Rivalry between the Two Online Shopping Companies - Assignment Example

International Marketing Table of Contents Introduction 2 Chinese E-tailing Industry 2 Factors Affecting the E-tailing Industry in China 4 Rise of Taobao and its Strategy 6 EBay’s Counter Strategy 7 Conclusion 8 9 Reference 10 Introduction The prevailing companies have realised the opportunities underlying in the international market. Many company has already expand their market in the multiple international market and they are primarily known as multinational companies (MNC). Considering the better business performance of the MNCs in the international other competing global firms imitates them and entered into the same international markets intensifying the global competitiveness. In this respect, China has become one of the most attractive (in terms of profitability) international markets for making FDIs, and hence, many foreign companies have already entered in this market and other new entrants are trying to enter. However, the domestic Chinese companies have realised market potential considering the performances of the foreign companies in China. This paper will attempt to analyse the popular case of rivalry between the two online shopping companies i.e. the U.S. based eBay and China based Taobao. The U.S. based eBay was already present in the Chinese online shopping market and dominated the market. However, later, the China based Taobao emerged and competed with the prevailing market leader, eBay. Chinese E-tailing Industry [CH.8, Product accessibility, Cultural, legal and infrastructure affecting international management, CH.3, Social cultural considerations] Online trading in China has come a long way. The start of China’s online or E-tailing revolution was slow because of several key issues. The political, Legal and social structure in China had many internet based companies question the profitability of setting up e-business in China. Lack of proper infrastructure also delayed the entrance of e-business in China. China lacked technological and financial backing to enter the e-business market. The main reason which made companies avoid China for their e-business was the uncertainty about the policies that the Chinese government will devise to attract foreign industries. China had an extremely low internet penetration. A very selective elite percentage of Chinese population had access to computers and internet. The legal frame work regarding the laws and policies governing e-business were not stringent. Buyers often after bidding something online would back out on payment. Such casual approach discouraged many e-businesses from entering Chinese market. The buyers were often not provided with the product they had ordered for. These trends had made the buyers in China very sceptical about the credibility of online purchase. A survey conducted in 2002 by China internet network information centre (CINIC) showed that 13.9 percent of buyers in China did not receive their ordered products. The next challenge faced by these companies was the financial infrastructure of China. Chinese banks did issue debit cards but the debit cards for separate cities had separate gateways. This made payments for e-businesses set up difficult. A debit card from a particular city could not be used in another city. Chinese banks were cautious on issuing credit cards also; very few citizens were issued credit cards. I was in 2001 that Chinese banks realised the necessity of issuing credit cards to boost their economy. During this period several verification companies emerged to help Chinese bank to revolutionise the credit issuing system in China. It was this major shift of policy that caused the revival Chinese E-tailing. Factors Affecting the E-tailing Industry in China [Ch-1: Environmental Influences on International Marketing; Ch-2: International trading environment]. The growth of the trade and commerce in the China is its primary reason for economic success. The country has become one of the most attractive market place to invest as with increasing GDP, peoples’ purchasing power is also strengthening. Moreover, technological improvements have also caused a change in the consumers’ behaviours. The e-tailing industry of the online shopping industry is an emerging trend in the Chinese retailing sectors. In order to analyse the factors affecting the Chinese e-tailing market, Pestle analysis is useful tool as it analyse six major factors of macroeconomic. The model for Pestle analysis has been given below. Figure 1: Pestle (Source: Doole and Lowe, 2008, p.7) Political factors are is a critical criterion that has influenced the prevailing competition in online shopping market of China. Being a domestic company, Taobao received a significant indirect support from the Chinese government. In order to control the entire business environment, Chinese government controlled the entire financial sector. On the other, the economic enhancing economic condition of China is primary factors for eBay’s market expansion. Prior to the emergence of Taobao, eBay was enjoying a high growth in its online shopping business due to increasing purchasing power of Chinese consumer. On the other hand, the Chinese people were also enjoying the new experience of convenient online shopping. Since 2002 to 2005, the online shopping became very popular among Chinese consumers. In spite Chinese government’s strict regulation on online shopping market, it lacked improved legal framework for the prevention of online fraud. This had caused to develop a feeling of afraid among consumers regarding online shopping. During the first half of 2000, Chinese online shopping market was not very matured in terms of technology common ring to other developed nation. However, the number of internet users in China was very high and rising that has led to growth of online shopping industry and it has graphically presented below. Figure 