eBay's Strategic Decision: Acquisition of Tom Online in China

This research report provides a comparative analysis of eBay's acquisition strategy versus a joint venture with Tom Online in the Chinese market. The report examines the advantages and disadvantages of both approaches, focusing on factors such as market competition, cultural differences, and strategic control. Through literature review, hypothesis development, and data analysis, the study concludes that an acquisition strategy is more beneficial for eBay's expansion in China, providing greater control, faster market entry, and reduced risk compared to a joint venture. The report discusses the SWOT analysis of the collaboration between the companies, carries out necessary hypotheses, and data analyses for the disadvantages of joint venture and advantages of acquisition strategy. The report offers valuable insights for decision-making in the context of international business expansion and market entry strategies.

Running head: ACQUISTION CONCEPT OF TOM ONLINE IN EBAY
Acquisition Concept of Tom Online in eBay
Name of the Student:
Name of the University:
Author’s Note:

ACQUISTION CONCEPT OF TOM ONLINE IN EBAY 1
Executive Summary
The research report elaborates about the comparative study on acquisition theory of Tom
Online and eBay. The study statistically measured the sampled data and took the conclusion.
The acquisition theory is better than joint venture with Tom Online. As a personnel manager,
I would like to choose acquisition procedure rather than joint venture. Hence, according to
the public response, I would help company to change their minds. The acquisition theory is
going to be helpful for eBay according to the analyzed data. My research could be beneficial
of decision-making of the company. As eBay and Tom Online, both are popular companies of
China, eBay would be more successful for taking the correct decision.

ACQUISTION CONCEPT OF TOM ONLINE IN EBAY 2
Table of Contents
1.0 Introduction.....................................................................................................................3
1.1 Purpose of the Study....................................................................................................4
1.2. Interest of the Study.................................................................................................4
1.2 Preview of the Research..............................................................................................5
2. Body.......................................................................................................................................6
2.1 Literature Review and Hypothesis Development........................................................6
Disadvantages of Joint Venturing:-....................................................................................6
Advantages of Acquisition Strategy:-................................................................................8
Hypotheses:......................................................................................................................10
2.2. Method and Data Analysis:...........................................................................................10
Survey method:................................................................................................................10
Questionnaire Set:............................................................................................................10
Statistical Methods:..........................................................................................................10
2.3. Finding and Results:......................................................................................................11
2.4. Organization:.............................................................................................................35
3.0 Conclusion.....................................................................................................................35
3.1. Summarization of Adequate and Appropriate Conclusion:.......................................35
4.0 References.....................................................................................................................36

ACQUISTION CONCEPT OF TOM ONLINE IN EBAY 3
1.0 Introduction
eBay is an internet company that functions as an internet market place, by bringing
the buyers and sellers to one place and facilitating trade on local and international
basis(Verbeke, 2013). Consumers and businesses founded eBay in 1995 for creating a
platform for sales of goods and services. eBay operates more than 35 global markets in the
world across continents like North America, South America, Latin America, Asia Pacific and
Europe. eBay had entered China and was planning to dominate the China market in 2004.
Despite having business in so many countries of the world, eBay is still struggling to grow in
China as it faces several issues and constraints there (Lee & Renner, 2016). Tom Online is
also a mobile internet company in China offering a variety of online and mobile services
involving wireless internet and online advertising.
The analysis is carried out to understand the political, economic, socio cultural, legal
and environmental factors that influence and affect the joint venture of eBay and Tom
Online. A large amount of foreign direct investments that is available in China. This is major
flow into e-retailing and mobile services. Thus, it has led to a lot of improvement in the e-
retailing and internet service platform. China is an emerging economy with a high number of
middle-income populations that has a high level of disposable income (Buckley & Ghauri,
2015). The internet penetration is also very high in Chinese society and majority of shoppers
prefer to buy products and services online rather than going to a shop to purchase them
(Dalbehera et al., 2017). The technology infrastructure in China is growing and the media
outlets are blocked by the government that restricts the promotion of the services of the
marketing firms like E-bay and the internet mobile companies like Tom Online (Buckley et
al., 2016). Consecutive effort in business of both the companies might bring new
opportunities for both the companies.

