Human Resource Management of eBay in China - Essay Example

? Human Resource Management of eBay in China EXECUTIVE SUMMARY The unexpected performance of eBay in the online C2C market of China raised many questions regarding the decisions taken by the corporation in the geographical region. With a promising entrance into the market boosted by eBay’s acquisition of local online shopping giant EachNet in 2003, the corporation initially boasted of a staggering 72.4% market share of the Chinese e-shopping arena that was reduced to a mere 7.7% by 2007 as Alibaba’s competing venture Taobao.com captured 84.9% of the market. eBay’s failure in China is attributable to its rigid and product-centered approach that did not complement consumer behavior in China. Cultural differences, unique characteristics of Chinese consumers and hence their demands from e-shopping differ vastly from that of American buyers. This problem identification requires the development of appropriate solutions to help eBay tackle the threat of dominant competition in China that is being posed by Taobao. A success in doing so would allow eBay to capture the booming e-shopping market in China which is expected to grow to an astounding $315 billion dollars by 2015 and therefore, presents a monumental opportunity for eBay to move forward with its plans of global expansion. The report proposes an incorporation of the expertise of local managers and workers in the operations of eBay China to remove issues that are being posed by cultural barriers. It should also be noted that this Human Resource Management initiative will also help in cost reduction and minimization. Diversity in a workforce is integral to idea generation and would also help redesign eBay’s business model to suit to the needs of the Chinese C2C market. Drawbacks of the proposed solution are also discussed and it is recommended that further reports are commissioned to assess the validity of the said drawbacks and how they should be minimized. Contents 1.Terms of Reference 3 2.Literature Review 5 3.Problem Identification 7 3.1 Background 7 3.2 Competition from Taobao 9 3.3 Cultural Issues 10 3.4 Unique Characteristics of Buyers 10 3.5 eBay’s Business Model 11 4.Evaluation of Alternatives 11 4.1Employing Local Managers 11 4.2Transferring Core Employees with Chinese Background 13 5.Recommendations 14 6.Reflective Appendix 15 References 17 1. Terms of Reference eBay is a global internet-based business that acts as an intermediary between consumer-to-consumer transactions for a wide range of products that include electronics, automobiles, clothing, sporting gear and several other products falling under various categories. eBay entered the Chinese market in 2003 through its acquisition of EachNet (Zhang et al. 2009) with hopes of gaining a considerable market share and to repeat the success that it had achieved in the U.S. However, as industry analysts would later report eBay failed to compete with the dominant force of Taobao – a local website that was launched by Alibaba in hopes of battling the imminent threat that eBay posed to sellers in China’s booming internet shopping market. While, commentators and analysts have evidently explained the reasons why eBay eventually could not make a significant impact on the online shopping market in China, it is important to note that much of that discussion has been directed towards assessing comparative analyses between the business models of eBay and its adversary Taobao. The purpose of this report however, is to focus specifically on the Human Resource Management of eBay in China in order to utilize the evaluations derived from the assessment to propose recommendations and suggestions that could be undertaken by the multinational corporation. The report aims to do so by defining the problems and issues that eBay faced in the Chinese market which posed as obstacles in allowing the organization to capture a considerable market share within the industry in the face of tough competition. These main issues include exploring the cultural issues experienced by eBay in China and noting the drawback of eBay’s business model in comparison with that of Taobao’s. The report proposes two comprehensive solutions for overcoming the problems faced by eBay in China that have been evaluated on the basis of advantages and possible disadvantages of the proposed solutions. It is expected that the submission of the report will be succeeded by further reports to assess measures that can be taken to diminish the possible drawbacks of the proposed solutions. 2. Literature Review According to eBay’s 2010 Form 10-K, the corporation generated 46% of its net revenue from the U.S market with a 14% net revenue generated from its business in U.K and 13% from its operations in Germany, 27% revenue generation was a consequence of the company’s activities in other parts of the world. This assessment aids the establishment of the notion that in the light of the report presented by the Boston Consulting Group (BCG) eBay is not being able to reap benefit out of China’s 192 billion US dollars internet shopping market as of 2012, which is expected to grow to a staggering 315 billion US dollars by 2015. Wang (2010) notes that eBay failed to understand the differences between the Asian and U.S markets which is a fact that was acknowledged by Alibaba’s CEO Jack Ma himself. The differences in discussion