EBay Corporation Internationalization Strategy

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Table of Contents

Executive Summary
Introduction
Company Profile: eBay
Strategic Decisions made by eBay Management
Conclusion
References

Executive Summary

EBay Corporation is a U.S. company that operates in the internet and digital media industry by providing an interface to buyers and sellers of different products online. The industry is very competitive and the company has managed to keep up with the level of competition. The management of eBay has pursued the internationalization strategy that has enabled it to expand over time to other multinational markets.

While operating in different multinational markets, the company has faced various challenges and risk such as fraud risks, difficulties of coping up with regulations in different countries of operation. The company obtains its revenue through eBay marketplaces, Paypal and Skype.

The findings of this study on application of internet marketing in eBay indicates that the company markets and earns revenue online by providing market stores for different companies selling different products to online customers.

Introduction

The internet and digital media are advanced technologies that are utilized by organizations in the modern business environment to ease business transactions. The two technologies were developed many years ago with their development beginning immediately after the Second World War.

The internet has made business transactions easy. Some companies such as eBay have utilized the technology as a competitive advantage in providing services to sellers and buyers. The company was established in 1995 and has utilized the internet to enable suppliers meet and supply products to their clients. The system has been successful and has enabled the company to grow and expand into international markets.

However, it has not been able to succumb to competition in all markets since it was pushed out of the Japanese market. Fraud risks and the risk of conforming to different regulations in different countries of operations threaten its future existence (Racin, Van Der Loos & Illes, 2007, p. 183).

The internet and digital media dates back many years ago after the Second World War in which there was need to develop a communication system that would survive any difficulties. The proposal to create the telecommunication network that had no central authority and could operate while in disrepair was put forward by Rand in 1964.

Research for the telecommunication network began in early 1960 with some milestones being made in 1967 when the physical laboratory of Britain developed the initial tests of the network (Lohse, et al. 2000, p. 19). This discovery was followed by the U.S development of the network that contained four nodes in 1969 that were characterized by high-speed computers.

The high-speed network developed in the U.S. grew faster in the 1970s and more networks were developed in the 1980s. For instance, in 1984, NASA entered into the internet industry. The company provided technical advancement that linked newer and faster microcomputers using thicker fast links (Calvin, 2004, p. 66).

A team of programmers in Geneva designed the web. The web is a form of the internet that utilizes the hyper-textual format of the internet to develop a network of information that is global in nature (Blossom, 2009, p. 65). It comprises individual sites for different organizations. Through the sites, firms and individuals are able to share different kinds of information both business and social.

The web can be accessed by any individual interested in it and has enough time. Blossom (2009, p. 65) notes that the legacy of the internet can be reduced to two that are egalitarian openness and flat pricing. Therefore, any individual can access the internet and the web at any time worldwide at a very low price based on the bandwidth being accessed (Lohse, et al. 2000, p. 21).

Company Profile: eBay

EBay Corporation was established in 1995 as an online auction that provides an interface between buyers and sellers of different products online. Pierre Omidyar, a software engineer base in California, established the firm.

According to Blossom (2009, p. 68), eBay has its mission as “pioneering communities around the world built on commerce, sustained by trust and inspired by opportunity.” The business practices in which eBay is involved in is three and includes:

EBay Marketplaces: this is the major revenue earner of the company. Under this section, eBay creates an online market for global corporations and individuals. In this online market, the company sells over 100 million products online daily.

The online marketplace is the number one revenue earner for eBay contributing about 70% of the total revenue earned by the corporation (Lohse, et al. 2000, p. 21). EBay has been successful in online marketplace because of the ability of the company to manage its functionality, safety, and reliability of the trading platform.

In addition, eBay has increased the usability of the online marketplace making its customers and suppliers to like it and prefer using it for the sale and purchase of different products (Blossom, 2009, p. 69).

Paypal: this is the second revenue earner for eBay because it contributes about 25% of the total revenue realized by the corporation. Under this business model, the company aims at creating a new global standard for online payments. The company made the acquisition of Paypal in 2003 hence utilizing it to make payments for its clients (Charlesworth, 2009, p. 121).

