EBAY SUFFERS CHINESE REVERSAL
By Chris Nuttall in San Francisco and Mure Dickie in Beijing
Wednesday, December 20, 2006
Ebay's decision to close its main auction website in China and replace it with a minority-invested joint venture is a stark illustration of the difficulties facing foreign internet companies in the country.
The decision to give control of its main China operation to Tom Online, the Beijing-based portal and telecom service operator, marks a strategic shift for Ebay, which has struggled to fend off competition from Chinese auction rivals led by Alibaba.com.
A person familiar with the situation said Ebay was expected to contribute $40m for a 49 per cent stake in a joint venture with Tom that would launch an online auction website next year.
The disclosure follows months of rumours about an Ebay retreat from China. The talk had been fuelled recently by apparent leaks to technology websites from disaffected employees of Eachnet, the Shanghai-based auction company Ebay bought for $180m in a deal completed in 2003.
Edward Yu, chief executive of consultancy Analysys International, said Ebay's change of tack reflected wider failures among foreign companies to adjust quickly enough to consumer demand and challenges from local online rivals, and in maintaining good relations with Beijing regulators.
“Ebay responded very slowly to counter [Alibaba's] Taobao auction website and other similar competitors,” Mr Yu said. Ebay's decision to work through a locally controlled joint venture echoes that of US portal Yahoo, which transferred its struggling China business to Alibaba last year.
Alibaba's founder Jack Ma, who argues that only locally controlled internet companies can succeed in China, has used astute promotion and a fee-less business model to build market share and undermine Eachnet's dominance of online consumer auctions.
The person familiar with the situation said Ebay had no intention of cutting any jobs in China and that the alliance with Tom did not mean it was quitting the market.
