Question

Why did eBay lose out to Alibaba in China? What lesson can be learn for non-Chinese internet (Technology)
companies?

How was Alibaba able to become the most successful ecommerce company in China? Think about standards,
network effects, and the crossing the-chasm framework to inform your reasoning.

Apply a SWOT analysis to Alibaba. Use the result to make some recommendations to Alibaba’s CEO

Apply the integration-responsiveness framework to determine:

• Which global strategy position you would recommend Alibaba to pursue when attempting to create a stronger foothold in the United
States. Explain why.
• Which Global strategy you would recommend US ecommerce companies such as eBay, Amazon, and others to pursue when
competing in China. Explain why.
What is Globalization?

–Globalization is a process of closer integration and exchange

between different countries and peoples world wide, made
possible by falling trade and investment barriers, advances in
telecommunications, and reductions transportation costs.
Globalization has led to significant increases in living standards
in many economies around the world.
–The engine behind globalization is the multinational enterprise
(MNE)—a company that deploys resources and capabilities in
the procurement, production, and distribution of goods and
services in at least two countries
 Cultural
Administrative
Geographic Economic THE CAGE
and political

• Different • Absence of • Lack of common • Different

DISTANCE
languages,
Ethicities,
trading bloc border,
access,
waterway
adequate
consumer
incomes
FRAMEWORK
Religions, • Absence of transportation, or
social norm and shared currency, communication links • Different costs
dispositio monetary or and quality of – To aid MNEs in deciding where in
political • Physical remoteness natural, the world to compete, Pankaj
• Lack of association financial, and
connective • Different climates human Ghemawat introduced the CAGE
ethnic or social • Absence of and time zones resources distance framework. CAGE is an
networks colonial ties
• Different acronym for different kinds of
• Lack of trust • Political information or distance:
and mutual hostilities knowledge
respect
• Weak legal and
financial
institutions
 THE INTEGRATION-
RESPONSIVENESS FRAMEWORK

– MNEs face two opposing forces when competing around the

globe: cost reductions versus local responsiveness in a way that
can affect strategy, Given the two opposing pressures of cost
reductions versus local responsiveness, schol- ars have advanced
the integration-responsiveness framework,
– This framework juxtaposes the opposing pressures for cost
reductions and local respon- siveness to derive four different
strategic positions to gain and sustain competitive advan- tage
when competing globally. The four strategic positions, which we
will discuss in the following sections, are
– ■ International
– ■ Multidomestic
– ■ Global-standardization ■ Transnational70
 Alibaba vs Ebay
– At the same time as Alibaba was started, EachNet, another Chinese
Internet venture, was launched in Shanghai. EachNet was founded by
two Harvard MBAs who wanted to create a Chinese eBay, an auc- tion
site for locals to sell and bid for goods. By 2003, EachNet had 2 million
users and 85 percent market share in China’s consumer-to-consumer
(C2C) trans- actions. At the time, eBay was actively looking to expand in
China and eventually acquired EachNet as its China operation for $180
million in 2003.
– Fearing eBay would lure small businesses away, Alibaba launched a
competing C2C platform Taobao (meaning “digging treasure” in
Chinese) as a defen- sive strategy.
– Unlike EachNet, which charged listing and transaction fees from
sellers, Taobao was free for sellers.
 FEES VS FREE
ISSUE
– But Taobao’s free services did not erode
Each- Net’s loyal customer base. EachNet’s
dominant market position meant more
products and more opportunities for both
buyers and sellers to trade. Although
EachNet was competing head-to-head with
Taobao on adver- tising campaigns..
1. Why did eBay lose out to
Alibaba in China?
– eBay made a decision to terminate EachNet’s
homegrown technology platform and move all
EachNet users to eBay’s U.S. platform in 2004. At
eBay, the internal term for this was “migration.”
The intent was to create one global trading
platform that would allow eBay users to trade with
each other, no matter where they located.
 The Problem about
Migration eBay
– The problem was that eBay’s U.S. platform did not
offer features that EachNet needed to compete in
China. The online data that once freely flowed within
China suddenly became cross-border traffic and had
to pass through the Chinese government’s firewall.
The speed to load EachNet’s web pages slowed
significantly. Frustrated users left EachNet in droves
and turned to Taobao for a better alternative. While
most decisions at EachNet had to go to eBay’s U.S
1. What lessons can 