Skype Internet telephony: eBay acquired Skype in 2005 as another investment venture for the company.

The venture is the third source of income for eBay since it earned the firm 5% of total revenues realize din the 2007 financial period. EBay used to value the firm highly beyond the true value of the firm hence incurring an impairment charge. However, the corporation has been able provide services for MySpace users (Ngai, 2003, p. 30).

The last business model that was a source of about 4% of the firm in 2007 financial period was advertising among other online sources of revenue.

The revenue Model

Much of the revenue realized by eBay is obtained from the listing and commissions earned from its business transactions. The firm charges an extra commission on Paypal transactions. According to Allen (2008, p. 81), the margin that the corporation realizes on the transactions is phenomenal because the incremental costs made after the construction of the infrastructure are tiny.

The income that eBay realizes from advertising and other non-transaction net revenues only make up a small portion of the total net revenue realized by the corporation.

According to Blossom (2009, p. 66), eBay intends to maintain this strategy of low revenues from advertising and non-transaction net revenues. For instance, in 2004, non-transaction net revenue was about $94.3 million, which was only 3% of the total revenue realized by the company (Ngai, 2003, p. 33).

Customers and Proposition

The main customers of eBay are online customers willing to purchase different products online. In addition, the company provides an interface for suppliers willing to supply different products to their online customers. The company has established a competitive advantage on core service provision (Ngai, 2003, p. 38). EBay is a reliable marketplace in which sellers can successfully list their items for sale on bids or fixed prices.

Due to its reliability, the online marketplace is attractive to many sellers. For instance, in 2007, the firm had about 532,000 online storefronts established by different users throughout the world.

Different software tools such as Turbo Lister, Sellers assistant and selling manager among others to help them in conducting their transactions, provide traders utilizing the site on a frequent basis. Therefore, about 60% of suppliers listing their products are aided by software (Silver, 2004, p. 58).

Fraud is a significant risk experienced by different online operators selling and purchasing different products online through the company site. One out of 10,000 transactions recorded in the UK in 2005 were fraudulent. Although the number is small, the translation of the figure into the total number of transaction the firm makes worldwide results in a significant volume of transactions.

To overcome fraud cases and risks, eBay has developed trust and safety programs that reassure customers of the safety of their online transactions. For instance, the corporation has initiated the feedback system in which the credentials of both sellers and buyers can be identified (Charlesworth, 2009, p. 121).

According to Blossom (2009, p. 66), eBay make propositions to both the sellers and buyers. The proposition for buyers involves selection of products, their value, convenience and entertainment. The firm has established an online forum called neighborhoods in which buyers can discuss the different products and provided by the company.

For sellers, their propositions include access to broad markets, marketing and distribution that are cost effective, access to a large market base and good conversion rates (Acquisti & Varian, 2001, p. 25). The company changed its marketplace into three structures that are free structures, seller incentives and standards and feedback.

The structures were aimed at improving the quality of experience that would enable sellers provides detailed ratings. In addition, the structures provided sellers with the ability to review the items described, improve communication, period of delivery and improve postage charges. The changes made by the corporation improved the shopping experience by the firm’s clients (Acquisti & Varian, 2001, p. 25).

Competition

The competitiveness of an organization determines the survival of the company in the industry. Every organization including eBay aims at maximizing profits while minimizing the costs incurred. In order to minimize costs while maximizing the realized profits, it is necessary for the firm to have a competitive advantage (Tanner, Honeycutt & Erffmeyer, 2008, p. 116).

The company has established a competitive advantage in interfacing between online buyers and seller of different goods and services. The uniqueness of the services provided by eBay is that there is a direct link between firm and its clients since a feedback system exists for the clients on the services provided.

The services provided by the company are reliable and free of risks because the company has minimized fraud risks (Wang, Lee & Wang, 1998, p. 66). The examination of competition in the internet and online business will be done using porter’s five forces as explained below.

