ATale of Two Games:Global Strategies of Multinational Companies in China’s E-commerceMarketByXin Wang&Justin Ren2013-3-14http://www.worldfinancialreview.com/?p=8631.Why has there been hardly any successful entry intoChina’s e-commerce market by western firms?From consumer-to-consumer markets to onlineretailing,the authors point out the common pitfalls of those firms enteringChina,and the unique challenges faced by multinational companies.Through re-thinking how to balance standardization and customization in global marketing strategies,the authors offer some practical advice that western companies canfollow in order to meet the fast-changing needs ofChina’s online customers.E-Commerce GiantsKept Out2.China,the world’s largest e-commercemarket.It boasts of the most internet users in the world (420million,almosttwice as theUS),and,according to a recent BCGreport,its online sales are expected to reach 2trillion RMB(about $320billion)by 2015.However,China’s e-commerce market hasproven to be one of the toughest markets to crack:3.•C2Cmarket:Perhaps the biggest debacle is eBay inChina.The well-known C2CplayerenteredChinain 2002with an acquisition of the local firm eachnet.com,and subsequentlyspent $400million on this venture.However,since Taobao,a domestic player,was founded in 2003,within a short five years,eBay lost its entire marketshare from more than 80%to 0.7%.Taobao now claims 90.3%of the market.4.•B2Cmarket:Amazon.com,the world’s largeste-tailer enteredChinain 2004by acquiring Joyo.com for $75million.From the start,it faced fiercecompetition with Dangdang,and more recently with Tmall (owned by the sameparent company of Taobao).Today,Amazon.cn is struggling to maintain its marketshare,which stands in the single digit,while Tmall controls 51.5%of themarket.5.•Online travel:Similarly,Expedia.com,the largest online booking site,came toChinain 2004by buying eLong,a Chinese travel site founded in 1999.In the same year,another online travel company Ctrip.com was founded in Shanghai.Today,Ctrip.com’s market share is46.3%,while eLong’s,a mere 4.9%.6.•Group Buying:The most recentfiasco was Groupon.The world’s number one online group purchase company had ahard time gaining traction inChinafrom day one.Feeling the heat of competition from numerous local online couponwebsites,Groupon had to sharply scale back its operations inChinaonly months after its jointventure investment of $8.6million in January 2011.Its market share now standsat about 2.5%.Rethink GlobalStrategies inChina’sE-commerce MarketCompete in TwoGames?7.For multinationals,it is tempting todirectly transplant the existing technology platforms,business models,andmanagement to a foreign market.As a global company,a certain level ofstandardization is a must to ensure consistency in global image and achieveeconomy of scale.The key to success,however,lies in finding the rightbalance between standardization and customization.Knowing how to balance iscrucial to any global company in order to achieve coordination across markets.However,there is no one-size-fits-all solution.The strategy is determined byindustry characteristics,the company’s core values and competence.8.The indigenous competitors do not playthis game.Their goal is not to try to achieve a world-class stature or havinga globally recognizable consistent brand name,or coordinate their businessstrategies in multiple countries.Their game is simple:to serve their localcustomers the best they can,a job that they almost always do better than aforeign company.The Name of the Game9.Take the e-commerce market for example.Tobe successful,a company –global or local –needs to have the right blend of the“E-”(technology)and “Commerce”(business)to serve the target customers.Theexamples we saw earlier suggest that multinationals do not necessarily have thecompetitive advantage in technology or the business model.10.To make matters worse,any competitiveadvantage in technology will dissipate more quickly inChina.The industry is fastchanging;and the Chinese domestic players are just as technology-savvy astheir foreign counterparts.Chinahas abundant human resources in the engineering and technology field.Each yearmore than 800,000college students major in Computer Science,and they,combined with their intimate knowledge of local customers and businessenvironment,will accelerate the change of technology.11.Moreover,local companies have been moreinnovative in how they make money,disrupting the established business modelsadopted by foreign entrants.For example,EachNet initially followed eBay’soperating model and charged sellers for both listings and sales,which turnedoff Chinese sellers.Taobao,in contrast,offered largely free listing service.It makes money instead from seller-bid rankings in search results and its saleof user-defined storefronts.In fact,Taobao’s model proves to be so powerfulthat EachNet later decided to follow suit.Striking the Balance12.So,if multinational e-commerce companiesdo not enjoy competitive advantage in technology or business model,what dothey have to do to take foothold or succeed inChina?And how do they maintain aconsistent global image?The answer lies in how they balance theircustomization and standardization efforts.Customization13.LocalAppeal:The look and feel of the website need to be customized tolocal customers’taste;this should not be an area for standardization.EachNet’swebsite focuses on product offerings and prices,similar to eBay’s web pagestyle in theU.S.Such an approach makes sense for Westerners who value convenience andsimplicity in shopping,but it does not resonate well with Chinese customers.Taobao’s web page,in contrast,provides a much more dazzling array ofinformation.It promotes a sense of social community by actively making productrecommendations and shopping tips.Besides product listings,it publishesproduct reviews,fashion reports,and even entertainment news.Taobao makesshopping fun and keeps consumers coming back not
