eBay's unusual approach yields success in China

13 September 2010

BEIJING: eBay, the e-commerce giant, expects China to deliver revenues of $4bn (€3.1bn; £2.6bn) this year, even though it does not have a major presence in the country.

While eBay sought to establish a premier position in China by purchasing EachNet for $180m, since 2006 this property has been operated via an alliance with Tom Online.

Such a move followed the rapid rise of Alibaba's competing portal Taobao, which provides peer-to-peer auctions alongside digital shopfronts for many local and multinational brands.

"Alibaba dominates the Chinese domestic market," said John Donahoe, eBay's ceo, told Bloomberg. "We've, in essence, exited the domestic market."

Despite this, Donahoe forecast cross-border trade from China will jump by 80% to $4bn in 2010, a trend largely driven by small- and medium-sized businesses selling their goods abroad.

PayPal, the online payment system used by eBay, currently has 1m users in the Asian nation, compared with the 300m people registered on Alibaba's Alipay service.

"We are the leading cross-border global e-commerce and payments network. I don't view Alibaba as a competitor. I view them as a colleague and a potential partner," said Donahoe.

"Over time, we will look for opportunities to partner or joint venture or work together with Chinese companies."

Jack Ma, Alibaba's founder, backed this strategy, and predicted it might help the company enhance its international status.

"eBay can support us globally so we can build a website on which small and medium-sized enterprises from China can sell to the world," he said.

Bill Smead, of Smead Capital Management, argued the huge internet population in China means considerable opportunities remain for eBay.

"We don't think the battle with Alibaba over the next five years is a game breaker," he said. "The story is way bigger than that little bit of duking it out."

Galant Ng, online analyst at Tai Fook Securities, also suggested that, given the challenges of cracking China, a measured approach could ultimately prove the most profitable.

"US internet companies have had difficulty entering the China market due to both political reasons and cultural differences," said Ng.

"They may have to use something other than a direct approach. Maybe strategic partnership is the way. Alibaba is a good strategic partner."

Data sourced from Business Week; additional content by Warc staff