Why eBay lost $ 180m in China, and what you can do to avoid the same fate

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

Within 3 years, however, this market share had shrunk leading to only 36%, not because of an upstart, Taobao.com, which had entered the market in 2002.

While some observers are quick to point out that Taobao.com used some "below the belt" tactics, eBay, for its part has failed to make the following observations:

Unlike elsewhere, eBay (or Eachnet before) was not used as much as Consumer-to-Consumer (C2C), a platform where people auction their used items. Rather, eBay is a business-to-Consumer) B2C platform, where small businesses make a living by selling products at low prices for consumers. As such, both sellers and buyers prefer to deal with fixed prices, rather than the auction;

Because of banking laws in China, most buyers prefer to pay on receipt of products, rather than making payments online. This in turn reduces to eBay and its subsidiary, payment gateway, Paypal, operating income.

While the standard commission eBay charges sellers for a global, not willing to waive those rights with the Chinese vendors, because he believes "free is not a business model." However, Taobao.com competitor to eBay is using its policy of "no-fee" to demonstrate to vendors who sincerely wants these people to make money before charging for the service.

The end result: eBay has had to "wrap up" its activities in China to "sell" its interest in Eachnet in Tom.com, a provider of online services and wireless owned by Hutchison Whampoa. eBay has had to fork out another 40 million dollars to get a 49% stake in the new Eachnet.com

Tom.com is not doing better than both. Since then it has been "privatized" (a better word for "delisting") by the Exchange of Hong Kong in August 2007, with its share buy-back price to HK $ 1.52 per share. This is lower than the IPO price of HK $ 1.78 in 2000.

eBay has recently taken ebay.com.cn, as well as eachnet.com, with the first focusing more on helping sellers sell to international markets. The fact is that many eBay sellers had already registered international eBay ID as early as in 2005 to serve international customers. Not only lacks the support of eBay then, even closing some of these sites when these vendors were found to have multiple IDs. Leveraging its global network is a major business initiative, since eBay has alienated its sellers and buyers too), and is a case of "too little, too late" now.

Interestingly, when Bo Shao, founder of Eachnet original (the one that has captured 80 shares% of the market in the first place) has offered to make a comeback to take the reins in 2006, his offer was refused, citing the resistance from "internal politics". No, Bo Shao is not China's Steve Jobs, thanks to eBay.

Make no assumptions

Many companies are in China with the hope of capturing a slice of China's huge market opportunity. Some have identified the precise number of defective Chinese trade practices, and try to straighten things in China.

Unfortunately, the transplant what works at home is not the right solution is. Cultural issues aside, as a developing economy that just opened to the outside world 30 years ago, there are many business practices that are simply different, if not strange, compared to markets in developed economies. Here are some examples:

A Fortune-500 3-Party Logistics (3PL) provider would standardize operations for all its branches in China, but to no avail. The branches report to anyone but to "guarantee" the parent company a certain amount of income each year. Any perceived over-intervention will only make them defect and ally with other 3PL providers.

Insurers from Hong Kong and Taiwan are discovering that unlike its financial advisors returned home, their mainland Chinese financial planners are more concerned to make a "quick buck" rather than working hard to understand the needs of customers.

McDonald, global market leader in the fast-food restaurant is in second place compared to the KFC, simply because the Chinese customer to perceive that for the same price, a leg of fried chicken has a higher intrinsic value than a piece of beef minced sandwiched between two pieces of bread.

Singapore-owned retailers tend to have a poor service to their outlets in China, even if their standard of service at home was great. The reason is that were largely pampered with the house of new talent, and are not used in obtaining qualified personnel to provide the same service levels.

Finally, the Singapore government has thought it all sealed the deal when he won the support of Beijing to build the Suzhou-Singapore Industrial Park (SSIP). Unfortunately, without the support of local government, has literally hell in his first 10 years of foundation.

At this point, I understand that many readers would like to have a list of what is in China that is different from what is available to go home. Unfortunately, this will be an endless list, if completed. Thus, the general council of his "Make no assumptions." Corporate arrogance and bigotry had no place here.

In fact, companies are entering China by acquiring local companies. While the due diligence conducted centers around the financial aspects of local business, the future work of due diligence may consider:

Trading practices (especially if there are licenses expiring monopoly, or whether bribery is a common practice)

The corporate culture (especially if managers have an incentive to grow the business or simply "follow the rules")

Social norms (in particular the average turnover of staff in China is only 18 months, depending on where you hire, employees may have social norms that are very different from what you know. Even customers behave differently even there.)

Being actively involved

Some international companies, knowing that China is quite different from what they experienced, has decided to appoint General Chinese, and delegate the responsibility for managing their business in China.

The error here is not about China Board Directors or CEOs. The mistake that many of these companies do is "management by abdication", meaning they are literally hands-off.

It would be unfair (not to mention gross bigotry) to assume that Chinese leaders are dishonest, and that they will steal from the company. And 'equally unfair to assume the Chinese managers are incompetent to do their work.

It is, however, in the interest of the participant to learn as much from doing business in China in the shortest possible time. Unfortunately, no amount of executive development programs can provide adequate preparation for international companies to learn how you can be successful in China. International companies should be actively involved in day to day operations of their business Chinese, and manage from an ivory tower (desk) to go home.

Some areas to be actively involved are:

Following the sales staff to visit customers and get a real feel on what are some of the sales and customer issues that the Chinese subsidiaries face;

Following the production of your people around and find out what happens in the production, procurement and supply chain management. If only source from Chinese factories or wholesalers, visit them and strengthen the relationship.

Know your key staff of China, on a personal level, not to stir in their private affairs, but once again, to strengthen their relationship with you and your company.

While it is important to take nothing when in China, it is equally important to be assertive in case of need. Many Chinese leaders like to use the phrase "But this is China, and this is how we do things here".

Those who use the same phrase several times is at best will not change for the better, and at worst as an excuse to use something more sinister.

When confronted with the "But this is China" tagline, it is important not just jump to your assumptions, but rather use some simple questions such as:

"I shine, because it is so in China?"

"And if we try something different? There are companies that have tried something different and succeeded?"

"We can only groped a different approach, in this case only to test the reaction?"

Even when you are sure that is the best course of action for your business in China, you can remain silent, but be alive to your comments. At worst, you know what are the right steps to take things do not work as expected.

Continuous improvement

Success is a journey not a destination, so they say. The same goes for achieving commercial success in China even if it is' a much rougher ride.

In the case of the Singapore government's venture in China, they then learned the lesson well, and are making tons of profits, in particular through its subsidiary properties, Capitaland. Unfortunately for eBay, because of his reluctance to face his own mistakes, lost opportunities to capture large market potentially bigger and the world's fastest growing e-commerce.

It 's unlikely that any international company can do the right thing at the time of landing in China. The key is just be careful and learn from the mistakes of the first fast.

After all, many companies can not afford to burn $ 180 million, so only the shoulders and say: "We see this as an evolution in China." Not many senior managers to be able to survive .......