Failure of eBay in China - Case Study Example

ID Number: Failure of eBay in China Starting phase of eBay eBay Inc., is an American ecommerce and multinational corporation that aims at providing consumer to consumer or business to consumer sales with the support of Internet. The company has its headquarters in United States and was founded in 1995. eBay has witnessed remarkable success and is presently a business of multi-billion dollar. This company has its operations localized across the globe and is spread across over thirty countries. The CEO of the company is Meg Whitman and its annual revenue is approximately 2.17 billion USD. Its aim towards establishing its operations in China’s market was a part of the corporate strategy to expand into the Asian market. Company’s reasons and perceived opportunities Reasons for targeting China’s market The company was majorly focused towards expanding its business operations and entering into such markets which had immense opportunities. Since 1995, eBay has proved itself to be one of the largest ecommerce providers across the globe. eBay not only incorporates wide base of items within the same platform but even implements cost effective strategy due to which customers are offered items at least cost possible. China had been chosen by the company as the management felt that large base of population would be beneficial for its business operations. The items which were offered through this site did not aim at upper class segment but its major focus was on middle class segment. This segment was rapidly growing in this market, where people wished to purchase those items which were trendy as well as within their budget. On the other hand eBay’s operations require wide base of internet users. This form of shopping are usually preferred by those customers who are more internet savvy and this was observed in China’s market. The other reason behind expanding into this new market was it was not an intensely competitive market. Therefore the company can gain competitive advantage if better strategies are applied and the business model is slightly transformed towards becoming customer-centric. Opportunities in China’s market There were certain perceived opportunities which the company believed could help them in nearby future. Amongst them the first major opportunity was that China was an herb for advanced technologies. This technical support was required by eBay so as to expand as well as strengthen on their operations. On the other hand the growing number of internet users in China even provided an opportunity to the company through which they could promote the convenience of shopping by using an ecommerce platform. These ecommerce portals are usually accessed by those customers who has shortage of time or by those who desire to purchase products at competitive prices. In China specifically there was a tremendous growth in the middle class segment. Over the years with this growth it was even witnessed that there was an increase in wages of these median households. This has been clearly stated in figure1. Figure 1: Yearly Wages (Source: www.tradingeconomics.com) As the average middle class segment wages increased this would even have an impact on the sales of the company as more customers would be inclined towards shopping at these ecommerce sites. The other perceived opportunity was that the company analyzed the consumer market of China which was highly fashionable and aimed at purchasing those products which was long-lasting, trendy and cost effective. eBay was able to offer such products and simultaneously it even saved a lot of time of customers as they could access different category products on the same platform. Obstacles and challenges faced by eBay Competition in China’s market Firstly, it was not an easy task for eBay to set up its operations in China’s market as the company was not aware about the regional conditions. This in turn kept the local players at a higher competitive position in comparison to eBay. Alibaba was one such competitor which was able to acquire significant market share from the company. This firm took advantage of the lack of knowledge possessed by eBay towards regional understanding. The competition became far more intense for the company than expected as they followed the same strategy on basis of which they have been able to spread their operations across the globe. However that specific business model of eBay was certainly not applicable for China’s market. Taobao was another company which emerged as a free alternative during bid of eBay for China’s Alibaba. This particular firm, Taobao, was able to model themselves effectively by forming effective consumer relations. The strategy which could have been implemented by eBay was explored by Taobao. eBay was more concerned towards expanding on its market share and total revenue but failed to analyze the consumer market of China properly. On the other hand, Taobao was able to take full advantage of the cell phone users in China. As per statistics, the total cell phone users in China’s market were 300, 000, 000 and that of internet was 90,000,000 (Wang 1). This opportunity was grabbed by Taobao as it was able to deliver instant messages to sellers and buyers. It can be stated that this form of strategy made the company a strong competitor as it was not only offering large base of products but even providing appropriate customer service. Major Challenges The two major ecommerce companies in China’s market were eBay and Taobao. eBay was able to survive in the initial phase of its operations in China’s market as it possessed a high brand value in comparison to other players. However in the later years there was a drastic failure witnessed by the company as it was not able to meet the hidden demands of consumer market. eBay had failed to appropriately analyze the trend of the market. Since the company followed a business strategy which was more of product focus there was less customer relationship management which had an impact on its business operations. On the other hand the firm had a globalized platform which was not feasible for this specific market. eBay even demanded fees for any service that created a negative impact on consumer mind. The market of China is socially oriented and this states that social relation plays a crucial role in terms of China’s online transactions. There was no such involvement of the organization in the community as it was inclined towards delivering superior quality products at least cost. In China’s C2C business, loyalty building is greatly associated with being highly involved in the community. Thus if the customers are more involved in a community than they tend to be more loyal towards any C2C vendor. This proved to be another challenge for the company as its business model was completely different from the culture of China’s market. Company’s strategy and performance eBay over the years has performed its operations through offering wide base of products to its customers and at the least cost possible. In China’s market the company focused towards implementing its global platform strategy which comprised of two important factors such as profit and product. These two factors were the base for the success story of eBay but in China’s market this proved to be a disadvantage for the company. While setting up its operation’s in the new market the company had purchased stake in EachNet which was a Chinese firm. EachNet can be regarded as a C2C firm that came into existence after eBay. In the starting phase EachNet acquired a total market share of 80% in context of ecommerce market. On the other hand, in order to gain market presence, eBay invested lump sum amount on various marketing strategies. The company invested a total of 100 million dollars on taxi ads and subways, and even signed multiple marketing deals with some of the major web portals of China. Though the company had invested into marketing activities but it did not pay much attention towards market research. This was the major loophole in strategy formulation of the company. In this particular area other players such as Taobao had gained competitive advantage as they delivered only those products or service which were highly desirable by consumer market of China. The company tried its best to implement the business model which had given the firm success over the years. However the performance of the company was relatively low in comparison to its global operations. In 2006, it was observed that Alibaba was able to acquire 67% of the total market share and that of eBay EachNet was 29%. The same year eBay was enforced to shut down its site on online auction. It was later sold to TOM and one of the reasons behind such failure was growing number of users but less percentage of transaction volume. The performance of the company was low in relation to other players as it failed to properly analyze the market culture. eBay focused more on earning high profit margins but failed to understand the customer values and market culture. On the other hand the company was over confident as it believed that global platform strategy which brought in success for the company in local markets will prove to be advantageous even in the overseas. Specifically in China, where social relations play a vital role, more focus should have been on forming strong customer relationship than to gain profit margins. This factor greatly affected the performance of the company as its market transaction volume was 34% which was less then Taobao who acquired 57%. Work Cited Wang, Helen. How EBay Failed In China, 2010. Web: [Accessed on 24th October 2014]. Read More