Strategic Management - Ebay: Expanding

Strategic Management - eBay: Expanding into Asia How has eBay expanded abroad? What strategies has it used in its international expansion? eBay has relied on a variety of strategies for global expansion, each having a varying level of success over time. One of the most successfully has been an equity investment in MercadoLibre.com, which significantly opened up the South American market and continues to generate profitable growth today. The strategy in Germany was very similar to South America, with eBay acquiring Alando auction house.

This strategy continued through the Netherlands with the acquisition of Marketplaats.nl and the acquisition of Tradera.com for expansion into the Swedish market. The strategy in China was the same as Europe, yet eBay failed in this nation as it faced an entrenched competitor, Taobao, which had 70% of the auction and online selling in China by the time eBay arrived in this nation.

eBay struggled against Taobao because of the high level of preference Chinese consumers had for this e-commerce and auction site that had already become a favorite with many Internet users. eBay's ability to grow quickly and most successfully in cultures most comparable to western nations, and the use of equity investments to gain access to markets dissimilar to theirs is one of the critical success factors in their global growth.

This is common with corporations who have created business models that do exceptionally well in westernized nations yet don't scale well globally, Wal-Mart being a case in point. The challenges to eBay are even more significant however, as gaining and keeping the trust of consumers is crucial to their long-term growth. The community aspect of their business model needs to be in precise alignment with the expectations, perceptions and needs of consumers in each global market of interest.

Where eBay has succeeded, they have used equity investment and joint ventures to attain a level of community trust. Where they have failed, their trust levels have been low and the task very challenging of growing their markets in foreign countries. There is much more to the failure of eBay in Asia, and that analysis is explained in the next question. 2.

Why is eBay having difficulty expanding in Asia? What should eBay do? The foundation of the eBay business model is the combination of unique and differentiation products offered by a community of users who trust each other and share a common perception of fair pricing and value. The success or failure of e-commerce across national and cultural boundaries is most influenced by the apparent and earned trust between community participants where risk is assumed to be evenly distributed between buyer, selling and intermediary (McCole, Ramsey, Williams, 2010).

This is one of the systemic problems eBay is having expanding into China specifically and Asia overall. Due to the lack of trust in eBay there is a lack of community being built around its brand and platform. This significantly slows down both individuals and businesses willing to put their products up for sale on the site or purchase from it as well. In conjunction with these factors, the difference in time perception and the lack of congruency between the U.S.

And China specifically on cultural factors have made expansion into these nations problematic. For eBay to be successful, they must execute at a nearly perfect level across the nations they choose to enter. Their strategy is strongly transnational, as each community of buyers and sellers requires a high level of adaptation to their specific needs, and very low costs to participate in the eBay auction exchange-based transactions. eBay has taken steps in the right direction but not nearly with enough focus to make their transnational strategies succeed.

Figure 1, taken from our course materials, illustrates the breakout of costs vs. adaption of strategies. For eBay their challenge is being in the upper right quadrant of this analytical framework, with high pressure to reduce transaction costs while at the same time needing to adapt their selling and buying community to unique country needs. This is the most challenging quadrant to expand a global business in.

Figure 1: Comparison of Global Expansion Strategies To eBay's credit they have been most successful in overcoming cultural differences between nations when they make equity investments and allow the foreign-based partner to manage day-to-day operations. This is because the foreign-based partners have established greater trust and have over time earned reputations for excellent performance.

The case study paints an overly optimistic view of trust between buyer and seller when in fact this is the most difficult leap of faith for many to make when purchasing something online, as is seen in many of the studies completed on online auctions (McCole, Ramsey, Williams, 2010). For eBay the issue isn't the lack of business sense, it is the lack of trust in the online community it has created and is attempting to scale into different global markets.

This lack of trust is also predicated on the major differences between westernized cultures and Asia. These differences contribute to the lack of trust surrounding eBay's acquisitions and strategies to move into new markets. eBay lacks the grass-roots support of consumers in these Asian markets and as a result, their business model is struggling. No amount of advertising or efforts to promote using westernized approaches will matter; instead, the company needs to recognize and.