Porter’s Five Forces

Source: Porter (1980, p. 29)

Buyer Power

There has been an increase in the bargaining power of the online customers of online products and services due to their ability to purchase any products of any company in the industry competitors’ products. By venturing into different markets across the world, eBay competes with other dominant companies in the industry such as Yahoo among others.

The buyer power is high and the company requires strategic planning in order to provide high quality services that can compete with competitor products for effectiveness in the industry. The free choice from available alternative quality products of various competitors has raised the buyer power (Gay, Charlesworth & Esen, 2007, p. 99).

Supplier Power

There are many suppliers to eBay supplying different products being sold by the company online. Any fluctuations in the demand for online products and goods could easily cause an increase in the supplier power (Honeycutt, Ford & Simintiras, 2003, p. 219).

For instance, a fluctuation in the demand for computer chips sold through eBay could easily lead to supply of the chips on demand hence the increase in the supplier bargaining power for HP. Supplier power affects the operations of eBay (Porter, 1980, p. 77).

Substitutes

Substitutes to eBay services comprise of online and offline retailers, distributors, liquidators, import and exports companies. In addition, there are other online auctioneering companies, mail order companies, catalogues and directories.

Companies provide online and offline shopping channels and networks that are substitutes to the services provided by eBay. Due to these substitutes, competition for eBay provided products has increased.

Market Rivalry

There is very high rivalry among competitors in the online marketing and internet business. The main competitors in the industry include firms providing various services similar to the services provided by eBay. For instance, there are mail order companies, liquidators, online and offline participants, search engines, catalogue and mail order companies among other companies (Racin, Van Der Loos & Illes, 2007, p. 184).

EBay is not complacent with the competition in the industry. Due to the high level of competition in the industry with firms such as Yahoo providing similar services, eBay pulled out of the Japanese market in 2005. The company still faces competition from Yahoo in other markets such as Asia and China. Yahoo provides similar competitive services that are likely to attract more customers in the markets (Silver, 2004, p. 59).

New Entrants

The online business industry is characterized by free entry and exit. Every organization operating in the industry is aware of the threats that new entrants pose to their existence. In spite of heavy investment in the industry by eBay, new entrants such as Yahoo among others still pose a danger to the existence of the firm in the industry.

Opportunities

Competitiveness in the industry increases operating risks of operating in the industry for eBay. However, there are still many opportunities to be explored by eBay. For instance, the company can exploit emerging markets such as India and Brazil. In addition, the firm can exploit mergers and acquisitions with other upcoming organizations in the industry (Zacher, 2009, p. 201).

Threats

The threat in the industry is the threat of new entrants. The industry is at a mature stage and it has enough companies operating in it. Therefore, the entry of new firms would increase the level of competition further than expected. Moreover, fraud risks pose some dangers to the operations of eBay.

Strategic Decisions made by eBay Management

Strategic management is mandatory for firms in the modern business environment because of the dynamism of the business environment. EBay operates in a very competitive industry that requires the management of the company to make strategic decisions in line with its strategic goals and objectives. The company has its strategic objectives as:

Increasing the number of new users registered to utilize the services the company offers on its online marketplace.
Increasing the number of registered users that actively participate in bidding, buying and selling on the company’s marketplace (Ngai, 2003, p. 45)
The firm aims at increasing not only the value, but also the volume of active transactions on eBay marketplace. The organization had about 83 million active users by the end of 2007 compared to the 82 million active users that it had in 2006. The company defines active users as clients who bid, purchase or lists items on the website of the company in the past 12 months (Racin, Van Der Loos & Illes, 2007, p. 183).

The company achieves these objectives through other approaches as outlined by the management. The company has strategies to pursue the increase of category numbers and sizes of the marketplace. For instance, the company pursued this strategy to increase the categories such as books, art, antiques business and industrial clients in the marketplace.

EBay pursues the interaction strategy in which it has traditionally been realized through auction listings. The strategy was refined to its current “Buy-It-Now” price format (Schwartz, 2006). The format of the strategy is the ‘Dutch auction’ format that is characterized by sellers selling multiple identical products to the highest bidders.

