Published: 09 Aug 2009 20:02:01 PST
By Sherman So and J. Christopher Westland
Editor’s note:
This article has been adapted from Red Wired: China’s Internet Revolution co-authored by Sherman So and J. Christopher Westland. The to-be-published book is aimed at helping readers gain a firsthand understanding of how the Chinese combined successful components from their Western counterparts with innovation, to accommodate the unique characteristics of the Chinese market.
Many believe Taobao beat global online auction king eBay in China by being free, but not EachNet founder Bo Shao who sold the company to eBay in July 2003. A key catalyst was “migration”, the decision to terminate EachNet’s homegrown technology platform and move all EachNet users to the eBay US platform, said Shao.
On the day of the migration, traffic to eBay China dropped by half. Despite the serious customer losses, Meg Whitman, then CEO of eBay, only learned about it a month after it occurred, on a visit to Shanghai.
Whitman was shocked and very upset. Apparently, even the head of eBay International at the time, who was one of the most ardent proponents of migration, did not tell Whitman about it.
By 2003, eBay’s global expansion plan had reached China. It completed its acquisition of the country’s dominant auction player, EachNet, for $180 million in July 2003. EachNet at the time had more than 2 million users and about 85 percent of the market.
EachNet’s market dominance was so strong that Shao started charging listing and transaction fees in 2001, despite the existence of free competing sites. He believed that as long as the site had the most buyers and made money for sellers, the sellers would be willing to pay. According to Shao, fees did not affect user loyalty; in fact, EachNet’s dominance increased after it started charging.
After the acquisition, Shao retired from daily operations of eBay China and moved to the US in late 2003 with his family. eBay sent in a number of expatriates from Germany, the US, Korea, and Taiwan to run the China division and hired a number of senior executives from other multinational corporations in China.
The company thought everything would be fine. After all, EachNet, now eBay China had an overwhelmingly dominant position and it planned to spend an extra $100 million to improve its technology platform and promote eBay’s brand in China. Any new competitors would be easy to crush.
However, nothing went according to plan. A new rival came out of nowhere and eBay retreated from China four years later.
Rise of Taobao
After Alibaba started making profits on its main B2B site, its founder Jack Ma took aim at the potentially much bigger C2C (consumer-to-consumer) market. Ma gathered a small team working in secret. By May 2003, the website Taobao, which means “looking for treasure” in Chinese, was launched.
While eBay was busy consolidating EachNet into its global operation, Alibaba was plugging Taobao as a new online shopping destination. And unlike its American-owned competitor, Taobao was free!
But levying listing fees and transaction fees was not the only reason eBay lost its dominance to Taobao, said EachNet co-founder Shao, who, after selling the company to eBay in July 2003, stayed on as a consultant for over a year.
“At first, even with Taobao making a lot of noise, our users and traffic did not change much,” said Shao.
Despite having to pay fees, the larger user base of eBay China was more than enough to keep sellers coming. Similarly, most buyers stayed on, as there were more sellers and products offered.
In fact, latecomers seldom posed a serious threat to the dominant online auction player. They might capture some market share, but rarely a big chunk. Latecomer Yahoo’s free auction service in the US had scarcely any effect on eBay’s market dominance.
What really caused eBay to lose its dominance in China was its decision to move its technology platform from China to the US, said Shao.
Internally, it was called “migration”, which was the project to terminate EachNet’s homegrown technology platform and move all EachNet users to the eBay US platform in October 2004.
Whitman, then CEO of eBay, had a vision – she wanted all eBay users, wherever they were, to be able to trade with each other. For example, users in the US could be able to see products offered by users in China and bid for them.
To implement her global vision, eBay’s technology platforms in different countries had to be moved to the headquarters, consolidated and put under the control of the company’s chief technology officer.
The former EachNet management supported the vision, according to Shao, but felt that it was premature to migrate EachNet users to the US platform, which was not yet flexible enough to accommodate the China-specific features that EachNet needed to compete in China. EachNet’s technology team was also concerned about transmission speed issues across the Pacific. Such concerns, however, were downplayed during the eBay technology team’s presentation to Whitman.
The beginning of the end
“On the day of the move, traffic (of eBay China) dropped by half,” recalled Shao.
What had been information flow within China now became traffic across borders and across the Pacific Ocean. However, the Internet infrastructure between China and the US was not very good. The loading speed of eBay China’s webpage, one of the most important user issues, slowed dramatically.
