Strategy in China:
Alliance or Acquisition
By:
Bill Focht
Lori Fox

History of eBay in
China
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1995 established C2C & B2C online/virtual marketplace in U.S.
2002 entered China purchasing 33% of EachNet for about $30M
2003 eBay acquired the remaining shares for about $150M re-branding as eBay EachNet
Competitor TaoBao was founded in 2003
2005 eBay acquires Skype expanding into online communications sector
2005 Alibaba forms partnership with Yahoo resulting in TaoBao becoming wholly owned subsidiary of Alibaba
2006 eBay announces joint venture with TOM Online

Problem Statement
In 2006, eBay was in the midst of merging with a
Chinese based company, TOM Online, and were faced with deciding which strategy would be better to increase revenue growth in China: leveraging a merger with TOM online or considering alternatives such as investing in its current product and services offerings to reposition the brand.

Strengths
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Strong brand image

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14% market share in global e-commerce

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Unlimited transaction capacity

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Successful international presence - 221.6M registered users

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Unique user feedback system

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No inventory costs

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Development and ownership of PayPal

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Embedded cross-selling opportunities

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Reputation for non-counterfeit products

Weaknesses
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Perception of poor customer service

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Lack of buyer and seller interaction prior to sale

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Bidding process unfamiliar in Chinese culture

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Lack of “trust” as non-local company with short history

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Centralized decision-making and lack of local insight

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Web-site “too empty” for Chinese taste

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Reputation for non-counterfeit products

Opportunities
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China economy growing in leaps

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Chinese internet users ballooned to greater than 200M

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Number of online shoppers at 55M and growing rapidly

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Transaction value of C2C ecommerce market in China 23.1B and growing

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Lack of “trust” as non-local company with short history

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Chinese governmental regulations are reducing

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Opportunity for merger with TOM Online

Threats
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Fierce competition from local rivals

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Competitive pricing strategies

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Need for more capital investment

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Third company philosophy and management team would