Ebay Strategy in China Alliance or Acquisition Analysis

EBAY'S STRATEGY IN CHINA:

ALLIANCE OR ACQUISITION

In December 2006, eBay Inc., a US company that offered e-commerce, e-payments and Internet communication services globally, announced its plan to form a joint venture with China-based online portal and wireless operator, TOM Online, in which eBay would have 49% ownership.' The move reflected the increasing difficulties foreign internet companies were facing in their attempts to snatch a share of the Chinese market amid fierce competition and a changing market environment.

eBay first set foot in China in 2002 by acquiring 33% interest in EachNet—a domestic online auction company, followed by a full acquisition in 2003.2'3 In 2005, eBay acquired Skype 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,' TOM Online seemed to be a natural choice of partner for eBay's subsequent decision with regards to its online marketplace business. Recognising TOM Online's local knowledge and political connections, eBay believed that a joint venture would benefit its failing business in China and help the company further develop its Chinese market.' Some analysts questioned whether political connections alone were the answer and suggested that eBay focus on its product and service offerings.'

How could eBay leverage the joint venture to its success in China? What alternatives did eBay have for enhancing its strategic position in the Chinese market?

The Dotcom Bubble

The IPOs [initial public offerings] of internet companies emerged with ferocity and frequency, sweeping the nation up in euphoria. Investors were blindly grabbing every new issue without even looking at a business plan to find out, for example, how long the company would take before making a profit, if ever.'

The mid- to late 1990s saw the short life of scores of dotcom companies. Riding on the dotcom hype and eager to push their stock valuations