Why eBay Lost $180m in China, and What You Can Do to Avoid the Same Fate

In 2002, eBay Inc. injected US$180 million to purchase 100% ownership of Eachnet.com, then the leading eCommerce platform in China, capturing some 80% of the market.

Within 3 years however, this leading market share had shrunken to just 36%, no thanks to an upstart, Taobao.com, which had entered the market in 2002.

While some observers will be quick to point out that Taobao.com used some “below the belt” tactics, eBay on its part failed to make the following observations:

Unlike elsewhere, eBay (or Eachnet before that) was utilised not so much as a Consumer-to-Consumer (C2C) platform where individuals auction off their used items. Rather, eBay is a Business-to-Consumer) B2C platform where small businesses make their living selling low-priced products to consumers. As such, both sellers and buyers prefer to deal with fixed prices, rather than auctioning;

Due to banking controls in China, most buyers prefer to pay upon receipt of products, rather than making online payments. This in turn reduces eBay’s and its payment gateway subsidiary, Paypal’s, operating income.

While eBay charges standardized fees for sellers globally, it is unwilling to waive such fees to Chinese sellers, as it believes “free is not a business model”. However, eBay’s competitor Taobao.com is using its “no-fee” policy to demonstrate to sellers that it sincerely wants these users to make money first before charging for the service.

The end result: eBay had to “wrap-up” its China operations by “selling” its stake in Eachnet to Tom.com, an online and wireless service provider owned by Hutchison Whampoa. eBay had to fork out another US$40 million to get a 49% stake in the new Eachnet.com

Tom.com is not faring any better either. It has since been “privatised” (a nicer word for “delisted”) from the Hong Kong Exchange in August 2007, with its share buy-back price at HK$ 1.52 per share. This is lower than its 2000 IPO price of HK$ 1.78.

eBay recently has revived ebay.com.cn, in addition to eachnet.com, with the former focusing a lot more on helping sellers sell to international markets. The thing is, many eBay sellers already had registered international eBay IDs from as early as as 2005 to service international customers. Not 集運推薦 only was the support from eBay lacking then, it even shut down some of these sites when these sellers were found to have multiple IDs. While leveraging its global network is a great business initiative, eBay has since alienated its sellers (and buyers too), and it’s a case of “too little, too late” now.

Interestingly, when Bo Shao, founder of the original Eachnet (the one that captured 80% market share in the first place) offered to make a return to take over the reins in 2006, his offer was turned down, citing resistance from “internal politics”. No, Bo Shao isn’t going to be China’s Steve Jobs, thanks to eBay’s intervention.

Make No Assumptions

Many companies come to China with high hopes of capturing a slice of China’s enormous market opportunities. Some have accurately identified some of China’s flawed business practices, and seek to straighten out things in China.

Unfortunately, transplanting what works at home isn’t the right solution either. Cultural issues aside, as a developing economy that just opened up to the rest of the world 30 years ago, there are many business practices that are just different, if not strange, compared to markets in developed economies. Here are some examples:

A Fortune-500 3rd-Party Logistics (3PL) provider would like to standardise operations for all its China subsidiaries, but to no avail. The subsidiaries report to no one except to “guarantee” the parent company a certain amount of profits each year. Any perceived over-intervention will just make them defect and ally with other 3PL providers.

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