ACQUISTION CONCEPT OF TOM ONLINE IN EBAY 4
The research report discusses about the SWOT analysis (Strength, Weakness,
Opportunity and Threat) of collaboration of eBay and Tom Online (China based company).
We carried out necessary hypotheses and data analyses for the disadvantages of joint venture
of both the companies and undertaken the advantages of acquisition strategy of eBay.
1.1 Purpose of the Study
The purpose of the paper is to advice E-bay against its possible joint venture
agreement with Tom online in order to expand the market in China. The research paper
presents the arguments against the joint venture and asserting that an acquisition strategy for
growth can be pursued to gain a strong foothold of the Chinese market. The acquisition
strategy would be fruitful for eBay from several directions and dimensions.
1.2. Interest of the Study
The competition in the internet auction market in China is tough as the potential
merged business could lose out to the strong local competitors (Lee & Renner 2016).
Moreover, the Chinese consumers also prefer to buy from renowned companies in the e-
commerce market in China rather than a new entrant. Moreover, in 2002, when eBay planned
to enter China, it also did not incorporate the payment escrow and Paypal into its system
(Reid 2015). On the other hand, TaoBao had the escrow in the form of Alipay System. Even
though PayPal was introduced later in the Chinese market, eBay had lost its market share.
The cultural differences between eBay and its local operating company like Tom
Online can also become a cause of concern for the management in the end. The decision-
making could be centralized as many organizations in China and this may not work in favor
of eBay. It would make the decision making process more time taking and the work process
more inflexible (Wieland et al., 2017). This may also force EBay to deliver a lag response to

ACQUISTION CONCEPT OF TOM ONLINE IN EBAY 5
the ever-changing Chinese market. eBay would like to acquire Tom Online and expand their
business in current scenario.
1.2 Preview of the Research
The main success factor for the company is the sales generated by eBay. eBay has the
first mover advantage in internet commerce, especially in the online auction sales, and it
created a big network that divided customers into buyers and sellers (Akter et al., 2016).
Although there were the other companies that were into auction sales, eBay managed to
surpass them as it conducted auctions with no inventory that meant costs savings. In 2002,
eBay’s online commerce business surpassed that of Amazon. Even during the dotcom crash,
the company’s business was unaffected because of its strong fundamentals. The company
also enjoys a high market capitalization rate. The business model of the company is also a
success factor for the company as its management constantly explores new pathway. The
consumers also flock to eBay because it offers a wide range of product selection (Wei et al.,
2014). Another reason for success of the company is its customer support and service system
through various channels like e-mail, online text and telephone calls. However, despite these
factors of critical success for the company, it has not set up a strong foothold in China.
At last, after struggling to establish a stable presence in the commercial market of
china, eBay announced on December 20, 2006. eBay is going to establish a joint venture with

ACQUISTION CONCEPT OF TOM ONLINE IN EBAY 6
politically excellently connected Tom Online. However, we feel that eBay would be more
strategically correct if it would choose acquiring Tom Online rather than joint venturing.
2. Body
2.1 Literature Review and Hypothesis Development
Why acquisition strategy is better than joint venture is a very important question.
China’s internet market place is also fraught with challenges like
1. slow internet speeds
2. high access costs for the internet usage
3. inequalities in economic and technological developments in different parts of
China
4. Absence of a credit system for online payments
5. Too much of government intervention and regulations
6. Corruption and lack of transparency in the trading system (Lee & Renner 2016)
In order to do business in China, it is proposed that eBay adopts the acquisition
strategy instead of going for a joint venture. A minority stake in a local trading and e-
commerce company should be the right strategy to commence the growth of its business in
China (Verbeke, 2013). The reasons that acquisition as a growth strategy may be more
favorable than joint ventures are discussed in this section (Reid, 2015).
Disadvantages of Joint Venturing:-
The main characteristics of the joint ventures are that the owners are treated as
separate entities and there is no transfer of ownership from one owner to another. These joint
ventures or alliances could be very flexible as it is mostly associated to some purpose or

