Athina Iakovou
International Hellenic University
MSc in Management 2009-2010
Student ID: 1102100025
Global Strategic Management
The case of eBay in the Chinese online
market
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Athina Iakovou International Hellenic University MSc in Management 2009- 2010 Student ID: 1102100025
Global Strategic Management
The case of eBay in the Chinese online
market
ii
Abstract
Strategic movements of companies trying to expand to other nations are of great interest especially in our globalised world. In order to enter to new markets, companies usually form alliances with local firms as an alliance can have advantages for both companies. This study touches on the definition of the global strategy and distinguishes it from international strategy. Furthermore an in depth research has been conducted on the vehicle of global strategic design, the international strategic alliances. However, much effort is put on the reasons that companies form such alliances and the reasons of failure. The purpose of this study is to identify the differences between global strategic management and international strategic managements, the reasons why companies select to act globally, and the challenges and difficulties that they face. Qualitative research was selected for this study. Secondary data were used in selecting the data and analyze them in order to formulate the case of eBay. EBay was selected for numerous reasons. Among them lie company‟s international presence and the difficulties that the company faced in the Chinese market. The main findings of this study are that global strategic management and international strategic management are completely different indeed. Finally, there will be some implications in the theoretical and the managerial level regarding the main research questions.
Keywords: global strategy; global strategic management; international strategic management; international strategic alliances
iv
- Introduction Table of contents
- 1.1 Background
- 1.2 Purpose of study and main research questions
- 1.3 Expected contribution
- 1.4 Study structure and development
- Literature review
- 2.1 Globalization
- 2.2 Global strategy
- 2.3 Global strategy vs. International strategy
- 2.4 Steps in formulating a global strategy
- 2.5 Global strategic management
- 2.6 International Strategic Alliances
- 2.6.1 Drivers for forming strategic alliances
- 2.6.2 Failure reasons of strategic alliances
- Methodology
- 3.1 Research design
- 3.2 Research approach
- 3.3 Research strategy
- 3.4 Data collection methodology
- 3.4.1. Scientific Papers
- 3.4.2. Journal and articles
- 3.4.3. Web pages, brochures etc v
- 3.5 Data analysis
- 3.6 Research Quality
- 3.6.1. Validity
- 3.6.2. Reliability
- Data analysis and Discussion
- 4.A The Case of eBay
- 4.A.1. Introduction to the case
- 4.A.2. The Chinese e-commerce market
- 4.A.3. EBay and its international presence
- 4.A.4. EBay‟s entrance in the Chinese online market
- 4.B Discussion
- Conclusions, Limitations and Future Research Direction
- List of references
- Appendix
- Appendix
Chapter 1: Introduction
The goal of this study is to gain insight with regard to the global strategic management and the role that international strategic alliances play in designing and realizing a global strategy. An in depth research will include examination of practices and decisions associated with international strategic alliances, as well as practices that companies use in order to enter the global market successfully. Further analysis of the international alliances and the globalization of firms will be held based on the example of the eBay case study and in particular, on the period in which it entered the Chinese market.
1.1 Background
This subject is of great interest particularly nowadays as we live in the era of globalization, which is one of the factors that motivate companies to act globally. Research on globalization and global expansion counts for many decades. One of the most important studies referring to global expansion is that of Sumantra Ghoshal in
- In his article entitled “Global strategy: an organizing framework” published in the Strategic Management Journal, Ghoshal provides a framework gathering all related theories to global management that existed at that time. Since that time, there have been several publications regarding this subject with the more recent to be the second edition of the book of Philippe Lassere in 2007, titled “Global Strategic Management”, in which he provides a very good analysis of the prospects of global strategy and global strategic management. In our globalised world, the international challenge faced by firms is dual. On one hand, they have to know how to achieve and maintain high exports‟ rates to other nations, while on the other hand, how to defend domestic markets against imported goods. Few companies can afford to ignore the presence of international competition. Corporations in every corner of the world are taking advantage of the opportunities provided to share the benefits of worldwide economic development. This situation has led to more international labor markets. Up to this point, East Asian countries have become market leaders in labor-intensive industries. Strategic decisions are made based on their impact upon the global profitability of the firm, rather than on just domestic or other individual country
considerations. A global strategy seeks to meet the needs of customers worldwide with the highest value at the lowest possible cost.
