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eBay is an online auction service that has gained much publicity since their inauguration in the September of 1995 by a 28 year old software developer, Pierre Omidyar of Apple Incorporated. A pet project he initially called AuctionWeb, he posted up a faulty laser pointer to test his algorithm in the web application he created, someone actually offered him $14.83 for the faulty laser pointer stating that he collects such items. That incident started Pierre thinking and eBay was formed. Since then, eBay has been expanding their business worldwide.
One of the countries which eBay has failed badly was Japan. They had a joint venture with NEC Corporation to form eBay Japan but the final results after 3 long years of fight that has been proven as futile attempts to make a foot hold in Japan, eBay Japan had no other choice but to withdraw because they lost out for not being there earlier, not enjoying a first mover advantage, the rise of the Rakuten Auctions as contender against Yahoo! Japan Auctions further dug eBay deeper into the oblivion against ever seeing themselves as a leader in Japan.
Hiring the right country manager makes all the difference, eBay did not ensure the credentials and expertise of their country manager appointed for the task. Apart from that, the typical American style of “Announcing” their grand arrival even before they could sniff the air in Japan, gave competitors a chance to prepare themselves against anyone trying to steal their piece of the pie in Japan.
Introduction of eBay
When we hear of the word, “Auction” we often think of the famous Christie Auction house in England, located at King Street in St. James. The function of an auction house is to showcase rare or prized items that could fetch the highest price through an elaborate process that allows individuals with deep pockets to out-bid one another to purchase these items.
Thanks to modern technology, these auctions are being brought on-line via the use of the Internet. Users can buy or sell items online through the same elaborate process, but at the comfort of their room, in front of their computers without the need to physically be at the location. eBay is one such on-line auction service that has gained much publicity since their inauguration in the September of 1995 by a 28 year old software developer, Pierre Omidyar of Apple Incorporated. A pet project he initially called AuctionWeb, he posted up a faulty laser pointer to test his algorithm in the web application he created, someone actually offered him $14.83 for the faulty laser pointer stating that he collects such items. That incident started Pierre thinking and eBay was formed.
AuctionWeb became a new focus for Pierre. It occupied his entire domain, www.ebay.com, acronym for Echo Bay (the name of his consulting firm).
By 1996, the company was large enough to require professional help to make the concept, even more profitable. Jeffrey Skoll, Stanford MBA graduate, went onboard the profit spinning ship. Meg Whitman, a Harvard graduate soon joined the `crew’ and together with a formidable business team, created the modern day eBay that we know today. By 1998, the pioneers of the company were billionaires.
Entry Strategy 1 – eBay Join Hands with NEC Corporation to enter Japan Market
The joint venture with NEC Corporation to form eBay Japan seemed like a great idea. Infact, it is a great idea. Having a localized corporation to enter the Japanese market builds the credibility any foreign company will need. Having a myriad of possibilities from because they could trade with anything.
eBay gained exposure through NEC’s contact with Biglobe, an Internet Service Provider. Much hype was anticipated as the CEO for eBay, Mr. Okawara, looked forward to bringing online auctioning to the Japanese people.
However, the Japanese culture amongst the younger generation is to meet at malls, to try out new introductions into the Japanese market. Touch and Feel is what they prefer. Also, it’s a social norm in Japan that people meet at malls to socialize or just to look at people. What eBay tried to do, was to introduce another culture’s norm into Japan. Though a workable and definitely profitable business model in the states and probably even in the western world, they failed to garner enough market sampling to warrant an entry into the Japanese market. That’s just part of the challenge they face.
The other factor that had brought forth the early retreat from Japan is the presence of Yahoo Auctions in Japan. Yahoo entered the market in 1996, together with Softbank. The collaboration between Yahoo and Softbank was at the right time where the fad of the internet is still hot. They built the largest portal in Japan which in turn means their presence already had a huge market share from consumers and sellers alike who has loyalty to the company. Japanese people have high level of loyalty to product brandings and service providers.
Another thing eBay Japan did not forsee is that, Japanese people, do not appreciate hand-me-downs, second hand goods.
Entry Strategy 2 – eBay Joins Hands with Yahoo! in Japan
eBay has about 83 million users and Yahoo Japan has about 6.6 million registered users. eBay and Yahoo agreed to link their auction sites to facilitate “cross-border trading” and invigorate the online auction market. This would enable users of Yahoo Auctions Japan to bid for items listed on eBay’s US site using their Yahoo Japan ID, and eBay users in the US to buy items auctioned on Yahoo Japan using their eBay ID. The plan, which will enable registered users from Japan and North America to participate in a single marketplace.