ACQUISTION CONCEPT OF TOM ONLINE IN EBAY 7
project to which joint venture will be undertaken. However, the joint ventures have a finite
reliability. The main disadvantages of pursuing a joint venture are that there is separation of
ownership into two distinct entities that makes the operation of the joint venture complicated.
Both the organizations have to act not only for their interests but also from the interest of the
independent collaboration industry (Kogut, 1988). Managing the resources of each of the
organization can be conflicting with the interests of the joint venture together (Wieland et al.,
2017). The flexibility of the joint ventures in the short term as well as long term is necessary
for success. Without clearly defined objectives for which the joint venture is generated, it
would naturally fail. The strategic planning is essential for the success or failure of the project
(Wang, 2012). The longevity of the joint venture is finite and unlike the mergers and
acquisitions where the transaction outputs are increasing concerns, the joint venture only
create a strategic alliance. This alliance is only focused on the current business and ongoing
operations (Verbeke, 2013). Thus, the joint venture tends to operate within a limited time and
as such all decisions like capital allocations, resource or operations planning and strategic
goals of the organization must align within the period of the joint venture.
Single mistakes in this typical competitive market could teach a bad lesson to the
managers of eBay, growing the frustration. Some issues could affect the growth of the joint
venture. Their resources and practices will impose several barriers such as lack of diligence,
poor matchmaking and making miscalculations at the time of transition that could lead to
conflict between management and the workers on the venturing companies (Brush et al.,
2015). The management of acquired company may be apprehensive of the growth strategy. If
the risk factors of the business are not promptly detected or defined, then they could alleviate
to bigger issues after the joint venturing (Klettner et al., 2014).

ACQUISTION CONCEPT OF TOM ONLINE IN EBAY 8
Advantages of Acquisition Strategy:-
The growth of the business through acquisitions indicates the acquisition of one
company by another, which can be possible through merger or taking over the control of the
business (Contractor et al., 2016). The growth of a business through acquisition as a strategy
of combining people, practices, products and services would help to enhance the existing
business to new heights. The objective of the merger or acquisition is to diversify the
business or position in the market. The acquiring company is able to consolidate as well as
dominate its holding in the market. Another aim of the business is to undergo acquisition to
gain market share, acquire more resources and ensure the business expansion. Some
companies may lack the resources to attract customers in a foreign country or in some interior
areas (Blackburn et al., 2013). If the objective of the company were to grow by capturing
markets in the local areas of China, then they would be able to go for spoke pattern of
acquisition. This way they can buy rival firms who would lack the investment to grow (Ofili,
2016).
On the other hand, there are a few advantages of pursuing an acquisition strategy
(Cavusgil et al., 2014). The acquisition is a great way to build the business in the future when
the organizations lack the capabilities to do so. The acquisition could help the business in
accessing foreign markets as well as reduce the risks of the new venture. Therefore, it is
crucial to collaborate with someone who has complementary targets and resources so that the
alliance works effectively (Buckley & Ghauri, 2015). Therefore, it is essential to weigh the
challenges faced by the business before considering entering into a joint venture.
eBay, in order to expand its online market place business in China, needs to acquire
local companies so that it can get the benefits of organic growth through acquisitions. The
joint venture with Tom Online means that the latter holds a higher ownership stake in the
business and eBay may not have higher rights in strategy planning and decision making as