What’s more, the Chinese government by then had built its “great firewall” to block any traffic of which it disapproved. The censorship was quite tight – anything that looked suspicious would be blocked and the foreign computer server that processed the problematic information would be banned for anywhere between 24 hours to several days.
The slow and unstable services frustrated users and caused them to leave eBay China in droves. The presence of Taobao as a better alternative, further sped up its popularity.
But, the news did not get to Whitman until a month later, said Shao. The head of eBay International at the time was a major proponent of migration and did not tell her about the crisis. It was only when she visited China with Shao and met with the local team that she learned the truth.
Whitman cared a great deal about China and treated eBay China as a strategic priority. Shao recalled that Whitman was shocked and upset when she found out about the problems.
Moreover, the move of the technology platform brought the development of eBay China to a screeching halt.
“In order for the eBay US platform to catch up to EachNet’s China-specific features, development on the site was frozen for a year before the platform was moved,” said Shao. For an entire year beginning in October 2003, EachNet could not develop any new features or make significant changes to existing features.
After the move, the local team lost most of its control on the site. “It took nine months to implement any major changes and nine weeks to even change a word on the website as everything had to go through the headquarters technology development team,” said Shao.
“This is unthinkable,” said Shao. “Fast reaction to user demands is crucial in this market.”
eBay’s downfall
Taobao, meanwhile, was quickly adding new features and making its design more and more appealing to the Chinese users. It added an online chat function that allowed buyers and sellers to communicate virtually before trading. It implemented an online payment solution called Alipay. It made its page design more feminine to appeal to a growing number of female users.
Slow and unstable services and a lack of updates caused eBay China to lose users fast. Three months after the platform moved, eBay China’s market share had dropped to the almost the same level as Taobao, said Shao.
“After that, there was no more reason for users to stay (with eBay China),” said Shao. eBay China had fewer users and worse services than Taobao, and it charged people too.
Six months after the move, Taobao turned the tables on eBay China, capturing 60 percent of the market while its rival languished at 30 percent.
eBay significantly cut its prices to try to compete, and in late 2005 it stopped charging altogether, but it was too little too late. Its market share dropped from 85 percent when it purchased EachNet in 2003 to about 30 percent in late 2005.
By the fall of 2005, although eBay still had more registered users, Taobao had 57 percent of the market transaction volume to eBay’s 34 percent, according to Beijing market research firm Analysys International.
After investing nearly $300 million ($180 million for acquiring Eachnet and $100 million as extra budget for its China push), eBay all but threw in the towel. It folded its China operation into a joint venture with Tom Online, a leading mobile value-added services provider in China at the end of 2006.
Tom Online could not turn the situation around, either. eBay’s market share had shrunk to 7 percent by the second quarter of 2007, while Taobao held 82 percent of the market, according to Analysys International.
http://news.alibaba.com/article/detail/business-in-china/100151761-1-how-ebay-lost-china-market.html
12 Aug 2009
3 Aug 2009
Japan’s Growing Role in Vietnam’s Development
The comprehensive free trade agreement between Japan and Vietnam that will come into effect later this year is the latest manifestation of the crucial role that Japan has played in Vietnam’s evolution from command economy to market-oriented one.
The Japanese parliament ratified the agreement, referred to as the Vietnam-Japan Economic Partnership Agreement, in June. It paves the way for a significant two-way increase in the flow of goods and services as well as improvement in other areas such as investment and labor movement. Its implementation will be one of the cornerstones of the “strategic partnership for peace and prosperity in Asia” that the two countries are currently working on.
Japan’s contribution in transforming Vietnam’s economy can be seen in the three important areas of official development assistance (ODA), trade and investment.
In terms of development, Japan is Vietnam’s largest provider (Vietnam is the second largest destination for Japanese ODA after India). For this year alone, even in the face of its own economic hardship, Japan is committed to providing Vietnam with at least US$900 million.
In loans, grant aid, and technical cooperation, Japanese ODA has helped Vietnam to improve its physical infrastructure, enhance the living and social environments, and engage in necessary economic and legal reforms to further economic development.
Trade Surplus
Japan is Vietnam’s second largest export market after the U.S. According to statistics of the Japan External Trade Organization (JETRO), Vietnam has consistently enjoyed an annual trade surplus with Japan over the past five years, with the 2008 surplus reaching US$1.26 billion. Two-way trade has expanded rapidly, increasing from around US$7 billion in 2004 to US$16.8 billion in 2008. With the coming implementation of the FTA, this number will surely continue to rise.