2: Number of Internet Users in China (in millions) (Source: Stanford Graduate School of Business, 2010) In spite of eBay’s dominance, Taobao had been able to attract consumer as it understood the basic culture of Chinese people. Unlike the secular nature of West, Chinese are more communal and Taobao has offered a sense of community through its online services. The China’s infrastructure for e-business was also very poor and it influence operational processes like payment services and merchandise. Rise of Taobao and its Strategy [CH.5, Impact of electronic commerce: Sources of competitive advantage, CH.2, Comparative advantage: Building national advantage. CH.12, Implementation through enabling technologies. CH.11, Pricing strategy. CH.10,Pull factors of internationalisation retailing] In 2002 e-bay acquired EachNet. This made the position of e-bay China stronger. The only competitor they regarded as their rival at that time was 1Pai, a joint venture between Yahoo and Sina. Sina was at that time China’s leading internet portal service provider. The progress was closely observed by Jack Ma, the founder of Alibaba.com. Alibaba.com was the leading B2B website in China during 2002. Jack Ma considered e-bay as a big threat for the expansion of Alibaba. Taobao which was a subsidiary of Alibaba was regarded as an underdog by many. Taobao also dealt in the market of C2C business like e-bay. The association of Alibaba and Taobao was kept a secret for a long time. However it was in 2004 that Jack Ma, declared the association between the two in a press conference. It was during this press conference that Ma recognised e-bay China as a rival. Jack Ma had by then realised that by strategically positioning Taobao in the market he could take over e-bay China’s market share. The strategies that were applied by Taobao were simple yet very effective. Taobao had formed a strategic alliance with Masayoshi Son. Son was the founder of Softabank Capital, the company that helped Yahoo Japan to overcome its rival e-bay China. Both companies Taobao and SoftCapital came together with the aim of defeating e-bay China (Ireland, Hoskisson & Hitt, 2008, p.82). Effective advertisements- Taobao incorporated the innovative method of using computer bulletin board services to advertise their services. This was a cost effective method with wide reach. Taobao was able to reach millions of Chinese internet users with the help of BBS. Introducing free registration charges- Taobao launched a scheme where the users were given free service for the first three years. This strategy helped Taobao to attract many customers who using e-bay. E-bay saw heavy migration of customers due to Taobao’s no fee –model. User Friendly payment model- Taobao formed key alliances with banks in China. Taobao structured an integrated payment process on its website Alipay. With the help of Alipay the buyers were easily able to pay for their goods. The payments were also held up by banks till the products were received by the buyers. This generated trust amongst buyers regarding the credibility of Taobao’s services. EBay’s Counter Strategy [Ch-7, Market entry strategy; Ch-12- Challenges in International market] Initially, when, eBay started to expand its market in the global market, it followed a global strategy, and after its business failure in Japan, China was one of the most favourite international markets without any significant competition. eBay’s Chinese division was mainly controlled by its Headquarter in California to align with its global strategic management. After the continued rivalry with Taobao, eBay China’s performance started to decline. In fact eBay has the better potential and better resource to compete with its key rival Taobao. However, it was not able to utilise its full potential sue to flaws in its decision making system. eBay China used to follow a centralised operation and led to create significant lag in its technical performance and decision making. Due to significant distance between its Headquarter and its Chinese division, better coordination and communication was nor possible. Taobao’s one of the most effective strategies for attractive consumers was that it did not charge any fee. On the hand, with the decreasing market share, eBay brought several changes in its strategies and it also stopped charging fee from consumers and established a partnership with YongLe Electronics, the largest electronic chain in China. However, such significant strategic move did not help eBay to regains its position in Chinese market. Conclusion The Chinese E-tailing business has indeed come long way. In the era of consumerism China is a favourite destination for many E-tailing companies. The Chinese government has also realised the necessity of developing their infrastructure and technology to gain more international businesses. The political and legal framework of China is also being curtailed by the Chinese government to attract foreign investments. The social and cultural environment of China is also changing. This is a huge encouragement for many foreign players who want to invest their money in China. However there are still few key issues that must be properly understood by these companies to enter Chinese market they have to understand their culture and policies extensively. These foreign companies must adapt few key regional policies to perform well in China. Local businesses in China are indeed the biggest threat to these international operations. Reference Doole, and Lowe, (2008). International marketing strategy: analysis, development and implementation. 5th ed. Cengage Learning EMEA. Ireland R.D , Hoskisson R.E and Hitt M.A, (2008). Understanding Business Strategy: Concepts and Cases. Cengage Learning. Stanford Graduate School of Business. (2010). TAOBAO VS. EBAY CHINA. [Pdf]. Available at: http://gsbapps.stanford.edu/cases/documents/IB88.pdf. [Accessed on May 13, 2011]. Read More