Japanese-language Website sekaimon.com, unveiled by the companies will enable Yahoo Japan users to take part in eBay auctions and is part of a strategy to implement the integration.
A reverse setup, enabling North American users to shop for items from Japan under an English-language bidding system. The eBay portal will initially feature Japanese licensed-character goods, comic books, and other collectibles listed on the Yahoo Japan auction site.
The integrated marketplace will also offer services to streamline payment, shipping and customs clearance.
International users were able to use the US based web site consumers craved trading in local currencies and the ease that domestic transactions presented.
Disadvantages of Non-first movers for Auction
Disadvantage 1 – Unable to garner the interested customers
The first disadvantage of not being the first mover to launch the online auction services has caused eBay Japan to lose the opportunity to garner the interested customer base who are first timers that really wanted to attempt the Online Auction services.
Being the first mover would have allowed the first timer customers whom are interested to sign up and attempt this online auction services that has never been provided in Japan as many analyst believes that the launch would not have been successful due to the image consciousness character of the Japanese.
Therefore, being only the second launching provided, eBay Japan has lost the genuine interested first timer customers as they have already signed up for the online auction services provided by Yahoo! Japan Auction when they launched the service in September 1999, which was five months before eBay Japan.
Disadvantage 2 – Unable to attract over Yahoo! Japan Auction loyal customer base
The second disadvantage is eBay Japan is unable to attract over the loyal customer base garnered by Yahoo! Japan Auction five months before their launch. All the loyal customer base has already been used to the services provided by Yahoo! Japan Auction has got no intention to move over to eBay Japan.
In addition, Yahoo! has been an established and best known brand in Japan for other services such as Yahoo! Email, search, etc however, in contrary, eBay has only been known for online auction services and limited to overseas which is outside Japan. Therefore, Japanese, who generally only trust reputable, well-known and established brands, are more comfortable using Yahoo! instead of eBay.
Disadvantage 3 – Comparison of first and second online auction service launcher
The third disadvantage of not being the first mover is being compared to the first launcher. The customers has done a comparison between Yahoo! Japan Action and eBay Japan on the difference in the different areas such as charging listing fees, final value fees, branding strength.
Yahoo! Japan Auction has launched the online auction services before eBay Japan with all services free and no any transaction charges at all. Therefore, in comparison, Japanese who are not willing to pay for the service are not willing to sign up for services for eBay Japan.
Also, it has also proven that when eBay Japan has stopped the charging the fees as per the usual practice, the customer base and the number of listings has increased.
Cross cultural understanding simply refers to the basic ability of people within business to recognize, interpret and correctly react to people, incidences or situations that are open to misunderstanding due to cultural differences. If no cultural awareness, cultural sensitive was established before launching into a different culture, it’ll cause cultural misunderstanding, in long term, resulting in business failure.
Misunderstanding 1 – Not fully understanding the mindset of a different culture
For eBay Japan, during the initial launch into Japan, they had not understood in depth the business dealing ways of Japanese. eBay instead of modifying the American-centric service model to fit the Japanese market needs, they chose to force the Japanese consumers to fit into the current American-centric company service model.
eBay charged commissions of up to 5% and required acutely risk-averse Japanese users to submit credit card information on signup. This service model did not go well with the Japanese. Most of the internet savvy people come from the young Japanese who did not own any credit card. Even so, Japan was a largely cash-based society, they preferred to pay for purchases with cash or through banks transfers instead of online credit card payments.
This has therefore resulted in the poor sign-up figures after the launch of eBay Japan.
Misunderstanding 2 – Failing to hire the right person
eBay Japan also erred in selecting for country head. In the selection of country manager, the issue of language is overplayed. They can actually hire a bilingual executive assistant, translator, or interpreter for a fraction of what it costs to hire a country manager. Making language skills a key recruiting criterion severely reduces the pool of potential candidates.
Rather than focus on language skills, eBay Japan has failed to care about the truly important things, like a country manager’s strategic thinking ability, his track record managing comparable businesses, industry knowledge, and, ultimately, whether or not he can successfully build and motivate a local team, introduce new products, and gain market share in a highly competitive market.”
In Japan organization structure, the HR organization in a leading Japanese company is at the top of the hierarchy. In the US, it’s at the bottom. It has to be empowered, it must have very top people, it must engage with people–it’s not about recruiting-eBay Japan had failed to utilize the talents of Japan based foreigners who had many years of valuable experience managing in Japan, as well as relevant industry knowledge and connections, who can help successfully navigate Japan market entry, smoothen interactions between head office and Japan-based operations.
