Many well-established multinational firms have been attracted to China by its tremendous market size and fast growing economy. While many have succeeded and enjoyed significant returns on their investments, some have failed and suffered significant financial losses. In the e-commerce market, failures seem to be more frequent than successes. In this study, we attempt to find some answers as to why e-commerce market is especially tough for foreign firms by using a comparative case study in which the epic battle of two giants in Chinese C2C market during 2004-2006 is analyzed. We argue that other things being equal, the local firms have an embedded competitive advantage if the management can transform a better understanding of the national culture into an organizational culture of innovativeness and market responsiveness. Such organizational culture, according to the resourced based view, could have significant impact on the competitive strategies and eventually determine the market performance of the firm. Keywords: e-commerce, China, organizational culture, national culture, performance, strategy.
In April 2003, a handful of top programmers and managers working for a start-up Internet B2B company called Alibaba in Southern China were summoned by the founder of the company and were given a secret mission: develop a C2C Internet auction site in three months or less to counter the much celebrated entry of eBay into the Chinese market. The new company was named Taobao, meaning “treasure hunting.” At that time, the mission was almost impossible: eBay is the Goliath of the e-commerce world, with its legendary success in the US and other international markets and prowess in marketing and operations, in addition to its army of top developers and deep pockets, while Alibaba, was just an Internet start-up known more to a few international venture investors than to most Chinese consumers and still struggling to survive in the aftermath of the dot com crash. Yet, after only a little over three years of time, by the end of 2006, Taobao announced that it had 30 million active user accounts, which is about 75% of the total estimated 40 million C2C user market in China, with total customer transactions exceeding 16 billion RMB (approximately 2.07 billion USD). Meanwhile, eBay China announced in late December of 2006 that it would enter a joint venture with a local company by transferring its C2C operation to the joint venture in exchange for a 49% stake in the new company, after three years of continuing declining of market share. During the same time period, the total market for C2C in China had experienced explosive growth: from a mere 6 million users in 2003 to about 40 million users in 2006; Internet users grew from 59 million to 137 million; and the percentage of users who use online shopping also increased from 0.1% in 2002 to 23.6% in 2006 (CNNIC, 2003, 2007). What’s interesting is that eBay is not the only international IT powerhouse that had experienced difficulties after much publicized entries into the Chinese e-commerce market. Yahoo entered the Chinese Internet e-commerce market as early as 1999. In spite of its concerted effort on offering Chinese language services and its considerable popularity among Chinese email users, it transferred its China operation to Alibaba and paid $1 billion for a 40% stake in Alibaba in 2005 (Schwankert, 2006). A similar pattern is emerging in the battle between the Internet mammoth Google and the Chinese Internet search engine Baidu. When Google launched its Chinese search engine in 2000, it dominated the...