Increased social network
Respect the rights of every user

be learned for non- Cultural  Using the language of instruction

of the country

Chinese ecommerce  Absence of trading bloc

Administrative and political
companies such as 

Political hostilities
Legal Product

Amazon?  The online data that once freely

flowed within China suddenly
became cross-border traffic and had
Geographic to pass through the Chinese
government’s firewall.

 information or knowledge
 costs and quality of natural,
Economic financial, and human resources

USE THE CAGE DISTANCE

FRAMEWORK
 FACT ABOUT AMAZON.CN
– From the BBC on Thursday (04/18/2019), e-commerce giant Amazon plans to close
its online store in China. This answers with Amazon's efforts to downplay its
operations in China. Amazon's online store allows consumers to buy products from
local sellers. Amazon states, its online store in China will stop operating starting in
July 2019.
– The plan was announced in line with the conditions of intense competition
experienced by Amazon with its local competitors in China, such as Alibaba and
JD.com.
 2. How was Alibaba able to
become the most successful e-
commerce company in China?

– Alibaba swiftly launched a number

of innovative services to assist
transactions on Taobao, including
Aliwangwang, an instant messaging
service helping buyers and sellers
interact in real time, and Alipay, an
escrow payment system to reduce
online transaction risks. Just three
months after eBay’s migration, Tao-
bao captured 60 percent of the C2C
market share, leaving EachNet at 30
percent.
 In 2006, eBay shut down
EachNet and closed its
China operation.

– In 2003 marketshare eBay 75%

and always decrease: 2004
(65%-70%), 2005 (35%-40%),
2006 (27%-29%), and in 2009
marketshare eBay 0% in China.
– After eBay migration server to
US marketshare Taobao in 2007
85% in China.
 Alibaba continued to build its
ecommerce venture around Taobao

– In 2007, it set up Alisoft, where Tao-bao sellers could buy customized

third-party software to help with their day-to-day operations, and
Aliwangwang, where Taobao sellers could post ads on a net- work of
specialized websites. Anticipating a growing share of business-to-
consumer (B2C) transactions of online retailing, Taobao launched
TMall, a dedicated B2C platform to complement Taobao in 2008.
Today, Alibaba has a massive footprint in the largest and fast- est
growing ecommerce market globally.
 Alibaba’s IPO
– On September 19, 2014, Alibaba went public on the New York
Stock Exchange (NYSE). It had the most successful initial public
offering ever, surpassing a stock market valuation of over $230
billion on its first day of trading.
– By fall 2017, its market cap stood at a record high of $437 billion,
making it one of the most valuable tech companies globally. In
comparison, Amazon’s market cap was some $465 billion at the
same time.
– Yet, Alibaba’s market presence is still predominantly in China. In
2017, Alibaba employed around 50.000 people, had $23 billion in
revenues, and remained highly profitable, capturing more than 50%
of its revenues as profits. In the same year, Alibaba’s Chinese
marketplaces reported sales of some $550billion.
 The Main Issues Alibaba’s in Global

o Heavy concentration in Chinese market makes it vulnerable to swings in the Chinese

economy.
o Competition at home with JD.com.
o In a survey of U.S. internet shoppers, almost 9 out of 10 had never heard about
Alibaba.
o Some vendors offer counterfeit and pirated goods for sale
o Blacklisted by U.S. Trade Representative because of counterfeit and pirated goods
on website
 3. Apply a SWOT analysis to
Alibaba’s
STRENGTHS WEAKNESSES

