EBay Expands around the Globe - Essay Example

eBay expands around the globe and Section # of Describe the pros and cons of eBay's policy of entering an international market by acquisition - as opposed to Foreign Direct Investment (FDI) otherwise known as "green-field investment" -in the context of on-line retail operations. Introduction eBay can easily be quoted as the pioneer or the entrepreneurial idea that initiated the concept of online auction not just for B2B clients, but also expanding the circle towards B2C and C2C transactions. Till the start of the 21st century, in the year 2000, eBay virtually had no operations beyond the boundaries of its home town i.e. it lacked the concept of internationalization; but as of now, it has its existence in over 30 sites around the world, with the vision of being global, and competing will with the competition across the globe. This growth has mainly come in the past 8 years. While expanding globally, eBay has exercised a variety and combination of options that it had available in the first place (Thompson, 2003). The following section discusses various options for businesses while expanding. Options for Expansion For moving in the international markets, a business has a number of options that can be considered. The consideration is based on various analyses of cost versus benefit being the major highlight (Davis, 2000). Some of the main options that a business may consider while going international are: 1) Franchising 2) Mergers 3) Acquisition 4) Foreign Direct Investment Franchising is when a foreign business (parent company) deals with a local business to be their representative in the local markets, with the parent company's name, rules, policies and procedures being followed. The local company operates under the name of the parent company, precisely as per their inherent instructions, and earns the parent company earns the royalty from this set up (Shull, 2000). Examples of such an arrangement are often witnessed in the fast food chain set up or even in gas stations. Mergers occur when two or more businesses decide on merging their set of services to compete in a much enhanced form in the industry. In such a form, the businesses unite and the separate existence and identity seizes (Price, 2003). Glaxo Smith Klime (GSK) is the most renowned merger of recent times, with Sony Ericsson being another one. Acquisitions takes place when one firm is taken over by another and the acquiree seizes to exist as the acquirer takes over the operations and assets under its own books. In such a scenario, the acquirer yields various advantages. The extent of the advantages increases further when the acquirer is a foreign entity, acquiring a local entity to enter into the local markets (Carr, 2004). For example, as Royal Bank of (Scotland RBS) took over ABN AMRO, it instantaneously got access to the countries where it had no existence earlier. Foreign Direct Investment (FDI) takes place when a business having no existence in a certain region or country decides to enter into the local market for purpose of expanding its operations and taking advantage of an existing opportunity. For the industry in which eBay operates, the two most viable options for expanding are either acquisition or FDI. However, on majority of the occasions, eBay has seemed to preferred acquisition over FDI. The following section discusses the pros and cons of this selection and preference in detail. eBay's Policy: Acquisition Vs FDI eBay while expanding globally has chosen the option of acquisition rather than any other mode of expanding. There have been several critiques on the issue because with the likes of funding available at eBay, the firm could have easily gone in with any mode of expansion. The aim of essay is to critically analyze the pros and cons of acquisition vs. FDI. Following are the main advantages for eBay to choose acquisition over FDI as its preferred strategy to enter into the markets (David, 2002): 1) Existing Infrastructure: The major advantage of an acquisition for eBay is the ability to leverage the existing infrastructure of the business that is locally acquired. 2) Buying Out the Copy-cats and Reach-ers: The noticeable point in the eBay acquisitions is the fact that their major stress has been to acquire either those businesses that are copy-cats of eBay or the ones that have a higher reach. The former is a clear indication that eBay will not stand any competitor who is copying their hard-work, and the later denotes their aim to stand out amongst the competitors as being the number one, as seemingly, they are acquiring the hot-shots competitors. 3) Eliminating Major Competition: In view of the global expansion by eBay, the major reasoning behind each acquisition seems the elimination of the leading competitor in the local industry. This is a major advantage in itself i.e. eBay, through the acquisition of the leading competitor becomes the market leader in terms of market share and enjoys its position at that level. 4) Easy Adaptation to the Culture: eBay has always followed the philosophy of g-localization i.e. think local, act global, and customizing their work to the local environment where they exist. Acquisitions enable eBay to acquire local entities that are readily recognized by the locals as their own firms. Such an acquisition allows eBay to reinforce their mission of internationalization. 