Under the FTA, the two countries agree to abolish tariffs on 92 percent of the goods traded between them within the next 10 years. In particular, Japan will give significant access to those products in which Vietnam currently has a comparative advantage (such as farm products and garments/textiles). For example, Vietnamese shrimp and durian will enter the Japanese market duty-free immediately upon the FTA’s taking effect, not only increasing Vietnamese exports but also boosting local employment.
In terms of investment, to support Vietnam’s economic growth through the attraction of foreign direct investment (FDI), the two governments launched “the Japan-Vietnam Joint Initiative to Improve Business Environment with a View to Strengthen Vietnam’s Competitiveness” in 2003. In implementing this initiative, solutions to investment’s obstacles have been carried out in such forms as changing relevant laws, improving physical infrastructure, and building institutions.
This joint initiative together with the bilateral investment agreement which came into effect in December of 2003, has drastically increased the flow of Japanese FDI into Vietnam. According to Jetro’s statistics, while the number for 2004 was US$128 million, it jumped to nearly US$1.1 billion for 2008. The latest data from Vietnam’s Ministry of Planning and Investment also showed that, as of June 2009, Japan ranked third in terms of the sources of FDI, with 1,113 investment projects amounting to US$17.6 billion.
More importantly, since Japanese FDI has mainly focused on manufacturing, it has helped spur the development of new industries ranging from motorbikes to cars. Currently, Japan is interested in helping to develop supporting industries, where Vietnam lags far behind its ASEAN counterparts like Thailand and Indonesia.
The lack of effective supporting industries has not only prevented Vietnam from capturing the associated benefits of positive externalities to further promote industrialization but has also significantly contributed to the country’s persistent trade deficit since it has to import many of the components that go into the final products. In this regard, the successful development of supporting industries would be the key for Vietnam to move up the development ladder.
Japan is also aiming to help Vietnam develop high tech industries such as nuclear energy and space. For instance, Vietnam will build its first space center (the Hoa Lac Space Center) with Japanese ODA loans of US$350 million. This center is to be completed by 2017 when Vietnam will be able to produce small satellites. During the process, Japan will transfer its relevant space technology and provide training to Vietnamese personnel. Vietnam will certainly benefit from this type of cooperation since the Japanese brand is generally a trusted name in the area of technologies in the world market.
While Vietnam has enjoyed significant benefits from Japanese ODA, trade, and FDI, Japan has also tried to achieve its interests in the relationship as well. First, with a population of more than 86 million and a growing economy, Vietnam is both a potential lucrative market and an attractive manufacturing site for Japanese firms. According to a 2008 survey conducted by the Japan Bank for International Cooperation on Japanese manufacturers’ oversea business operations, Vietnam ranked as the third promising country (after China and India) and was the destination for many new Japanese investment. It was also considered as a good place for risk diversification.
Second, Vietnam has human and natural resources that would potentially supply to the need of Japan. For instance, with its aging population and a relatively very low birth rate, Japan will potentially experience a significant shortage of workers in its more labor-intensive sectors, such as healthcare and agriculture. In this regard, Vietnamese young workers are regarded as fit to help fill the gap.
Third, as a strategically located ASEAN member, Vietnam can serve as bridge for Japan to reinforce and enhance its relationship with the treaty organization. Being a relatively dynamic economic region, ASEAN has been important for Japanese investors and products. Japan has bilateral FTAs with most ASEAN members (except Cambodia, Laos, and Myanmar) and an FTA with the whole ASEAN. Since Japan sees a strong and well-developed ASEAN as a whole important to its own development, it has also tried to help relatively less-developed ASEAN members (Cambodia, Laos, Burma, and Vietnam) integrate well into the regional economy. This effort can be seen through the various types of cooperation that Japan has with the Mekong Region countries (the above four plus Thailand), ranging from developing regional economic corridors to cultural exchanges.
Win-Win
It is clear that the current Vietnam-Japan relationship is a win-win one. From the strategic standpoint, each side can accommodate the other’s interests largely without complicating its own internal and external relations. For instance, while the Vietnamese government has to deal with intense public opposition on some controversial Chinese FDI projects, it does not have that problem with Japanese FDI. Furthermore, there is no inherent competition between the two countries both in terms of economics and politics. One example of this can be seen in the fact that there is no competition in the goods that each country has a comparative advantage.
