Globalization and Global Strategic Planning

Posted: November 27th, 2013

Globalization and Global Strategic Planning

Part I

EBay, a company based in San Jose, California has faced numerous challenges in its Asian market, which includes China, Korea, and Southeast Asia. One result of these challenges is the closing of operations in the Japanese market for the 4.5 billion dollar company, one of its earliest and largest Asian markets (Ihlwan, 2006). Perhaps eBay’s biggest challenge in the Asian market has been local competition mainly from Korean based company, Gmarket Inc., which is partly owned by Yahoo! Inc. (Moon & Hof). Gmarket Inc.’s operations in Korea, eBay’s strongest Asian market, are neck and neck with eBay’s even though the latter was the first in the market. Also providing competition for eBay in the Asian scene is Alibaba.com, which is also partly owned by Yahoo! Inc. (Mangalindan, 2006). TaoBao, Alibaba.com’s unit, came onto the scene after eBay, but has already eaten into the latter’s market by waiving the fee that users are charged to list items. This has led eBay to consider selling its Chinese unit even after investing 100 million dollars to expand into the market.

According to Mangalindan, eBay was aggressive in entering the Asian markets because it was late to do so, after rival Yahoo, which beat it to the Japanese market (2006). However, the entry into the Asian market has not been smooth, because, as stated, of materialization of local competitors. One of the ways eBay has gone about managing this problem is through acquisition of local online companies in the region. In China, eBay penetrated the market by acquiring EachNet, a Chinese online auction company, for 150 million dollars in 2003. In Korea on the other hand, eBay went about solving this problem by buying Internet Auction Co. for a total of 482 million dollars in 2004. However, Gmarket was still a major competitor in the Korean market. It was for this reason that, according to their website, eBay acquired a stake in Gmarket in 2009 with which it hopes to expand to existing marketplaces in Singapore and Japan (EBay). The market entry problem of place is often best solved through acquisition or partnering with local companies that have better understanding of the market (Cavusgil, 2002).

However, eBay continues to face additional problems in the Asian market, some of which are not related to location. Pricing has been a major factor. In China, eBay’s competitor TaoBao allows its users to list items without a fee, one thing that eBay has not capitalized on. While eBay has lowered some of its listing fees, its listings in the market have gone down by more than a hundred and seventy percent (Mangalindan, 2006). The company faced the same problem in Korean where Gmarket offered better prices for listing of items than eBay, but through the acquisition in part of Gmarket, eBay hopes to dominate the Korean market. Pricing as a factor can also be seen in local companies’ option to place less emphasis on an open auction format (Ihlwan, 2006). While eBay has not explored the option, local companies provide the option of ordering goods at fixed price and then negotiating with the seller on an exclusive basis. EBay soon realized the advantage of having this option and set it up, even though open bidding still accounts for much of its sales volume.

Finally, eBay has faced promotion problems while trying to enter the Asian market. Local competitors have found ways to market their sites by creating programs aimed at attracting consumers. EBay hopes to upstage its competition in the Asian market by introducing use of mobile devices to conduct e-commerce in Southeast Asia (Chan, 2007). To sum up, eBay has had numerous challenges in penetrating the Asian market. However, the company has shown resilience and as seen, has come up with various ways to address its distribution, pricing and promotional issues. While countries should market themselves to attract investors by ensuring that market entry problems are minimal (Kotler & Gertner, 2002), it remains up to companies such as eBay to prove that they can be successful in the new markets.

Part II

            In its global expansion strategy, Starbucks has focused on China, with hope of opening hundreds of cafes in China, up from its current 69 stores (Fowler, 2003). Starbucks assesses various decision factors in its expansion strategy. One of these is location. Expanding into a market whose choice of beverage is largely tea is not easy; therefore, Starbucks hopes to capitalize on location by providing places where China’s emerging middle class can socialize. To determine the best location, Starbucks uses a mixture of local real-estate experience and pavement-traffic analysis. This is in hope of acquiring the best locations for their potential stores. Sometimes, however, finding the best location can prove problematic in view of local culture. In July 2007, Starbucks had to close its Forbidden City store due to building criticism from the local community (The forbidden latte). The criticism was largely caused by the fact that the outlet was located in a World Heritage Site – a 600-year-old city revered by the locals.

