eBay’s entry into China in 2003 through acquiring Eachnet had most experts believing that its operation in China would be a sure bet. The management team at Eachnet was also dominating the e-commerce sector, having 80% of the market share. Eachnet has vast domestic and international experience and maintained relationships with its clients. Nevertheless, by 2006, eBay injected $300 million into its operations in China and did not have much to justify the effort (Rein, 2007). The company experienced a gradual decline in its market share every year until it went down to a critical 20% in 2006 when it began to lose to Tencent’s, Paipai and Alibaba’s Taobao (Wharton School, 2007). There are various advantage and disadvantages associated with eBay’s chosen modes of diversification in China and the e-commerce industry.
Advantages and Disadvantages of eBay Acquisitions in China
The acquisition approach utilized by eBay upon entry into China had both disadvantages and advantages. Through acquisitions, eBay would have the ability to penetrate the market rapidly and enjoy quick access to the domestic market. Nonetheless, the option of acquisitions had some disadvantages for eBay such as overpaying for acquisitions, incorporating acquired assets, and a higher risk of investment. The company used most of its financial resources dealing with the business environment since the market was in its infant stages and it lacked a proper comprehension of the dynamics of the Chinese market (Ofili, 2016). Moreover, it is likely that eBay used too much of its finances to acquire EachNet basing on the fact that it had a poor understanding and assessment of the market.
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eBay should not have made a complete acquisition of EachNet since the target market at that period was not adequately developed to authorize corporate control (Ofili, 2016). The best way the e-commerce firm would have handled the acquisition would be by obtaining a minority stake in EachNet. As a result, this would have made it possible for the first managers of EachNet to continue with the management of the firm. This is because the managers had a better understanding of the Chinese market.
Advantages and Disadvantages of eBay’s Joint Venture in China
The adoption of joint ventures by eBay with Tom Online after realizing that its previous approach was a failure might have been successful but also had some limitations. With the adoption of joint ventures, eBay would have the capacity to share the risks experienced in collaborating with Tom Online and enjoy accessibility to Tom Online’s experience of the Chinese market, its brand strength among Chinese clients, and its technological capacities. Moreover, eBay would have considerable input over the management and operation of the joint venture (Ofili, 2016).
Nevertheless, this method has its disadvantages since there are always conflicts in joint ventures as time progresses. Additionally, since no one has complete control of the management and operation of the joint venture, it might be an obstacle to each party incorporating some its upheld styles and methods (Ofili, 2016).
Overall, creating a vast and internationally competitive company might demand global expansion. Global expansion puts the firm in a position where it can exploit possible opportunities that might not be there in its original market. Nevertheless, it is essential to observe that global expansion is followed by significant risks and failure in global expansion could have an adverse impact on financial resources. As a result, it is vital that the company decides appropriately in choosing the country/region to expand to, determining if or not to change and alter its offerings and ultimately determining the most suitable entry mode by considering the unusual dynamics of the region’s business environment.
- Ofili, O. U. (2016). Internationalization: Choosing the right entry mode: Lessons from eBay’s strategy in China. European Scientific Journal, 12(1), 202-219. doi:10.19044/esj. 2016.v12n1p202
- Rein, S. (2007). eBay’s Tom Online deal: Timely lessons for global online company managers. Retrieved from https://seekingalpha.com/article/27041-ebays-tom-online-deal-timely-lessons-for-global-online-company-managers
- Wharton School. (2007). EBay’s deal with Tom Online offers some timely lessons for managers of global online companies. Retrieved from http://knowledge.wharton.upenn.edu/article/ebays-deal-with-tom-online-offers-some-timely-lessons-for-managers-of-global-online-companies/
