The sample essay on Taobao Case Study deals with a framework of research-based facts, approaches and arguments concerning this theme. To see the essay’s introduction, body paragraphs and conclusion, read on.
Question 1: What are the major differences in the web designs of Taobao and eBay in China? Which is preferred to on-line buyers and sellers in China? Why? Taobao sought to distinguish itself from eBay in numerous ways. So Taobao’s web designs were imbued with a strong local culture that reflected a deep understanding of Chinese consumers and an attitude of informality.
First of all, the website was designed like a Chinese department store.
Taobao’s web designs are with strong colors, a little bit noisy, with lots of links. For example, they designed men’s and women’s navigation tab, to make it more suitable for Chinese customers. The following are Taobao and eBay’s homepage on November 4,2010. Taobao’s Homepage: eBAY’s home page: Secondly, Taobao also developed a number of mechanisms on the website to help creat the trust between sellers and buyers because in China, even in business, affect- and cognition-based trust are highly intertwined.
Sellers need to register using their ID and bank account information. * Taobao allowed buyers and vendors to provide feedback for each other and distinguished a person’s score as a seller and a buyer while eBay only has one score for one user. * Taobao introduced Alipay in 2004. Alipay is an escrow service designed to eliminate settlement risk among trading parties.
Lastly, Taobao also embedded an IM service, Wangwang, in its website to facilitate communication between buyers and sellers and between users and the company.
Wangwang allows buyers to directly haggle with sellers. This service reduced the communication problems of Taobao tremendously, compared to eBay. Due to the better understanding of Chinese culture and Chinese customers, Taobao’s website designs are preferred by Chinese eyes because it reflected how Chinese shoppers think. Question 2: Why did Taobao establish the Alipay system? Why did not eBay establish such a system when its market share in China was still high? The whole reason for Alipay goes back to the issue of trust between buyers and ellers. Initially, Taobao had issues with buyers paying, and never receiving the item. The solution was to create an intermediary service that received the payment, held the payment until the buyer received the shipment, and then released the funds to the seller. This system created trust between the buyer and seller, allowing them to work together under the guidance of a third party. Taobao understood the importance of offering payment mechanisms as part of their service, because of China’s poorly developed e-business infrastructure.
Ma and his team also had longstanding relationship with Chinese government officials and leaders in the Chinese banking industry, which gave him the support of existing financial institutions. Part of Ebay’s issue was a lack of understanding of some of the differences between doing business in China and the US. When a person signs a contract in the US, it is strongly protected by the rule of law, and the seller is liable if they don’t fulfill their orders. In contrast, China’s rule of law is much weaker, with little recourse if a person doesn’t fulfill a contract.
In China, people are much more comfortable dealing in cash, and actually used Taobao to arrange offline meetings to exchange payment and goods. In addition, the whole idea of ecommerce was a new concept in China, and Ebay assumed that people in China were as familiar with it as people in the US. While Ebay had Paypal, it didn’t provide strong enough protection for the Chinese customer or seller. Alipay introduced several protection mechanisms other than the double-confirmation system. It connected an Alipay account to a person’s national identity card, minimizing the risk of fraudulent accounts.
Alipay also worked with logistics companies to organize transportation of goods. Besides, many Internet users dislike eBay because its Paypal did not seamlessly integrate escrow into the sales process like Taobao’s Alipay made escrow as an important component of the online buying experience. Only when losing lots of market shares to Taobao, did eBay recognize this fact and made attempts to incorporate escrow but it was too late to regain lost market shares. Question 3: Why can not Harvard MBA graduates beat the locally educated managers in China in this Taobao case?
Even the best CEOs who graduated from the prestigious Harvard Business School make bad acquisitions. What’s notable about Meg Whitman’s career at eBay, however, is how her record cleaves into two neat parts: She did well during the company’s go-go growth stage, but much less well as the company became large and mature. Early on, Whitman recognized that China offered stupendous opportunities for new growth. In 2003, eBay purchased the Beijing-based EachNet auction site. Three years and $300 million later, eBay shut down its China site.
What are the reasons to this embarrassing failure of a management team most of whom were Harvard MBA graduates while their competitors are locally-educated managers in China? The main reason is those HBS graduates lack the understanding of cultural and legal context in China. Firstly, they kept the same platform as for US. However, this sparse site was not what Chinese shoppers like. In the meanwhile, Jack Ma was so successful in Taobao design by imbuing Taobao with a strong local culture that reflected a deep understanding of Chinese consumers who prefer busy web designs with strong colors and lots of links.
Secondly, eBay management team did not recognize the importance of building up trust which is critical to business culture in china. Later attempts by eBay to incorporate escrow to their payment system were too late to regain lost market shares. Besides, initially eBay did not allow buyers and sellers to communicate directly while Taobao from the very beginning allows for direct instant messaging between the two parties. It was said that while TaoBao’s no-fee policy hurt eBay, the falloff was not precipitous.
What caused a customer exodus was a major strategic error, combined with bungling by eBay’s corporate bureaucracy, which failed to react quickly to mounting problems. Whitman envisioned a “global village” to create one universal eBay site. For a year, eBay and EachNet worked on a transition plan to switch from EachNet’s China technology platform to the system in the United States. EBay traffic would flow back and forth between the two countries; previously, the China traffic had mostly stayed in China. It was said to be a great vision, but a terrible business strategy.
The data capacity of overseas Internet pipes couldn’t handle all the traffic; loading speeds on the site slowed dramatically. Furthermore, the overseas traffic received more scrutiny from China’s “great firewall” — a system of government filters that screens for political content–which further slowed eBay’s China site. Whitman’s campaign said, “Meg and her top executives moved to China for months” during the summer of 2005 to make the endeavor work and noted that Google and Yahoo faced extreme difficulty in China as well.
However, despite those efforts, by late 2006, eBay shut its China site while buying a minority stake in Tom Online, a tiny auction market player whose market share today is in the single digits. In other words, Whitman and her management team accepted the failure to their locally-educated competitors from Taobao. Question 4: Can the Taobao model (C2C) apply to the B2B market in China? Why and why not? It would be fairly difficult to apply a C2C model to a B2B market because the business model is complete different, and the customer / users are totally different as well.
Since the business model should be designed to meet target customers’ demand and needs, we wouldn’t suggest applying Taobao model to the B2B market in China. Like what is mentioned in the case, Alibaba Group has two platforms designed for C2C and B2B market: Alibaba and Taobao. Alibaba provide companies’ information for users to find a business partner. They know that credibility is important, so they introduced TrustPass service later on.
On the other hand, Taobao is designed exclusively for a C2C market. Users can find each other’s products through the platform, and the team designed the Webpage according to users’ culture preference and habits. As we can see, for different targets, we need different strategies and methods. However, it is of course beneficial to learn from Taobao experience if a company wants to aim on a B2B market. For example, it is very important to KNOW your target customers.
When Taobao was starting, they knew that if they want to beat their rival (eBay), they need to provide a core value that is unique and appealing to the users of a auction website. They study the preference of Chinese users and make web pages attractive to them. The other thing to learn from Taobao is the importance to provide a secure buy and sell system. In order to make sure that customers who make the payment would receive the products they purchase, Taobao introduced Alipay so that the seller wouldn’t receive the payment until the buyer gets the product.