978-1259278211 Case 20 Solution Manual Part 1

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Teaching Note: Case 20 – eBay

Case Objectives

1. To discuss the decisions and actions that a firm has to undertake to sustain a competitive

advantage, especially when pursuing international growth.

See the table below to determine where to use this case:

NOTE: There are both PRIMARY and Secondary chapters that can be used for this case. The

Teaching Note gives guidance for the PRIMARY use chapters, and provides suggestions if the

instructor wants to use the case to illustrate concepts from the optional Secondary chapters.

Chapter Use Key Concepts Additional Readings or

Exercises

PRIMARY

6: Corporate-Level

Strategy

Corporate strategy; synergy;

7: International

International expansion;

NOTE additional reading, web

SECONDARY

4: Intellectual

Assets

Human capital; intellectual

5: Business-Level

Strategy

Generic strategies

8: Entrepreneurial

Strategies

Opportunity recognition

11: Strategic

Leadership

12: Managing

Innovation

Innovation; scope of innovation

Case Synopsis

Since its inception in 1995, eBay had enjoyed strong revenue growth, and was a dominant player

in the worldwide online auction industry. eBay’s business model was based on a person-to-

person marketplace on the Internet, where sellers conveniently listed items for sale, and

Despite eBay’s growth performance, achieved mainly through both foreign and

U.S. acquisitions, the company still faced a number of challenges. With traffic and sales slowing

As a growth strategy, eBay had targeted distinct market niches to distinguish itself from

competitors. eBay had successfully competed in certain international markets, including Europe

With intense competition in the online auction industry, eBay had tried to increase its market

share and revenue through acquisitions and partnerships in related and unrelated businesses.

However, activist investors, namely Carl Ichan, were pushing for strategy changes, while eBay

Teaching Plan

The eBay case is an investigation of a company that chose to pursue growth into an international

environment where it had little experience. In addition, corporate business strategies had proved

Before engaging in discussion, you might want to test student’s basic knowledge regarding the

Which statement is most true?

a. eBay makes most of its money from its auction marketplace.

b. Carl Icahn wants eBay to sell its PayPal business.

c. Amazon is eBay’s major competitor in the worldwide online auction market.

d. Meg Whitman was the first President of eBay.

ANSWER: b. Per Case Exhibit 6, most of eBay’s 2014 revenues came from the Payments

division, which is PayPal. Although eBay had already decided to spin out its PayPal online

payments service, Icahn owned 2.5 percent of the company and insisted that management think

Jeffery Skoll was eBay’s first president, and remained president until early 1998, when the

company hired Meg Whitman as president and CEO.

eBay founder Pierre Omidyar believed people basically just wanted to negotiate, or haggle, for a

good deal.

a. Yes

b. No

ANSWER: b. Omidyar believed people wanted to trust in a fair and open marketplace, and that

Summary of Discussion Questions

Here is a list of the suggested discussion questions. You can decide which questions to assign,

and also which additional readings or exercises to include to augment each discussion. Refer

back to the Case Objectives Table to identify any additional readings and/or exercises so they can

be assigned in advance.

Discussion Questions:

1. PRIMARY QUESTION: How did eBay pursue international growth?

2. SECONDARY QUESTION: What source of competitive advantage does eBay have, and

is that position supported by its resources and assets?

Discussion Questions and Responses

1. How did eBay pursue international growth?

Referencing Chapter 6: Corporate-Level Strategy

Corporate strategy focuses discussion on the questions of what businesses a corporation should

compete in and how the businesses should be managed so they can create “synergy” – creating

Diversification is the process of firms expanding their operations by entering new businesses. In

related diversification, a firm enters a different business in which it can benefit from leveraging

core competencies, sharing activities, or building market power. Some possibilities include:

●Mergers and acquisitions

●Strategic alliances

Whatever the choice, it should create value for all stakeholders – employees, suppliers,

When achieving synergy through diversification, a firm has two choices: related diversification

through horizontal relationships with related businesses, sharing tangible and intangible

Acquisition is the incorporation of one firm into another through purchase. It can be a means of

obtaining valuable resources that can help an organization expand its product offerings and

eBay had countered the intense competition in the online auction industry by engaging in

aggressive acquisitions of online businesses worldwide, and by forming joint venture

eBay also expanded into new markets by focusing on business-to-consumer in addition to

With increased competition from Yahoo, Amazon, and Alibaba Group and other major online

companies, eBay had to continue to diversify and provide depth in its product offerings to remain

competitive. In most cases, eBay expanded into new markets through acquisitions, and it slowly

Growth strategies should create value for all stakeholders: employees, strategic partners, and

owners. The choice of growth strategy should create synergy so all parties gain something they

An interesting example of a failed synergy was eBay’s acquisition of Skype, the online

communications software company. When eBay bought Skype, the thought was it would allow

