International expansion is a viable diversification strategy, however before pursuing this, a firm needs to determine why an industry in a given country is more (or less) successful than the same industry in another country. When choosing a country to expand into, firms must assess the degree of consumer demand, the degree to which resources such as skilled labor and other supplier or supporting infrastructure are developed and available, the speed with which such resources can be deployed, the extent of political and economic risk and corruption, the access to qualified management.
In Asia Pacific, eBay’s management risks might have included:
There are two opposing forces that firms face when entering international markets: cost reduction, and adaptation to local markets. Therefore there are four basic strategies firms can use: international, global, multidomestic, and transnational. See Chapter 7, Exhibit 7.4.
eBay followed a global strategy. Advantages of a global strategy included a unified approach that allowed users to conduct transactions in an online global community. Users could interact and purchase or sell items with anyone in the world over a single platform. Having a single platform also minimized company costs, such as maintenance and development. Disadvantages were evident by eBay’s inability to truly meet specific local business needs. Having a single platform provided standardization across all markets, which may or may not have been effective in certain markets with customers that had specific needs and expectations.
eBay’s decision to use a single platform to provide online trading in all its markets had been successful in most of its global communities. However, this decision appeared to have hindered eBay’s ability to compete in the Asia Pacific region. eBay was perhaps uncomfortable turning control over to local partners, and fully leveraging local expertise.
A transnational strategy, where the company could provide a standard product and meet specific local needs, would be the optimal strategy for eBay to adopt for competing in the Asia Pacific region. The company could achieve this strategy through its local acquisitions and realize further benefits by tailoring customized local sites for each market. A transnational strategy would allow eBay to sustain costs while meeting specific market needs. The company had a global strategy that prevented it from successfully competing in certain markets. A transnational approach would instill consistency across eBay’s global platform and at the same time provide flexibility when entering new markets. A transnational approach would also allow eBay to retain central control in the U.S. and enable local management in each of its markets. It would therefore allow eBay to share knowledge among its various worldwide holdings.
Entry modes available for international expansion differ based on the extent of investment and risk, and the degree of ownership and control. See Chapter 7, Exhibit 7.10. In order from low to high, they include:
Wholly Owned Subsidiary
eBay’s entry mode choices for international expansion included: alliances, joint ventures, and wholly owned subsidiaries. eBay’s joint venture with Tom Online had provided it local expertise, but eBay’s past experience with Eachnet demonstrated the company’s inability to understand local business needs and acquire market share from China’s online auction giant Taobao. With Tom Online’s intimate local knowledge and eBay’s financial strength and experience in the online auction industry, the joint venture should have helped eBay increase its position in China’s market. The enhanced communication channel was meant to appeal to a broader market that preferred direct communication and interaction between users. This was consistent with eBay’s other acquisition of communication giant Skype, and the company’s stated intent to improve communication to enhance the customer experience in the online marketplace.
With low entry barriers, many believed online companies would eventually consolidate to a few dominating firms; those containing the most traffic. eBay’s investments in communication companies, such as Skype and Tom Online, raised questions regarding the company’s strategic moves and whether or not it was deviating from its overall strategy. While it was obvious eBay was trying to acquire as much market share as possible, entering into the communication space allowed eBay to broaden its product mix and target a much larger customer base. The enhanced communication capabilities were expected to attract users who preferred more convenient and direct interaction with other buyers and sellers. This was particularly critical for competing successfully in markets like Asia, where users preferred more direct communication, enabling them to complete transactions more quickly.
eBay’s decision to buy a joint venture stake in South Korea’s Gmarket was part of a similar strategy to broaden eBay’s market coverage. However, Gmarket was a competitior, and had already entered into an agreement with Yahoo. Gmarket used a different model from eBay, mainly offering fixed price transactions and cheaper listings. Gmarket also frequently introduced new seller options to attract customers. At the end of the case, it was unclear how eBay would handle this relationship with Gmarket.