978-1259278211 Case 20 Solution Manual Part 2

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1. What source of competitive advantage does eBay have, and is that position supported

by its resources and assets? Does eBay deal effectively with its external environment in

Asia?

In order to fully appreciate eBay’s difficulties with its growth strategies in Asia, it may help if

students can step back and consider eBay’s need for a strategic analysis and formulation. eBay

Referencing Chapter 5: Business-Level Strategy

In order to achieve a sustainable competitive advantage, eBay had to assess its ability to contend

with other online auctioneers. The question of how to compete in a given business to attain

competitive advantage requires an assessment of the types of competitive strategies, including

the three generic strategies that are used to overcome the five forces and achieve a competitive

advantage:

●Overall cost leadership

oLow-cost-position relative to a firm’s peers

●Differentiation

oCreate products and/or services that are unique and valued

●Focus strategy

oNarrow product lines, buyer segments, or targeted geographic markets

Ask the students which strategy they think eBay pursued, and why. Their answers may include

some of the following points:

eBay competed by creating customer options that were uniquely different from those of its

competitors. It also targeted distinct market niches. Because of its reputation and longevity in

Regarding its competitive strategy in Asia, in order to maintain control over costs, eBay had kept

central management control in the U.S. Although this centralized decision structure allowed

Referencing Chapter 3: Analyzing the Internal Environment of the Firm

To answer the question of how to support a competitive strategy, it’s important to consider the

concept of the resource-based view of the firm, and the three key types of resources: tangible

resources, intangible resources, and organizational capabilities. Determining whether the internal

resources are valuable, rare, difficult to imitate, or difficult to substitute (VRIN) can help a firm

sustain a competitive advantage. See Chapter 3, Exhibit 3.6. eBay’s profile might look like this:

Tangible Resources:

Financial – strong financial growth

Intangible Resources:

Organizational – centralized decision making worked well except in Asia

Human – based on the commitment and loyalty of ex-CEO Whitman & current CEO Donahoe,

Innovation – major strength

Reputation – another major strength – essential in this service business

Organizational Capabilities:

Competencies – eBay had the critical strengths in its human, technological, innovative and

Referencing Chapter 4: Intellectual Capital

See the concepts of intellectual capital, human capita,l and social capital, all of which are

intangible assets that a company such as eBay needs to have in order to compete successfully.

Intellectual capital is a measure of the value of a firm’s intangible assets, its reputation, employee

loyalty and commitment, customer relationships, company values, brand names, and the

Both Meg Whitman and John Donahoe were examples of the dedication, experience and skills of

eBay’s intellectual capital. Since eBay was in the knowledge business, the capabilities of its

employees and managers were essential assets. However, especially in Asia, social capital was

It appeared possible that eBay had not yet understood how to leverage social capital in Asia. A

telling comment was rival Alibaba.com’s CEO Jack Ma’s observation that eBay moved too

Contrasting eBay with Yahoo, when Yahoo chose to partner with Taobao and Gmarket, both

Taobao and GMarket had an in-depth understanding of the Asian culture and local market needs.

They allowed users to conveniently interact with each other by offering alternate communication

Referencing Chapter 2: Analyzing the External Environment of the Firm

Regarding the general external environment, eBay must consider the political/legal, economic

and global, sociocultural and demographic, and technological forces that might affect the ability

of the firm to deliver its services and sustain its business. See which factors in the general

environment students might pick that have a significant impact on the online auction industry.

Students might respond as follows:

Political-Legal – trade and tariff issues, local and national regulations

Economic – currency fluctuations

Demographic – population growth outside of North America; Asia & Africa had the most

Sociocultural – people worldwide paying increasing attention to social issues, global poverty,

Technological – Internet users had increasing concerns with online privacy, fraud

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

NOTE – ADDITIONAL READING, WEB LINKS, EMBEDDED VIDEO:

Use the tools available at this link to examine the performance of eBay’s stock over the last five

years: http://finance.yahoo.com/q?s=ebay

In 2013, eBay’s revenue forecast showed weakness in Europe and Asia, sending the stock down

to its lowest levels since August of 2011. CEO John Donahoe noted that online commerce

growth in Germany, UK, and Korea was slowing. PayPal revenue, however, was strong:

http://www.bloomberg.com/news/2013-07-17/ebay-revenue-forecast-misses-as-growth-abroad-

slows.html?cmpid=yhoo

Analyst’s opinion in July 2013 was that eBay was successfully competing against competitors

such as Amazon, primarily because of its PayPal digital payments business, its cross-border

trade/international business, and its mobile connection platform. However, eBay was still not

competitive in China: http://www.insidermonkey.com/blog/ebay-inc-ebay-it%E2%80%99s-time-

to-stop-worrying-about-this-e-commerce-giant-202137/

What do you believe explains the stock’s performance? Would you expect the current trend to

continue? Why or why not?