ACQUISTION CONCEPT OF TOM ONLINE IN EBAY 9
compared to Tom Online (Leonidou et al., 2017). eBay may target to acquire local leading
online trading community platforms in China such as Tom Online that has a strong foothold
in the internet trading market in China (Ragozzino and Reuer, 2009). If eBay acquires the
business of Tom Online, then it could gain its best practices and could achieve strong
foothold in the fastest growing internet market in the world. This acquisition strategy would
support to build eBay’s reputation as a truly global marketplace (Akter et al., 2016). Through
the acquisition, eBay will be well positioned to develop the emerging market of China and
acquiring a strong internet market place in the China (Lu and Tao, 2007).
Foreign companies are coming to china rapidly. Despite attempts of eBay to put a
positive spin on the report, most of the critics view eBay’s deal with Tom Online. The joint
venture with Tom Online could not be a success as eBay could lose its ground in the Chinese
market just like Google had done to “Baidu Browser”. This is due to the Chinese consumer
mindset and the business and market environment prevailing there (Dalbehera et al., 2017).
The Chinese consumers usually choose free or low cost product unless it is tangible.
However, statistics also suggest that the consumers are willing to pay for the products along
with the listing fees, if they find it worthwhile. Consumers also do not develop trust in a
foreign retailing company and are more comfortable with the local domestic industries. This
is important because the legal system is weak in China and the mechanism to settle legal
disputes is very tedious and time taking (Buckley et al., 2016). Hence, consumers would like
to make shopping in a secure place where they would not experience any legal hassle or
dispute of any kind.
After failing in Japan, eBay was investing in China after 2003. The Eachnet
management team had staked out a commanding lead in the online auction sector maintaining
almost 80% of the market. eBay in 2006, had invested $300 million to reach to an anemic
20% when they lost their ground to competitors like Alibaba’s Taobao and Tencent’s Paipai.

ACQUISTION CONCEPT OF TOM ONLINE IN EBAY 10
Hopefully, eBay’s frustration could teach lessons to managers and administers of global
online to sell to the 250 million members of China’s emerging middle class. An acquisition
policy could help eBay in these circumstances.
Many surveys shows that Chinese customers like to buy products from reputed brands
like eBay. People trusts that customer service is ‘over the top’. eBay managers should take
advantages of that issue.
Hypotheses:
We have considered some hypotheses that are-
H1: Acquisition of eBay with Tom Online is associated with increment of Popularity of eBay
due to acquisition.
H2: Joint Venture of Tom Online and eBay is associated with increment of Popularity of
eBay due to joint venture.
H3: Acquisition of eBay with Tom Online is associated with increment of Profit of eBay due
to acquisition.
H4: Joint Venture of Tom Online and eBay is associated with the increment of profit of eBay
due to joint venture.
2.2. Method and Data Analysis:
Survey method:
The sample method of data analysis is sample survey method. We executed a
questionnaire survey method via e-mail procedure. The data were collected as responses in
SPSS tabulation sheet. The answers are tabulated in “Likert” scale. Most of the All the
questionnaires are closed-ended questions. The data is qualitative in nature. We put necessary
levels as “1= yes” and ‘2= no”. In addition, the levels in “Likert” scale are - “1=strongly
disagree”, “2=disagree”, “3=either agree or disagree”, “4=agree” and “5=strongly agree”.
This way the qualitative data is transformed in quantitative data.
Questionnaire Set:
1. Are you familiar with eBay?
2. Are you a user of eBay?
3. Are you familiar with Tom Online?

ACQUISTION CONCEPT OF TOM ONLINE IN EBAY 11
4. Are you a user of Tom Online?
5. Would it be a correct decision if eBay acquires Tom Online?
6. Would it be a right decision if eBay makes a joint venture with Tom Online?
7. Would the popularity of eBay get increased by acquisition?
8. Would be popularity of eBay get increased by joint venture with Tom Online?
9. Would the profit of eBay get increased by acquisition?
10. Would be profit of eBay get increased by joint venture with Tom Online?
Statistical Methods:
The proper statistical methods applied is mainly descriptive statistics of the variables.
Crosstab relation is handled in this statistical method between qualitative variables. The bar
plot, comparative bar plot, box plot and crosstab bar charts of various factors are executed in
this dataset. The Pearson’s correlation coefficient is calculated between several response level
to verify the null hypotheses. Paired t-test is also devised in this context.
2.3. Finding and Results:
The bar plot shows that most of the students are familiar of eBay.