Friday, June 21, 2013

Ebay Strategic Management

1.0 Executive Summary
eBay Inc. is an American multinational corporation that was founded in 1995 and it has continued to grow its revenues in the online auction industry. The company currently operates in more than thirty countries across the world. The net income of the firm stood at $1.8 billion with revenue levels of $9.15 billion in 2010 (Feng, 2011). eBay operates in a very competitive market with many firms. Various trends in both the external and internal environments have a great impact to the organization. Political factors have a very minimal effect on the operations of eBay. However, there are some countries that have put up policies that are affecting the various operations of the firm. Fluctuations in the global economies have also become a major challenge to the operation of eBay. The operations of the firm are affected by the volatilities and instabilities in the exchange and interest rates due to its global network. However, the lifestyle trends pose an encouraging factor for eBay. Majority of the people have internet as part of their lifestyles and thus eBay’s operations are impacted positively. The consumer buying mechanisms of the future will increasingly make use of various online platforms and would thus be able to take advantage of this development towards increasing the market share of the firm. eBay is focused on the ways through which it can be able to create an environment where trust is the key (Cohen, 2002). Developing trust among customers will enable eBay to attract a high number of buyers and sellers who will not be worried about the truthfulness of the various activities undertaken in the firm. The company is faced with various licensing and patenting laws that will guide how the firm operates. eBay should take advantage of increased internet usage to reach out to more customers and increase its market share. The company should expand its operations to many parts of the world in order to gain a competitive advantage.


2.0 Introduction
eBay Inc. is an American multinational corporation that operates online. The company manages an online shopping and auction webpage (eBay.com) where businesses and individuals buy and sell a wide variety of services and goods across the world. eBay was founded in 1995 and it has continued to grow its revenues in the online auction industry (Kent & Finlayson, 2005). It has expanded its business from the “set-time” auction to “buy It Now” shopping. eBay currently operates in more than thirty countries across the world. The net income of the firm stood at $1.8 billion with revenue levels of $9.15 billion in 2010. The Pay-Pal which is the core business of eBay has continued to become a strong global brand. The firm focuses on the ways through which it can be able to shape the future of payments and shopping. The vision of the firm is to build sustained trust and inspired opportunity in commerce. The mission of the firm is to enable individual self-improvement on a global scale and employ business as a tool for the social good of the society. The firm had a total of 221 million registered users across the world; with the users signing up for Skype, Rent.com, Marketplaces, eBay and PayPal (Jackson, 2004). This essay seeks to analyze the strategic management of eBay Inc. and provide recommendations for future development.
3.0 Strategic analysis
3.1 Environmental analysis
Technological advancement and increased use of the internet has led to increased competition in the online business. Most companies are taking advantage of the modern technology to expand their operations in various parts of the world (Nissanoff, 2006). EBay operates in a market that is highly competitive and is characterized with competition that is very intense. The competitiveness of the industry is explored through the consideration of the Porters 5 forces model as well as the PESTEL analysis. Varied trends in the industry also impact the operations of the firm.
General Environment (PESTEL analysis)
The PESTEL analysis is used to explore the general macro-economic environment of a given firm. This model consists of six factors including political, economic, socio-cultural, technological, environmental and legal factors (Williams, 2009). The factors have a great impact on the various operations that the firms engage in.
Political
Political factors have a very minimal effect on the operations of eBay. However, there are some countries that have put up policies that are affecting the various operations of the firm. The effect of globalization must also be acknowledged as having a great influence on the various operations of the firm. The effects of globalization will lead to the continued expansion of the firm. Globalization has led to the growth of international commerce between people who are located in different countries. The effect of this trend is an increase in the markets that the firm serves. Apart from the effect of globalization, the operations of eBay are also affected by the different government policies especially those that govern e-commerce (Klink E. & Klink S., 2005). The company is required to comply with various legal requirements within countries of operation thus creating a major challenge on the company`s operations. The policies have come through varied regulatory instruments which are geared towards making the various activities that are carried out online to be safe and secure. This will have an effect of increasing the operating costs of the varied online businesses.
Economic factors
Fluctuations in the global economies have become a major challenge to the operation of multinational companies such as eBay. With the current integration of the global economies, a crisis in one part of the world can easily spread to other parts. The global financial crisis had a very big impact on the company`s operations leading to a decline in business. Even though the financial crisis is over, eBay continues to face several other challenges in its operations. The operations of the firm are affected by the volatilities and instabilities in the exchange and interest rates (Stross, 2009). This is because of the global operations of the firm thus the exchange and interest rates have a direct impact on the revenues and thus the overall profitability of the venture. The profitability of eBay is also affected when the rates of taxation that the firm faces increase.
Socio-cultural
The socio-cultural practices of individuals also have a major impact on eBay`s operations. The lifestyle trends pose an encouraging factor for eBay. Majority of the people have internet as part of their lifestyles and thus eBay’s operations are impacted positively (Ina, 2010). Secondly, the buying patterns of the consumers have tended towards purchasing their products online and having the products delivered to the homes of the consumers. The firm is therefore able to make use of the buying patterns to capture new markets and increase its market share. Thirdly, there is the consideration of the brand image of the firm which might suffer thus allowing the firm to be overtaken by its competitors. It is very important for the firm to maintain a good image in order to attract and retain a high number of customers. Finally, there are demographics as older generations in most parts of America and Europe will have little usage of the internet and thus by extension eBay. The more youthful societies will have a greater usage of the internet thus the market share of eBay will grow in those societies.