5) Acceptability in the Market: Acquisition of a local player means that eBay would be eyeing the market share of the respective firm, and being in existence, the business would have acceptability in the local markets. Thus, eBay would not just be acquiring infrastructure but also the acceptability that the business has in the local market. 6) Existing Customer-base: Extending on the point of market acceptability, eBay would also be encashing on the fact that the local business would have an existing clientele, thus the then marketing activities of eBay would be focused at building on the market share rather than starting from scratch. 7) Off-the-shelve/vanilla Take Over: Acquisitions in an industry such as the one in which eBay operates is a simple scenario, as the core functionality is the same, and with some cosmetic changes, the name of the business changes from XYZ Auction, for example, to eBay. After the discussion of the advantages, it is essential to discuss the disadvantages that eBay has incurred by selecting acquisition as its strategy over FDI (Freeman, 1984): 1) Inability to Leverage eBay Equity: Despite all the advantages of acquisition, the advantage of FDI remains at its place i.e. through FDI, eBay would have taken advantage of its existing equity and global brand name, and given a tough competition to the local competitors. Thus, proving its strong profile in the industry. With the availability of all the funding and necessary resources that eBay has, it could have entered any market in a big way and wiped out the competition. 2) Impact on the Nation: FDI not just increases the market value of the firm in terms of its size and appetite, but at the same time it also makes an impact on the nation on the whole, creating more jobs and other economic impacts assists businesses in getting advantage from the country and reduce its operating costs. 3) Show the G-Local feel: The g-localization strategy, which is the essence of the internationalization strategy of eBay, would have been much vastly exposed to the ordinary men had the firm gone for a green-field project and starting from scratch. 4) Organizational Issues: The internal organizational issues are one major factor due to which acquisitions are avoided on a general note, particularly when a new firm plans to enter into a local arena. These issues can vary from operating environment to the employees' issues with the management, etc. 5) Retaliation of Existing Customer-base: Retaliation of the existing customer base is a common issue in acquisition scenarios, whereby the newly formed organization i.e. the acquirer faces the issue of acceptability from the customers. The term 'customers' here not only implies the external but also the internal customers, i.e. the customers and the employees in the conventional terms. So the existing customer-base may not feel much comfortable working under the new acquirer and the credibility of the firm may move a little till the international acquirer (as eBay in this case) settles its operations in the region. Conclusion All the mechanisms for expanding in the international arena have their respective pros and cons, and it really depends on the sort of scenario that would push the company into buying one mechanism or the other, and the weight-age of various factors and cost-to-benefit analyses would assist in reaching the conclusion i.e. the optimal mechanism for internationalization. Thus, no mechanism is good or bad in one go. There are several examples in this history where each of these mechanisms has been highly successful and otherwise as well (Gooderham, 1998). As mentioned earlier, based on the nature of the industry in which eBay operates, it has two recommended mechanisms for expanding its operations i.e. acquisition and FDI. eBay has rightly used a combination of either of the two approaches, whichever became the right fit for the case under consideration. Therefore, there are examples where eBay has preferred one over the other, and this case-to-case approach has made its internationalization a success. Critically evaluate eBay's playbook strategy. Businesses today prefer having their localized versions of bible that enables the spread of organizational values and core elements of their business model (Haberberg, 2001). Such a 'book' enables having in-writing the answers to the following and many more unlimited questions that guide the attitude of the people and the organization on the whole (Baker, 1992): What the organization has to do The organizational goal How is the goal to be perceived, viewed, and pursued Mission, vision, core values How are services to be rendered and customers to be entertained Standard operating procedures How the customers are to be attracted Marketing How the customers are to be retained Services Apart from these conventional questions, a good business-bible would always contain best practices and would be appended as the business gains experience during the course of its life of existence. eBay being the pioneer of the kind of business that it operates in, should have pre-defined 'bible' of its own in the first place, with modifications moving in as dynamicity of the business moves on. In a nutshell, there should be a basic form that should exist, and then cascade as