Formulating Business-Level Strategies
In order to achieve a sustainable competitive advantage, eBay had to assess its ability to contend with other online auctioneers. The question of how to compete in a given business to attain competitive advantage requires an assessment of the types of competitive strategies, including the three generic strategies that are used to overcome the five forces and achieve a competitive advantage:
eBay competed by creating customer options that were uniquely different from those of its competitors. It also targeted distinct market niches. Because of its reputation and longevity in providing value to its customer segments, eBay was in a unique position to continue to capture a significant share of the growing online market. Therefore, eBay pursued a combination strategy of focused differentiation.
Regarding its competitive strategy in Asia, in order to maintain control over costs, eBay had kept central management control in the U.S. Although this centralized decision structure allowed eBay to keep to a consistent global platform, it made it more difficult to be responsive to local needs. Therefore, the value of eBay’s service in Asia did not yet convince users to either seek out the service or pay a premium.
Referencing Chapter 3: Analyzing the Internal Environment
To answer the question of how to support a competitive strategy, it’s important to consider the concept of the resource-based view of the firm, and the three key types of resources: tangible resources, intangible resources, and organizational capabilities. Determining whether the internal resources are valuable, rare, difficult to imitate, or difficult to substitute (VRIN) can help a firm sustain a competitive advantage. See Chapter 3, Exhibit 3.6. eBay’s profile might look like this:
Financial – strong financial growth
Physical – unknown, but not that essential a resource in a service business
Technological – assumed very strong, given the nature of eBay’s business model, and its success
Organizational – centralized decision-making worked well except in Asia
Human – based on the commitment and loyalty of Whitman & Donahoe, very capable and dedicated human resources
Innovation – major strength
Reputation – another major strength – essential in this service business
Competencies – eBay had the critical strengths in its human, technological, innovative and reputational resources that should allow it to sustain a competitive advantage with its chosen business model
See the concepts of intellectual capital, human capital and social capital, all of which are intangible assets that a company such as eBay needs to have in order to compete successfully. Intellectual capital is a measure of the value of a firm’s intangible assets, its reputation, employee loyalty and commitment, customer relationships, company values, brand names, and the experience and skills of employees. Human capital involves the individual capabilities, knowledge, skills, and experience of the company’s employees and managers. Social capital is a function of the network of relationships that individuals have throughout the organization. If employees are working effectively in teams, across business divisions, and sharing their knowledge and learning from each other, not only will they be more likely to add value to the firm, but they also will be less likely to leave the organization. This applies to strategic alliance partners as well.
Both Meg Whitman and John Donahoe were examples of the dedication, experience and skills of eBay’s intellectual capital. Since eBay was in the knowledge business, the capabilities of its employees and managers were essential assets. However, especially in Asia, social capital was critical. Think of social networks like marketing by word-of-mouth. As eBay founder Omidyar said, eBay was envisioned as a community built on commerce, but sustained by trust, and inspired by opportunity. The social network of buyers, sellers, browsers, technical support gurus, managers, corporate employees, local partners, all had to see the same opportunity, and trust that commerce would happen.
It appeared possible that eBay had not yet understood how to leverage social capital in Asia. A telling comment was rival Alibaba.com’s CEO Jack Ma’s observation that eBay moved too quickly to replace local management with foreigners, and tried to create a market through spending rather than through a ground up process of networked local involvement.
Contrasting eBay with Yahoo, when Yahoo chose to partner with Taobao and Gmarket, both Taobao and GMarket had an in-depth understanding of the Asian culture and local market needs. They allowed users to conveniently interact with each other by offering alternate communication channels such as instant messaging and voice-over-IP (VOP). This enabled sellers to respond to buyer questions more quickly, completing the transaction in a timelier manner. Both companies also offered fixed pricing at an early stage which allowed buyers to purchase items without having to spend time on negotiations. Despite Yahoo’s involvement with both companies, local management control was retained allowing Taobao and GMarket to meet local market needs.