Technological
Globalization has led to technological advancements that have facilitated communication across the world. Internet coverage has been improved in most parts of the world due to its significant role in enhancing people`s lives. The consumer buying mechanisms of the future will increasingly make use of various online platforms and would thus be able to take advantage of this development towards increasing the market share of the firm (Hasker, & Sickles, 2010). There is a requirement for innovation which will shape whether eBay retains its dominant position in the market. eBay should heavily invest in developing a stronger platform for online business. Continuous innovation will enable the firm to gain and retain a competitive advantage over other companies in the industry.

Environmental
eBay is focused on the ways through which it can be able to create an environment where trust is the key (Feng, 2011). The online business involves dealing with customers that are far from the company. In such a scenario, trust is a very important factor since the customers cannot verify the quality of products they are buying. It is upon the firm to give the right information to customers and honor agreements reached. Developing trust among customers will enable eBay to attract a high number of buyers and sellers who will not be worried about the truthfulness of the various activities undertaken in the firm. The company should also maintain a good relationship with customers even after they finished buying the products through provision of after sale services. This will enable the company to create customer loyalty.
Legal

eBay is faced with various licensing and patenting laws that will guide how the firm operates (Bauerly, 2009). When the firm complies with the various laws, the effect would be an increase in the profitability of the firm. The ownership of the patents will ensure that significant amounts of the income that is received by the firm will be retained to help in the running of the various operations of the firm. Porters 5 forces model of the segment The five forces model is a tool that is used to assess the competitiveness of the industry in which a given firm operates. The forces under this model include industry rivalry, potential of new entrants, threats from substitutes, bargaining power of the suppliers and the bargaining power of buyers.
Industry rivalry
There has been a significant amount of pressure as more firms from different backgrounds have been able to enter. An example of a firm that piles pressure on eBay is Yahoo and Google (Walton, 2006). eBay appeals to its customers through low cost quality services. The firm also continues to expand horizontally into the new markets. eBay has also continued to expand its brands through provision of innovative products to its customers.
Potential for new entrants
There is a high potential for new entry into the online business due to low barriers to the access of technology. The firms must thus work on ways through which they can generate traffic to their sites, attract different customers of the firm and also effectively leverage themselves against the various competitors within the industry (Williams, 2009). The threats arise from the e-tailers and the different traditional retailers. However, there are barriers that are imposed by the laws in some countries. New market entry is affected by the brand and the security that is associated with their sales
Threats from substitutes
There is a medium threat of substitutes for instance sellers can offer their products directly without putting them up for the auction. The items are sold for the highest price at the auction; which may be higher than what the sellers though they could get from the products (Cihlar, 2006). The threats are not major as long as eBay can be able to keep its appeal and positive brand image intact.
Bargaining power of the suppliers
There are a high number of suppliers distributed in different parts of the world. The suppliers have a medium bargaining power as there are hundreds of thousands who are willing to supply. However, security of the transaction is important for eBay as majority of the suppliers want protection for their products. The suppliers of high-end products have a high bargaining power.
Bargaining power of the buyers
The buyers have low bargaining power as there are limitless buyers; this makes eBay very powerful. Each item that is being sold on eBay can be seen all around the world (Collier, 2009). Initially, eBay was not listening to their customers thus prompting the use of feedback programs. The feedback was used to weed out the dishonest buyers and sellers. 3.2 Resources and competence analysis
Success of any business organization is very much dependant on the available resources and competencies (Williams, 2009). For the firm to be able to assess the value of the different resources that are available, it is important to examine the intangible and tangible resources together with the different organizational capabilities. The tangible resources include the physical and financial assets that are owned by an organization. The total net revenues of eBay have been increasing over the years. In 2008, the total net revenues stood at $ 8,541,261. The figure increased to $ 8,727,362 in 2009 and to $ 9,156,274 in 2010 (Ignatius, 2011). eBay has also been involved in a series of expansion which entailed a number of acquisitions. First, Eachnet which was based in China, Baazee which was based in Brazil and Internet Auction Co of Korea and acquired Alando Auction house at a total costs of 43 million. Finally, the firm also owns a number of websites for instance Skype, Rent.com, PayPal and market places.
The intangible assets include the intellectual property in the online auction. The firm has been able to benefit from the knowledge of auction with the firm just providing the platform for the various activities. Innovation has also been at the core of the operations of the firm especially considering the CRM and the lean management methods (Scott, 2010). The workers of the firm have great knowledge in ensuring that they can be able to undertake the various activities that they are required to undertake. Finally, the firm also enjoys a good reputation in the industry where it operates. The firm’s operations guarantees security of the operations and also ensuring that trust is built between the sellers and the buyers.
eBay also has several capabilities that gives it a competitive advantage over other firms in the industry. The employees of the firm are highly skilled and motivated to be able to undertake the various operations that are required of them (Hillis et al, 2006). The commitment has been instrumental towards ensuring a proper customer service to both the sellers and the buyers who purchase their products on the site. The firm also has capabilities in ensuring the safety of the payments and operations that take place over the internet. Finally, the firm has proper communication channels for the interaction between the sellers and the buyers. It has also been involved in massive collaboration especially with its erstwhile competitors so that it can be able to develop strong synergy in the market.
4.0 Recommendation for future development 4.1 TOWS matrix Strengths -A wide market area -A strong brand name -Highly competent employees Weaknesses -fraud -intellectual property violations Opportunities -Increased use of the internet -integration of the global economies SO Strategies
-capitalize on increased internet usage to expand the market share -take advantage of the strong brand name to expand into foreign markets. WO Strategies -capitalize on the use of internet to minimize fraud -Take advantage of the integrated economies to avoid violation of intellectual property rights Threats
-Increased competition -Fluctuation of the global economy -changes in exchange rates ST Strategies
-Use its wider market coverage and strong brand name to overcome competition. -establish operations in different parts of the world to spread risks and avoid the effects of economic fluctuations. WT Strategies -Avoid engaging in fraud or violation of intellectual property rights -Avoid the effects of competition by attaining and maintaining a sustainable competitive advantage 4.2 Recommendations
Technological advancements in the current world have led to increased use of the internet. Many people currently rely on the internet to carryout various tasks including shopping. This provides a good opportunity for eBay to grow its business in the future. The company should take advantage of its strong brand name and availability of several websites to expand its market share. More products should be offered to increase chances of getting customers. The company should also expand its operations to other parts of the world in order to increase sales and spread risks. However, security measures should be put in place to ensure the transactions are safe from fraud and online crimes. The websites should be protected from hackers to safeguard transactions.