In the current studies, the theoretical background referring to global expansion and international strategic alliances will be connected to a real case, that of eBay in the Chinese market. Case study methodology is thought to be more appropriate for this specific research as it will represent the reality, that firms confront when entering a new market and the difficulties that corporations are facing using the example of eBay, a successful online company in the U.S. market. Of course the results of this research cannot be generalized, as they are drawn based on the example of a particular company. On the other hand, the difficulties and the challenges that companies face are more or less the same when trying to expand globally. In addition, the fact that eBay is an internet based company will help the study to neglect some of the steps that other firms have to follow in their path towards globalization, since internet and the rapid technological development are tools of globalization. An internet based company is difficult to be categorized as local or global. Thus, the term that is more used in this situation is the term glocal.
1.2 Purpose of study and main research questions
The purpose of this research is to investigate the reasons for which big corporations that are domestically successful, want to expand to other markets and the problems and challenges they confront by with regard to such a decision. The main questions that this study attempts to address refer to the motives of going global, the challenges the companies are facing and the ways in which companies can overcome possible difficulties and convert them into advantages.
The theoretical part will be applied in the case of eBay, when the company tried to expand in the Chinese market. In particular, a thorough research will be conducted referring to the strategies the company followed, the reasons for selecting this specific market and the reasons of failure. In the concluding part there some recommendations are made with regard to what they could have changed in company‟s strategic design in order to retain its competitive advantage.
Chapter 2: Literature review
This Chapter reviews the literature on global expansion, global strategy, the drivers that push companies to expand globally and the role international strategic alliances play in global strategic planning. The reason why this particular topic is examined is the will to investigate the role that alliances play in the field of strategic planning and the success of a company that tries to expand globally.
2.1 Globalization
Over the past forty years, international trade and investment have grown rapidly. Firms have multiplied their presence outside their country of origin, employing more and more people; selling and buying internationally, more and more products are sold in similar stores with similar features and carry a common brand across the globe. In our times, even more companies confront by the need to globalize or die (Lassere, 2007). Although globalization has interfered in everyday life of companies worldwide, only in recent years there are references that are trying to explain more specifically this term. Of course there is not only one specific definition, as it is perceived differently from various scholars. It could be said that “ globalization is the phenomenon of the progressive transition of industries from a multinational to a global competitive structure” (Lassere, 2007).
2.2 Global strategy
As globalization was the new trend by the early 1970s, new terms like “global firm” and “global strategy” have arisen. Although the term “global strategy” has been in use only since the late 1970s and began to assume widely spread use in the 1990s (Mellahi, Frynas and Finlay, 2005), interest in global strategy and organization has been increasing in the last two decades. There are many references in articles addressed to the term global strategy. In the last 30 years, there have been many efforts to determine a conceptual framework for literature referring to global strategy. Differences among authors are not only limited to concepts and perspectives. Their prescriptions on how to manage globally have also been very different and often
contradictory (Ghoshal, 1987). In the literature, there are several definitions of global strategy and global companies. According to Mellahi, Frynas and Finlay (2005), global strategic management is “ a part of strategic management; thus the definition should be built on the basis of strategic management terms, with an added explanation of and focus on the global dimensions”. Global dimensions are debated in the literature, since they are all based on the five basic global dimensions of Yip (1989) and some have tried either to eliminate the dimensions or to further broaden them. Yip (1989) posits that a global strategy has five dimensions including major market participation, product standardization, activity concentration, uniform marketing and integrated competitive moves. However, Yip‟s (1989) five dimensions of global strategy do not appear to capture Porter‟s (1986) co-ordination of value. On the other hand, Mellahi, Frynas and Finlay (2005) support that there are only three dimensions of corporate globality: coordination and configuration, standardization and integration. According to coordination and configuration, global strategy is “ the process of exploiting the synergies that exist across different countries as well as the comparative advantages (including resources that are inherited and resources that are subject of sustained investment over a considerable period of time) offered by different countries” (Mellahi, Frynas and Finlay, 2005). The standardization dimension defines global strategic management as the process of offering products across countries. According to this view, multinational companies pursuing a standardization strategy have a global strategy, while multinational firms pursuing an adaptation strategy should be referred as implementing an international strategy (Mellahi, Frynas and Finlay, 2005). Referring to the third perspective that Mellahi, Frynas and Finlay (2005) introduce, global strategy is concerned with the integration of competitive moves across country markets. At this point it would be worthy to delineate the key concept of global strategic management. “ Global strategic management is the process of crafting a coherent, coordinated, integrated and unified strategy that sets the extent to which a firm globalizes its strategic behaviors in different countries through standardization of offerings, configuration and coordination of activities in different countries and integration of competitive moves across countries. Therefore, a global strategy involves the carefully crafted single strategy for the entire network of subsidiaries and partners, encompassing many countries simultaneously and leveraging synergies across many countries. (Mellahi,
their definition “integration” and “competitive moves” are “ the extent to which a firm’s competitive moves in major markets are interdependent. The international strategy gives subsidiaries the interdependence to plan and execute competitive moves interdependently. Thus competitive moves are based exclusively on the local competition. In contrast, global strategy plans and executes competitive battles on a global scale ” (Mellahi, Frynas and Finlay, 2005). Yip (2002) notes that international strategy treats competition in each country on a standalone basis, while global strategy takes „an integrated approach‟ across different countries.
