Ebay Strategy in China: Alliance or Acquisition

Table of contents

Introduction 3

E-Bay Company 4

The Chinese opportunity 6

The main problem 8

Tom EachNet 11

Benefits 11

Risks 12

Critics 12

Conclusion 14

References 15

Introduction

E-Bay was the first company that made possible to sell products on the internet. Nowadays, internet takes a huge place in business activities and not only for B2C or B2B business but also in C2C. This last point is the main activity of E-Bay.

But this system buyers and sellers never meet, they exchange money for goods and E-Bay doesn't have to be involved in the most important and expensive part of the e-commerce (or e-business) which is shipping the product (this part is the responsibility of the seller).

E-Bay, and in general, all the online auction sites that we have nowadays, are the true embodiment of a 'frictionless marketplace'.

In this case we will see the problematic of E-Bay business expense in China. In fact, this country can't be tackle as the US market for the cultures and the values of the customers. Such system where buyers and sellers never meet and the price only goes up over time was going to have a tough time penetrating the mainstream society.

China know a lot of local competitor on the market as taobao.com and alibaba.com and e-commerce in general rose over 60% from 2004 to 2005, which represents a growth from $43 billion in 2004 to $70 billion in 2005.

So in this paper we will see a presentation of E-Bay and the Chinese market. Then we will focus on the main problem with EachNet acquisition in order to enter on the market. To finish we will present the Tom EachNet joint venture which was a solution of E-Bay in order to increase its market share and we will conclude with some recommendations.

E-Bay Company

E-Bay is a US company offering e-commerce, e-payments and internet communication services globally which was founded in 1995 in California. E-Bay is the world's online market place enabling trade on a local, national and international basis with a diverse and passionate community of individuals and small businesses; E-Bay offers an online platform where millions of items are traded each year. Thanks to E-Bay, sellers have the opportunity to list products to sell on the website while buyers can browse them and bid in those interested them through auctions.

The role of the company is not to make the mediation but just inform the seller and the buyer by e-mail when a bid is exceeding the seller's reserve price. E-Bay is doing is business by charging fees to the seller when they integrate the product at sale, optional fees are also practiced for making goods more visible and in addition, E-Bay takes as well percentage on the sale.

The head office is based in San Jose, in Silicon Valley in California. Meg Whitman is the director. This company employs 13,000 people and had a turnover worth $7.67 billion in 2007 and $8.54 billion in 2008, which represents a benefit of $1.78 billion in a single year.

Also E-Bay becomes an international brand; the company is managed by people with competencies in different part of business as marketing, finance or technology as well but also thanks to a simple and accurate business model where the company takes fees and commissions on transactions done on its platform. The company is developing itself to global market thanks a strategy including acquisitions, alliances and joint-ventures with local partners. In 2006 the international activity of the company represents the same revenue as the US market:

The Chinese opportunity

China represents an attractive place to make business, with an ongoing economic growth, a gradual integration to the global trading community, an increasing place let to internet and mostly an enormous population. Lasts graphics (exhibit 14 and 15 page 31 and 32) of the Capstone Case show that Chinese people have more and more access to internet and to become more and more interested in the e-commerce applications. But the most interesting is the following:

In this graphic we can see the volume in billion of Consumer to Consumer transaction. In fact we can notice the increase of such services. People used more and more platform in order to sell goods or by it to other consumers. Even if internet is used by a small part of the population (4.6% in 2002), it represented in 2002 the same number than in US with 59.1 millions of connected people. In 2006, the penetration rate was 10,6% of the population so 137 millions of people and about 31.5 of them shop online for reaching a turnover of $2,9 billion.

But the problem is the Chinese market is affected by a slow internet speed, a high internet access cost, an imbalanced economic and technological development in some regions, an absence of reliance in credit system for online payments, corruption, currency problems and a miss of legal transparency in making business online.

For this reasons, , E-Bay introduced the Chinese market by taking interests in a local online auctions company called EachNet and by fully entered on it in 2003. EachNet got the same activity as E-Bay and was equipped by a rich business knowledge, a strong domestic and international experience and a well-though strategy. This concept was mainly used by Chinese early adopters because of the trading culture focused on a combat between retailers and customers to get the best deal, the concept looked such as bizarre. The start-up succeeds on it by adapting the business model of E-bay to the Chinese customers such as payments systems, demographics and customer behaviours. For instance, transactions where only made by cash and buyers and sellers could do it face-to face. Due to this success, the company started to deal with competition with companies such as Taobao a subsidiary of Alibaba. The local company Taobao gets today 60% of the market share against 29% for EachNet. If EachNet failed with the Taobao success, it's because of the Taobao service offering trustful platform and has extended its CtoC activity to the BtoC activity as well.

Today, E-Bay is losing market share and need to react; the company's