Strategic Review of eBay Inc - Case Study Example

Strategic Review Of eBay Inc of the of the Contents Executive Summary 3 Strategic Review 4 Environmental Analysis 4 PESTLE Analysis 4 Porter’s 5 Forces Analysis 5 Strategic Group Analysis 6 Industry Life Cycle Analysis 7 Resources and Competence Analysis 7 Value Chain Analysis 7 VRIO Framework Analysis 8 SWOT Analysis 10 Recommendations for future development 10 Evaluation of strategic options 12 References 14 Appendices 16 Appendix 4 17 Executive Summary The entire study is centred towards strategic review of a well-known company eBay. This organization has been operating in online auction industry from past many years. It was even the first player into this booming industry and thus has been able to secure maximum market share. The external environmental analysis clearly portray that the company is witnessing entry barriers from many emerging markets who has restricted FDI growth in online auction industry. Political and legal regulations have to be taken into consideration by the company in every phase of its business operations. On the other hand, favourable economic conditions initiate the growth of online shoppers within the industry. This factor has enabled the company to strengthen its financial base and cater needs of consumer market. Technological changes also influence the company to upgrade its technical capabilities. Competitive analysis reveals the fact that there is intense competition within the industry. The bargaining power of suppliers is less in comparison to bargaining power of customers. This is because availability of more players offering similar products and less switching costs involved. Internal analysis has been performed in order to evaluate internal strengths and weakness, and market opportunities and threats. On basis of value chain, swot analysis, external environmental analysis and resources and competencies certain appropriate strategies has been outlined. These strategies are then evaluated with the support of SFA framework so as to recommend most suitable strategies for future development and growth. Strategic Review eBay Inc., is an ecommerce company that provides business to consumer and consumer to consumer sales service through Internet. The mission of the company is to provide an online platform where individuals can trade anything thereby facilitating economic opportunity. It is an online auction company and strategies are inclined towards creating global leadership. Environmental Analysis PESTLE Analysis The forces present in external environment tend to affect business operations in nearby future. Business of eBay Inc. is linked with politics as it is closely knitted with economic conditions. Political uncertainty is highly prevalent across the globe and this affects eBay’s operations since it operates worldwide. In the coming general elections, tax rate is to be increased by labour planning council (Verdin and Subramanian, 2003). On the other hand, income tax threshold is also expected to rise to 41,865 pounds from 41,450 pounds (Allen, 2006). Legal factors also restrict eBay from implementing innovative ideas and only to be aligned with current business functions. Government censorship provisions comprise of direct selling act, sale of goods act, consumer protection from unfair trading, data protection act, etc (Verdin and Subramanian, 2003). These laws and regulations needs to be constantly upgraded and incorporated within business operations in order to sustain their wide-scale functions (Magretta, 2013). If these political and legal factors are followed appropriately by the firm then it is able to secure high revenue margins. The CEO and President of eBay have stated the overall revenue of the firm has enhanced by 14% and share value has enhanced to 63 cents from 56 cents (Pringle, 2008). Economic and political uncertainty has greatly affected Korea. In European regions, slow growth of e-commerce sales has adversely affected business growth of eBay Inc. Asian markets enhances growth of modern businesses across the globe and opposes entry of any FDI into online shopping sector. This in turn restricts business expansion into these markets. Emerging markets are driving revenue margins of eBay. It is an American company and maximum percentage of its revenue comes from US, Germany and UK (Lasserre, 2012). The company has acquired strong position in some mobile markets like South Africa, India, Philippines, Nigeria and Kenya. Changing social trends like inclination towards online shopping due to lack of time results into increase of revenue margins of the company (Pringle, 2008). Technological conditions are constantly changing and the business needs to constantly update their technology base. Marketing automation, personalization, geo-targeting, payments, wearable’s sensors, etc., are certain advancements in online marketing that can be incorporated by the company. EBay Green Team has been developed to take into consideration environmental factors (Barney, 2006). This team further aims at implementing strategies for proper waste management. Porter’s 5 Forces Analysis Porter’s five forces analysis is significantly used to analyze external conditions of a business environment. There is intense rivalry amongst competitors in the industry. Five forces model has been further elaborated in Appendix 1. The major competitors of the firm are Google, Amazon, Overstock, Yahoo, Craigslist, ask.com, mamma.com, and other search engines. These players majorly compete on prices, availability of products and level of customer satisfaction (Cole, 2003). EBay also enters into price wars with some of these rival firms (Simerson, 2011). New entrants can easily enter into this market since Internet is a commonly used platform. It is free for any new market entrants to establish a website of online auction. Entry of these new players tends to increase competition in the industry. Substitute services or products encompass products offered by Amazon, Tesco, Overstock.com, etc. These stores are a major threat for eBay since products are offered at a much lower rate (Porter, 2008). Customers would prefer to buy from these outlets because of low prices than to shop online. Bargaining power of suppliers is low in case of eBay simply because the firm has widespread operations and comprise of large base of suppliers. In the online auction industry customers possesses high bargaining power because they can switch to other products or services offered by competitors (Neil, 2010). Customers have an easy access to all prices since business transactions take place online. Strategic Group Analysis The strategic group analysis is a framework that helps to determine current position of a company in comparison to other players. In this framework variables need to be set first in order to outline a strong comparison. There are two parameters identified for this analysis like brand reputation or awareness and wide array of product categories. Brand awareness help to acquire more number of customers and product categories outline different products being dealt by the company. The strategic group map has been further elaborated in Appendix 2. In the framework the circle size of eBay denotes its market presence and competencies. However to some extent Amazon, Overstock.com, ArtFire, Ruby Lane, Bonanza, Ebid, eCrater and Bidstart has been indicated as the strongest contenders of the firm (Goldstein and Boeker, 2005). EBay possesses a strong brand image and focuses on broad product categories. There are no such players in narrow product category with strong brand image. This can be considered as an opportunity for the firm. EBay operates in a highly competitive segment which might affect its revenue margins in coming years. Hence the company should divert its focus on narrow product category so as to develop a large base of loyal customers (Verdin and Subramanian, 2003). Its strong brand image can be effectively utilized to implement this strategic initiative and acquire maximum percentage of market share. Industry Life Cycle Analysis The industry life cycle is a strategic tool comprising of four stages like introduction, growth, maturity and decline. It has been highlighted in Appendix 3. Online auction industry is currently in the growth stage. There is large number of e-commerce firms operating in this segment who desires to gain high profit margins. Since the industry is in growth stage it is an opportunity for eBay to implement innovate ideas. During the period of 2009-2015 there is a noticeable growth observed in percentage of UK customers who prefer shopping online. This statement has supporting evidence as elaborated in Appendix 4. As per the data, number of Internet users and online shoppers has increased magnificently in past few years (Henry, 2011). It indicates that the company has a scope for future growth and development. The customers shopping online or researching is steadily growing and is predicted to cross 200 million by the end of 2015. Most of these sales margins will show an increase due to wide range of veteran web shoppers. PESTEL analysis clearly states that government rules or regulations which are currently formed might affect business operations of e-commerce firms in coming years (Porter, 2013). On the other hand many emerging markets are restricting growth of FDI in online auction industry. Resources and Competence Analysis Value Chain Analysis Porter’s value chain model helps to describe wide array of operations that are performed by an organization. EBay incorporates value in all its input so as to accomplish critical success factors. The value chain model for the company has been stated in Appendix 5. Revenue margins obtained by the firm are largely dependent on its inputs. EBay sells various products ranging from branded items to no brand products. This forms the major competency of the company and it is added to all its inputs. The auction selling system is utilized by the firm to sell its wide range of items. In order to compete in the marketplace eBay shifted from the concept of used products towards new products (Simerson, 2011). Human resources are the most valuable asset of eBay. Every step is undertaken by the company such as training and development or performance appraisal to enhance skill set of team members and retain most productive employees (Ulwick, 2005). The company adds value to its inputs in terms of competencies, core competencies and distinctive competencies (Kenneth and Jane, 2006). There are two main competencies of the company such as usability and technical proficiency. EBay encompasses a strong technological base that makes its operations simpler and easier. Core competencies are in the form of an efficient bidding site. The company is also been able to maintain conversion rate from traffic to sellers and buyers. This kind of conversion rate cannot be easily adopted by other players in the industry (Ulwick, 2005). Peer review can be outlined as the distinctive competency possessed by the firm. These competencies are acquired and sustained through research and development activities, productive team members, being aligned with legal regulations and easy availability of funds. VRIO Framework Analysis It is essential to identify core competencies so as to analyze whether these factors are providing them with competitive advantages. VRIO analysis is an effective strategic analysis technique to assess capability of a firm in context of it creating value, whether costly to imitate, rare within market place and if it is been further exploited. Value chain analysis of the company has highlighted certain core competencies like business model, customer service, product offering and brand identity (Das and Teng, 2009). VRIO framework basically evaluates these competencies against some parameters as shown in Appendix 6. Business model of eBay forms the first most valuable attribute. This model not only encompasses payment modes but even community within which they operate. Sellers and buyers in eBay enter into open communication and this in turn develops value for the business (Proctor, 2014). This element provides the firm with temporary competitive advantage because similar