By John Boudreau
Posted: 10/23/2011 08:42:47 AM PDT
Updated: 10/23/2011 04:29:29 PM PDT
Paypal China's Business Consultant Team, from right, Sam Zhou, Bingo Lu,... (LiPo Ching/Staff)
SHANGHAI -- Just as the Sirens of Greek mythology lured sailors to their doom on a rocky coast, China's fast-growing Web has drawn Western Internet companies to its shores, where they have seen their business hopes dashed in a treacherous market.
But San Jose-based auction site eBay (EBAY), after initially floundering in China, has charted a new course that's beginning to pay off.
Giants such as Google (GOOG), Yahoo (YHOO) and Amazon have been frustrated in their efforts to capitalize on the nation's growing hordes of Netizens, now numbering some 485 million. Until recently, eBay was also among the disappointed.
Eight years ago, it paid $150 million to buy China's top e-commerce site, EachNet, then plowed an additional $100 million into its China operations. But it was foiled by local rivals who offered similar services for free. In 2006, eBay handed over its operation to competitor Tom Online in a joint venture.
But eBay then went back to the white board and reinvented itself in China by not trying to be a Chinese company but returning to a proven model that is helping it and its online payment business PayPal navigate the new Internet world.
A few years ago, the company quietly resurrected its China business by letting exporters of everything from wedding dresses to camera equipment sell directly to eBay's 97 million overseas users.
"We asked ourselves, 'How can we participate in the Chinese e-commerce market?''" said Jeff Liao, CEO of eBay Greater China. "The answer is so obvious: Play to our strengths, leverage our global franchise."
The results are promising. Greater China -- mainland China, Hong Kong and Taiwan -- now represents an important market for eBay and PayPal. Greater China is the third-largest market for PayPal, which handles eBay's payments as well as those of other online partners. Last year, PayPal, whose largest online partner is eBay, reported $4.4 billion in transactions for the region, a 44 percent jump from 2009. eBay does not break out its revenue by geography, but said that during its third quarter, which ended Sept. 30, its business in China soared 29 percent over the same period a year ago.
"China is our fastest export market," said John Pluhowski, eBay's vice president of communications in San Jose.
Foren Fu, general manager of e-commerce consulting for the iResearch Group in Shanghai, called eBay's new direction "very promising. It has a very good future in China. eBay spent time to understand the local market and find out how to differentiate itself."
eBay's pitch to Chinese vendors is that it can virtually deliver millions of individual customers to their doorsteps and new business beyond providing goods for Walmart and other companies in the West. And to individual overseas consumers, the company says it offers a safe way to get discounts on all kinds of products made in China with some degree of assurance they are not fakes by actually investigating suspicious vendors and deploying customer feedback and ratings of eBay merchants.
"We do the vetting," Liao said. "We do the verifications. This is our job in China."
In the U.S., federal courts have ruled that eBay isn't liable for counterfeit products sold on its website, though in Europe, the company has been held responsible. eBay says it has a strict policy against the selling of fakes, including suspending those caught selling them.
In China, the company aggressively deploys a filtering system that triggers an on-the-ground investigation after it observes unusual sales, such as a computer components vendor that starts selling Gucci bags. It also does an analysis of customer feedback to spot problems and has a global program that allows intellectual property rights owners to flag the company when they suspect the sales of fraudulent products.
"We are in recognition of this perception issue," said Daniel Feiler, eBay's Asia Pacific spokesman. In order to protect its business, the company knows it must employ strict anti-counterfeit measures, he added.
'So much opportunity'
eBay believes it is creating a new global business platform. While 55 percent of the business of its Asian vendors comes from the United States, the company said it is positioning itself to facilitate trade within Asia as well as between Asia and other countries, such as Brazil and Russia.
"We understand the power of this business model," Feiler said. "We feel we are just scratching the surface here with so much opportunity."
By 2013, some 48 million small- and medium-size companies in China are expected to be exporting goods, up from 33 million in 2008, according to iResearch. eBay and PayPal, which have offices in the same Shanghai building, hope to educate Chinese manufacturers on how to sell their products overseas to individual consumers. That point was underscored in a PayPal conference room, where a map of the Asian journeys of Venetian merchant traveler Marco Polo hangs on a wall.
PayPal in China acts as a business consultant, said Alan Tien, general manager of PayPal China. It has a staff of 240 that works directly with Chinese businesses that use eBay and other online platforms.
"Most of these guys are not promoting they are from China," he said. They have, though, benefited from a new era of bargain shopping in America's economic tough times, Tien said.
"Before the financial crisis, people felt rich," he said. Now, instead of buying a product through a brand store in the United States, some consumers are apt to search the Internet for the same item sold directly from the manufacturer in China. "It's half the price, or a third of the price but it's the same product," Tien said.
Among eBay's Chinese sellers are Vancl, a Chinese fashion retailer with $300 million in revenue last year, home appliance seller M2Cmart and Hong Kong-based photographic equipment vendor Dzone2.
Vancl says 50 percent of its global sales come through eBay from consumers in the United States, Europe and Russia. The Beijing-based company, which launched its eBay store last year, said it records about $1,200 in transactions a day through the website.
On top, for now
eBay's new push comes as e-commerce sales in China are expected to soar, from $80 billion in 2010 to $300 billion in 2015, according to Goldman Sachs. But eBay and PayPal face the challenge of working with manufacturers who are not Internet savvy and have few global marketing skills, said Fu with iResearch.
eBay, which at the moment pretty much has the cross-border consumer platform market to itself, could one day face an old nemesis: Alibaba, whose latecomer Taobao site now dominates the Chinese e-commerce market, at the expense of eBay and others.
Last year, Alibaba launched AliExpress, an online wholesale platform aimed at small- and medium-size businesses in the U.S. that has pulled in orders from some consumers.
PayPal, which provided a payment service for AliExpress, ended the relationship this year, indicating the possibility of future competition between the two camps.
Contact John Boudreau