In relation to location, Starbucks also plans to focus more on greater China, in an effort to spread its operations to second-tier markets (Yeh, 2006). Most of Starbucks stores are mostly located in Beijing and Shanghai. Hong Kong and Taiwan, which are located in greater China, have fewer stores and it would be in these cities that efforts would be concentrated to increase the number of stores. Another decision factor that Starbucks assess in its expansion program is local products. Starbucks hopes to capitalize on the Chinese market by adding a new local blend to its range of products, known as ‘South of the Clouds’ whose beans are grown locally in Yunnan (Haoting, 2009). This strategy is aimed at popularizing coffee drinking in the country as well as creating Chinese coffee presence around the world. The move would also help in advancing production techniques, quality and yield. Adjusting the ‘menu’ to suit local tastes is one strategy that international companies use to gain competitive advantage in local markets (Sagebiel, 2009).

The Chinese market is especially important for Starbucks after its downsizing in the U.S., according to an article that appeared in The Wall Street Journal (2006). This happened when the company closed 600 of its stores in the country and lay off about 12,000 workers. According to Waite, communication during downsizing is important for a company in order to prevent a loss of confidence of customers, employees and shareholders (2008). Another strategy to employ during an economic downturn is focusing on current customers and using them to make new ones (Sagebiel, 2009). However, Starbucks does not seem to have employed this strategy, rather chose to cut its massive operations in North America. In addition, according to Ishida, a shift in the global competitive game has forced international companies to rethink their worldwide strategies (1999).

By cutting down on operations in the U.S., Starbucks places more emphasis on its global outfit, and demand to meet the financial standard that its shareholders are used to is placed even more on such markets as China. A shift in dynamics is experienced in Porter’s clusters (as discussed in Wikipedia), with focus being placed on innovative practices as companies fight to maintain their share of the market. In addition to innovation, companies like Starbucks that have downsized in their dominant markets are forced to adjust to the new markets in which they hope to continue making their profit. In the case of Starbucks, China is that market in which the hopes of the company lie. In conclusion, Starbucks’s downsizing in North America is set to affect its business by shifting the dynamics of its operations to a more Asian-market-oriented approach. If Starbucks hopes to continue dominating the hot beverage market, it should ensure that its expansion into China proves to be stronger than its operations in the U.S. However, its expansion into new markets should always be in the locals’ best interest if it hopes to penetrate into diverse cultures.

References

Campbell-Hunt, C. (2000). What have we learned about generic competitive strategy: A meta-analysis. Strategic Management Journal, 21(2), 127-156.

Cavusgil, S. T. (2002). Extending the reach of e-business. Marketing Management, 11, 24-25

Chan, I. (2007, October 29) EBay Has Its Eye on Southeast Asia. Business Week, n.p.

Ebay (1995-2011). http://www.ebay.com/

Fowler, G. A. (2003). Converting the masses: Starbucks in China. Far Eastern Economic Review, n.p.

Haoting, L. (2009, February 2). Starbucks pushes China sales with local brew. China Daily, n.p.

Ihlwan, M. (2006, June 28). Gmarket eclipses eBay in Asia. Business Week, n.p.

Ishida, M. (1999). Managing across borders: The transnational solution. International Labor Review, 138(2), 201-207.

Kotler, P., & Gertner, D. (2002). Country as brand, product, and beyond: A place marketing and brand management perspective. The Journal of Brand Management, 9(4): 249-254.

Mangalindan, M. (2006, October 12). China May Be eBay’s Latest Challenge as Local Rivals Eat into Market Share. Wall Street Journal, n.p.

Moon I., & Hof, R. (2006, July 17). Out-eBaying eBay in Korea. Business Week, p.74.

n.a. (February 14, 2006). Starbucks Calls China Its Top Growth Focus. Wall Street Journal, n.p.

n.a. (July 17, 2007). The forbidden latte. The Economist, p.1.

Sagebiel, N. (2009). Smart Communication Strategies in a Down Economy. Retrieved from http://docs.google.com/

Waite, A. (2008). Starbucks to lay off 12,000 workers. Retrieved from http://www.internalcommshub.com/open/news/starbucks08.us.shtml

Wikipedia. Business cluster. Retrieved from http://en.wikipedia.org/wiki/Business_cluster

Yeh, A. (February 14, 2006). Starbucks aims for new tier in China Cafes: Financial Times, n.p.