EBay Corporation developed its stores for the main reason of enabling suppliers with multiple products to display their products in a more retail format. The management is pursuing the acquisition of other firms as a strategy to provide an enabling environment for suppliers of multiple products.

For instance, eBay acquired Mobile.de in 2004 from Germany and Marktplaats.nl from Netherlands. In addition to the acquisitions, the company has invested heavily in other organizations such as Classified ad in the U.S., acquisition of Rent.com and stubHub in 2007 (Silver, 2004, p. 57).

EBay has pursued another strategy of localization in different regions and countries. Under the localization strategy, the company has been able to achieve a larger market place for localized geographies such as Australia, India, Malaysia, Canada and U.S among others (Ngai, 2003, p. 48).

Success factors

Basing on the above strategies undertaken by the corporation, the company has been successful in meeting its set objectives. The ability of eBay to meet its set objectives is attributed to different success factors such as the ability of the company to attract buyers and seller, the ability of the company to handle a large volume of transactions, selection of a good price and good selection of goods for sale.

According to Howe (2000, p. 91), eBay provides high quality customer services that when coupled with high quality products and services offered, it creates a brand recognition, customer satisfactions and loyalty. These success factors have been able to lead to success due to the importance that the developing the value added tools and services by the company.

Value adding tools to eBay include tools used before and after trade to enhance user experience while making trading faster, easier and safer. With regard to competitors, success factors for eBay include the ability of the company to enhance community cohesion, system reliability, and convenience of the website, lower level of service charges and provision of quality search tools (Chaffey, et al. 2008, p. 78).

Challenges of doing business on the internet

EBay is a multinational corporation that operates in different business environments across the different regions of operation. Due to the dynamism of the business environment, the company encounters different issues that have negatively affected the performance and competitiveness of the company (Acquisti & Varian, 2001, p. 19).

To begin with, the company faces regulatory requirement challenges including regulation of auctioneering, professional selling distance selling and transmission of money. The company encounters legal uncertainties regarding the liability for listings and contents provided by users (Sellers, 2010, p. 103).

The uncertainty could also result from the less user-friendly internet systems in different markets of operation. As the company operates in the countries, it faces the challenge of integrating with local payment providers such as banks, credit and debit card associations and electronic fund transfers. Other challenges faced by eBay are as listed below:

differing levels of retail distribution, shipping and communication structures
Different employer/employee relationships that affects productivity and service provision of the firm, hence profitability
Challenges in staffing and managing overseas subsidiaries
Adverse taxation consequences that could affect negatively the profitability of the company
The firm faces strong local competitors that have forced eBay to exit some markets such as Japan.
The company faces cultural ambivalence towards or non-acceptance of online trading.
Fraud

In spite of the above challenges, eBay if doing everything to overcome them and ensure that it maintains its global competitiveness. The firm has employed various strategies such as utilizing locals from the different countries of operation to conduct it business.

The locals in different regions have enabled the company improve employer/employee relationship in a bid to improve its performance. The advance in technology has enabled the company to outsource expertise from different countries. This has enabled eBay to reduce its operating costs while maintaining a competitive edge.

Conclusion

EBay Corporation operates in the online market place industry that is dynamic and competitive the firm was established in 1995 and since its establishment, it has been able to grow and expand its operations to not only online marketplace, but to include international payment systems such as Paypal and Skype, online communication.

The company has established a competitive advantage in customer service and quality service deliveries that have enabled it maintain a competitive edge in the highly competitive industry. The management of eBay Corporation has pursued the internationalization strategy that has been achieved through several mergers and acquisitions over time.

Through the mergers and acquisitions, eBay has been able to successfully venture into other international markets such as in UK, Asia, China and Canada. In spite of the success in the expansion, the eBay has not been successful in keeping up with competition in all markets.

The company has been forced to exit in some markets such as Japan in which it received stiff competition from Yahoo. The company faces some risks such as fraud and high competition. It is recommended that the company increase its level of interaction and diversification in order to hold onto its market share while improving it performance.

References

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