Core Competencies of Ebay

In this report, there is an analysis about the global company – eBay. In the content, eBay’s core competency, value chain, and the challenges that eBay face will be illustrated and analyzed in order to get more understanding of the differences with the other companies.

Also, there is a local company – Charles & Keith is selected to do comparison with the eBay’s globalized strategy. After comparing each other strategy, then there will be the critical analysis of it that whether the strategies are get used by each others.

This analysis helps to illustrate an international business how it works like. Meanwhile, it gives the understanding about the core competency and value chain are the key components to create greater value to customers.

Introduction

In pace with fast growing of technology, convenience is given broadly by accessing the internet for chatting, e-mailing, video conferencing, even making online payment, online shopping, online auction, and other e-business activities. In today’s competitive business market, eBay is one of the successful e-commerce – online auction sites which was founded by Pierre Omidyar (Cohen, 2002).

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In 1995, eBay was officially built as an online trading platform that operates person-to-person trading in a web-based auction format forum by Pierre Omidyar. As a matchmaker, eBay provides a stage for sellers and buyers to connect in worldwide, however, it could be individuals and businesses involve in buying and selling variety of goods and service. Invisibly, eBay provides a place where buyers and sellers can conveniently meet, exchange information about goods and prices, manage sales at minimum costs, and made collecting and bargain hunting fun (Bunnell and Luecke, 2000, p.14).

In the world’s largest online market, as pioneer as eBay is, its virtual setting where capital, desire, and identity converge has progressed into a global economic, social, and cultural phenomenon (Hillis, Petit, and Epley, 2006). According to eBay self-characteristic which is leading a universal shopping destination on the internet virtually that has seen a driving force of global e-commerce. However, for surviving in the global market, eBay acquired PayPal in 2002, to enable any person or business with an e-mail address to send and receive payments online securely, easily, and quickly. Besides, eBay also acquired SKYPE to enhance its operation thus maintain a certain service standard (Daniels, Radebaugh, and Sullivan, 2009).

Due to a global e-commerce business that eBay pursue, comparatively, challenges about translation software, digital divide, cultural attitudes about e-commerce, government regulations, and the pace of international expansion are probably to be seen as obstacles in development (Daniels, Radebaugh, and Sullivan, 2009).

Core Competency of eBay

In the case of eBay, the core competency which will be analyzed in here is similar to the company’s internal factor – strength. According to Hitt, Ireland, and Hoskisson (2009, p. 103), core competencies are resources and capabilities that seen as competitive advantage for the firm over its rivals, meanwhile, it is a value-creating strategies to satisfy customers’ needs. In order to meet customer’s prospects across time, constantly improve, innovate, and upgrade their competencies is needed. Being a strong core competency, it must have some significant components which are including the perceived customer benefit of the end product and difficulty of imitation (Hiebing and Cooper, 2004).

For the sake of further developing and steadily keeping the first leader position up in the e-commerce industry, the core competencies of eBay have:

An efficient distribution system with developed proprietary software

In eBay’s own website, there are series of stages that allow sellers to design, build up, monitor, and organize their particular auctions to sell outstanding thematic goods for those buyers are willing to pay a premium price on it, whereas, buyers used eBay’s software to search products and place bids (Daniels, Radebaugh, and Sullivan, 2009).

A developed proprietary software which is scalable, full-bodied, user interface and transaction-processing system that handle all aspects of auction process (Figure 1). For example (Figure 2), it sends e-mails when users register for the service, place a successful bid, and outbid. Moreover, it sends daily status updates to active sellers and bidders and maintains user registration information, account information, current auctions, and historical listings (Bunnell and Luecke, 2000, p.32). It provides convenience for both sellers and buyers to access eBay to check up the new status whenever.

Figure 1: Auction Process (I)

Figure 2: Auction Process (II)

Global Reach

With the mission of offering global trading platform where anyone could trade whenever at anywhere, eBay acquired the leading auction websites in 23 countries such as Australia, Belgium, Canada, France, Germany, India, Ireland, Italy, South Korea, Singapore, Spain, Sweden, Switzerland, Taiwan, and the United Kingdom. People could find strange and cheaper products from eBay because of its global capability (Daniels, Radebaugh, and Sullivan, 2009).

An Extensible Strategy

As a monopoly in America’s online auctions, eBay’s extensible strategy has provided variety of products, services, and markets. There are around 12 million online auctions set up in different countries and has divided into 18,000 different categories. Almost approaching 2 million of new items are provided for sale; likewise, there are 62 million registered users from eBay are glad to find the items here too. That’s why the competitors such as Yahoo and Amazon are hard to access in the auction market to grab the market share (Dror, 2003).

