In 2002, eBay Inc. injected US$180 million to purchase 100% ownership of Eachnet, then the leading eCommerce platform in China, capturing some 80% of the market.

     Within 3 years however, this leading market share had shrunken to just 36%, no thanks to an upstart, Taobao.com, which had entered the market in 2002.

     While some observers will be quick to point out that Taobao.com used some "below the belt" tactics, eBay on its part failed to make the following observations:

• Unlike elsewhere, eBay (or Eachnet before that) was utilised not so much as a Consumer-to-Consumer (C2C) platform where individuals auction off their used items. Rather, eBay is a Business-to-Consumer) B2C platform where small businesses make their living selling low-priced products to consumers. As such, both sellers and buyers prefer to deal with fixed prices, rather than auctioning;

• Due to banking controls in China, most buyers prefer to pay upon receipt of products, rather than making online payments.  This in turn reduces eBay's and its payment gateway subsidiary, Paypal's, operating income;

• While eBay charges standardised fees for sellers globally, it is unwilling to waive such fees to Chinese sellers, as it believes "free is not a business model".  However, eBay's competitor Taobao.com is using its "no-fee" policy to demonstrate to sellers that it sincerely wants these users to make money first before charging for the service.

     The end result: eBay had to "wrap-up" its China operations by "selling" its stake in Eachnet to Tom.com, an online and wireless service provider owned by Hutchison Whampoa.  eBay had to fork out another US$40 million to get a 49% stake in the new Eachnet.com

     Tom.com is not faring any better either.  It has since been "privatised" (a nicer word for "delisted") from the Hong Kong Exchange in August 2007, with its share buy-back price at HK$ 1.52 per share.  This is lower than its 2000 IPO price of HK$ 1.78.

     eBay recently has revived ebay.com.cn , in addition to eachnet.com , with the former focusing a lot more on helping sellers sell to international markets.  The thing is, many eBay sellers already had registered international eBay IDs from as early as as 2005 to service international customers.  Not only was the support from eBay lacking then, it even shut down some of these sites when these sellers were found to have multiple IDs.  While leveraging its global network is a great business initiative, eBay has since alienated its sellers (and buyers too), and it's a case of "too little, too late" now.

     Interestingly, when Bo Shao, founder of the original Eachnet (the one that captured 80% market share in the first place) offered to make a return to take over the reins in 2006, his offer was turned down, citing resistance from "internal politics".  No, Bo Shao isn't going to be China's Steve Jobs, thanks to eBay's intervention.

Make No Assumptions

     Many companies come to China with high hopes of capturing a slice of China's enormous market opportunities.  Some have accurately identified some of China's flawed business practices, and seek to straighten out things in China.

     Unfortunately, transplanting what works at home isn't the right solution either.  Cultural issues aside, as a developing economy that just opened up to the rest of the world 30 years ago, there are many business practices that are just different, if not strange, compared to markets in developed economies.  Here are some examples:

• A Fortune-500 3rd-Party Logistics (3PL) provider would like to standardise operations for all its China subsidiaries, but to no avail.  The subsidiaries report to no one except to "guarantee" the parent company a certain amount of profits each year.  Any perceived over-intervention will just make them defect and ally with other 3PL providers.

• Insurers from Hong Kong and Taiwan are finding that unlike its financial planners back home, their mainland Chinese financial planners are more concerned about making "a fast buck", rather than working hard at understanding customers' needs.

• McDonald's, the world's market leader in fast-food is a distant second compared to KFC, simply because the Chinese customer perceive that for the same price, a fried chicken drumstick has a higher intrinsic value compared to a piece of minced beef sandwiched between two pieces of bread;

• Singapore-owned retailers tend to have poor service for their China outlets even though their service standards back home was great.  The reason being they have largely been pampered with skilled staff back home, and are unaccustomed to getting unskilled staff delivering the same levels of service;

• Finally, the Singapore government thought it had the entire deal sealed when it got Beijing's support to build the Suzhou-Singapore Industrial Park (SSIP).  Unfortunately, without local government support, it literally got hell in its first 10 years of inception. 

     At this juncture, I understand that many readers would like to have a list of what's in China that is different from what's available back home.  Unfortunately, this will be a never-ending list if compiled.  Hence, the general advice of just "Make No Assumptions".  Corporate bigotry and arrogance have got no place here.

      In fact, come companies enter China via means of acquiring local companies.  While the due diligence work conducted centres around the financial aspects of the local business, future due diligence work may have to take consideration of:

• Business practices (esp. if there are any expiring monopolistic licenses, or if kick-backs is a common practice)

• Corporate culture (esp. if managers are incentivised to grow the business or just "follow the rules")

• Social norms (esp. since China's average staff turnover is just 18 months, and depending on where you hire, employees may have social norms that are quite different from those you are familiar with.  Even customers behave differently here too.)

Be Actively Involved

     Some international companies, knowing that China is rather different from what they experienced, chose to appoint Chinese General Managers, and delegate them full responsibilities of running their China business.

     The mistake here isn't about appointing Chinese General Managers or CEOs.  The mistake that many of such companies make is "management by abdication", meaning they are literally hands-off.

     It would be unfair (not to mention gross bigotry) to assume that Chinese managers are dishonest, and that they will steal from the company.  It is just as unfair to assume Chinese managers are incompetent in doing their jobs.

     It is, however, in the entrant's interest to learn as much about doing business in China in the shortest time possible.  Unfortunately, no amount of Executive Development Programmes can adequately prepare international companies to learn how they can succeed in China.  International companies would have to be actively involved in the day-to-day operations of their Chinese business, and NOT manage from an ivory tower (desk) back home.

     Some areas to be actively involved include:

• Following your sales people to visit customers and get a real feel on what are some of the sales and customer issues that your Chinese subsidiaries are facing;

• Following your production people around and find out what goes on in production, procurement and supply chain management.  If you merely source from Chinese factories or wholesalers, visit them and strengthen the relationship;

• Getting to know your key Chinese staff on a personal level, not to poke at their private matters, but again to strengthen their relationship with you and your company.

     While it is important to assume nothing when in China, it is just as important to be assertive when the need arises.  Many Chinese managers love to use the phrase "But this is China, and this is how we do things here." 

     Those who use the same sentence repeatedly are at best unwilling to change for the better, and at worst be using that as an excuse for something more sinister.

     When confronted with the "But this is China" tagline, it is important not to just jump in to your assumptions, but rather use some simple questioning such as:

• "Can you enlighten me, why is it so in China?";

• "What if we try something different?  Are there any companies that tried something different and succeeded?"

• "Can we just try a different approach in this case just to test the reaction?"