Another attempt at streamlining the portfolio involved spinning off the Enterprise and the PayPal

businesses. With these being non-core components of its business, investors believed eBay was

better served by focusing on the online auction and fixed-price direct selling operations. With

Referencing Chapter 7: International Strategy

International expansion is a viable diversification strategy; however, before pursuing this, a firm

needs to determine why an industry in a given country is more (or less) successful than the same

In Asia Pacific, eBay’s management risks might have included:

●Language & culture

●Managing employees

There are two opposing forces that firms face when entering international markets: cost

eBay followed a global strategy. Advantages of a global strategy included a unified approach that

allowed users to conduct transactions in an online global community. Users could interact and

purchase or sell items with anyone in the world over a single platform. Having a single platform

eBay’s decision to use a single platform to provide online trading in all its markets had been

successful in most of its global communities. However, this decision appeared to have hindered

Because it uses mostly virtual assets, the worldwide online auction market is basically low-cost,

A multidomestic strategy, where the company could provide a standard product and meet specific

local needs, would be the optimal strategy for eBay to adopt for competing in the Asia Pacific

region. The company could achieve this strategy through its local acquisitions and realize further

Entry modes available for international expansion differ based on the extent of investment and

risk, and the degree of ownership and control. See Chapter 7, Exhibit 7.9. In order from low to

high, they include:

●Exporting

●Licensing

eBay’s entry mode choices for international expansion included: alliances, joint ventures, and

wholly owned subsidiaries. eBay’s joint venture with Tom Online had provided it local expertise,

but eBay’s past experience demonstrated the company’s inability to understand local business

With low entry barriers, many believed online companies would eventually consolidate to a few

dominating firms, ones containing the most traffic. While it was obvious eBay was trying to

acquire as much market share as possible, entering into the communication space allowed eBay

eBay’s decision to buy a joint venture stake in South Korea’s Gmarket was part of a similar

strategy to broaden eBay’s market coverage. However, Gmarket was a competitor, and had

NOTE – ADDITIONAL READING, WEB LINKS:

With global expansion a concern for almost all firms, what specific issues might affect eBay’s

global growth strategy?

eBay tried to expand in China with mixed results. Commentary about the differences between

eBay EachNet and major competitor Taobao in 2005 was that Taobao understood the local needs

In 2006 the situation was as follows regarding eBay’s EachNet’s inability to accommodate the

Chinese patron: – “This is a very unique market, and if eBay doesn’t learn how to properly

eBay’s joint venture with Tom Online was seen by some as “another failed attempt by a U.S.

behemoth to extend its dominance to Chinese cyberspace”:

http://www.businessweek.com/stories/2006-12-19/tom-online-ebays-last-china-

cardbusinessweek-business-news-stock-market-and-financial-advice

In Korea, the acquisition of Gmarket was completed in June 2009. Gmarket is said to operate “a

bit differently from eBay. For one thing, Gmarket places less emphasis on an open-auction

From 2013 here is a story about how eBay and others might not be able to gain market share in

China – it’s all about close personal relationships, or “swift guanxi,” “based on high-quality

social interactions and the reciprocal exchange of mutual benefits.…Customers on TaoBao spend

The Asia-Pacific environment is still volatile and the differences between this region’s consumer

shopping culture and the rest of eBay’s customer experience seem to have required significant

retooling. Do you think eBay will eventually be able to gain any significant share of the Asian

consumer-to-consumer market?

The above analysis indicates that eBay should have been well positioned with both resources and

a competitive strategy to deal effectively with its external environment, including its

2. SECONDARY QUESTION: What source of competitive advantage does eBay have,

and is that position supported by its resources and assets?

NOTE: No PowerPoint slides accompany this discussion.

Referencing Chapter 8: Entrepreneurial Strategy and Competitive Dynamics

Entrepreneurship involves the creation of new value by an existing organization or new venture

For an entrepreneurial venture to create new value, three factors must be present – an

entrepreneurial opportunity, the resources to pursue the opportunity, and an entrepreneur or

Entrepreneurs need to understand the concept of opportunity recognition: the process of

discovering and evaluating changes in the business environment, such as a new technology,

sociocultural trends, or shifts in consumer demand, that can be exploited. Changes in the external

Resources are an essential component of a successful entrepreneurial launch. The most important

resource is usually money, but human resources, strong and skilled management, is also an

Launching a competitive venture requires a special kind of leadership involving courage, belief

in one’s convictions, and having the energy to work hard. Three characteristics of entrepreneurial

leaders are:

●Vision

To achieve excellence, venture founders must understand the customer, provide quality products

eBay’s decision to expand into China was a huge opportunity, but it had been hard for leadership

to evaluate those opportunities. Although the demand was there, and, if executed properly, it

In addition, although CEO John Donahoe appeared to have the skills, and was willing to take