ATale of Two Games:Global Strategies of Multinational Companies in China’s E-commerceMarketByXin Wang&Justin Ren2013-3-14http://www.worldfinancialreview.com/?p=8631.Why has there been hardly any successful entry intoChina’s e-commerce market by western firms?From consumer-to-consumer markets to onlineretailing,the authors point out the common pitfalls of those firms enteringChina,and the unique challenges faced by multinational companies.Through re-thinking how to balance standardization and customization in global marketing strategies,the authors offer some practical advice that western companies canfollow in order to meet the fast-changing needs ofChina’s online customers.E-Commerce GiantsKept Out2.China,the world’s largest e-commercemarket.It boasts of the most internet users in the world (420million,almosttwice as theUS),and,according to a recent BCGreport,its online sales are expected to reach 2trillion RMB(about $320billion)by 2015.However,China’s e-commerce market hasproven to be one of the toughest markets to crack:3.•C2Cmarket:Perhaps the biggest debacle is eBay inChina.The well-known C2CplayerenteredChinain 2002with an acquisition of the local firm eachnet.com,and subsequentlyspent $400million on this venture.However,since Taobao,a domestic player,was founded in 2003,within a short five years,eBay lost its entire marketshare from more than 80%to 0.7%.Taobao now claims 90.3%of the market.4.•B2Cmarket:Amazon.com,the world’s largeste-tailer enteredChinain 2004by acquiring Joyo.com for $75million.From the start,it faced fiercecompetition with Dangdang,and more recently with Tmall (owned by the sameparent company of Taobao).Today,Amazon.cn is struggling to maintain its marketshare,which stands in the single digit,while Tmall controls 51.5%of themarket.5.•Online travel:Similarly,Expedia.com,the largest online booking site,came toChinain 2004by buying eLong,a Chinese travel site founded in 1999.In the same year,another online travel company Ctrip.com was founded in Shanghai.Today,Ctrip.com’s market share is46.3%,while eLong’s,a mere 4.9%.6.•Group Buying:The most recentfiasco was Groupon.The world’s number one online group purchase company had ahard time gaining traction inChinafrom day one.Feeling the heat of competition from numerous local online couponwebsites,Groupon had to sharply scale back its operations inChinaonly months after its jointventure investment of $8.6million in January 2011.Its market share now standsat about 2.5%.Rethink GlobalStrategies inChina’sE-commerce MarketCompete in TwoGames?7.For multinationals,it is tempting todirectly transplant the existing technology platforms,business models,andmanagement to a foreign market.As a global company,a certain level ofstandardization is a must to ensure consistency in global image and achieveeconomy of scale.The key to success,however,lies in finding the rightbalance between standardization and customization.Knowing how to balance iscrucial to any global company in order to achieve coordination across markets.However,there is no one-size-fits-all solution.The strategy is determined byindustry characteristics,the company’s core values and competence.8.The indigenous competitors do not playthis game.Their goal is not to try to achieve a world-class stature or havinga globally recognizable consistent brand name,or coordinate their businessstrategies in multiple countries.Their game is simple:to serve their localcustomers the best they can,a job that they almost always do better than aforeign company.The Name of the Game9.Take the e-commerce market for example.Tobe successful,a company –global or local –needs to have the right blend of the“E-”(technology)and “Commerce”(business)to serve the target customers.Theexamples we saw earlier suggest that multinationals do not necessarily have thecompetitive advantage in technology or the business model.10.To make matters worse,any competitiveadvantage in technology will dissipate more quickly inChina.The industry is fastchanging;and the Chinese domestic players are just as technology-savvy astheir foreign counterparts.Chinahas abundant human resources in the engineering and technology field.Each yearmore than 800,000college students major in Computer Science,and they,combined with their intimate knowledge of local customers and businessenvironment,will accelerate the change of technology.11.Moreover,local companies have been moreinnovative in how they make money,disrupting the established business modelsadopted by foreign entrants.For example,EachNet initially followed eBay’soperating model and charged sellers for both listings and sales,which turnedoff Chinese sellers.Taobao,in contrast,offered largely free listing service.It makes money instead from seller-bid rankings in search results and its saleof user-defined storefronts.In fact,Taobao’s model proves to be so powerfulthat EachNet later decided to follow suit.Striking the Balance12.So,if multinational e-commerce companiesdo not enjoy competitive advantage in technology or business model,what dothey have to do to take foothold or succeed inChina?And how do they maintain aconsistent global image?The answer lies in how they balance theircustomization and standardization efforts.Customization13.LocalAppeal:The look and feel of the website need to be customized tolocal customers’taste;this should not be an area for standardization.EachNet’swebsite focuses on product offerings and prices,similar to eBay’s web pagestyle in theU.S.Such an approach makes sense for Westerners who value convenience andsimplicity in shopping,but it does not resonate well with Chinese customers.Taobao’s web page,in contrast,provides a much more dazzling array ofinformation.It promotes a sense of social community by actively making productrecommendations and shopping tips.Besides product listings,it publishesproduct reviews,fashion reports,and even entertainment news.Taobao makesshopping fun and keeps consumers coming back not