Misunderstanding 3 – Unprepared for new Culture
eBay Japan did something that American companies are notorious for, something that had cost them dearly–namely, they made grandiose announcements about their entry into the Japanese market, well before they had a localized product ready to launch in Japan.
While missing the first mover advantage was perhaps eBay’s Japan single biggest blunder, the lack of traction in Japan for eBay products had too caused the failure of entry.
Therefore, with the culture shock, eBay has failed to penetrate the Japan market as eBay Japan was not accepted widely by the Japanese in terms of their entry to Japan and their working style when operating the online auction services.
The Current Status of eBay
To recap, eBay Inc. tried to open its popular auction service under its subsidiary eBay Japan established in 1999, withdraw in March 2002 after failing to capture significant market share against Yahoo! Auction.
Ebay partnered Yahoo! Japan, the Japan biggest portal offering online auction services. Together both companies designed a separate stand alone site, Sekaimon. English meaning for the Japanese term “Global Shopping”. Sekaimon site is able to translate items listed on eBay into Japanese, help with payments, shipping and customs clearance for Japanese shoppers.
The alliance benefits users of both sites. Sellers will be able to reach out to a wider audience for their goods, meanwhile buyers will able to choose from a richer selection of products that are on offer. The impact of the deal will mean more in certain areas. For example, U.S. music fans will be able to easily purchase many of the limited edition CDs that Western artists release in Japan, while Japanese movie enthusiasts will be able to find a wider array of DVDs that are not available locally.
Ebay users to have an easier time buying Japanese goods that are popular abroad, such as popular “manga” comics books, CDs and merchandise that feature Japanese animation characters and mascots. Yahoo! Japan users can login using their Yahoo! Japan ID and purchase translated eBay items with customize Japanese menu and online agent support.
Hence, in order to achieve their vision, eBay must overcome various issues such as language barriers, government regulations, internet access and cultural differences. Ebay attempt to deal with the challenge of conducting transactions in multiple languages, where the sellers interact in one language and potential buyers in another.
Sellers using eBay’s Japanese site, Sekaimon, who want to offer their items on any English language eBay sites will be able to enter descriptions of up to 200 Japanese characters and get them translated within a day for about $12.34. By enabling this translation service, it helps to boost and introduce more Japanese products into eBay sites. Thus, eBay has successfully turned a challenge to its global growth into a new revenue stream while increasing its value proposition.
eBay has a significant challenge in dealing with cultural differences, such as high uncertainty avoidance culture in Japan. eBay is dealing with this by structuring strategic partnerships with reliable entity when it struck a deal with Yahoo! Japan, after numerous attempts yet failing to penetrate the market independently. eBay adopts localization strategy, where it replicates smaller and culturally sensitive portions of its content in specific markets such as Japan and China. By doing so, it value adds towards ensuring easy usage and adaptability in new or low tech markets.
eBay made all the wrong moves in their attempt to extend their services to Japan. Not hiring the right people who can competently study the market in Japan to know if it is a viable business preposition to even attempt the creation of eBay Japan.
eBay did not understand the culture in Japan. Basic business ventures to a foreign country requires everyone to understand and work with the cultural styles. eBay tried to force their American centric service model upon the Japanese people, it will never work unless they were the first to setup the service in the country where people may just think that, that’s the way
eBay did not pay attention to the presence of Yahoo! Japan Auctions and went in blind. To make matters worst, they announced their plans and created quite a fanfare to path their way into Japan way before they could even set foot in the country. It’s like telling the enemies at war, “We’re coming from the south island at dawn”.
Conducting a business in any country requires business planners to conduct extensive market research, sampling the market sentiments for products or services that are to be introduced into the country. The people after all, are the sources of income. How can a company sell a product or service to people of a different lifestyle, who have different needs and perception of how they want to be sold a service or product?
After identifying what the people want, the company should look into competitors and their position in the market as well. Gauge their own size and see if they are able to go up against on a head-on battle or to find a niche market to carve out a position for themselves and slowly expand from there.
The most important point among the alternatives that is recommended to eBay during the new set-up is to identify what their target audience wants.It is imperative that the barrier for entries be understood prior embarking on any non-localized businesses. It is very important to understand the culture of the target audience, understand the needs and the wants of the target audience before entering into a brand new market that the organization has never had their presence before.
It very important to understand the direction of the target audience before entrance, in which, refers to the current competitors in the market. The current market share of the competitors, the number of competitors in the market and how does the target audience view this competitor.
Need be, make a joint venture with existing service provider that has already penetrated into the market in order to leverage on their expertise and also the expertise of local talents and foreign talents living in the country.
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