Ebay in Japan - Strategic and Cultural Missteps - Case Study Example

CASE REPORT:  EBAY IN JAPAN - STRATEGIC AND CULTURAL MISSTEPS Executive Summary Ebay entered and exited the Japanese market two years later, after its failure to command a sustainable share in the online auctions market. Yahoo Japan controlled most of the market, leaving eBay with only 3% of the entire Japanese market. This paper addresses the various factors why the company did not succeed in Japan. It focuses on the growth of the company since its incorporation in 1996, its entry in the Japanese market and its exit from the market. Founded by Omidyar in 1995, the company grew to become one of the most successful online auction companies, second from amazon. The paper also focuses on the major acquisitions by the company as part of its expansion strategy. to succeed in the Japanese market, the company tailored its Japanese website to meet the demands and desires of the Japanese people. Therefore, there were a number of differences in the US and the Japanese websites. Despite the efforts of the company to fit its website into the Japanese context, it could not attract people to the website, hence its exit. Introduction and case overview Whenever a business organization seeks to establish operations at the international market, it is important to conduct a research of the host country’s cultural, social, economic and political elements. The ability of a firm to research comprehensively on the inherent conditions of the host country determines its success in its ventures. Understanding the needs of the people, their cultural practices, among others differentiates successful firms from unsuccessful firms. While some firms have succeeded in their international operations, others have failed immediately after establishing their operations. Assuming that because America is the largest economy and one characterized with diverse cultures that all other cultures resemble American culture is wrong. Further, the assumption that the success of a firm in the American economy would translate to similar effects in other economies can considerably affect the success of the firm at the international platform. eBay, one of the America’s most successful online auction companies failed once in the Japanese market. Despite the company’s tremendous growth and success in countries such as United States, Canada, United Kingdom, among others, eBay did not succeed in its first attempt in the Japanese market. Interestingly, as eBay was planning its exit from the Japanese market, barely 2 years after its entry, Yahoo! auction enjoyed considerable success in the country. eBay entered the Japanese market oin February 2000, with hopes that it would translate to success just as it had succeeded in other international markets. Additionally, the fact that only Yahoo! Japan was its only biggest rival, eBay saw this as an advantage. However, on February 2002, two years after its entry, with no profits to report, the company announced its exit from the Japanese market. This essay provides an analysis of the case, discussing the various factors contributing to the poor performance of eBay in the Japanese market within its two years of operation in japan. Case Analysis Every company hopes to secure strong market presence whenever it establishes its operations in any part of the world (Zahra, et al. 2011, p. 330). All multinationals hope that they would operate successfully in all areas where they establish their operations, just as is the case in their parent countries. While planning is an important element, strategically placing their operations in line with the needs and preferences of the host country customers is the only way these companies can establish successful and profitable operations. There are many success stories of multinationals whose international establishments report numerous profits. This was however not the case with eBay, a United States’ online auction firm in Japan. Almost immediately after establishing its operations in Japan, eBay exited without reporting profitability. Various factors attribute to the failure of the company in the Japanese market, a region where yahoo recorded numerous profits since its entry. In February 2000, one of America’s most successful online auction companies, eBay announced its entry into the Japanese market. This was part of its growth strategy. Having successfully established operations in other regions such as the Canada and United Kingdom, eBay saw this as another part of its successful international markets. Additionally, owing to the popularity of its websites among Japanese auction enthusiasts and collectors was an added advantage to the success of the company. Further, yet another of American online auction company, yahoo had successfully been in operation in japan since 1999. This was however not the case as two years later in February 20002, eBay announced its exit from the Japanese market. Since its establishment in the country, eBay did not record any profits. On the other hand, yahoo had operated in the country since its launch in the year 1999 without any difficulties. Pierre Omidyar, a software programmer founded eBay in the year 1995. During the time of its incorporation in the year 1996, eBay was a person-to-person trading community where the sellers listed all items they wished to sell and specified the minimum bid they expected for their items. These items were then listed under different categories, and potential buyers would place their bids on the items they required. The company made money by charging a percentage to the sellers for every listed item in the website. Over the years, the company registered tremendous growth, especially in America and various parts of the world. In its growth plan, the company acquired a number of smaller firms, especially in the host countries it hoped to establish operations. The rapid growth with which the company grew was amazing. From a small person-to-person trading company, eBay grew into a huge multinational, barely two years after its incorporation. By acquiring already existing firms in the host countries, eBay enjoyed the advantage of the brand name of the acquired company. eBay was a success story, especially from the year 1997 when benchmark capital acquired 22 percent of the company, investing $4.5 million. It was however the entry of Harvard Whitman as the CEO of the