Ebay

CASE: eBay's GLOBALIZATION STRATEGY

February 21, 2001

From: Amal

MBA Student, Spring 2006

To: Matt Bannick

Senior Vice President, International eBay

In response to your request for an outsider's perspective concerning how you can handle your growth in Latin America, the following report presents my analysis and recommendations of your potential growth in the area, and how to handle the Brazilian division of IBazar.

I hope that my report justifies my recommendations.

EXECUTIVE SUMMARY

After I received your email asking me to give recommendations about the IBazar Brazilian operation and your next expansion in Latin America, I spent the whole week analyzing the eBay current situation, as well as the Latin America e-commerce market, in order to come up with the appropriate solution that guarantees an immediate success of your company in the region. First, I will start with a systematic analysis of eBay's international market-entry strategies. Second, I will exanimate the Latin America e-commerce market. Finally, I will use the precedents analyses to provide you with a set of recommendations concerning the prospective expansion in Brazil, as well as, your extension in the entire Latin America as a whole.

eBay's INTERNATIONAL MARKET-ENTRY STRATEGIES

EBay aggressive desire to expand globally goes back to one of the very early goals of eBay: Create a global trading platform that would make it as easy as possible for anybody anywhere to trade practically anything. After eBay early success in the United States, it began looking at the possibilities of offering the service on an international level.

EBay has used all the three different options available to look at a new market. One of them is clearly to begin a site from scratch. That is essentially what it has done in France and Italy. Another option is to simply buy companies that already exist, and that is what it did with eBay Germany. The third option is to form a partnership. That's what it has done in Australia and in Japan.

But the prevailing strategy that eBay adopted broadly is to buy critical mass in global markets so it has a foothold to gather buyers and sellers. The ability to localize a global business is one of the biggest challenges, when you have a business model that works at home, the challenge is to find out what is critical for success and then look for ways to localize. That is why eBay increasingly buy a local player to enter a market. The local player knows the local customs and payment systems and should therefore be able to show eBay how to operate. Company's local expertise combined with eBay's global perspective fueled e-commerce and allowed eBay to gain the biggest market share.

THE ANALYSIS OF THE LATIN AMERICA MARKET

Internet opportunities grow with the number of Internet users. The world-wide-web is globally pervasive. Internet has attracted more users in more countries than any other communication tool. Even though it most concentrated in US and Europe, most growth over the next three to five years is expected to take place in Latin America.

The internet came late to Latin America, and, while its penetration in that region is still small relative to that in the rest of the world, it is growing rapidly. The future projection of the internet penetration in the entire region is estimated to reach 12.03% in 2007, and 15.43% in 2010 (EXHIBIT1). For the information revolution, as for the use of the internet, there is no "Latin America". Differences across the region are vast; the Latin America countries can be divided into group in term of internet users and population growth:

* the "leaders"- brazil, Mexico,

* The "interesting"-Argentina

* The rest- countries with insignificant growth.

The first group, the leaders, represents an enormous and fruitful potential market for any e-commerce company that is seeking growth in the region. For example, With Latin America's largest consumer market, Brazil has been an attractive destination for foreign direct investment. The population grows at a rate of 1.3% each year and will reach more than 189 million by 2010 with more than 41 million internet users. These numbers show a great potential for eBay to expand in the region, but in the same time they don't show the challenges that the company will face in term of higher cost, longer payment cycles, credit risk and higher levels of payment fraud, legal and regulatory restriction, the Diverting management attention, and the Laws favoring local competitors.

EBAY'S PROSPECTIVE GROWTH IN LATIN AMERICA

After a close examination of the different alternative about your potential expansion in Latin America, as well as, the appropriate decision toward iBazar operation in the immediate future; I came out with a set of recommendations that suit well the growth strategy of your company.

IBazar Brazilian Operation

The acquisition of IBazar is a great opportunity for eBay to expand in Europe. The focus of the company in the Europe demands a huge financial, marketing, and technical effort. In one hand, if you choose to get rid of the IBazar Brazil, by either selling it for cash, equity or simply shutting it down, you will find yourself holding off on the pursuit of the Latin America market. However, Latin American has a promising e-commerce market, especially Brazil that is the leader in term of internet user in the region. In the other hand, if you retain IBazar Brazilian operation and you plan to grow in the region organically, you will face a great number of challenges in term of cultural acceptance of unfamiliar purchasing practices, real buying power, technical/infrastructure improvements, internet usage, and the current and potential local and other foreign competition. In this case I recommend you to carry on IBazar Brazilian operation, because it will ensure you presence for the immediate future in one of e-commerce leader country in the region. In the same time you can proceed to an acquisition of an existing player in the region in order to obtain ambitious growth and profit goals. Also you don't have to start from scratch and face the cultural challenges dictated

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