Acquisitions and alliances with companies

By associating Square Trade, Auctionwatch, AOL (Nerney, 1999), IBM (IBM and eBay Forge Broad e-business Alliance, 2001), Yahoo (Yahoo and eBay seal online deal, 2006) and acquired PayPal and Skype (Daniels, Radebaugh, and Sullivan, 2009); eBay has beneficially meet the customer satisfaction meanwhile obtain the greatest propagation to the users.

Strong brand identity and recognition

‘A powerful and highly recognized brand name commonly results in greater unit sales and allows the seller to charge a premium over “off-brand” competitors’ (Bunnell and Luecke, 2000). eBay could have strong brand recognition and well known by people are attributed by its global expansion and building up a strong user base. There is 67 percent market share from brand identity of eBay (Lee, 2007).

eBay’s Value Chain

Figure 3: Porter’s Value Chain Model

In the Porter’s value chain (Figure 3), it is a model to analyze the organizational process as activities that the firm to has the competitive advantage and create value for the customer (Michael Porter Value Chain Model Framework, 2010). By analyzing the primary activities, eBay could able to see where the value can be added, thus, allow the business to achieve a sustainable competitive advantage. Therefore, value chain becomes an important key tool for any type of organization (Wickramasinghe and Lubitz, 2007).

The “margin” (Figure 3) is as same as added value, while the firm is divided into “primary activities” and “support activities”. Primary activities offer the customer a level of value that exceeds the cost of the activities (The Value Chain, 2010) includes inbound logistics, operations, outbound logistics, marketing and sales, and service. On the other hand, the support activities are supporting the primary activities to make sure these activities that a firm has the opportunity to create greater value. Also, a ‘competitive advantage may be attained by reconfiguring the value chain so as to provide lower cost or better differentiation (The Value Chain, 2010). In the following page, there is a value chain analysis of eBay that how it works with the value chain (Figure 4).

Primary Activities (Bidgoli, 2004 )

Inbound Logistics

– Internet Links facilitate posting of product information.

– Listings of products describe to customers.

Operations

(Value Creation)

– Database search engine allows easy access to products.

– Dynamic pricing allows for bidding to determine market price.

Outbound logistics

– Distribution is facilitated or the responsibility of seller.

– Escrow system attempt to limit fraud.

Marketing and Sales

– Having first mover advantages and advertising to create brand name advantages.

– Forums allow for community development.

Service

– Database supported reports on sellers and buyers.

– eBay community that people interacted with each other under a set of shared rules and expectations.

Support Activities (Gopaikrishnan and Gupta, 2007)

Procurement

– Does not take possession of the items being sold, thus reduces inventory management costs.

– Secure the lowest possible price for purchases of the highest possible quality.

Technology Development

– Uses online option to innovate, to reduce costs and to protect and sustain competitive advantage.

– Includes internet marketing activities, lean manufacturing, customer relationship management (CRM), and many other technological developments.

Human Resource Management

– Developing a community whose members are unknown, trust among traders.

Firm Infrastructure

-Management Information System (MIS) for planning and control

-Operated much like a newspaper-classified section, it facilitated person-to-person transactions but did not get ownership of the items being sold.

Figure 4 -eBay Value Chain

The function of value chain is to reduce the cost and create as well as enhance the differentiation. eBay configure with its value chain activities which around the global world, the aim is to maximize the perceived value for its global users and lessen the costs of value making. By having the primary activities, coordination of the value chain is significant with the use of supporting activities which integrated all the activities into a solid whole.

There are several factors affected eBay to configure value chain globally are including cost/price issue, business environments, translation software, logistics, and customers’ needs.

Cost/Price issue

As operates a global networking, the currencies exchange rate, different wages rates in different country, inflation rates, and government regulations have deeply influenced the costs of the business expending as well as the price setting.

Business Environment

Value chain is configured in order to have strong competence to confront to the competitors like Amazon.com and China’s website – Alibaba.com. By operating flexibly, it would able to help eBay to increase the competitive advantage.

Translation Software

Due to eBay acquired auction web sites in many different countries, the language used in the website also would be different that each country has their own native language. Therefore, value chain helps to maximize the technology development and thus offer convenience to customer.

Logistics

Have shown graph (figure 2) and mentioned how the eBay works. There are inbound logistics and outbound logistics. Therefore, value chain is configured to control the operation and minimize the cost on the way that eBay operates its auction website. Besides, it maximizes the perceived value to users by creating value to them through the updates status.

