Abstract
This report will identify the issues that eBay had to face when they encounter China market. The author will point out the main reasons which made eBay failed. Finally, the author will give recommendations in order to help eBay go through the difficulties when they entering China.
I. Introduction
eBay Inc. is an American multinational e-commerce company with headquarters in San Jose, California (eBay, 2019). eBay Inc. also owns another famous brand, Paypal – one of eBay’s main payments. By early 2008, eBay expanded worldwide and succeeded in many countries with millions of users. The company is an online auction and sales website where buyers and sellers can buy and sell their goods around the world. eBay has revolutionized the marketplace, bringing together buyers and sellers across the globe into a huge marketplace where the auction never ends. Millions of tools, equipment, computers, furniture, and millions of other items are posted, purchased, and sold every day. EBay's revenue comes from many aspects. The first is the auction posting fee collected of the seller whether or not the product is sold. EBay then charges a fee when the product is successfully traded, plus a number of additional fees. In addition, eBay benefits from the Paypal payment system whenever a payment is made through the service. In 2002, eBay acquires EachNet, the leading trading company in China, in cash for approximately $ 180 million. Then eBay entered in China through EachNet with the hope that they will success as they did in other countries. However, eBay had to withdraw from China after operating in this market for a few years. What are the main reasons for this failure? This report will highlight the problems then give some recommendations.
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II. Main Body
2.1 Lack of cultural understanding
China is a big market and requires a lot of patience. It is also a big and fierce market with loads of competitors. In order to have a chance in China, American companies must empower their affiliates so they can be responsive, autonomous, localize their businesses, and ready to fight. However, because of subjectivity, eBay has adopted their global strategy in the Chinese market and eBay has failed despite their support from EachNet. Chinese users want to talk to sellers, develop relationships, and bargain - similar to the direct shopping experience. eBay did not meet this need. Probably because they want their products to be consistent with products in the US. Soon realizing the danger, Alibaba's founder Jack Ma created a direct competitor to eBay in China, using market understanding to compete with eBay's international standard model. Alibaba, meanwhile, understands the minds of Chinese consumers and offers the ability to talk on its e-commerce website Taobao. Unlike eBay, Taobao is not a place for customers to compete to bid for a desired product, Taobao is a place where countless sellers can compete with each other with countless products with different service levels. As for Taobao, because Jack Ma deliberately built a free 'online market,' they were completely indifferent if their customers interacted with each other or used any kind of purchase method. In fact, Taobao also allows buyers and sellers to call each other, get acquainted, and even meet face-to-face to complete large orders. In addition, Taobao knows that customers tend to use their phones rather than the internet. Therefore, Taobao provided a free voicemail and messaging service between sellers and customers. This is a huge plus for Taobao when expressing its interest in customers. Although there is a competitor who understands the 'home field', eBay is confident that its successful model in the world will surely continue to succeed in China. eBay sellers will be charged a fee for every purchase. Customers who want to use eBay must constantly pay many large and small fees, from account registration fees to the sale of products, transaction fees... After Taobao received a lot of investment, eBay still did not believe the Taobao model was a real competitor. Part of its that confidence comes from a nearly 70% market share in the first year eBay appears in China (compared to 7% of Taobao). Taobao is still 100% free of charge, causing a series of sellers to come here to sell products because it does not cost a penny. Step by step, Taobao has become a 'everything' paradise in China, and that strength gradually leads to customers wishing to search and shop. Another advantage of Taobao is that they replace PayPal with AliPay and link with most domestic banks in the country to help customers with more payment options. Meanwhile, eBay's main payment methods are PayPal, credit cards, debit cards, and checks. Small businesses do not use credit cards and debit cards, and for PayPal, they will have to pay a fee, so eBay customers and businesses have many difficulties and inconveniences to make purchase and sale transactions.
