Case 3

lOMoAR cPSD| 3094154

Summary The article describes the competitions of China’s online C2C market between domestic company Taobao and worldwide internet C2C service leading company eBay. At the beginning, there were difficulties to expand the C2C market in China, which were low internet penetration, loose regulation for online exchanges, undeveloped credit system and issuing banks’ rejection of credit cards from other cities. In 2002, eBay entered into the China market through acquisition of EachNet.com. Afterwards, Alibaba identified potential threats to its market share brought by eBay. Therefore, it launched Taobao to compete with eBay. Finally, Taobao became the market leader in China. It could be successful because of its flexibility in personal transactions, effective localization and relationship with government. Group Discussion It was discussed that Taobao’s key resources were technology, financial backup from Alibaba, strong brand equity, start-up culture with friendship and informality, farseeing CEO and young local workers. Its key capabilities were to be able to understand Chinese customer’s needs, provide reliable delivery and payment system. Its business strategy of offering service without any transaction fees led Taobao to succeed. It was a successful localization. For eBay, the key resources and capabilities were strong financial position and worldwide company reputation. Its business strategy was acquisition of Chinese companies and was to build new user communities. It failed due to intense competition and country distance. EBay was not able to cater the customers’ needs. Additional thoughts Considering core competencies, Taobao could understand the Chinese customers compared to eBay, develop social capital with local companies and motivate employees with effective communication channels. These core competencies brought Taobao competitive advantages. The design and delivery method of products and services were satisfied by the customers. Social capital contributed to the long--‐term partnerships with those companies. Company culture with strong motivating power can promote employee citizenship. The VRINE framework can be used to carry out the internal analysis. Taobao’s customer service was valuable, rare, inimitable, non--‐substitutable and exploitable. Taobao launched Alipay which was a secured payment gateway. It enhanced the credibility and security of online transactions. Therefore, it increased customers’ confidence in purchasing products on Taobao. Its customer service could gain the long--‐term competitive advantage. In contrast, eBay’s customer service could not fulfil all the elements in the framework. Customers mistakenly recognized PayPal and An Fu Tong which was developed by eBay. Localization was the key indicator for the success of dominating the market in China. Chinese customers preferred new products and bargains. The products were not in variable prices and no commission fee would be required to pay to Taobao for trades. EBay continued using its international operation model during expansion into China market. It implemented auction method for sale of used products. After watching video about Taobao in lesson, it was found that Taobao particularly designed its online website, including website layout mainly colored in red and orange, differentiation of purchase area for women and men and pop-- ‐ up promotional videos. Oppositely, eBay applied relatively simple and clean website interface and did not establish a unique website for Chinese customers. Taobao showed its sincerity to provide inexpensive and high--‐ quality products, as well as allowing customers to have pleasant online shopping experience. Grade: B