business grows and experience adds in (Kjellberg, 2001). At eBay, a similar 'book' is used - a playbook that is a 'how-to manual'. This manual covers a wide variety and array of topics and their details, such as online marketing, category management, and community outreach. These variables are essential to be defined, well-defined and re-defined (updated) on a regular basis to ensure that the organization wide global practices are based on the same fundamentals, and of course beyond the fundamentals, they are localized to ensure the presence of the local touch to the business. It consists of several hundreds of pages that are the crux of the intelligence and best practices prevailing across the eBay site and amongst its managers and other staff (Lajoux, 2000). In its truest sense, this book is the bible for eBay, whereby it presents the idea of how attraction can be created for people to come to eBay sites (Lajoux, 1999). It presents the cost-cutting mechanisms on how low cost advertising can be done, and yet attraction be created for individuals through means such as products, information and chat groups should be created by the buyers and sellers of the respective country. Just like a guide, it presents the inside out on how the operations are to take place and the proposed improvements in the global arena. The most acknowledgeable fact about this book is that it contains the best practices shared by employees and managers across the world. Another fact to appreciate is that this book is rather flexible in nature and contains room not just for addition but for modifications as well. This is what makes and keeps employees and managers happy and satisfied all the time as they know that their sharing of knowledge doesn't go waste and is appreciated and acknowledged by its further sharing. In this manner, there is a non-monetary reward of appreciation spread across the board amongst all participants. Not just beneficial for keeping the employees motivated, happy, and satisfied, but the book is also important for keep the organization well on track, as the set of practices prevailing in one part of the world keeping eBay the best there can be applied to another region where the business may not be doing that well, and this idea could change the situation in such a scenario (Hindery, 2003). When referred to the concept of retail marketing, it is essential to understand that retail marketing is a matter of personal skill-set and how those skill-set are used by a person to most the most of them. Skills as a matter of argument, are not just the ones borne since the time of birth but may also be developed over a period of time. Thus, skill development programs prevailing all over, on a general note, intend to achieve the same. Skills once developed need nurturing, polishing, and refinement, and this only comes when skills are shared with and taught to other individuals, and their opinions get the refinement. This phenomenon is not just valid for skills but for any other process i.e. discussions and feedbacks refine them to an extent and a form which can be very much different than the original one (Carr, 2004). Keeping this argument and fact of the matter in mind, the importance of the how-to-manual at eBay gains further importance to the organization on the whole. Apart from this argument, another point of capitalization is the statement in the case that this book "summarizes the collective wisdom of all eBay's worldwide managers". With the employee turnover being a major issue for human resource individuals today, it has become increasingly important for organizations to develop such collections of wisdom so that the loss of an employee does not lead to a major loss and a re-start from scratch for the person taking over, but should be an effort to build on from where the previous individual left. As mentioned about the need of the business-bible, conclusively, it exists at eBay, and the norms under which it exists are considerable acknowledgeable and appreciable, as it is no hard rule of thumb kind of a book but it is very much flexible and adaptive, just as the nature of business environment and dynamicity prevails. The how-to manual is not just a complete guide for the eBay business but also consists of the experiences and wisdom of its managers managing the eBay business across the globe. It is a certain belief that this wisdom and indulgence of experience is what is driving this book, and is the major constituent of the same. References 1. Baker, M. (1992) Marketing Strategy and Management, London: Macmillan. 2. Carr A., Durant R., Downs A. (2004) Emergent strategy development, abduction, and pragmatism: New lessons for corporations. Human Systems Management, [online] 23 (2) Available from: 3. Davis, Steven I. (2000) Bank mergers: lessons for the future. New York, N.Y: St. Martin's Press 4. David F.R. (2002). Strategic Management Concepts & Case. 9th ed New Jersey: Pearson Education, Inc. 5. Freeman, R. (1984) Strategic Management: A Stakeholder Approach, Boston: Pitman. 6. Gooderham, G. (1998), Debunking the myths of strategic planning, CMA Magazine, No.May, pp.22-6. 7. Haberberg, A. and Rieple, A. (2001) The Strategic Management of Organizations, Essex: Pearson Education Limited. 8. Hindery, Leo and Cauley, Leslie. 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