EBay: Global Strategic Planning - Case Study Example

eBay: Global Strategic Planning eBay is one of the largest online retail platforms in the whole world. The company has operations in most of the major economies including the United States, European Union, China and India. Horn (2010) says that despite its strong position in the global market, eBay has faced widespread competition in traditional developed markets, forcing it thereby to effect a change in its overall operational and marketing strategy. A rapid increase in the use and availability of internet, especially in developing economies, has presented new opportunities for eBay to expand operations and offer localized services. The company has also made major changes to the criteria for choosing vendors and introduced various combinaitions of customer and business-level transactions. The rise in the number of businesses that use eBay as a sales platform has resulted primarily from the ease with which products could be promoted through the portal and sold without any hassles (Ungson, 2011). eBay has also partnered with Skype (for better communications between vendors and customers) and PayPal (for secure online payments). However, Ireland (2011) contends that the partnership with Skype has proved detrimental to eBay’s expansion plans due to issues with bandwidth and communication quality in countries like China and India where Internet speeds tend to be less qualitative and of lower bandwidth (Tao, 2009). eBay has faced major hurdles in its overseas expansions in Asia due to many other issues. The online retail market has very low barriers to entry. Regional players dominated local Asian markets much before eBay set foot due to this reason and had established a niche brand presence. A burgeoning young population with both access and knowledge of Internet implied highly competitive markets that was diverse and had a number of service providers. eBay also faces stiff competition from global rivals like Amazon and Yahoo that are currently in the process of expanding into the Asia-Pacific region. Although Amazon intends to enter markets like India by 2012, it does not pose a significant competition in comparison to Yahoo!, as most of its sales are associated with brick-and-mortar outlets. In comparison, Yahoo! poses a much broader threat since it offers a wider variety of online sales through dedicated portals like Yahoo! Shopping, Yahoo! Autos, Yahoo! Real Estate etc (Ungson, 2011). Yahoo has especially been successful in its Asian ventures, as it has forged strategic partnerships with major retail sites in the Asian markets. For instance, the company obtained a 10% share in GMarket – a major online auction site in South Korea (Ireland, 2011). In China, Yahoo! has a collaboration with ‘Taobao’ that controls over four-fifths of the Chinese online retail market. (Ireland, 2011) Such alliances by other rivals have made it difficult for eBay to penetrate these lucrative markets through traditional approaches. While the Internet market in Asia has surged by nearly 450% over the past 6 years, eBay has faced immense challenges to its entry strategy in this geographical sector (Horn, 2010). In fact, eBay’s approach has not yielded the required results in developed Asian economies like Japan and South Korea. For example, the company was forced to pull out of Japan in 2000 due to negative profits and immense competition with Yahoo! Acquisitions in the Chinese market such as Eachnet have also not proved successful due to issues with efficient management and governance (Horn, 2010). The tie-up was not sufficiently strong to compete with the overwhelming market power of Taobao. Moon (2010) further notes that another main reason for the lack of successful penetration by eBay in the Chinese market was due to the use of foreign managers to run local operations. Reasons included a lack of understanding of the local culture and market dynamics, which were instrumental in inhibiting the development of a community perception, which is essential for success in such emerging markets. As eBay began to realize the issues associated with its struggle in affecting a prominent entry into China, it has modified its business strategy by targeting those market sectors that remained un-dominated by other rivals like Taobao. eBay has thus focused its attention on smaller traders who seek customers from other countries. Today, China is the 5th largest market for eBay and there is much more potential for eBay to increase its share in Asian markets (Horn, 2010). Adopting an alternate strategy that targets previously unexplored markets segments is the core element of this approach, especially since the Chinese government is keen to protect local companies from overseas competitors. Starbucks: Global Business Strategy With over 17,000 stores in over 50 countries, Starbucks is the largest coffeehouse chain in the world. After several years of continued expansion, the company made a surprise announcement in 2008 that it was planning to close more than 600 outlets due to issues with its expansion strategy and limitations on sustainable growth (Ireland, 2011). According to Tao (2009), the problems are attributed to the ambitious growth strategy of the company’s founder Howard Schultz. In fact, the management at Starbucks soon realized that the company no longer symbolized its legacy of the past and had gained a reputation as a retail chain unlike the vision to develop a strong association with customers. Of course, Starbucks has tried to overhaul its stores through various innovative means like free wi-fi and sale of music (Moon, 2010). However, most of these initiatives have been unable to achieve the desired objectives. In fact, these measures have not done much to address the fundamental issues facing Starbucks. For instance, most beverages at Starbucks are sold at a premium to the average market price but no longer provide the special experience that Starbucks’ beverages were once known to offer. The resultant strategy for Starbucks was thus to either reduce the price or improve the exclusivity of the Starbucks’ brand by restricting the number of outlets. Amongst these two alternatives, the company chose the latter and decided to downsize by 600 outlets. Given the decline in business in the United States, Starbucks is relying on its growth in the Chinese market to offset the slump in its home country. Besides opening up more outlets in several cities across China, the company realizes the importance of developing indigenous brands to suit the tastes of local consumers besides offering them conventional American flavors. For example, Starbucks has introduced new flavors like the ‘South of the Clouds’, which are sourced locally from the Yunan province (Ungson, 2011). The reception of these new introductions has been encouraging enough to prompt the company into introducing them in other Asian countries such as Malaysia and Singapore. Ungson (2011) notes that innovation is extremely important for Starbucks, especially if it wants to maintain a double-digit growth rate in China over the coming years. He further mentions that this strategy will likely offset the credit crisis in the United States, which has had some impact on Starbucks’ ability to raise external credit from local banks (Tao, 2009).  Today, Starbucks has over 380 outlets in Mainland China across 30 cities and has emerged as a popular brand, especially among working professionals. The above discussion clearly suggests that it is time for Starbucks to reduce its reliance on the US market for its revenues and business prospects and focus instead on untapped markets that offer better growth potential at least in the short run. Of course, the pattern of expansion in international markets should be well planned and focused without following the pattern adopted in the US. This will not only ensure better profits but will help Starbucks open outlets in the most promising locations after due diligence. References 1. Horn, S. (2010). Understanding global strategy. London: Routledge. 2. Ireland, D. (2011). Understanding Business Strategy: Concepts and Cases. New York: Cengage Learning. 3. Moon, C. (2010). Global Business Strategy: Asian Perspective. New York: World Scientific. 4. Tao, Z. (2009). Ebay's strategy in China: alliance or acquisition. University of Hong Kong. 5. Ungson, G. (2011). Global strategic management. London: Sharpe.   Read More