In one of the previous blog posts we have talked about how it can be tough to penetrate the Asian market and what mistakes can result from cultural misunderstandings. We are continuing our digital journey and today’s destination is Chinese business market.
With a population of over 1 billion (!) people, China is not only a very lucrative e-commerce market for western capital, but the world of its own. It comes as a no surprise that for some foreign companies, the Chinese market is deemed as important as a domestic market (if not even more). However, the bigger the market the bigger the risks, even if you have a sustainable business model and enough cash reserves. The e-commerce business giant eBay. Who hasn’t heard of it? One of the pioneers of digital retail and a huge dot come success attempted to enter China’s online market along with other tech giants: Google, Yahoo, Facebook. Chinese eBay didn’t become an exception in a sense that it couldn’t appeal to the local audience and lost to the local competition.
eBay in created China eBay in 2002 confident of their success. Why wouldn’t they be? With hundreds of millions invested in expansion, eBay controlled around 85% percent of the market. When you are a dominant force, you tend to disregard the competition, especially the one who seems to pose no threat. In this case, the threat’s name was online sales market Taobao. It was founded by Jack Ma (who previously founded Alibaba e-commerce group). Unlike the Alibaba company, Ma’s new venture was customer-to-customer (C2C) focused to fence off American competitor. Fast forward to the year 2007, Americans close Chinese eBay. What has happened during these 5 years?
Crocodile in The Yangtze River
Having successfully build Alibaba (or Ali baba), Ma knew the Chinese e-commerce market was ready to take on eBay. Although American tech giant had enough money to march in, Jack Ma possessed one priceless advantage: he knew business in China and what was needed to succeed there. Just like in war, in business the most valuable resource one possesses is information, and it was no different in this case.
From the very beginning, Jack Ma publicly acknowledged the rivalry with eBay and even deployed military-themed publicity stunt to attract the media.
This quote perfectly sums up his maneuvers as well as attitude:
“eBay may be a shark in the ocean, but I am a crocodile in the Yangtze River. If we fight in the ocean, we lose—but if we fight in the river, we win.”
EBay China vs. Taobao (Alibaba group)
TV spots vs. internet advertisement
During that time a huge part of Chinese population didn’t have internet access. However, you could find a TV in most homes. Being well aware of that, Taobao naturally spent most of its marketing budget on TV ads, whereas his rival eBay focused largely on the ineffective Internet advertisement.
Free listings vs. paid listings
eBay charged users for being listed on the Chinese website and took percentage of every transaction. Taobao offered free listing. On top of that many locals didn’t understand the idea of auctions (the very foundation of eBay´s business). This is why auctions amounted to only 10% of all transactions on Taobao.
User reviews vs. private messages
Reviews of sellers left by other users were not persuasive enough for Chinese customers. They wanted to be able to contact sellers directly to find out everything for themselves. American platform lacked that feature, whereas their counterpart was quick to implement it. It made Taobao more user friendly which is a big advantage for C2C business. Credibility is everything.
Internet vs. mobile phones
At that time, China had around 300 mil. mobile phone users and only 90 mil. Internet users. Taobao offered instant messaging and voice mail to mobile phones for buyers and sellers because locals were more cell-phone savvy than PC savvy.
Local vs. foreign managers
Most of the top managers brought by eBay didn’t speak Chinese. Language is a key to understanding every culture, especially Asian. This way American e-commerce giant put themselves in a weak position from the very beginning.
Here is what Quora users have to say about the case:
- By the time the Chinese internet had matured and the online market grew, eBay had spent its investment and largely given up.
- eBay was principally for selling second hand goods, and Chinese people don’t like to buy second hand, unless they are poor – but poor people didn’t have computers.
- China hadn’t established a distance payment method. When eBay started in the West, people posted cheques or postal orders but neither of these were common in China. Credit cards are not common in China and more importantly, it was impossible for small businesses to process card payments.
Don’t forget the culture
As we can see, knowing local culture and customs can be a decisive factor in business. Taobao used that knowledge and overtook eBay. What are some other cultural features that marketers should know about China?
- Chinese are cautious with foreign brands, that are not localized or adapted properly to fit the culture.
- What has proved to work in the West maybe quite the opposite of what people would do in China. E.g. auctions vs. fixed price.
- The China market today is developing extremely fast. It means that even if you believe that there are no competitors in your niche/segment they will soon appear with a higher chance of winning. Baidu substituted Google, Renren is used instead of Facebook, the list goes on.
- Chinese legislation may be too complex for foreign companies. It would be very useful to cooperate with local business or individuals.
- If we take a look at cultural dimensions, we can see that China ranks quite high on the Masculinity index.In business terms it means that that people are driven by success and embody competitive spirit. This explains why for almost every big western company there is a local counterpart.
Surely, there are more factors to Taobao’s huge win over eBay. But the game changing factor stays the same: you cannot enter a foreign market without proper understanding of a local culture. This includes: buyer and seller relationships, purchasing patterns and behavior and much more. eBay learned it the hard way.
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