are that in understanding the Chinese culture and responding to its unique needs and requirements exclusively rather than holding a collectivist approach in believing that what worked in the U.S would also work in an Asian Market. Crampton (2010) holds a similar view regarding the culture-based differences between Chinese and American users; the author notes that eBay’s first mistake was that the company expected a successful transition of Eachnet’s Chinese customers to a general U.S platform which yet again points towards eBay’s underestimation of the vast cultural differences between the two markets. Several studies conducted in the past have also acknowledge the critical role that cultural distinctions played in eBay’s failure and Taobao’s success (Ou & Davison 2009; Lin 2005) as the researchers suggested that Jack Ma’s success with his venture lies in his comprehensive understanding of the Chinese consumer. According to Bergman (2011) Chinese customers seek products that offer good value at the right prices and this characteristic of Taobao’s customers is helping the website grow despite of accusations of the availability of forged goods to trick the buyers. Commenting on the business model of eBay and Taobao, the former relies on transaction fee for 90% of its revenues while, the latter with its free-to-charge has tactfully found a way to generate more than 80% of its revenue from marketing campaigns that feature advertising (Crampton 2010). This critical difference in the business models of eBay and its biggest competitor has significantly added to the problems faced by the corporation in the Chinese market. Research suggests that like for many other buyers, seller-reputation and trust is critical to a Chinese customer’s purchase decision however, the fundamental distinction in this regard is that Chinese customers purchase products on the basis of swift trust rather than others’ ratings of a particular seller (Ou & Davison 2009; Ye et al. 2009; Clemons 2013; Lopes 2012; Meyerson et al. 1996). Lixia and Xun (2009) propose that competitors such as eBay should learn from the successful strategies of Taobao in the C2C business model as its incomparable success arrived in a matter of few years when it gained a staggering 84.9% share of the C2C market in 2007 from a mere 7.8% in 2003 (Zhang et al. 2009) which is a reflection of Taoboa’s triumph over internet giant eBay. 3. Problem Identification 3.1 Background Providing an overview of eBay’s global market is imperative to problem identification and analysis of the issue in the context of eBay’s entrance into the Chinese market. The following diagram from eBay’s Form 10-K for the year 2010 sums up the major countries in its global net revenue generation: In the aforementioned representation of eBay’s net revenue for the year 2010, the U.S market has accounted for 46% of the corporation’s total net revenue while, U.K and Germany have accounted for 14% and 13% of eBay’s net revenue respectively. According to a study conducted by the Boston Consulting Group, China’s internet shopping market accounted for a staggering 192 billion US dollars for the year 2012 and is expected to grow to 315 billion US dollars by the year 2015, thereby, overtaking the U.S online shopping market as represented by the diagram below: Considering the current size of the China’s e-shopper population and its net worth in U.S dollars it can be stated that it is a grave cause of concern and alarm for eBay that it has failed to reap benefit out of China’s growing e-shopper population and booming online market despite of its persistent attempts to capture the market since 2003 with the acquisition of Eachnet.com. 3.2 Competition from Taobao Zhang et al. (2009) state that despite of eBay’s hopeful and optimistic entrance into the Chinese market with the purchase of Eachnet – a local C2C intermediary in 2003, eBay could not succeed in capitalizing on its initial success and had lost 64.7% of its market share by 2007 while, Taoboa successfully increased its market share by 77.1% in 2007. Indeed, the market scenario for eBay changed drastically over a period of four years with Taobao maintaining its undisputed dominance in the Chinese C2C market as suggested by the figure below: Apart from the fierce competition being faced by eBay in China due to the dominance of Taobao in the C2C market, other problems being faced by eBay in market can be categorized under; cultural issues, distinct characteristics of Chinese buyers such as a preference for swift trust (Meyerson et al. 1996; Ou & Davison 2009) and issues with eBay’s business model in the context of the Chinese market such as product-centeredness (Wang 2010) and the utilization of transaction fees as a source of about 90% of revenue generation while, Taobao boasts of a free-to-charge model (Crampton 2010). 3.3 Cultural Issues Wang (2010) identifies that eBay did not integrate cultural aspects attributable to China in its plan to enter and eventually capture the market. This concept is also reflected in how eBay directed its marketing budget towards launching major campaigns on the Chinese internet; these measures included reaching agreements with foremost search engines in the country to disallow the emergence of Taobao’s advertisements on the internet. Jack Ma however, fought this threat with an advertising strategy that focused on promoting Taobao on television as he knew such promotion would yield maximum exposure for the website. Taoboa also identified the technological trends within the Chinese market, knowing that many customers preferred using their cell-phones over computers or laptops, the C2C website launched mobile phone services for customers including messaging, thereby, ensuring that the business offered a completely customer-centered buying experience to eBay’s product-centered approach (Wang 2010). 