company in the year 1998 that catapulted the company to a rapid expansion process. Through an IPO in the September 1998, eBay raised $60 million. The company in May 1999 acquired online payment company, Billpoint. The company also acquired Butterfield & Butterfield the same year. Other acquisitions by the company include PayPal acquisition in the year 2002, an online payment company. eBay also acquired online classifieds company, craigslist in 2004. Additionally, it also launched its own websites such as Kijiji.com, all focused at providing an excellent platform for people to auction their items. Despite this growth and success, the company did not succeed in Japan in its initial entry. After a year in operation, the company had only secured 3 percent share of the online auctions market, valued at $1.6 billion. Even after scrapping off transaction charges on its website, the company did not manage to transform its operations into profitability. Observers pointed to a number of factors contributing to the misfortunes facing eBay in japan then. Yahoo! Japan, an action site providing similar services as eBay was one of the major contributing factors to the failures of eBay’s first attempt in Japan. Culturally, Japanese people are an image conscious lot, and rarely buy second hand goods. Subsequently, no company showed interest in establishing operations in the country, until eBay announced its plans to enter the market. On learning this, yahoo japan moved earlier, establishing operations in the country ahead of eBay. With the understanding that more customers bring in more sellers, yahoo use the opportunity of having been in operation in the country to establish online auction. By the time eBay established its operations, yahoo had a loyal customer base in the country. Further, yahoo was a strong brand in japan, a factor that worked negatively for eBay (Wingfield 2002, n.p.). Its strong presence in the Japanese market, providing emailing and search engines was a main reason for the failure of eBay. However, if eBay established its operations immediately after yahoo launched its online auctions, perhaps things would have been different. Poor marketing of their site, coupled with the American system of online payment in the Japanese context worked against the success of the company. Pillania, R.K 2009, p.102 points out that it is important for business organizations to conduct a thorough analysis of the host market. Further, Mingfang (2002, p. 42) asserts that assuming that one model can apply to another country is a mistake that most multinationals make, thus costing them of their success. The company failed in its entry strategy in the Japanese market. Immediately after yahoo announced its launch in the country, the company should have moved with precision to establish its operations in the country. Assuming its popularity in other areas would translate to high reception in the country was a mistake that the company did from its initial entry. Therefore, when yahoo announced its intentions to launch online auction, the company delayed in entering the market. This gave yahoo a competitive advantage as the pioneer in the Japanese market. By the time the company was entering the market, yahoo was a strong brand. The assumption that the strong popularity of eBay in the rest of the world would also help it in the Japanese market failed it terribly. Further, the assumption that the Japanese population would adopt the same form of trading as the rest of the world was wrong. Japan has a different culture from the rest of the world, especially the western countries. Cultural values significantly determine the purchasing power of people. Culture is an individual’s desirable or preferred way of acting or knowing something that is sustained over time, governing their actions or decisions (Hua & Upneja 2007, p. 540). It is therefore mandatory for businesses doing business abroad or locally to have an understanding of the people’s culture that determine their purchasing or ethical norms. The extent to which national culture becomes relevant to a firm largely depends on the positioning of the firm in the internalization continuum (Almodovar 2009 p. 39). With this regard, a business exclusively operating on a local market has less relevance with the national culture than a business operating globally. Conclusion With the increase in the level of competition in the current business environment, businesses are increasingly establishing their operations at the international level. Further, with the desire to increase in their profitability, companies are increasingly seeking for new operations at the international market. Every company hopes to operate successfully at the international level. However, this is not the case, as eBay revealed. The company, having entered the Japanese market in February 2000 exited in February 2002, two years later, after failing to capture a sustainable share of the online action market. Despite of the company’s success in other areas such as US, Canada, china, Taiwan and UK, it could not replicate these successes in the Japanese market. The strong presence of yahoo japan in the online auctions, coupled with the lack of proper advertising for its products are some of the factors contributing to the failure of eBay in Japan. Works Cited Almodovar, P 2009, Because Location Matters: What Multinationals Must Know About Cultural Distance, GCG: Revista De Globalización, Competitividad & Gobernabilidad, 3, 3, pp. 34-63, Business Source Complete, EBSCOhost, viewed 16 March 2014. Hua, N., & Upneja, A 2007, Going international? Important factors executives should consider!. International Journal of Contemporary Hospitality Management, 19(7), 537-545. Mingfang, L 2002, Global Strategies For Domestic Firms In Emerging Economies In A World Of Multinationals: Toward A Model, Cuadernos De Difusión, 7, 13, pp. 39-55, Business Source Complete, EBSCOhost, viewed 16 March 2014. Pillania, R.K 2009, "Multinationals and emerging markets", Business Strategy Series, vol. 10, no. 2, pp. 100-103. Wingfield, N 2002, EBay, Conceding Missteps, Will Close Its Site in Japan, Eastern edition edn, New York, N.Y. Zahra, S. A., Abdelgawad, S. G., & Tsang, E. W 2011, Emerging multinationals venturing into developed economies: implications for learning, unlearning, and entrepreneurial capability. journal of Management Inquiry, 20(3), 323-330. Read More