Customers’ Needs

As mentioned before, eBay has the largest user base. To fully maximize the value to the customer and understand what they want, it is necessarily to configure value chain. By establishing those value chain activities, those have influenced and shorten the distance between the users. It is a key factor that influenced not only a single country but it is useful to be configured in all country that eBay entered.

The more eBay expand the more eBay coordinate. Coordination is a crucial part in conducting a value chains model that how it helps to combine all the activities and works with the core competencies effectively and efficiently. If the coordination is well done in the value chain, the market share of eBay will be boosted up absolutely. There are several factors affected eBay to coordinate the value chain activities are operational obstacles and national cultures.

Operational Obstacles

As acquired many leading auction website, the communication in verbal and nonverbal have set up a barrier towards success. It is because misunderstanding the particular local language will hinder the related information of the products or service. Besides, the currency exchange rate measurement systems also bring out the problem that has made users confused about the price indeed. The government regulations also acts as a main role in this factor that some countries have their own unique legal that some products are prohibited to enter.

National Cultures

Different countries have different culture attitudes and perceptions. For example, most of the Asian countries like China and Japan; they may not comfortable with purchasing the product through website that without touching the product in reality. Or even China, they already have their own local leading auction website – alibaba.com. Therefore, coordination of the value chain is critical to be adopted in eBay to confront the dilemma.

eBay’s Value Chain is Characterized as Virtual

In the e-commerce business industry, eBay is a Web-based forum business that the firm is not producing any product and it just acts as a matchmaker or middleman to help its users who are either individuals or businesses to conduct the auction and provide a place for people connecting to each others in worldwide.

eBay achieves competitive advantage and create value to the customer just only by keeping applying the extensible strategy to generate new products, services, and markets. Due to e-business matchmaker eBay special business characteristic, it supports communication to value-oriented buyers and sellers, sustains the principles of trust and safety, guarantees low fraud losses and high security to its community transaction process by delivering state-of-the-art information technology (Daniels, Radebaugh, and Sullivan, 2009).

In here, eBay is characterized as virtual value chain because of some reasons which are illustrated in the following.

An online based only e-commerce business in the virtual marketspace

eBay is centralized its business in an online trading platform that only posting information of product and service or other comedies to its users. In the E-marketplace, it providing information merely to the community is not counted as producing products; also, eBay do not has any ownership to the physical product. eBay just acts as a catalyst between the sellers and buyers (Bidgoli, 2004).

No economies of scale and scope is applied to the virtual value chain (Heterick and Twigg, 1999)

It is because eBay pursue a matchmaking service that charges the closing auction price to gain the revenue only.

There is no input and output (Heterick and Twigg, 1999)

As mentioned that there is no any product is produced by eBay and it is launched as an online trading platform that conducted in the forum.

Creates value chain through five activities that different from the traditional value chain

eBay gathering and organizing information of the seller’s product into a database then buyers can pick what to bid on. eBay synthesizing the requested information to buyers also. Besides, eBay also gathers, organizes, synthesizes and distributes information about the complaint from both sellers and buyers (Rayport and Sviokla, 1995). From these several activities, these have created value to the users to show loyalty and trust on eBay.

Implications to the Challenges Identified

The challenges faced in the case of eBay are including translation software, digital divide, cultural attitudes about the e-commerce, government regulations, and the pace of international expansion (Daniels, Radebaugh, and Sullivan, 2009). Moreover, different currencies, customs regulations and inspections, and trade rules produce substantial barrier to eBay. Those are discussed in the below:

Translation software

As a global trading platform, eBay has to face the problem that describing the auction post into particular native language in order to be understood by those native languages of potential buyers. Yet, there is limitation of the translation software that usually imperfectly translates the native language has become obstacle for eBay to its global strategy (Daniels, Radebaugh, and Sullivan, 2009).

Government regulation

Each country presents unique cultural and legal challenges. It is a big issue that whether the product or service listed in the auction platform can be exported or imported to the countries (Daniels, Radebaugh, and Sullivan, 2009). For example, a French judge was faced a problem that the Nazi memorabilia is prohibited to enter in France.

The digital divide

Mostly it will be faced in the developing countries like India and China that they mostly do not own their computer and the credit card as well. Due to the different level of economic condition and lack of internet access, it is hard to enter into the particular country and that would be a risk.

Cultural attitudes about e-commerce

In high uncertainty-avoidance cultures country like Japan, India, China, even the half of Asian are distrustful of e-commerce transactions. They tend to purchase the items that are new (Daniels, Radebaugh, and Sullivan, 2009). Sadly, eBay was suffering in the problem that the online trading is not attracted by them.