5.0 Bibliography Bauerly, Rj 2009, 'Online Auction Fraud And Ebay', Marketing Management Journal, 19, 1, pp. 133-143 Cihlar, Christopher (2006). The Grilled Cheese Madonna and 99 Other of the Weirdest, Wackiest, Most Famous eBay Auctions Ever. Random House. Cohen, Adam (2002). The Perfect Store: Inside eBay. Little, Brown & Company. Collier, Marsha (June 29, 2009). eBay For Dummies (6th ed.). For Dummies. Feng, J 2011, 'Bidding Behaviors in eBay Auctions: Secret Reservation Price and Endogenous Entry', Journal Of Economics & Behavioral Studies, 3, 5, pp. 326-331 Hasker, K, & Sickles, R 2010, 'eBay in the Economic Literature: Analysis of an Auction Marketplace', Review Of Industrial Organization, 37, 1, pp. 3-42 Hillis, Ken and Michael Petit with Nathan Epley (2006). Everyday eBay: Culture, Collecting and Desire. Routledge. Ignatius, A 2011, 'How eBay Developed A Culture of Experimentation', Harvard Business Review, 89, 3, pp. 92-97 Ina Steiner (January 24, 2010). "Seller's Choice Marketplace Ratings: eBay". Auctionbytes.com. Retrieved 22nd January, 2013. Jackson, Eric M. (2004). The PayPal Wars: Battles with eBay, the Media, the Mafia, and the Rest of Planet Earth. World Ahead Publishing. Kent, Peter & Finlayson, Jill (2005). Fundraising on eBay. McGraw-Hill. Klink, Edward & Klink, Stephen (2005). Dawn of the eBay Deadbeats: True Tales of Treachery, Lies, and Fraud from the Dark Recesses of the World's Largest Online Auction Marketplace. Mooncusser Media. Nissanoff, Daniel (2006). FutureShop: How the New Auction Culture Will Revolutionize the Way We Buy, Sell and Get the Things We Really Want. The Penguin Press. Scott Berkun (August 27, 2010). The Myths of Innovation. O'Reilly Media, Inc.. p. 6. Spencer, Christopher Matthew (2006). The eBay Entrepreneur. Kaplan Publishing. Stross, Randall (2009-12-29). eBoys: The First Inside Account of Venture Capitalists at Work. Ballantine Books. pp. 28–29. Walton, Kenneth (2006). FAKE: Forgery, Lies, & eBay. Simon Spotlight Entertainment. Williams, K 2009, Strategic Management, n.p.: DK Pub, eBook Collection (EBSCOhost), EBSCOhost, viewed 22 January 2013.