business model has been adopted by competitors. EBay has been able to acquire 67 percent of total market share and this is because of valuable brand identity (Ulwick, 2005). In current scenario many firms enforce upon strong brand identity and so it is not a rare component. However it is costly to be imitated because lump sum investment is done by firms to develop a strong brand image. There are many factors on brand identity depend like customer satisfaction, availability of funds, success, time, etc. Product offering forms another attribute because eBay is inclined towards offering more of differentiated products to customers. This creates value both for company as well as customers. Immense product quantity and diverse product offerings is significantly rare. It also cannot be easily imitated since great deal of money and time is invested by a firm to design such wide range of innovated products (Hoskisson, Hitt, Duane and Harrison, 2007). This factor provides eBay with a sustained competitive advantage. Last factor is customer service which is incorporated by every firm. On the other hand, it is not a rare component since all companies focus on customer service program. Resources within the company are not pushed to deliver customer service. Employees are mainly aligned towards assisting needy customers. SWOT Analysis The major strength of the company is it is the biggest online auction platform in the industry. There are 84.5 million active users present who are highly satisfied with operations of eBay (Neil, 2010). Amongst all other players eBay possesses a recognizable brand name. The firm encompasses wide array of differentiated products. There are a total of 27,000 different product categories (Mintzberg, 2006). Weaknesses of the firm are in terms of illegal activities being performed on website and technological malfunctions. Maximum percentage of online shoppers are concerned about certain factors such as loss of back account information, identity theft, information in credit card been stolen, computer spyware, fraudulent mails, viruses, etc (Pringle, 2008). Opportunities are closely linked to booming online auction industry and increase in online shopping percentage (Neil, 2010). There are multiple opportunities available to the firm like increased internet usage, acquisition of Skype and Paypal, and brand name that is time-honoured. Threats are majorly in the form of thieves, increase in sites of online trading and growth of amozon.com in the industry (Mcfarlin and Sweeney, 2008). These threats are linked with intense rivalry and technological defaults. Recommendations for future development TOWS matrix for the company has been described below on basis of strengths, weakness, opportunities and threats. Strength – S Weakness - W Maximum of market share First to enter market Financial strength Global brand Internet fraud issues mainly in C2C business High dependency on systems Opportunities-O SO strategies WO strategies Acquisitions Product Diversification Growth of online shoppers in emerging markets Usability – focusing on simplicity of seller and buyer interaction Global expansion Diversification into new product category Online banking Online product verification Formulation of strategic alliance with couriers Threats-T ST strategies WT strategies Intense competition Viruses and spam to eBayers Domestic players have competitive advantage Acquisition strategy Utilization of online security protocols Focusing more on systems, management and marketing Effective alliance to wide array of postal services These strategies are formed on basis of internal strengths and market opportunities. It would help to mitigate threats and eradicate any form of weakness internal to a company. Evaluation of strategic options Amongst range of strategic options identified in TOWS matrix the most appropriate strategies for the company are global expansion, product diversification, acquisition of other firms and usage of online security protocols. These set of strategies shall help the firm to eliminate all possible loopholes and focus more on their internal strengths. However all these strategies have to be evaluated with the support of a strategic framework which is known as SFA. This tool mainly stands for suitability, acceptability and feasibility. The suitability criteria indicate whether there lies a threat to be eliminated and opportunity to be explored. In acceptability criteria all form of stakeholder analysis is performed. Feasibility criteria are basically evaluated in terms of whether sufficient resources are present and expected revenue margins to be gained. The strategies been selected will be termed as Strat1, Strat2, Strat3 and Strat4. Ranking of these strategies shall be done with respect to a scale ranging from 1 to 5, where 5 means strong and 1 means weak. Evaluation and ranking table has been highlighted below.   Criteria Strategies     Strat1 Strat2 Strat3 Strat4 Suitability In next 3 years market share growth by 15% 3 3 2 3   Brand image utilization 2 3 3 4   Profitability optimization for global expansion and product diversification 2 2 3 3 Feasibility Overall cost within budget of $50M 2 2 2 4   Sufficient skilled workforce 4 3 2 3   Financial strength 4 3 3 4 Acceptability Positive reaction of stakeholders 3 2 2 3   ROI in less than 4 years 2 2 1 3   ROCE increased in next 5 years by 20% 2 2 2 3   Total 24 22 20 30 The most appropriate strategies for the company are utilization of online security protocols denoted by ‘Strat4’ and global expansion indicated by ‘Strat1’. 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Strategic planning: a practical guide to strategy formulation and execution. USA: ABC-CLIO. Ulwick, A. W. (2005). Business strategy formulation: theory, process and the intellectual revolution. USA: IAP. Verdin, P., and Subramanian, V. (2003). Is performance driven by industry? A new look at evidence. Strategic Management Journal, 32 (1), pp. 134-214. Appendices Appendix 1 Appendix 2 Strong Brand Awareness Weak Broad Number of Product Categories Narrow Appendix 3 Appendix 4 Appendix 5 Appendix 6 Read More