 STRONG RECOGNITION IN CHINA  LIMITED INTERNATIONAL PRESENCE

 LEADING ECOMMERCE PLAYER  OVERDEPENDENT ON CORE BUSINESS AND CHINESE

INTERNAL  FAST GROWING REVENUE MARKET

 GROWING CLOUD BUSINESS  INTERNATIONAL BRAND IMAGE
 RESEARCH AND INNOVATION

OPPURTUNITIES THREATS

 INTERNATIONAL EXPANSION  COMPETITIVE PRESSURE

 TECHNOLOGICAL INNOVATION  TRADE BARRIERS
EXTERNAL
 DIGITAL MARKETING  LEGAL THREATS
 INTERNATIONAL PARTNERSHIPS AND ACQUISITIONS  LOW CONSUMER RECOGNITION IN THE UNITED STATES
 MATRIX SWOT for RECOMMENDATION
ALIBABA

STRENGTHS (S) WEAKNESSES (W)

STRATEGI (S-O) STRATEGY (W-O)
• The U.S. market presents an opportunity for Alibaba to reduce dependence • if Alibaba wants to expand further into the U.S. market, it will
on its domestic market. Its asset-light business model enables it to compete have to take measures to reduce the prevalence of counterfeit
OPPURTUNITIES as a cost leader with other online retailers.
and pirated goods offered on its site by vendors
(O)
• Its large customer base and volume of transactions volumes gives Alibaba a
vast trove of data that it can monetize. It should, however, ensure that is • With the change and evolution of modern technologies, Alibaba
complying with all relevant privacy laws in the jurisdictions in which it has the benefit of increasing brand preference, with digital
operates. marketing and international partnership

STRATEGI (S-T) STRATEGY (W-T)

• Alibaba should further expand into data services and cloud computing.
These are growing markets and like Amazon, it can use its servers and
technology to achieve competitive parity in this area.  INTERNATIONAL PARTNERSHIPS AND
THREATS (T)
ACQUISITIONS
• Alibaba should develop its mobile services. Commercial transactions
have been increasingly migrating to mobile interfaces. (In U.S, 86
percent of users access the internet in this manner.) A failure to move
in this direction will perpetuate its disadvantage by way of competitors
such as We Chat.
4. Apply the integration-responsiveness
framework to determine:
 Which global strategy position would you
recommend Alibaba should pursue when
attempting to create a stronger foothold in the
United States, and why?

– Alibaba’s attempt to create a stronger foothold in the United States will increase
competition. As it has low consumer recognition in the United States, it will not be
able to benefit from having a known brand. Cost reductions will therefore be the key
consideration. This would suggest either a global-standardization or transnational
strategy. There are serious concerns about the prevalence of counterfeit and pirated
goods offered on Alibaba. This is because of weak oversight. While this may not
matter as much in the Chinese market, U.S. authorities have taken a much stronger
view and Alibaba has been placed on the U.S. Trade Representative’s blacklist.
Alibaba will therefore have to be much more careful about what its vendors offer for
sale if it wants to be a significant presence in the United States. It could attempt to set
up a standalone U.S. operation, but it will lose the competitive advantage of its large
well-established global network. The nature of a global trading platform is that the
same goods are offered everywhere by the same vendors. Alibaba will have to
scrutinize all its vendors more closely if it intends to be a presence in the United
States. A global-standardization strategy is therefore indicated.
 Which global strategy positions would you recommend
U.S. ecommerce companies such as eBay, Amazon, and
others should pursue when competing in China, and
why?

– eBay’s failure in China has been analyzed

above. The primary cause of this failure was its
inability to respond to local conditions. In
retrospect, eBay should have adapted to the
socio-cultural and political demands of the
Chinese market. Chinese consumers are price
sensitive, so responsiveness to cost will also be
necessary. This points to a transnational
strategy for U.S. ecommerce companies who
compete in China.
THANK YOU