Ebay Tries New Tack To Woo China

20 June, 2011

In China, Ebay is famous not for its auction and retail services, which are used by about 100m people globally, but rather as the prime example of the failure of western internet firms in the country.

After investing $100m in 2005 in Eachnet, a local site that Ebay wanted to build into a Chinese version of its global business, the effort crumbled as local rivals offered similar services better tailored to local needs – and free of charge.

But for Ebay, the fight for growth is just beginning.

The company argues that what matters is making money, and that it is building a much more viable business by exploiting its lead in the global market. It announced on Wednesday that it was reinventing its China business by helping local companies sell to consumers overseas.

“What really matters are the 96m registered buyers we have worldwide,” says Jay Lee, head of Ebay’s operations in Asia Pacific.

Ebay has made inroads in the past 12-18 months, signing up an increasing number of large Chinese retailers, manufacturers and brands which are targeting global consumers.

“When we started our cross-border business in China in 2007, the majority of sellers were small and medium-sized businesses that were already online,” says Jeff Liao, chief executive of Ebay Greater China and vice-president of the company’s cross-border business in Asia-Pacific. “But the situation has changed.”

Among Ebay’s Chinese sellers are now Vancl, China’s largest fashion retailer with $300m in revenues last year, and other local fashion brands such as Metersbonwe and Li Ning, the sportswear brand.

Alibaba Group, Ebay’s nemesis in the Chinese consumer market, has taken notice. Cross-border trade, after all, used to be its own speciality. Alibaba.com, the group’s Hong Kong-listed flagship, makes money from the fees that mostly Chinese exporters pay for listings on the site.

However, Alibaba.com is a business-to-business site, and only connects suppliers and buyers – the transaction itself happens offline. Early last year, the group launched AliExpress, a cross-border site that allows online transactions, just like Ebay.

While Alibaba has introduced AliExpress as an online platform for trading between small businesses, the site allows the sale of minimal quantities of goods, and many buyers in China are ordering very small numbers, suggesting that the site is being used more by consumers than corporate buyers, and may develop into a head-on competitor for Ebay.

Ebay is bracing itself. PayPal, Ebay’s third-party online payment platform, had made itself available as a payment option on AliExpress in April 2010 but this month it ended the co-operation. According to an e-mail sent to Alibaba by PayPal executives this year, the reason was the rise in consumer transactions on AliExpress.

“The dramatic increase and share of personal consumers . . . is not acceptable to us and is clearly not in keeping with the original set of shared objectives that we were guided by in building this alliance,” said Farhad Irani, a PayPal vice-president, adding that PayPal was raising transaction fees for consumer deals to 7 per cent – about three times the amount the company charges elsewhere.

Mr Lee downplays such concerns. “We don’t know if business-to-business is [Alibaba’s] real intent or if they are hiding behind that,” he says. “But we have the buyer base.”

He argues that if Alibaba wanted to build a similar base of global consumers, it would have to use search engine advertising to make itself known.

Alibaba Group is aware of those difficulties.

On Thursday, Jack Ma, founder and chairman, announced a restructuring under which Taobao, the e-commerce company which defeated Ebay in the Chinese domestic market, will be split into three units. The group hopes the structure will leverage its core strength – its ties to millions of Chinese suppliers.

Ebay, apart from exploiting the advantage of its vast global buyer base, tries to differentiate itself through its seller verification and consumer protection programme – features the company feels will stand out, especially since Alibaba.com discovered a fraud last year involving part of its salesforce and which resulted in the resignation of its chief executive.

Mr Liao says Ebay subjects new Chinese sellers to three to six months “probation”. During this period, Ebay limits the number of listings the seller can have on the site simultaneously to make sure sellers who trigger buyer complaints about fraudulent or counterfeit products, slow shipping or bad service will not upset large numbers of customers.

Ebay also runs strict controls to prevent the sale of knock-off products – a widespread concern among consumers in the west about buying in China. Listings for certain global fashion brands are banned altogether, says Mr Liao.

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Ebay Tries New Tack To Woo China

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