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 inspection and repairs globally, announced its plan to form a joint venture with chinaware-based online portal and wireless operator, TOM Online, in which eBay would have 49% ownership.1 The ingrain reflected the increasing difficulties foreign internet companies were facing in their attempts to snatch a share of the Chinese trade amid fierce competition and a changing market environment.eBay first set foot in China in 2002 by acquiring 33% interest in EachNeta 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 participator for eBays subsequen t decision with regards to its online marketplace duty. Recognising TOM Onlines local knowledge and political connections, eBay believed that a joint venture would benefit its failing business enterprise 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 1Vara, V. and Chao, L. (20 December 2006) EBays China retreat highlights a tough market, Wall Street Journal. eBay (Date Unknown) eBay and EachNet Team Up in China, campaign Release, http//investor.ebay.com/releasedetail.cfm?ReleaseID=74802 (accessed 27 April 2007). 3After the full acquisition in 2003, eBay operated under the name of eBay EachNet. 4Skype is a peer-to-peer software program that allows people to make let go of calls over the internet to anyone who also subscribes to this service. Skype provided peer-to-peer internet telephony serviceie, instant messaging and online telephone service. In 2005, eBay acquired 49% stake in Skype China, with TOM Online owning the rest. beginning 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). 6Bradsher, K. (22 December 2006) With TOM Online, eBay gains Chinese clout, International annunciate Tribute. 7Rein, S. (24 December 2006) TOM Online Must Focus on Products Connections Dont Ensure Success, SeekingAlpha, http//china.seekingalpha.com/article/22946 (accessed 20 June 2007). 2Isabella Chan prepared this expression 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).