalize from this, that EBAY acquired companies that controlled the local market and understood the local needs this way they could also eliminate the competition, and ease the entrance, for example Eachnet in China, MercadoLibre through them they affiliated websites in Latin america. In countries where they believed they can do it themselves, they didn’t acquire, they launched their website. For example: EBAY UK, Ireland, Switzerland etc. • Services – Mainly through acquisition and alliances in the US, EBAY could expand their capabilities and offer their customers higher value and better shopping experience. For example: Billpoint, US, acquisition that allowed them to offer C2C credit card payment on EBAY, Blackthorne, US, provided back offices automation for the sellers, Sprint PCS, Canada enabled to access from any internet enabled mobile device.
We can generalize from this that EBAY tried to diversify through new services to add value to their customers and adjust to their customers growing need, in addition to enter new markets.