By now, most of you know what has happened to eBay in China: they tanked. They came into China woefully unprepared, spent a lot of money, and now they are essentially gone. But in a classic example of Western face saving (better known in the West as getting things in line for the annual report to shareholders) eBay is throwing good money after bad by overpaying for a 49% share (yeah, that will give them a lot of control) in a joint venture with a relatively unsuccessful Chinese online company, TOM Online.

And now, it seems we are supposed to attribute it all to politics.

But I do have to give eBay credit for getting the New York Times to flack for it by attributing it all to Chinese politics. In its article, For eBay It’s About Political Connections in China, the NYTimes describes eBay’s failures in China as “the latest sign that local knowledge and connections matter in the Chinese market,” as though eBay had no way to know about or prepare for either of these things before going into China.

Ebay failed in China because it failed in China. Does anyone really believe some guy on his computer in Shenyang did not go on eBay because his government would prefer he go on Sina.com? Does anyone really believe the myriad small foreign companies that are succeeding in China are doing so because of politics? And how is it that the article can talk rapturously about TOM Online’s great political connections but also admit it has been “a fairly small, struggling company until now?” If, as this article would like its readers to believe, political connections are the be all end all to China business success, why is TOM Online “struggling?” Also, why have so many other American companies wildly succeeded at doing business in China?

I am not impressed. Are you?

Update:  I met with a number of China attorneys the other day and the subject of ebay in China came up and not a one of them disagreed with this post. For what that is worth….

  • I agree with your comments Dan. Blaming connections for why a company failed here is a much easier pill for MNCs to swallow than accepting the fact that they just do not execute strategies that make sense.
    Happy Holidays!
    Shaun

  • I agree with you. Ebay and Yahoo failed to understand the needs/wants of the market, also, they react slowly to keep them in the competition. Political connections is a VERY flimsy excuse that that doesn’t hold water for Ebay’s failure in China.

  • Shaun —
    Great piece. So good, I’m moving it to a post. I completely concur and this is exactly the sort of thing we are constantly saying on this blog to our targeted audience of small and medium sized businesses. It would appear some in the Fortune 100 should be listening as well.

  • Hang —
    Thanks for checking in. I am a regular reader of your blog so I know you know Chinese business and it is nice to see you concurring with me on this one.

  • Jack Ma of Alibaba spoke in the O’Reilly Web 2.0 conference. He’s behind the defeat of eBay with his free strategy on Taobao and secured the investment from Yahoo!
    http://www.oreillynet.com/pub/a/network/2006/12/06/web-20-ma.html
    Still remember eBay’s press release a couple years ago trying to dismiss Taobao as a stunt by Jack Ma.

  • Mr. Li —
    Thanks for checking in and thanks for the great link. I will very soon be posting a follow-up post discussing Taobao.

  • It’s a very good talk given by Jack Ma. He discussed about government impact on running Internet business in China, his view on common mistake of MNC in China and interestingly his view on the Yahoo! deal. I think he’s definitely the person to watch closely.
    Following eBay and Yahoo!, there seem to be problem with Google with the recent step down with the senior VP. It seems that most Internet giants have been having troubles in the Chinese market.

  • Mr. Li —
    From my extreme distance (always an easy place to be) I attribute the internet company problems in China to their arrogance. They have done so well, so quickly, in the US, they think they can just go into China and do the same thing. And who needs the Chinese when you are the internet kings? This is a business sector that needs localizing and these companies seem unwilling to give up enough control in China to make this possible.

  • Well, arrogance could be a reason but personally, I think this is overly used by the “Chinese consultants” to promote their business.
    Google hired Lee Kaifu who set up the Microsoft Research in Beijing and central role in the how-to-kowtow-for-dummy book Guanxi. According to the book, the reason he left Microsoft was because of his “Making It In China” memo to Bill Gates was rejected. He sent the memo to Eric Schmit and got hired by Google.
    Making It In China
    There is a recent paper out of Wharton titled “How and Why Chinese Firms Excel in ‘The Art of Price War’.” It’s interesting to see how it highlights the culture difference between Chinese and American firms in terms of engaging in price war. Chinese see it as norm but American firms see it as a failure of the management. The recent best seller “Blue Ocean” is all about avoiding price war.
    How and Why Chinese Firms Excel in ‘The Art of Price War’
    http://knowledge.wharton.upenn.edu/article.cfm?articleid=1625
    It may not be the MNC’s unwillingness to give up control but with much of the management performance bonus tying to stock performance, the constituents are not the customers but the Wall Street Analysts. The management are enslaved to the quarterly reports. China is a small market for almost all these MNCs. Microsoft China’s revenue is half of Taiwan market. One of the channel partners of Computer Associate in Taiwan bring in more business then CA’s entire China market. However, China is what Wall Street Analysts want to hear and see. Too much in stake for the CEOs to give over the control.

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  • C.P.T.

    Time magazine correctly points out that, “Google has not been doing all that well in China . . . badly trailing the domestic Chinese search company Baidu.” Time acknowledges the failure of EBay and Yahoo in China. Why can’t American Internet companies succeed in China? Is it lack of intelligence? Arrogance? Both?

  • Bill Elliott

    I am a regular reader of your blog so I know you know Chinese business and it is nice to see you concurring with me on this one.

  • Albert S.

    How can a big foreign internet company succeed in China? Is it even possible?

  • Patrick H.

    When companies fail in China, they blame China government itself when they are, almost all of the time, the problem. China is different than other countries, but not that different when it comes to the success or failure of a business.