3.4 Unique Characteristics of Buyers Regarding the individual characteristics of Chinese buyers that influence purchase decision, Ou and Davison (2009) postulate that Chinese customers give greater preference to swift trust when evaluating seller-reputation rather than relying on reviews of other buyers regarding the trustworthiness of the seller. Therefore, the integration of WangWang into Taoboa’s user interface allows customers to be aware of when or whether the potential seller is online so that the buyer can direct questions related to the purchase in order to assess the trustworthiness of the seller (Lixia & Xun 2009) . Crampton (2010) notes that eBay wrongly believed that a successful transition of a Chinese buyer to a U.S based platform is possible, which could be one of the reasons why eBay did not assess the possibility of launching an immediate messaging tool exclusively for its Chinese market to help build the buyer-seller relationship. 3.5 eBay’s Business Model Perhaps the most critical distinguishing factor that defined eBay’s failure in China was how Taobao simply provided better service and an attractive package that worked for the customer’s needs. While eBay relied on its traditional business model resting on revenue generation through transaction fees (Bergman 2011), Taobao built its brand on attracting customers with a free-to-charge approach thereby, increasing traffic and generating about 80% of revenue through advertising (Crampton 2010). 4. Evaluation of Alternatives The report proposes two alternative solutions to the problems that have been identified in the preceding section. 4.1 Employing Local Managers The first solution aims to address the problems being faced by eBay in the C2C market of China due to the existence of cultural barriers and the individual characteristics of Chinese buyers as identified by Wang (2010), Ou and Davison (2009) and Lixia and Xun (2009). eBay should carry out a redesign of its Human Resource in China by employing more local managers to make decisions. This would help the corporation reap benefit out of the expertise of local managers and executives who are better acquainted with the norms and values of the Chinese culture and also the psyche of the Chinese buyer. As Lixia and Xun (2009) note that Taobao made use of an awareness of the attributes and personality traits of local buyers who appeared doubtful of online payment methods and transactions and also displayed a tendency of viewing the goods before engaging in any sort of bargains. The availability of such information allowed Taobao to establish the instant messaging service of WangWang to assist buyer and seller interaction and also led to the creation of Alipay to ensure secure payments. Certainly employing local human resource would be beneficial to eBay by providing information on cultural trends and features so that the eBay service is customized to cater to specific, individual and unique needs of Chinese buyers. Moreover, hiring local workers would also reduce the cost of labor incurred by eBay. The proposed solution comes with certain drawbacks that could diminish the positive impact of the recommended human resource effort. For instance, local managers may go against the business model and foundations of eBay’s operations in China such as its product-centered approach which could act as a barrier in developing eBay’s business model according to the demands of the Chinese market. Another drawback of this solution is that a human resource department that is dominated by a local workforce could limit the control of eBay’s headquarter and senior management over its operations in China and this impending threat could deter the concerned executives from implementing this recommendation to the business. 4.2 Transferring Core Employees with Chinese Background The second solution focuses on ensuring that eBay continues with its geocentric strategy and carefully assess the background and expertise of its core employees in the U.S. The employees should be comprehensively assessed on the basis of their adaptability to China and members of the workforce who have prior background of working, studying or living in China, those who belong to Chinese families or have been trained in a Chinese culture should be selected. The advantages of this strategy are that eBay would not have to let go of its original business model as this recommendation intends utilize the expertise of existing human resources who show great degree of adaptability to a Chinese business setting. The implementation of this strategy also postulates that eBay headquarters would be able to exercise and maintain control over its operations in China which could have diminished as a result of hiring local managers and employees. This solution too has certain drawbacks that should be identified and dealt with before a final recommendation is proposed. A primary limitation of this solution is the in unavailability of sufficient employees who can meet the expected requirements of the solution. Expert managers who belong to a Chinese background and are well acquainted with eBay’s operations in the U.S would be rare to find and even if the human resource department is successful in short listing the required candidates, the cost that would have to be incurred in terms of the salaries, training and relocation costs of employees from U.S to China will exceed the benefits of hiring specialized managers belonging to Chinese background from the U.S. Lastly this solution does not promise guaranteed or satisfactory results by bridging the cultural gaps between eBay as a C2C platform and the Chinese C2C market. 