Knowledge@Wharton looks at the international strategies of the US online giants:
America’s online giants have been busy abroad in recent weeks. EBay has acquired Baazee.com, an online auctions firm in India. Yahoo has launched Yisou, a speedy search engine in China. Google has acquired a minority stake in Baidu, another Chinese search engine that had been viewed as China’s Google.
What’s driving these international expansion plans? Even more importantly, what are the chances that they will succeed? Do the business models of U.S. Internet firms lend themselves to being exported and transplanted overseas? Experts at Wharton and elsewhere say that these world conquests are no sure thing. The ability to localize a global business can be a major challenge, they add, but if done right, over time such ventures can help offset slowdowns in the U.S. market.
Take eBay’s acquisition of Baazee, for instance. In June, the U.S. auctions behemoth announced that it would take over Baazee, which describes itself as India’s biggest online marketplace, for a reported $50 million. Amit believes that the biggest hurdle eBay will face in making the deal work is dealing with the fact that most Indian consumers don’t use credit cards. Meanwhile, though the numbers are growing, at present Internet penetration is fairly low. Eventually India is likely to be the second biggest market in the world behind China, but now the country has 17 million Internet users, according to research firm IDC. That figure is expected to increase to 30 million in 2006, but still remains paltry for a company with a population topping 1 billion.
Amit isn’t necessarily skeptical of eBay’s forays abroad, but notes the company will have to overcome cultural norms. “In many places around the world people want to meet face to face,” he says.The ability to localize a global business is one of the biggest challenges, say experts. “When you have a business model that works at home, the challenge is to find out what’s critical for success and then look for ways to localize,” says Adrian Tschoegl, an adjunct professor of management at Wharton. “You have to be cautious with the changes you just can’t start fiddling around.”