The previous in depth discussion that discriminates the terms of global and international strategy will be proved very useful for defining the strategy that eBay followed in the Chinese market and the mistakes into which the company fell in entering the specific market.
2.4 Steps in formulating a global strategy
Logically most firms that act locally wonder why to act globally. Most companies in their start up stage tend to be more localized trying to position in their home countries. The next step that a company can make is trying to export its goods to other countries when the domestic status remains of primary importance. Furthermore, international strategy follows when the firm establishes subsidiaries outside its home market. During this phase, each subsidiary is likely to have its own strategy and will analyze, develop, and implement that strategy by tailoring it to its particular local market. As multinationals mature and move through the first three stages they become aware of the opportunities to be gained from integrating and creating a single strategy on a global scale. Moving from a domestic or international strategy to a global strategy is not an easy process and creates various strategic challenges. (Lassere, 2007)
The extent to which a multinational company adopts a global strategy is determined by three categories: macro globalizing drivers (external), industry globalizing drivers and internal globalizing drivers (Lassere, 2007). Macro globalizing drivers include globalization, information and communication technology. Globalization includes global economic integration, political globalization and globalization of ideas and
rules. On the other hand, the development of technology has shrunk the distances, information flow is now more complete and faster than in previous years, more accurate, timely and accessible (Lassere, 2007). Moreover, industry globalizing drivers include market globalization drivers, cost globalization drivers, government globalization drivers and competitive drivers. Market globalization drivers are referring to evidence that suggest that several markets are converging around the world. Cost globalization factors include global scale economies, sourcing efficiencies and cost advantage (comparative advantage). Cost factors are thought to be the most important factors that lead companies to act globally. The impact of government drivers on industries is an important factor that influences global strategies. Governments have different policies for different industries. While there is a tendency to lower trade barriers and less regulation, for a few sectors trade barriers are prohibitive and highly regulated governments. In addition to trade barriers and regulations, technical standards are becoming similar around the world. Finally, intense competition across countries and the continuous increase in the number of global competitors, multinational firms are factors that lead companies to follow a global strategy. To conclude, two key internal factors significantly influence the extent to which a firm adopts a global strategy: global orientation and international experience (Lassere, 2007)
2.5 Global strategic management In order to define global strategic management, Mellahi, Frynas and Finlay (2005) use the three differences from international strategic management. Based on the previous analysis, global strategy dimensions can be categorized in three main dimensions: the configuration/ coordination, standardization, and integration dimensions. The following figure is adopted from Mellahi, Frynas and Finlay (2005) in order to indicate the three dimensions of global strategic management.
According to some researchers, a large percentage of companies form alliances due to marketing and promotional objectives, access to new technologies, access to new markets, to offset political risks etc. On the other hand, although many companies want and even try to form alliances, surveys show that almost 70% succeed in doing so (Radu, 2010).
Global alliances are more complex than local alliances and restrained in their strategic and economic scope (Lassere, 2007). Doz and Hamel (1998) distinguish three broad categories of strategic alliances.
