2 International Human Resource Management
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ebay.docxE-Bay in China
In March 1998, Meg Whitman was recruited to become the CEO of eBay—three years after the e-business firm had been founded by the French entrepreneur Pierre Omidyar. At the time, eBay had only 50 employees and US $4.7 million in revenues, and operated only in the United States. When she stepped down as CEO of the California-based firm 10 years later, eBay was present in close to 40 countries and had more than 15,000 employees, approximately 100 million active users, and about $8 billion in annual revenue. By any standards, eBay is a highly successful multinational corporation. However, in spite of its market dominance in many countries around the world, it has been struggling to grow in some key markets in Asia.
eBay’s entry point to Asia was Japan in 2000. Its business model for Japan, as for all the other international markets it had previously entered successfully, was essentially the same as for the US (for example, the user fee structure and no media advertising). Its local Web site was also similar to the company’s US version, with no special features to attract and serve local users. However, eBay was not the first mover in the Japanese market. Its US competitor Yahoo! had already formed a joint venture with the Japanese Internet company Softbank and invested heavily in an aggressive advertising campaign to promote its services.3 By the time eBay went online, following the lengthy process of building its 100 percent owned company from scratch, Yahoo! had already built a loyal customer base that eBay was not able to seduce away. Two years after its entry to Japan, eBay pulled out.
As the company looked at other opportunities in Asia, eBay’s management was determined to learn from its failure in Japan. Rather then starting from zero, eBay entered Taiwan, Korea, and India through partnerships and partial acquisitions of local firms. This was the strategy chosen in potentially the biggest market opportunity of all: China. In March 2002, eBay bought a 33 percent stake in EachNet, China’s first and largest online consumer-to-consumer (C2C) trading site. The CEO of EachNet, Shao Yibo, was a native of Shanghai who had graduated from Harvard, worked at Boston Consulting Group, and developed EachNet with eBay as his model. One year later, eBay bought the rest of EachNet. Within a short time, eBay/EachNet had become the clear market leader for C2C business in China, with a dominant 85 percent market share.
However, local competition began to push back very quickly. The biggest challenge came from a start-up formed by Chinese Internet entrepreneur Jack Ma. Ma already had a highly successful business-to-business auction site called Alibaba (in which Softbank from Japan and later Yahoo! were major investors). Ma was concerned that eBay/EachNet would establish a beachhead from which to attack his very profitable B2B activities. So in 2003 Ma set up his own e-commerce company Taobao (“hunt for treasure”) as a direct competitor to eBay.
In China as elsewhere, eBay added fees based on the value of a deal to the listing fees that EachNet charged. Taobao did not charge any such fees, and Ma promised that his company would not do so for at least three years.5 While eBay’s Chinese site had a layout and features similar to those in the rest of the world, Taobao presented a site full of popular local and cultural features (such as horoscopes). Critically, Taobao developed a new payment system linked to physical delivery of the goods, as Chinese customers did not fully trust the credit card–based systems like PayPal that eBay was using. Taobao—unlike eBay—also allowed the seller and buyer to interact directly. This was a clever way of dealing with issues of trust in a society where there is very limited trust between people who do not know each other personally. Finally, to build customer confidence, Taobao decided to provide customer service support by telephone—again, not something supplied by eBay.
The challenges of integrating EachNet and eBay further aggravated the latter’s problems of establishing the company in China. Many members of the original EachNet team felt that they had been sidelined after the acquisition, when eBay managers from places like Germany and Taiwan were brought in to help with the integration. EachNet senior executives, including Shao Yibo, rapidly left the company. In order to achieve economies of scale, eBay moved EachNet’s Internet platform to its US–based global server, as it had done systematically when integrating other foreign units. In the process, several locally developed design features were removed. Once the site was on the global platform, requests to localize the content of the Chinese site had to be approved from the US. Local employees felt that headquarters “did not listen to them.”
