EBay Case
Review case on eBay in China. Why did eBay fail in Asia (Japan as well as China)? What could eBay have done differently? Why was eBay unable to compete with Alibaba and local competitors? Should people management practices such as those discussed be local or global? (Why?) What suggestions would you have given to eBay leadership?
Nestle Case
Review case on Nestle. Why did Nestle's decentralized structure, which had brought the company success in the past, no longer fit the new realities of increasing global competition? What were the objectives of the GLOBE initiative? How was it more than just an SAP change?
E-Bay in China
In March 1998, Meg Whitman was recruited to become the CEO of eBay-three years after the e-business firm had been founded by the French entrepreneur Pierre Omidyar. At the time, eBay had only 50 employees and US $4.7 million in revenues, and operated only in the United States. When she stepped down as CEO of the California-based firm 10 years later, eBay was present in close to 40 countries and had more than 15,000 employees, approximately 100 million active users, and about $8 billion in annual revenue. By any standards, eBay is a highly successful multinational corporation. However, in spite of its market dominance in many countries around the world, it has been struggling to grow in some key markets in Asia.
eBay's entry point to Asia was Japan in 2000. Its business model for Japan, as for all the other international markets it had previously entered successfully, was essentially the same as for the US (for example, the user fee structure and no media advertising). Its local Web site was also similar to the company's US version, with no special features to attract and serve local users. However, eBay was not the first mover in the Japanese market. Its US competitor Yahoo! had already formed a joint venture with the Japanese Internet company Softbank and invested heavily in an aggressive advertising campaign to promote its services.3 By the time eBay went online, following the lengthy process of building its 100 percent owned company from scratch, Yahoo! had already built a loyal customer base that eBay was not able to seduce away. Two years after its entry to Japan, eBay pulled out.
As the company looked at other opportunities in Asia, eBay's management was determined to learn from its failure in Japan. Rather then starting from zero, eBay entered Taiwan, Korea, and India through partnerships and partial acquisitions of local firms. This was the strategy chosen in potentially the biggest market opportunity of all: China. In March 2002, eBay bought a 33 percent stakein EachNet, China's first and largest online consumer-to-consumer (C2C) trading site. The CEO of EachNet, Shao Yibo, was a native of Shanghai who had graduated from Harvard, worked at Boston Consulting Group, and developed EachNet with eBay as his model. One year later, eBay bought the rest of EachNet. Within a short time, eBay/EachNet had become the clear market leader for C2C business in China, with a dominant 85 percent market share.
However, local competition began to push back very quickly. The biggest challenge came from a start-up formed by Chinese Internet entrepreneur Jack Ma. Ma already had a highly successful business-to-business auction site called Alibaba (in which Softbank from Japan and later Yahoo! were major investors). Ma was concerned that eBay/EachNet would establish a beachhead from which to attack his very profitable B2B activities. So in 2003 Ma set up his own e-commerce company Taobao ("hunt for treasure") as a direct competitor to eBay.
In China as elsewhere, eBay added fees based on the value of a deal to the listing fees that EachNet charged. Taobao did not charge any such fees, and Ma promised that his company would not do so for at least three years.5 While eBay's Chinese site had a layout and features similar to those in the rest of the world, Taobao presented a site full of popular local and cultural features (such as horoscopes). Critically, Taobao developed a new payment system linked to physical delivery of the goods, as Chinese customers did not fully trust the credit card-based systems like PayPal that eBay was using. Taobao-unlike eBay-also allowed the seller and buyer to interact directly. This was a clever way of dealing with issues of trust in a society where there is very limited trust between people who do not know each other personally. Finally, to build customer confidence, Taobao decided to provide customer service support by telephone-again, not something supplied by eBay.
The challenges of integrating EachNet and eBay further aggravated the latter's problems of establishing the company in China. Many members of the original EachNet team felt that they had been sidelined after the acquisition, when eBay managers from places like Germany and Taiwan were brought in to help with the integration. EachNet senior executives, including Shao Yibo, rapidly left the company. In order to achieve economies of scale, eBay moved EachNet's Internet platform to its US-based global server, as it had done systematically when integrating other foreign units. In the process, several locally developed design features were removed. Once the site was on the global platform, requests to localize the content of the Chinese site had to be approved from the US. Local employees felt that headquarters "did not listen to them."
