Can eBay’s Fortunes Grow in China?

Naomi is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Where do you turn to if you are already the largest and most established marketplace on the internet? For eBay (NASDAQ: EBAY), the answer lies in looking at emerging economies as a source of potential future growth. While it may already command the most powerful position in Europe and North America, moving from a second-hand sales base to a global retail outlet is key. This move into potentially the most lucrative of global markets has created excitement amongst sellers and shareholders alike.

While eBay clearly has a huge market share in providing a platform for buyers and sellers in almost every developed nation, one of their smartest moves was the purchase of the PayPal online payment system. Much of eBay’s growth has been as a result of the increased use of PayPal, that has grown steadily alongside the boom in smart phone sales. Although earnings reports of eBay have been positive over the past year, its domestic US growth has actually only been around 2%. The company has relied on both PayPal to bring them over 22% of growth while international markets, soon to include their new partnership in China, represent a 20% increase in sales.

China exists as potentially, the most valuable market for any online company to form an established sales base with. With the internet already being used by an estimated 500 million people and online retail sales figures of almost $130 billion, eBay is following in the footsteps of other Western giants by diversifying its retail operation in China. This has been spurred on over the past few years with the knowledge that Chinese consumers have been growing at a rate of 40% per year using the English version of eBay alone. The demand is clearly there, and unlike Google’s (NASDAQ: GOOG) struggles against online censorship, eBay has teamed-up with a local partner and established online fashion retailer, to help guide its venture.

Unlike Google, which faced significant competition in China from Baidu (NASDAQ: BIDU) that currently operates as China’s most popular and compliant search engine, eBay has decided to continue providing services to Chinese consumers. The fact that Baidu announced a 60% rise in year-on-year quarterly sales in September may have been significantly contributed to Google withdrawing its operations from the booming economy. eBay has clearly opted to adopt an approach which can exploit its own competitive advantage.

Having already failed to set up a sales platform in Chinese in 2008, eBay is looking to exploit its position as a cross-border ecommerce platform. The demand for Western fashion is its key to success in a local market that is dominated by several big players such as Taoboa who’s free and popular platform make EBay appear uncompetitive to domestic sellers.

eBay has taken note of its previous failure to penetrate China’s markets and also Google’s troubles by creating a partnership with The Chinese fashion retailer is unlikely to hinder the growth prospects of eBay and will provide it with significant assistance in navigating the cultural variations in consumer demand. So, what is the prognosis for Ebay given its expansion in China?

Competitively, it has one of the most identifiable US brand names which has the potential to satisfy a large portion of Chinese demand to buy and sell internationally from a single platform. However, alongside this, the company has also adopted a very Western model in charging people to list and sell products. It faces competition from free and very popular online sales platforms such as The sheer popularity of this website makes it almost a replica of eBay when it first dominated the US market. However, if eBay can exploit its international popularity, even upon the fact that it uses a fee-paying model, it will likely be too much of a lure for those wanting to promote their products to international consumers in China.

Chizy has no positions in the stocks mentioned above. The Motley Fool owns shares of Baidu and Google. Motley Fool newsletter services recommend Baidu, eBay, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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