market entry challenges in Asia

eBay in Asia

In the era of globalization, economic agents in the more developed western regions turn their attention to the opportunities created by Asia. Numerous companies have been outsourcing to countries in Asia and have as such benefited from the cost effective and disciplined workforce of the region.

Still, aside from outsourcing, Asia is more recently perceived as a new source of income due to the fact that it is a large consumer market. Economic agents across the world then come to launch operations in the Asian states and hope to register benefits by serving the larger Asian market place.

While the theory of the focus on the Asian consumers does seem tempting, its actual implementation is actually difficult to achieve. And the reason for this is given by the existence of numerous differences between the western and Asian markets and industry. In other words, economic agents face major barriers when penetrating the Asian market.

This was also the case of online retailer eBay. The company entered the Asian market through various countries, including Japan, China or Korea. But in each region, it faced specific challenges. In China for instance, eBay had initially managed to position itself as leader of the online retailing community, but was eventually overthrown by TaoBao (Alibaba.com). The barrier was as such represented by competition and eBay had lost this battle as it charged fees to allow item listing, whereas its competitor did not (Mangalindan, 2006).

A similar situation was encountered in Korea. Upon penetration of the country, eBay was the undisputable leader of the industry. Gradually however, it was overcome by Gmarket, which presented its customers with better deals.

“For one thing, it places less emphasis on an open-auction format than eBay does. The company offers goods at fixed prices, with an option to negotiate with a seller on an exclusive basis. This allows buyers to conclude deals instantly instead of making them wait until all bids are completed in open auctions” (Ihiwan, 2006).

Still, the company strives to overcome this impediment and continues to operate in China. This country possesses the largest consumer market in the world and eBay remains confident that it can capitalize on it. Currently, China represents the second largest generator of revenues for eBay — after the United States. The organization strives to consolidate its position in both markets, but the most severe challenge it encounters in both market places is represented by competition.

In China then, the most notable barrier is represented by the emergence of local online retailers which can provide more cost effective services. The organization has strived to answer this challenge by lowering its fees to customers, but even as they did this, their prices were still higher when compared to those of other vendors. Furthermore, this strategic decision has contributed to the loss of overall profitability, investor trust and interest, as well as the price of the eBay stock (Mangalindan, 2006).

Another effort made by eBay in order to consolidate its position within the Asian market is represented by the development of partnerships with various local agencies, in order to promote certain events or auctions and as such access increased market shares.

“These include a tie-up with the recently held Singapore Fashion Week, where it created a microsite offering eBay’s 240 million members worldwide a window into Singapore fashion, and a partnership with Singapore operator Ml to make the online marketplace easily accessible on mobile phones. […] Other partnerships in the region include a co-branded site between eBay and Thailand’s online portal Sanook, to enable individuals and businesses to participate in local and cross-border trade through eBay’s global Web sites” (Chan).

One particular scope of these partnerships is that of enhancing the adaptability of eBay within the Asian markets, and subsequently improving the competitive position of eBay. Also as part of its adaptation strategy, eBay is providing customer specific products and actions.

“To better compete, eBay recently introduced a fashion-oriented Korean site called !!Club Sancy” that it hopes will appeal to younger female shoppers. It upped the placement of its listings in shopping-comparison sites, allowed them to be posted on personal blogs, and cut its own commissions on sellers” (Ihlwan and Hof, 2006).

A third strategic effort made by eBay in conquering the Asian market is represented by diversification — not the diversification of its operations or provision of services, but the diversification of the markets served. Traditionally focused on China as a source of increased gains, eBay has come to redirect its attention to other countries as well. The online auction company is as such focusing on launching and expanding operations in Japan, South Korea, Singapore, Malaysia, Thailand or even the Philippines (Chan). Through this strategic expansion to more Asian countries, eBay is decreasing its dependency on the revenues generated in China and is striving to create a stable expansion on the Asian continent.

2. Starbucks

Starbucks is one of the largest American corporations, with stores opened throughout the entire globe. The global expansion strategy at the coffee company is that of physical expansion through the opening of more and more Starbucks stores across the globe.

Throughout the past recent years, the coffee monolith has placed an increased emphasis on its expansion in China. The Starbucks managerial team has recognized the potential of the Chinese market place and has been emphasizing on opening more stores here. Aside from the actual stores, the Starbucks managerial team has also been considering the opening of coffee plantations in the country. Such a strategy would help it reduce costs with the imports of coffee beans, but it is also a beneficial decision as it is supported by the Chinese government and it would create new employment opportunities for the population, enhancing as such the reputation of the company in China.

“China will be the biggest growth market for the largest coffee supplier within the next two years.

Starbucks has even started to develop its own coffee farm in southwestern China to maintain the supply of coffee beans and help manage the costs. Starbucks said it would hire coffee growers in the province of Yunnan to grow Arabica seeds during the next year. Schultz hopes the quality and quantity of the Yunnan-grown coffee would meet the standards to be sold in China and around the world. He also sees this farm as an opportunity to produce a single-origin coffee that would eliminate the need to blend it with beans from elsewhere. Moreover, the Yunnan provincial government is planning to invest 3 billion yuan to increase coffee production to 200,000 tons over the next 10 years” (Business Today).

All in all, Starbucks considers a wide array of factors in its expansion in China, such as logistics efforts, coffee beans production, the relationship with the government and so on. But most importantly, this commitment to expansion in China is important from a different angle — that of the economic crisis. In more specific terms, the global economy is facing severe threats from the financial crisis and economic agents across the world encounter challenges. Starbucks considers that its expansion in China would help it overcome the challenges of the economic crisis and provide it with the necessary growth.

While in China, Starbucks is focused on expansion, the situation is more dramatic in the United States, where the company was more pressed by the crisis and it resorted to downsizing as a means of cost restructuring. Only recently, Howard Schultz, chief executive officer at Starbucks, announced that the company would close 600 of its stores in the U.S. And downsize an estimated 12,000 employees; these figures represent the largest downsizing in the corporate history of Starbucks (Waite, 2011).

The corporate decision to downsize staffs generated a chain reaction on the part of the American stakeholders, but the impacts were also felt in China. Here, the corporation’s image and reputation had suffered a hit as the stakeholders lost trust in the company. Specifically, they feared its stability and its subsequent ability to preserve jobs in China.

References:

Chan, S., eBay has its eye on southeast Asia, Bloomberg Businessweek

Ihiwan, M., Hof, R., 2006, Out-eBaying eBay in Korea, Information Technology

Ihiwan, M., 2006, Gmarket eclipses eBay in Asia, Bloomberg

Mangalindan, M., October 12, 2006, China may be eBay’s latest challenge as local rivals eat into market share, Wall Street Journal

Waite, A., 2011, Starbucks to lay off 12,000 workers, The Internal Comms Hub

Starbuck’s global expansion, Business Today, http://www.businesstoday.org/online-journal/starbucks-global-expansion last accessed on December 9, 2011

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