- Coalitions are “ alliances of competitors, distributors and suppliers in the same industry putting together their capabilities with the view of spanning world markets or to establish a common standard”. (Lassere, 2007)
- Co-specializations are “alliances of firms that join their respective unique but complementary capabilities to create a business or develop new products or technology” (Lassere, 2007)
- Learning alliances are created in order to transfer know-how between partners. (Lassere, 2007)
Another classification categorizes international alliances as vertical (alliances between buyers and suppliers) or horizontal (alliances between competitors). This classification gives a broader view of the types of strategic alliances than described in the previous categorization (Mellahi, Frynas and Finlay, 2005)
2.6.1. Drivers for forming strategic alliances
In the literature, forces and drivers for forming these kinds of alliances are referred to differently. Among drivers that force the forming of strategic alliances are globalization and technological factors (Lassere, 2007). From a critical perspective, there is no evidence that these two are the only drivers that push companies to attain an alliance. There are of course more specific factors that are responsible for creation
of strategic alliances. In the following part there will be a review of the reasons why companies actually form strategic alliances.
a. Growth and penetrating new markets
Growth and penetrating into new markets strategies are some of the main reasons for creating strategic alliances. In today‟s global economy, creating an alliance with a company already operating on the desired market is a tempting option. The partnership with an international company may turn the expansion to an unknown market into an easier experience. (Radu, 2010)
b. Access to new technologies and/or the best quality or the lowest cost
Not all the companies have the required technology for competing on a specific market. Therefore, they create alliances with other companies that have the necessitated resources. By such a strategic movement, both parts gain advantages. Another important reason for creating strategic alliances is outsourcing. Furthermore, many companies form strategic alliances in search of the best quality or technology, or the cheapest labor or the lowest production costs. (Radu, 2010)
c. Reducing the financial risk and splitting R&D expenses
In some companies financial risk that appears is just too high for a single company to undertake. In such a case, two or more companies group together and agree to take that risk together, considering that strategic alliances represent an excellent way for better serving their customers. They may form partnerships with others that also need help and can give some help in exchange. (Radu, 2010)
d. Gaining and sustaining a competitive advantage
“Strategic alliances are very tempting for small businesses, for which sometimes the only alternative to stay competitive and survive in today’s technological evolution, in such a changing world, is to form strategic alliances with other companies ”(Radu,
c. No clear or good objectives
Many alliances start from wrong reasons. This is for instance, the case of companies that enter alliances in order to overcome competitors. On the contrary, this action will emphasize the existent problems between the companies that have joined together. According to Radu (2010), “ an alliance can better clarify partners’ positions, and if their interests are not mutual, competition will not decrease, it will increase ”. Furthermore, alliances are created in order to solve a series of internal problems of a company. On the contrary, new issues will arise and the old ones will deepen. There are also many strategic alliances that were created for reasons and they still do not function (Radu, 2010). Among reasons that destroy an alliance are different objectives, the incapability of risk sharing and lack of trust. According to Radu (2010), “ cooperation in every important aspect is the key to a successful strategic alliance. Unfortunately, many managers enter an alliance without taking the necessary steps in order to ensure the basic cooperation principles .”
d. Lack of coordination between management teams
Decisions taken by one part that do not correspond to requirements and objectives of both management teams may lead to serious problems in the implementation of a strategic alliance. Actions like the ones described previously can increase the possibility of destruction of an alliance (Radu, 2010)
e. Differences in operational procedures and partners’ attitudes
Different attitudes of the companies involved may generate other problems. For example, difference in delivery time or lower qualitative parameters can deteriorate the partnership, according to Radu (2010).
f. The relationships risk
“This potential risk refers to the probability that partner companies do not have a real commitment to the strategic alliance, and their opportunistic behavior to undermine the partnership’s perspective” (Radu, 2010). Of course, companies are more interested in following their own interest rather than the common one. Radu (2010) argues that as these activities jeopardize the alliance‟s feasibility, the relationships risk is an important component of the total risk assumed by strategic alliances.
g. The results risk Result risk refers to the possibility for an alliance to fail even when partner companies have a total commitment to the alliance. This situation is related mainly to external factors such as changes in government policies, wars, economic recession, high competition and demand fluctuations and internal factors, such as lack of competition in key domains (Radu, 2010).
h. Creation of a future local or even global competitor
There are some cases when a partner will use the alliance in order to test a market and on this base to prepare the launch of their own subsidiary (Radu, 2010). Companies will reduce the risk of creating a competitor, who can be a real threat in their main business strategic operations, by refusing to cooperate in their operating market. “ It is also possible for a company to insist on contractual clauses that constraint partners not to compete in specific areas or for specific products (this barrier may be created, but only for a limited period of time)” (Radu, 2010). In addition intellectual property may also be a victim of strategic alliances in research and development field.
Managers must know when to adhere on a strategic alliance and when to terminate it. Alliances may be terminated for several possible reasons. The collaborative relationship may break down in partner disputes that cannot be resolved; the alliance may accomplish its mission and therefore outlive its purpose; partner strategies may