Here is a video reportedly produced for eBay’s employees in 2005 on the occasion of its tenth

anniversary. It interviews eBay users from different perspectives, one of whom is a Chinese

seller using Eachnet.

Focus is on making eBay “easier and safer to shop.” Changes were announced regarding product

and pricing. Some eBay patrons have been getting increasingly upset with eBay policies. See, for

instance, the following series of blogs from Australia starting in 2008. Sellers are upset that they

have to use PayPal exclusively:

http://www.bloggernews.net/115079

and sellers are upset that eBay has prevented them from leaving bad feedback about buyers. The

implication is that buyers are more important than sellers, at least in eBay Australia:

See the bloggers’ comments in the U.S.:

In the attempt to make it safer for buyers to shop, has eBay alienated the sellers?

How successful do you expect eBay to be going forward in its auction and direct marketplace

segment?

Increasingly, eBay is focusing on the transaction part of its business. From a story in April of

2013, CEO John Donahoe explains how eBay has expanded into retail logistics and services with

the 2011 acquisition of GSI Commerce, and is now “targeting the $10 trillion total commerce

market, which includes brick-and-mortar, traditional retail chains and their forays into online and

From 2013, here’s specific information about eBay’s acquisition of GSI Commerce, the

“enterprise” solution for retailers. For retailers and brands, eBay Enterprise represents a one-stop

shop for enterprise commerce technology, commerce services, marketing services and

Although this may certainly improve eBay’s ability to diversify into a growing business area,

how does this apply to its international prospects?

Referencing Chapter 11: Strategic Leadership

See the concept of leadership, the process of transforming organizations from what they are to

what the leader would have them become. Leadership is proactive, goal oriented, and focused on

the creation and implementation of the creative vision. This definition implies dissatisfaction

with the status quo, a vision of what should be, and suggests a process for bringing about change.

Leaders are change agents whose success is measured by how effectively they formulate and

implement a strategic vision and mission. See Exhibit 11.1. This involves:

●Setting a direction

The interdependent nature of these three activities is self-evident. Consider an organization with

a great mission and a superb organizational structure, but a culture that implicitly encourages

Leaders need to set the direction for the organization by continually scanning the environment to

develop knowledge of all stakeholders, as well as knowledge of salient environmental trends and

Leaders are responsible for designing the organization: a strategic leadership activity of building

structures, teams, systems, and organizational processes that facilitate the implementation of the

Leaders play a key role in changing, developing, and sustaining an organization’s culture. An

excellent and ethical organizational culture is an organizational culture focused on core

In nurturing a culture dedicated to excellence and ethical behavior, managers and top executives

must accept personal responsibility for developing and strengthening appropriate behavior;

consistently demonstrate that such behavior is central to the vision and mission; develop and

eBay CEO John Donahoe did appear skillful at scanning the external environment to identify the

However, by failing to anticipate how the single global platform might not be appropriate for all

EBay CEO John Donahoe appeared capable of nurturing a culture that allowed the company to

Referencing Chapter 12: Managing Innovation & Fostering Corporate Entrepreneurship

Innovation involves using new knowledge to transform organizational processes or create

commercially viable products and services using the latest technology, experimentation, creative

Before proceeding, firms must first define the scope of the innovation efforts, and must ensure

A strategic envelope defines the range of acceptable projects. Strategic envelope means a firm-

specific view of innovation that defines how a firm can create new knowledge and learn from an

innovation initiative even if the project fails. The strategic envelope also gives direction to a

firm’s innovation efforts, which helps separate seeds from weeds and builds internal capabilities.

In defining the innovation scope, a firm should answer several questions:

●How much will the innovation cost?

●How likely is it to actually become commercially viable?

●How much value will it add; that is, what will it be worth if it works?

●What will be learned if it does not pan out?

The challenges of innovation involve:

●Choosing when and how to continue to innovate

●The scope and pace of future innovation

eBay was in a global industry with competitors on multiple continents. eBay had to innovate in

both product and process arenas simultaneously. Therefore, the scope of innovation would be

critical. The scope of any innovation investment must be carefully assessed to make sure it

doesn’t strain the firm’s ability to utilize its existing resources – how much will it cost, and will

we be able to learn something useful if it doesn’t work? Does the firm have the needed

capabilities? Where can eBay get access to the needed skills and expertise? Has eBay learned

enough from its mistakes to succeed in the future?

eBay must continue to reassess its internal and external environment in order to build its