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Ebay’s Strategy in China: Alliance or Acquisition Essay

In December 2006, eBay Inc., a US company that offered e-commerce, e-payments and internet communication services globally, announced its plan to form a joint venture with China-based online portal and wireless operator, TOM Online, in which eBay would have 49% ownership.1 The move reflected the increasing difficulties foreign internet companies were facing in their attempts to snatch a share of the Chinese market amid fierce competition and a changing market environment.

eBay first set foot in China in 2002 by acquiring 33% interest in EachNet—a domestic online auction company, followed by a full acquisition in 2003.2,3 In 2005, eBay acquired Skype4 to expand into the online communication sector. While Skype was a wholly owned subsidiary of eBay globally, it operated indirectly in China via a joint venture with TOM Online. Due to this existing relationship between the two companies,5 TOM Online seemed to be a natural choice of partner for eBay’s subsequent decision with regards to its online marketplace business. Recognising TOM Online’s local knowledge and political connections, eBay believed that a joint venture would benefit its failing business in China and help the company further develop its Chinese market.6 Some analysts questioned whether political connections alone were the answer and suggested that eBay focus on its product and service offerings.7 1

Vara, V. and Chao, L. (20 December 2006) “EBay’s China retreat highlights a tough market”, Wall Street Journal. eBay (Date Unknown) “eBay and EachNet Team Up in China”, Press Release, http://investor.ebay.com/releasedetail.cfm?ReleaseID=74802 (accessed 27 April 2007). 3

After the full acquisition in 2003, eBay operated under the name of eBay EachNet. 4
Skype is a peer-to-peer software program that allows people to make free calls over the internet to anyone who also subscribes to this service. Skype provided peer-to-peer internet telephony service—ie, instant messaging and online telephone service. In 2005, eBay acquired 49% stake in Skype China, with TOM Online owning the rest. Source: Schwankert, S. (20 December 2006) “EBay to replace Chinese auction site with JV”, ITworld.com, http://www.itworld.com/Tech/2403/061220ebay/ (accessed 27 April 2007). 6

Bradsher, K. (22 December 2006) “With TOM Online, eBay gains Chinese clout”, International Herald Tribute. 7
Rein, S. (24 December 2006) “TOM Online Must Focus on Products: Connections Don’t Ensure Success”, SeekingAlpha, http://china.seekingalpha.com/article/22946 (accessed 20 June 2007). 2

Isabella Chan prepared this case under the supervision of Prof. Zhigang Tao and Dr Jiangyong Lu for class discussion. This case is not intended to show effective or ineffective handling of decision or business processes. This research was partially supported by a grant from the University Grants Committee of the Hong Kong Special Administrative Region, China (Project No. AoE/H-05/99).


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