Ebay competitive environment

Teaching Note: Case 38 eBay: Expanding into Asia

Case Objectives
1. To discuss the decisions and actions that a firm has to undertake to sustain a competitive advantage, especially when pursuing international growth.

See the table below to determine where to use this case:

Chapter Use

Key Concepts

Additional Readings or Exercises

2: External Environment

External environmental forces

NOTE – additional reading, web links, embedded video. Also see Case DVD.

3: Internal Analysis

Tangible vs. intangible resources

4: Intellectual Assets

Human capital; intellectual capital

5: Business-Level Strategy

Generic strategies

6: Corporate-Level Strategy

Corporate strategy; synergy; acquisition

7: International Strategy

International expansion; transnational, global strategies

NOTE – additional reading, web links

Case Synopsis
Since its inception in 1995, eBay had enjoyed strong revenue growth, and was a dominant player in the worldwide online auction industy. In 2008, new CEO John Donahoe reported an impressive 11 percent increase in revenue from the previous year, with an operating margin of 24 percent. EBay created revenue from three sources through multiple online products and services: eBay’s marketplace received merchandise fees from items sold either by auction or fixed-price transaction; the payment division received financial transaction fees from its PayPal service; and communication fees were received primarily via customer use of Skype.

Despite eBay’s outstanding growth performance, achieved mainly through both foreign and U.S. acquisitions, the company still faced a number of challenges in both domestic and international markets. As a growth strategy, eBay had created options and targeted distinct market niches to distinguish itself from competitors. This was particularly important because as e-commerce and Internet usage rates continued to grow, so would the market opportunity for eBay. Because of its market-leading brand, eBay was in a unique position to capture a significant share of the market at an early stage. eBay had grown to successfully compete in certain international markets, including Europe and Latin America, but had been unable to penetrate the Asia Pacific market.

eBay’s joint ventures in Asia, first with Tom Online in China, and then with Gmarket in South Korea, had not yet allowed it to achieve significant market share. Considering that the Asia Pacific region had more than 50 percent of the world’s population and was experiencing some of the largest online usage growth percentages in the world, tapping into this market was critical for eBay to expand. Why had it been unsuccessful?

Teaching Plan
The eBay case is an investigation of a company that chose to pursue growth into an international environment where it had little experience. A discussion of eBay’s difficulties can provide an opportunity for comparison to the other international cases such as Heineken, Lenovo, Geely, and McDonald’s. As such, this case is best positioned mid-way through the course, after students have had an introduction to the concepts of strategy analysis and formulation.

Summary of Discussion Questions
Here is a list of the suggested discussion questions. You can decide which questions to assign, and also which additional readings or exercises to include to augment each discussion. Refer back to the Case Objectives Table to identify any additional readings and/or exercises so they can be assigned in advance.

Discussion Questions:

1. How did eBay pursue international growth?

2. What source of competitive advantage does eBay have, and is that position supported by its resources and assets? Does eBay deal effectively with its external environment in Asia?

Discussion Questions and Responses
1. How did eBay pursue international growth?

Referencing Chapter 6: Formulating Corporate-Level Strategies

Corporate strategy focuses discussion on the questions of what businesses a corporation should compete in, and how the businesses should be managed so they can create “synergy” – creating value through entering new markets or developing new technologies, either through related or unrelated diversification.

Diversification is the process of firms expanding their operations by entering new businesses. In related diversification, a firm enters a different business in which it can benefit from leveraging core competencies, sharing activities, or building market power. Some possibilities include:

· Mergers and acquisitions

· Strategic alliances

· Joint ventures

· Internal development

Whatever the choice, it should create value for all stakeholders – employees, suppliers, distributors, and the organization’s owners themselves. The choice of diversification strategy should create synergy so that all parties gain something they would not have had on their own.