This paper analyzes the market entry challenges faced by two major American companies — eBay and Starbucks — as they expanded into Asian markets. Using eBay's experiences in China, South Korea, and Southeast Asia as a primary case study, the paper explores how local competition, pricing pressures, and cultural differences eroded eBay's early market leadership. It then examines Starbucks' growth strategy in China, including its coffee farm development in Yunnan province and its reliance on Asian expansion to offset losses during the global financial crisis. Together, these cases illustrate the complex barriers Western corporations encounter when entering and sustaining operations in Asia's diverse consumer markets.
This study guide is drawn from PaperDue's library of 130,000+ paper examples across 47 subjects.
In the era of globalization, economic agents in the more developed Western regions have turned their attention to the opportunities created by Asia. Numerous companies have outsourced operations to countries in Asia and have benefited from the region's cost-effective and disciplined workforce.
Beyond outsourcing, Asia is increasingly perceived as a new source of revenue due to its enormous consumer market. Economic agents from across the world have launched operations in Asian countries, hoping to register gains by serving this large and growing marketplace.
While the prospect of targeting Asian consumers seems tempting in theory, its actual implementation is difficult to achieve. The reason lies in the numerous differences between Western and Asian markets and industries. In other words, economic agents face major barriers when penetrating the Asian market. The cases of eBay and Starbucks illustrate these challenges clearly.
Online retailer eBay entered the Asian market through several countries, including Japan, China, and Korea. In each region, it faced specific challenges. In China, for instance, eBay had initially managed to position itself as the leader of the online retailing community, but was eventually overtaken by TaoBao (Alibaba.com). The key barrier was competition: eBay charged fees for item listings, whereas its competitor did not (Mangalindan, 2006).
A similar situation was encountered in Korea. Upon entering the country, eBay was the undisputed leader of the industry. Gradually, however, it was overcome by Gmarket, which offered customers better deals:
"For one thing, it places less emphasis on an open-auction format than eBay does. The company offers goods at fixed prices, with an option to negotiate with a seller on an exclusive basis. This allows buyers to conclude deals instantly instead of making them wait until all bids are completed in open auctions" (Ihiwan, 2006).
Despite these setbacks, eBay continued to operate in China, which possesses the largest consumer market in the world. The company remained confident that it could capitalize on it. At the time, China represented eBay's second-largest source of revenues, after the United States. The organization strove to consolidate its position in both markets, but the most severe challenge in each was competition.
In China, the most notable barrier was the emergence of local online retailers capable of providing more cost-effective services. eBay attempted to address this by lowering its fees, but even after doing so, its prices remained higher than those of competing vendors. Furthermore, this strategic decision contributed to a loss of overall profitability, investor confidence, and the value of eBay's stock (Mangalindan, 2006).
One effort made by eBay to consolidate its position within the Asian market involved the development of partnerships with local agencies, in order to promote events or auctions and thereby access increased market share:
"These include a tie-up with the recently held Singapore Fashion Week, where it created a microsite offering eBay's 240 million members worldwide a window into Singapore fashion, and a partnership with Singapore operator Ml to make the online marketplace easily accessible on mobile phones. […] Other partnerships in the region include a co-branded site between eBay and Thailand's online portal Sanook, to enable individuals and businesses to participate in local and cross-border trade through eBay's global websites" (Chan).
A key purpose of these partnerships was to enhance eBay's adaptability within Asian markets and improve its competitive position. As part of its broader adaptation strategy, eBay also introduced customer-specific products and promotions:
"To better compete, eBay recently introduced a fashion-oriented Korean site called 'Club Sancy' that it hopes will appeal to younger female shoppers. It increased the placement of its listings in shopping-comparison sites, allowed them to be posted on personal blogs, and cut its own commissions on sellers" (Ihlwan and Hof, 2006).
A third strategic effort involved diversification — not of its operations or services, but of the markets it served. Traditionally focused on China as a primary growth market, eBay redirected its attention to other countries as well. The online auction company began launching and expanding operations in Japan, South Korea, Singapore, Malaysia, Thailand, and the Philippines (Chan). Through this broader expansion across Asian countries, eBay aimed to reduce its dependency on China-generated revenues and to build a more stable presence across the Asian continent.
Starbucks is one of the largest American corporations, with stores throughout the entire globe. Its global expansion strategy centers on physical growth through the continuous opening of new stores worldwide.
In recent years, the company has placed increasing emphasis on its expansion in China. The Starbucks management team recognized the potential of the Chinese marketplace and prioritized opening more stores there. Beyond retail locations, the team also explored the establishment of coffee plantations in the country. Such a strategy would reduce costs associated with importing coffee beans and was also viewed favorably because it was supported by the Chinese government and would create new employment opportunities for the local population, thereby enhancing Starbucks' reputation in China.
"China will be the biggest growth market for the largest coffee supplier within the next two years. Starbucks has even started to develop its own coffee farm in southwestern China to maintain the supply of coffee beans and help manage costs. Starbucks said it would hire coffee growers in the province of Yunnan to grow Arabica seeds during the next year. Schultz hopes the quality and quantity of the Yunnan-grown coffee would meet the standards to be sold in China and around the world. He also sees this farm as an opportunity to produce a single-origin coffee that would eliminate the need to blend it with beans from elsewhere. Moreover, the Yunnan provincial government is planning to invest 3 billion yuan to increase coffee production to 200,000 tons over the next ten years" (Business Today).
All in all, Starbucks considered a wide array of factors in its China expansion, including logistics, coffee bean production, and government relations. Most importantly, this commitment to expansion in China was significant from a crisis-management perspective: as the global economy faced severe threats from the financial crisis, Starbucks saw its Chinese growth as a means of offsetting broader economic pressures and sustaining overall growth.
While in China Starbucks was focused on expansion, the situation was more dramatic in the United States, where the company faced greater pressure from the economic crisis and resorted to downsizing as a means of cost restructuring. Howard Schultz, chief executive officer at Starbucks, announced that the company would close 600 of its stores in the U.S. and downsize an estimated 12,000 employees — figures representing the largest downsizing in the corporate history of Starbucks (Waite, 2011).
The corporate decision to reduce staff generated a chain reaction among American stakeholders, and the impacts were also felt in China. There, the corporation's image and reputation suffered as stakeholders lost confidence in the company. Specifically, they feared for its stability and its subsequent ability to preserve jobs in China.
Chan, S., eBay has its eye on Southeast Asia, Bloomberg Businessweek.
Ihiwan, M., Hof, R., 2006, Out-eBaying eBay in Korea, Information Technology.
Ihiwan, M., 2006, Gmarket eclipses eBay in Asia, Bloomberg.
"U.S. downsizing damages Starbucks' image in China"
Always verify citation format against your institution’s current style guide requirements.