Ebay expected to dominate China when it first entered the Chinese market in 2004. And to achieve this, it ruthlessly pursued any competition. When Taobao was launched, eBay signed exclusive advertising rights with major portals Sina, Sohu, and Netease. It intended to block advertisements from Taobao. It also injected another $100 million to build its China operation, which was now renamed ‘eBay EachNet.’. However, ten years on, Ebay, like Yahoo and almost all US-based Internet giants failed miserably in China.
Understanding the Chinese Market
Fundamentally, whilst China is different from the U.S., China is not that different. Google/Facebook/Yahoo/eBay have all succeeded in the middle-east. They succeeded in Africa, and in Muslim and Arabic countries. Compared to the economic and culture difference those regions have with US, the gap between China and the U.S. cannot be said to be bigger.
Furthermore, as China is so big, it makes perfect sense for big companies to have a meaningful competitor. That’s not true everywhere. For example, Google provides a Dutch search engine in Netherlands. Theoretically, Google might not be the best Dutch language search engine humans can build. It is possible to build a better search engine for the Dutch if someone really wanted to put forth the resources. But the problem is, after someone hired 1000 engineers to build it, they’d face the question: “So what?” There are about 16 million people in Netherlands, and it wouldn’t make sense economically to go up against Google for such a small market.
In China, the story is completely different. If someone built a search engine that worked even just a little bit better than Google, they could get the Chinese market. Because China is so big, it attracts talent, capital, entrepreneurs or any resources needed to compete with a global Internet giant. Very soon, a better search engine, a better social network, a better marketplace, and a bigger B2C site emerges. Sometimes more than one. All these competitors makes the life of multinational Internet companies very hard. So, whilst competition does not guarantee failure for these big companies, the bottom line is, it does not guarantee success either.
Fundamental Lessons Learned
First, eBay failed to recognize that the Chinese market and the business environment are very different from that of the West. EBay sent a German manager to lead the China operation and brought in a chief technology officer from the United States. Neither one spoke Chinese or understood the local market. It was eBay’s biggest mistake.
Second, because the top management team didn’t understand the local market, they spent a lot of money doing the wrong things, such as advertising on the Internet in a country where small businesses didn’t use the Internet. The fact that eBay had a strong brand in the United States didn’t mean it would be a strong brand in China.
Read how Chinese consumers look at social media for latest products and news, here
Third, rather than adapt products and services to local customers, eBay stuck to its “global platform,” which again did not fit local customers’ tastes and preferences.
The overall concept to be understood from the failure of eBay in China is that you must know your consumer. The Internet sensation in the United States, simply did not approach the Chinese consumer in the right way to make their business a hit in the market.