Another mistake of eBay was that eBay did not consider local talent for key positions, instead, eBay paid a huge sum of money to senior managers from Germany, Korea, and Taiwan. Loan and the US, who do not even know a Chinese word in half and do not have the full knowledge and experience of the Chinese market, will operate a market halfway around the world. On the other hand, Taobao is managed and run by Chinese managers and employees who understand the Chinese market best and the needs of their customers. One of the factors that helped Taobao score with customers is its name. Taobao - which means 'Digging for treasures' in Mandarin language - employs local manpower and focuses on the characteristics of Chinese culture. The company's operators also use virtual names to simulate the characters of popular Chinese martial arts novels. EBay has spent a considerable amount of more than 100 million US dollars to sign exclusive contracts with the three largest Chinese portals Sina, Soho and Netease with the purpose of banning Taobao ads on these sites. EBay is also heavily advertised in China, from train platforms, subway stations to buses. Recognizing the needs of small and medium-sized businesses that tend to watch TV rather than access the internet, Jack Ma ran Taobao ads on all TV channels across the country.
EBay also forced EachNet to transfer the interface that was so familiar to customers to become a Chinese copy of eBay USA. Not only did it cause a lot of frustration, a significant amount of customer data could not be synchronized, causing them to decide to create new for free at Taobao, instead of re-providing the information they have filled and must Additional new charges on eBay. Another mistaken decision was to install EachNet servers in the US. The image loading speed is slow and the 'overload' error appears often, causing many customers to lose patience. Slow and unstable services make users frustrated and they will be left eBay EachNet. Not only that, the eBay server is always maintained at midnight on Thursday in the US time frame, but it is ... 9 am in China, making this website often 'shut down' in the middle of the day. After moving, the Chinese eBay EachNet team lost much of its control over the page and could not make changes to existing characters or release any new characters. At that time, Taobao became a better alternative to eBay with a friendly interface, easy access, faster access speed, and completely free of charge.
Within 2 years, Taobao quickly took over eBay. By the end of 2005, eBay stopped charging users, but they could not regain the market share. And as of 2007, just 4 years after its launch, Taobao has completely outstripped eBay with more than 83% market share (compared to just 7% of eBay). Shortly thereafter, eBay decided to withdraw from China after investing nearly $ 300 million in Chinese operations.
III. Conclusion
Overall, China is a different and new market compared to other markets around the world. eBay needs to learn more about the business environment, the rules, the culture before entering the Chinese market. Not only that but also the reference to experience of American companies that have been operating in China before is also a very important factor that helps eBay know what to avoid when it wants to enter the Chinese market. In addition, eBay should not be too confident in its global success format to succeed in China because China is unlike any other market. In addition, eBay should be more open to choose management for foreign branches, eBay should choose local managers because it is they who understand everything about the market.
IV. Recommendations
According to Andrew H. – managing director of ChinaSolved (Susie, 2014), the most important step for succeeding in China is planning and researching into small print of distribution and employment contract. To be able to do that, eBay needs to investigate the Chinese market carefully from the top to the roots including regulations, rules, environments, customers, how to do business and define its market niche (Helen, H.W., 2012). The next step is to adapt and change reasonably according to the environment and to be able to attract potential customers. After entering China, eBay needs to keep up with latest news about local and government and changes in daily life.
V. Reference
- Helen, H.W., (2017) How EBay Failed in China. Forbes. [Online] Available at https://www.forbes.com/sites/china/2010/09/12/how-ebay-failed-in-china/ [Accessed 15 Sep 2019]
- Susie, G., (2014) What it takes to succeed in China. BBC Worklife. [Online] Available at https://www.bbc.com/worklife/article/20140204-succeeding-in-china [Accessed 15 Sep 2019]
- eBay (2019) Our History. [Online] Available at https://www.ebayinc.com/company/our-history/#timeline-year-2019 [Accessed 14 Sep 2019]
- Helen, H.W., (2012) The Secret of Succeeding in China. Forbes. [Online] Available at https://www.forbes.com/sites/helenwang/2012/09/28/the-secret-of-succeeding-in-china/#47c635be2bfd [Accessed 17 Sep 2019]
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