However, continued success should not be taken for granted. The following two cases make the point, one of which is related to the implementation of Japanese ODA. Last year, the government of Japan decided to suspend the release of new ODA to Vietnam for six months (from August 2008 to February 2009) after a significant corruption case (known as the PCI corruption case) related to the Japanese-funded Saigon East-West Highway Construction Project was revealed.
Japan resumed its ODA disbursement after the two governments formed the “Japan-Vietnam Joint Committee for Preventing Japanese ODA-related Corruption” to come up with effective measures to prevent such similar cases from happening again. (The committee already issued its report on February 23, 2009). This is an important step. But for real positive results, careful and ongoing monitoring must take place to make sure that the corruption preventing measures are implemented in full faith.
Another point is related to the two sides’ cooperation on developing supporting industries. According to the Japanese ambassador to Vietnam Mitsuo Sakaba,Vietnam did not have a detailed action plan to effectively carry out strategy to develop supporting industries. In a somewhat similar line, Kenichi Ohno, a Japanese expert who has very close knowledge of the situation, said that while Japan was active in coming up with an action plan, there was a lack of interest in cooperating from the Vietnamese side.
At any rate, the ball is pretty much in Vietnam’s court. It should strategically take advantage of the current very positive and well-intended Japanese involvement to promote economic development for the sake of maintaining social stability and national security. Vietnam certainly has a lot more to lose if it fails to truly secure a strategic partnership with Japan.
http://www.asiasentinel.com/index.php?option=com_content&task=view&id=1987&Itemid=238
The Japanese parliament ratified the agreement, referred to as the Vietnam-Japan Economic Partnership Agreement, in June. It paves the way for a significant two-way increase in the flow of goods and services as well as improvement in other areas such as investment and labor movement. Its implementation will be one of the cornerstones of the “strategic partnership for peace and prosperity in Asia” that the two countries are currently working on.
Japan’s contribution in transforming Vietnam’s economy can be seen in the three important areas of official development assistance (ODA), trade and investment.
In terms of development, Japan is Vietnam’s largest provider (Vietnam is the second largest destination for Japanese ODA after India). For this year alone, even in the face of its own economic hardship, Japan is committed to providing Vietnam with at least US$900 million.
In loans, grant aid, and technical cooperation, Japanese ODA has helped Vietnam to improve its physical infrastructure, enhance the living and social environments, and engage in necessary economic and legal reforms to further economic development.
Trade Surplus
Japan is Vietnam’s second largest export market after the U.S. According to statistics of the Japan External Trade Organization (JETRO), Vietnam has consistently enjoyed an annual trade surplus with Japan over the past five years, with the 2008 surplus reaching US$1.26 billion. Two-way trade has expanded rapidly, increasing from around US$7 billion in 2004 to US$16.8 billion in 2008. With the coming implementation of the FTA, this number will surely continue to rise.
Under the FTA, the two countries agree to abolish tariffs on 92 percent of the goods traded between them within the next 10 years. In particular, Japan will give significant access to those products in which Vietnam currently has a comparative advantage (such as farm products and garments/textiles). For example, Vietnamese shrimp and durian will enter the Japanese market duty-free immediately upon the FTA’s taking effect, not only increasing Vietnamese exports but also boosting local employment.
In terms of investment, to support Vietnam’s economic growth through the attraction of foreign direct investment (FDI), the two governments launched “the Japan-Vietnam Joint Initiative to Improve Business Environment with a View to Strengthen Vietnam’s Competitiveness” in 2003. In implementing this initiative, solutions to investment’s obstacles have been carried out in such forms as changing relevant laws, improving physical infrastructure, and building institutions.
This joint initiative together with the bilateral investment agreement which came into effect in December of 2003, has drastically increased the flow of Japanese FDI into Vietnam. According to Jetro’s statistics, while the number for 2004 was US$128 million, it jumped to nearly US$1.1 billion for 2008. The latest data from Vietnam’s Ministry of Planning and Investment also showed that, as of June 2009, Japan ranked third in terms of the sources of FDI, with 1,113 investment projects amounting to US$17.6 billion.
More importantly, since Japanese FDI has mainly focused on manufacturing, it has helped spur the development of new industries ranging from motorbikes to cars. Currently, Japan is interested in helping to develop supporting industries, where Vietnam lags far behind its ASEAN counterparts like Thailand and Indonesia.