5. Recommendations Considering the success of Taobao’s service and operations strategies it is desirable that eBay and other potential entrants into the C2C market adjust and redesign their business models by adapting to the cultural values and norms of China (Lixia and Xun 2009). Keeping this view in mind, it is recommended that eBay should evaluate and implement the first solution proposed by the report to tackle the problems being faced by the corporation in China such as cultural issues, fierce competition from Taobao, unique characteristics of Chinese buyers and problems with the implementation of eBay’s existing business model to the Chinese market. Employing the expertise of local workers would help eBay analyze the psychological and behavioral characteristics of Chinese customers, thereby; helping eBay to assess factors that influence their online purchase behavior and what features should be launched by eBay to customize the user interface of the website by launching competing features to Taobao WangWang. While, eBay maybe unprepared to modify its business model, diversifying its workforce would allow the corporation to reap benefits such as availability of novel and innovative ideas and enhanced problem-solving skills of teams and groups within the organization. Ou and Davison (2009) comment that the key to cracking the code of China’s internet market is acknowledging that it is different and more diverse than any other geographical market. Therefore, eBay should aim for a human resource management measure that focuses on hiring local managers and executives who know their market better than anyone else. 6. Reflective Appendix The research undertaken for the preparation of the presentation and written report for this module was the most enriching and enlightening experience as a learner. The preparation of the written report required referencing from a host of sources such as websites, peer-reviewed periodicals and scholarly journals that positively contributed towards the overall learning outcomes for the module. Understanding complex business operations from the perspective of Human Resource Management greatly aided towards the enhancement of the practical application and implications of various business decisions. The dynamic and widespread reach of eBay since its inception has certainly permitted the corporation in maintaining its significant dominance in the C2C online market, however, eBay’s failure to relive its glory and repeat its triumph in China depicts that like any business-related decision human resource frameworks and approaches are also based upon situational factors and are therefore, a contingency approach. What works in one business scenario does not necessarily promise the same success in another. Therefore, businesses should be prepared to adapt to varying situations and market characteristics as rigidity in business models or practicing inflexibility in strategy implementation is directly attributable to business failure. The written report and presentation allowed for the application of knowledge that was accumulated through the course of the module through mediums such as lectures and tutorials. Research into newspaper articles and scholarly journals provided an ideal combination of opinion and fact for the purposes of this report thereby, helping the development of broad and comprehensive learning outcomes during the course of this module. References BERGMAN, J. (2011). The eBay of the East: Inside Taobao China’s Online Marketplace. TIME. Accessed 10th May, 2013 < http://www.time.com/time/world/article/0,8599,2098451,00.html> CLEMONS, E. K., JIN, F., WILSON, J., REN, F., MATT, C., HESS, T., & KOH, N. (2013, January). The Role of Trust in Successful Ecommerce Websites in China: Field Observations and Experimental Studies. In System Sciences (HICSS), 2013 46th Hawaii International Conference on (pp. 4002-4011). IEEE. CRAMPTON, T. (2010). How Taobao beats eBay in China. Accessed 10th May, 2013 < http://www.thomascrampton.com/china/taobao-china-ecommerce/> LIN, Z., & LI, J. (2005, August). The online auction market in China: a comparative study between Taobao and eBay. In Proceedings of the 7th international conference on Electronic commerce (pp. 123-129). ACM. LIXIA, Y., & XUN, L. (2009, May). Analysis on the Successful Strategies of Taobao’s E-Commerce. In Proceedings of the 2009 International Symposium on Web Information Systems and Applications (WISA’09) (pp. 22-24). LOPES, C. J. (2012). Why eBay struggled in Japan, China, and other Asian Markets. 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Markets, Services, and Networks (pp. 14-24). Springer Berlin Heidelberg. Read More