Despite following Taobao's example with free product listing, by the end of 2006 eBay's market share was down to 20 percent. Although Meg Whitman had promised, after the failure in Japan, that eBay would do a better job in adapting its activities to the local market in China, the company was unable to do so. In December 2006, eBay announced a fresh start, forming a joint venture with Tom Online, a wireless Internet company controlled by Hong Kong tycoon Li Ka Shing. All eBay/EachNet business would be merged into a joint venture man- aged by Tom Online; only eBay China's global trading remained independent.
Lateral Coordination at Nestle´
In April 2000, Nestle´-the world's largest food and beverage company with 250,000 employees and close to 500 factories in over 80 countries-launched a US$3 billion IT initiative. The Global Business Excellence program (GLOBE) was to transform the Nestle´ organization from a loose "federation of independent markets" into a company showing a common face to customers and suppliers around the world.
While the program could nominally be seen as a massive SAP rollout (in itself a complex undertaking), the purpose went far beyond building a new IT platform. Peter Brabeck, CEO of Nestle´, was explicit about the final goal:
I want this to be very clear. With GLOBE we will create common business processes, standardized data, and a common IT infrastructure-but do not think this is an IT initiative. We are going to fundamentally change the way we run this company.
In Brabeck's view, Nestle´'s decentralized structure, which had brought the company so much success in the past, no longer fit the new realities of ever-increasing global competition.
Traditionally Nestle´ had been structured as a cascading pyramid of major zones and markets-usually countries. Each business was essentially local, neatly aggregated to larger geographical units, all finally coming together in the corporate center. Running alongside this organization in a coordinating role were half a dozen strategic business units, such as beverages, dairy products, and infant nutrition. The role of the business unit managers was to increase integration across geographies with a particular focus on new product development, but without profit and loss responsibility.
The company's strong focus on product customization to local tastes was the foundation of Nestle´'s success; but this also created duplication and inefficiencies that the company could no longer afford, with sales overhead costs well above itscompetitors. A fragmented supply chain did not provide the desired economies of scale. Bargaining power with cross-border suppliers and retailers was weak-some large customers had better pricing information about Nestle´ products in different markets around the world than the Nestle´ central office.
Internal coordination was also difficult, as each country's organization and systems had been operating independently. Identical products had different product codes in different countries, and in HR there was no common grading and compensation system. With different titles for similar positions across countries, it was al- most impossible to agree on who was at the same hierarchical level or performed the same job. Even for senior managers, salaries and bonuses were difficult to compare.
The aim of the GLOBE program was to build a common platform for Nestle´'s global operations, but the formal structure of the company would remain for the most part configured as a matrix of geographies and businesses. And as Nestle´ was determined to maintain its focus on local markets, the company did not want to move too far away from its culture of decentralization. However, in order to cope better with the competitive challenges facing the company, it had to become more globally connected and aligned.
In essence, Nestle´ needed to find an alternative route that would balance the bene- fits of local initiative with global leverage but remain in line with Nestle´'s long-standing business principle of "putting people ahead of the systems." Senior management believed that maintaining local decision-making autonomy while standardizing core processes would achieve this. By simplifying and standardizing basic processes, Nestle´ hoped to reduce internal complexity so local management could focus externally on customers and competition. And by flattening the organization and assigning more coordinating responsibility to cross-border and cross-functional teams, the company hoped to move away from the traditional vertical hierarchy to a more flexible network structure, which it believed is more suitable to the new generation of company employees.6
One of Nestle´'s key leverage points for enhancing lateral coordination has been global implementation of common HR processes-from a single worldwide performance management system to comprehensive talent reviews, as well as succession planning based on a common grading system and structured leadership development (for a global talent pool of about 2,200 people). However, this does not mean that Nestle´'s corporate HR function rules over local companies by issuing detailed global policy directives. Instead it uses a lot of virtual teamwork to reach a consensus on HR process objectives and tools, thereby working toward consistency and coherence across the world.