Pace of international expansion

Due to expand the business to the overseas is seen to be too rushed; as a result, it brought out the difficulty for acquisition. The premium paid to acquire the foreign operation is getting increase (Daniels, Radebaugh, and Sullivan, 2009).

According to the eBay’s global strategy, majorly, eBay is carried out an AAA global strategy. These AAA represents acquisition, activation, and activity. There are some implications to the challenges in today and in the future are shown in the following:

May lose the users as well as the customer’s loyalty

If the translation software is not fixing well, it will probably influenced the users move to the another auction forum to continually their business. Invisibly, it gives the chances to Amozon.com to grab the market share from eBay. Besides, without the convenience that eBay gives, users will lose the patient to eBay and shift their loyalty to the competitors.

May earn an additional price from the translation and market share from developing countries

In the future, by helping the user translate the post meaning to him or her familiar language with a few dollars charges will help eBay to have another value chain activity to increase its value. Also, continually operate eBay auction forum in India and China would able to gain access into this tough market that their population all are quite high.

Without knowing the country legal may get in problem

eBay must respect and recognize to each country legal environment in order not to against with the country’s legal issue. From the experience, eBay must try to improve and enhance the relationship between each country’s governments.

Gain learning experiences to the cultural attitude

Before entering the particular country, eBay must do a critical Pestel analysis about the country so as to eliminate the chances to face the loss. Through the learning experiences in Japan, eBay learned the different cultural attitude and their behaviour. In the future, eBay is able to be knowledgeable before it decides to enter a new expansion.

The Comparison of the Globalized Strategy

The local company which is being picked up is Charles & Keith. Charles & Keith is a Singapore based fashion company. It is well known by selling the woman’s footwear and accessories. In today, Charles & Keith has been over 170 franchises worldwide and be one of the successful story in the international chain. Its global expansion started at 2000, the outlets in 22 countries including Japan, Brunei, and Indonesia (Ramlan, 2010).

In the following, there is a table (Figure 6) that showing a comparison of the globalized Strategy between eBay and Charles and Keith.

Acquisition

Franchising

Activation

Partnership with DBS Bank (Charles & Keith ups ante by venturing into Asia, ME & Europe, 2010)

Activity

Combination of affordability and design (Tan, 2009)

Recruiting Japanese and others nationality (Tan, 2009)

Standardization of employees and service

Figure 5: Comparison of Global Strategy

As a result, there is no similar globalized strategy between eBay and Charles & Keith. It is because eBay and Charles & Keith are serving in different industry and their value chain is totally different. Why? It is because eBay only offers an auction website for the buyers and sellers to make business transaction. Its value chain is virtual value chain. On the other hand, Charles & Keith is doing business in fashion industry that they produce, design, and selling by themselves. It is a traditional form of value chain that has input, output, economies of scale or scope.

If eBay’s acquisition strategy is applied into Charles & Keith to develop its expansion to overseas, it will be succeeded in spending enough amounts and having a clear Pestel analysis before entering a particular country. While, if Charles & Keith’s franchising strategy is applied into eBay, it will not be succeeded. It is because the eBay’s business model and the whole operation are cannot be franchising due to its special e-commerce background.

Secondly, eBay’s activation is encouraged to apply in Charles & Keith because the strategy is aimed same perspective. In eBay, its activation is aimed at increasing the users participants like sellers and buyers. Therefore, to increase customers’ purchases, Charles & Keith is possible to apply it. While, Charles & Keith strategy that partnering with DBS Bank is encouraged to be applied in eBay in order to get enough investment.

Activity of eBay also is encouraged to be used in Charles & Keith in order to increase the volume of sales. While, combination of affordability and design is not encouraged to apply in eBay since they are different categories of business. Continually, the overseas recruitment is encouraged to be applied in eBay so as to get more understanding of the particular country culture. Lastly, that is about the standardization of product and service, in here, although the industry is totally different but they still can use same concept that is standardization to their service in both company.

Conclusion

In conclusion, by analysing eBay business, it makes a lot of understanding about the company working in the global world. Core competency and value chain actually are having some integration, this two components are the key components that the company how to create the greatest competitive advantage and create value to the customer. Thus, it benefit customer, as long as get used to it, the customers show the loyalty to the company too.

At the last part of the comparison of the globalized strategy, that is an interesting part that actually the globalized strategy between this two company all are having the fundamental concept that is how to increase the customers and the market share throughout the worldwide.