eBay first entered the Chinese market in 2002 by acquiring a 33% stake in its local counterpart, EachNet, followed by a full acquisition a year later in 2003. Critically assess eBay.s choice of market entry strategy for China (use Key Country Matrix), listing both the advantages and disadvantages of its acquisition strategy (use Drivers (YIP) -CAGE Matrix). 30%
Key Country Matrix
Looking at the structure of “key country matrix”, we notice that this matrix has two axes (the x-axis that shows the “competitive strength” observed in the country that we are studying; the vertical axis represents the “country atractiveness”). For China, we can say that among many others, there is a top 6 of factors that drive investment there (China is an attractive investment country):
1. Capital Availability;
3. Regulatory Environment;
5. Local Chinese Market and Business Climate;
6. Openness to Regional and International Trade.
Analyzing China’s competitive strength, we conclude that this is a country still developing. China has shortages of infrastructures and services in several markets (China’s competitive strength is not that high).
Location of activity is a crucial source of potential advantage and one of the distinguishing features of international strategy relative to other diversification strategies. Given internationalization’s complexity, international strategy should be underpinned by a careful diagnosis of the strengths and direction of trend in particular markets. George Yip’s drivers of globalization’ framework provides a basis for such diagnosis.
1. Culture distance;
2. Administrative and political distance;
3. Geographical distance;
4. Economic distance.
The differences between the US and China are huge when evaluating the “culture distance”, the “administrative and political distance”, the “geographical distance” and the “economic distance”. When a company like eBay assumes intend to expand its business should be aware of these differences and adopt strategies that prevent these differences to interfere in business success.
Vantages/Disadvantages of the acquisition strategy
When a company like eBay assumes intend to expand its business to China should be aware of the differences between both countries and adopt strategies that prevent these differences to interfere in business success. As a disadvantage, we can consider the risk of the company not adapt in a positive way to the new market (there is the possibility of being rejected by the Chinese market). As an advantage, we can consider the possibility of this acquisition became a huge success and the sales can increase abruptly (as the Chinese market is really big, this means that eBay’s profit would be really high after this “movement”).
Assess the potential benefits and risks of eBay.s joint venture with Tom Online (use Global/Local Matrix). 20%
The Global / Local Matrix assesses the volume of international trade and the volume of foreign direct investment in an industry. The industry in which it operates eBay is located in the upper right corner as shown in the figure. It is a global industry which revised the philosophy “Think Globally, Act Globally” and where there are high levels of international trade and foreign direct investment.
In recent years the market for e-commerce in China has recorded tremendous growth. The joint venture on analyzing is based in the relationship between TOM Online and Skype communications company online at eBay Inc. EBay is one of the largest brands of e-commerce in the world and TOM Online is a provider of excellent services to Chinese consumers. Both companies will make financial contributions online, and the new market being built by a joint venture between eBay and TOM Online will provide a great experience for users. This joint venture will promove the connection between users and channels of distribution. Therefore, in our view this joint venture has everything to be a success.
Advantages / Disadvantages of JV international strategy
On one hand, a Joint Venture strategy has several advantages, mostly when it is done on a market like Chinese one, which is very protective with its national firms and little accommodative for foreign companies. TOM online is one of the largest wireless service providers and the fifth-largest internet portal in China, which allows Ebay to penetrate the market faster and easier thanks to its existing brand-awareness among Chinese population, generating for ebay a time saver. TOM online has also a strong political asset by being supported by Li Ka-shing, the biggest holder of the company, who has also strong connexions with hugh-ranking officials both in Chian and Hong Kong. This success on the Chinese market shows that the firm has a great expertise on the specificities of this business area, and decrease the risk for Ebay to make mistake with its strategy.
Also, by making a JV, the financial risks and costs decrease because they are shared between the two firms and a synergy is created between the two sides, increasing the financial power of the firms and allowing them to launch project with shared financial participation. On the other hand, with a JV, the earnings have to be shared, so they are lower. To make this partnership happen, it demand a lot more work and energy than with the other type of partnership. That includes heavy research about the law and the compatibility between the two structures.
This setting of the JV comes with a lot of impact on the management of the new entity. There is risk of disagreement on how the dividends should be shared, disagreement on the managerial model to adopt and on the global strategy. All these problemes can bring to conflict of interest and make the JV losing market shares.
Question 4 :
Strategic recomendation on International Commercial Strategy for E-Bay: “Alliance, Acquisition or Abandon Strategy” : Cf Excel document for QSPM Matrix. Due to this QSPM analysis, we can see that the acquiring method is still more than the expanding method, but from close, thus we know that Ebay is the auction website, so we can council them to continue acquiring the other companies…
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