The lack of effective supporting industries has not only prevented Vietnam from capturing the associated benefits of positive externalities to further promote industrialization but has also significantly contributed to the country’s persistent trade deficit since it has to import many of the components that go into the final products. In this regard, the successful development of supporting industries would be the key for Vietnam to move up the development ladder.
Japan is also aiming to help Vietnam develop high tech industries such as nuclear energy and space. For instance, Vietnam will build its first space center (the Hoa Lac Space Center) with Japanese ODA loans of US$350 million. This center is to be completed by 2017 when Vietnam will be able to produce small satellites. During the process, Japan will transfer its relevant space technology and provide training to Vietnamese personnel. Vietnam will certainly benefit from this type of cooperation since the Japanese brand is generally a trusted name in the area of technologies in the world market.
While Vietnam has enjoyed significant benefits from Japanese ODA, trade, and FDI, Japan has also tried to achieve its interests in the relationship as well. First, with a population of more than 86 million and a growing economy, Vietnam is both a potential lucrative market and an attractive manufacturing site for Japanese firms. According to a 2008 survey conducted by the Japan Bank for International Cooperation on Japanese manufacturers’ oversea business operations, Vietnam ranked as the third promising country (after China and India) and was the destination for many new Japanese investment. It was also considered as a good place for risk diversification.
Second, Vietnam has human and natural resources that would potentially supply to the need of Japan. For instance, with its aging population and a relatively very low birth rate, Japan will potentially experience a significant shortage of workers in its more labor-intensive sectors, such as healthcare and agriculture. In this regard, Vietnamese young workers are regarded as fit to help fill the gap.
Third, as a strategically located ASEAN member, Vietnam can serve as bridge for Japan to reinforce and enhance its relationship with the treaty organization. Being a relatively dynamic economic region, ASEAN has been important for Japanese investors and products. Japan has bilateral FTAs with most ASEAN members (except Cambodia, Laos, and Myanmar) and an FTA with the whole ASEAN. Since Japan sees a strong and well-developed ASEAN as a whole important to its own development, it has also tried to help relatively less-developed ASEAN members (Cambodia, Laos, Burma, and Vietnam) integrate well into the regional economy. This effort can be seen through the various types of cooperation that Japan has with the Mekong Region countries (the above four plus Thailand), ranging from developing regional economic corridors to cultural exchanges.
Win-Win
It is clear that the current Vietnam-Japan relationship is a win-win one. From the strategic standpoint, each side can accommodate the other’s interests largely without complicating its own internal and external relations. For instance, while the Vietnamese government has to deal with intense public opposition on some controversial Chinese FDI projects, it does not have that problem with Japanese FDI. Furthermore, there is no inherent competition between the two countries both in terms of economics and politics. One example of this can be seen in the fact that there is no competition in the goods that each country has a comparative advantage.
However, continued success should not be taken for granted. The following two cases make the point, one of which is related to the implementation of Japanese ODA. Last year, the government of Japan decided to suspend the release of new ODA to Vietnam for six months (from August 2008 to February 2009) after a significant corruption case (known as the PCI corruption case) related to the Japanese-funded Saigon East-West Highway Construction Project was revealed.
Japan resumed its ODA disbursement after the two governments formed the “Japan-Vietnam Joint Committee for Preventing Japanese ODA-related Corruption” to come up with effective measures to prevent such similar cases from happening again. (The committee already issued its report on February 23, 2009). This is an important step. But for real positive results, careful and ongoing monitoring must take place to make sure that the corruption preventing measures are implemented in full faith.
Another point is related to the two sides’ cooperation on developing supporting industries. According to the Japanese ambassador to Vietnam Mitsuo Sakaba,Vietnam did not have a detailed action plan to effectively carry out strategy to develop supporting industries. In a somewhat similar line, Kenichi Ohno, a Japanese expert who has very close knowledge of the situation, said that while Japan was active in coming up with an action plan, there was a lack of interest in cooperating from the Vietnamese side.
At any rate, the ball is pretty much in Vietnam’s court. It should strategically take advantage of the current very positive and well-intended Japanese involvement to promote economic development for the sake of maintaining social stability and national security. Vietnam certainly has a lot more to lose if it fails to truly secure a strategic partnership with Japan.
http://www.asiasentinel.com/index.php?option=com_content&task=view&id=1987&Itemid=238
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