E-commerce goes Global Via Acquisitions

1. E-commerce goes Global Via Acquisitions Arun Kottolli

2. Introduction • INTERNET reaches all countries around the world, one would think that e-commerce would have been global from the very beginning • Reality is not so…Due to differences in • Language & Culture • Business Environment • Legal Rules & regulation • Business infrastructure • Computer usage • As a result most e-commerce was confined within a country’s borders

3. Regional Focus • Most E-commerce sites such as expedia.com, hotels.com, travelocity.com, Amazon.com, E-trade.com, BN.com etc are created with an American customer in mind • The above sites are useful for only 5% of the world population – Does not have a global appeal!! • Result – Most of e-commerce was local and not global • Americans buy from American sites • Japanese buy from Japanese sites

4. Early Global Pioneers • Early pioneers like Yahoo, Alta-vista ventured early into the global markets • Mostly limited their global operations to portal services based on advertisement revenue • Avoided e-commerce • E-commerce like all other commerce had to follow local rules & regulation • Yahoo got into trouble in France for selling Nazi paraphernalia • Following local rules required local physical presence for order fulfillment, payment etc.

5. International Expansion • Amazon was the first to expand e-commerce operations abroad • In April 1998 Amazon acquired ABC Bucherdienst in Germany & Bookpages Ltd. in the U.K • Acquisition marked Amazon’s international operations • Web Sites were localized – local editorial, local language & local book recommendations • "Amazon.co.uk and Amazon.de will provide a whole new level of convenience and customer service for book buyers," -- Jeff Bezos

6. Recent Global Expansions • Ebay acquires Baazee in India – June 2004 Acquired EachNet in China in 2003 • Yahoo has launched Yisou in China, acquired Kelkoo in Europe • Google has acquired a minority stake in Baidu, a Chinese search engine • E-trade acquired loansdirect.com in Israel • Monster.com acquired Jobline international in Europe –To get access to 20 international job sites • eFunds acquires Access Cash International

7. Why Acquisition? • In theory, challenges of localization can be met by acquisitions of local companies abroad • Local firms have local market knowledge • Have experience working in the local regulation environment • Local firms are more responsive to local needs • Acquisitions help firms offset slowdowns in the U.S. market • As growth in the U.S. slows, companies like eBay, Yahoo and Amazon increasingly have to expand internationally to support their stock valuations • Acquisitions are a faster and safer means to expand abroad

8. Challenges of Global expansion • Going Global is not easy • Business models are often fine-tuned to a local economy • What works in US may not work internationally • Ability to localize a global business is a major challenge • Challenge is to identify the core business model/practices responsible for domestic success • Challenge is to make the core business model succeed in a different institutional setting

9. Major Risks • Major Risks in acquisitions as cited by e-commerce firms are: • Cultural differences; • Longer payment cycles; • Laws favoring local competitors; • Credit risk and higher levels of payment fraud; • Legal and regulatory restrictions; • Currency exchange rate fluctuations; • Higher costs (operating); • Diverting management attention.

10. Other Challenges • Acquisition is not the final solution • Managing an acquisition is not easy – Firms will have to overcome the cultural differences • Inexperience in managing global operations or even foreign operations will impose a huge challenge • Ability to learn the ways of doing business in that country from the acquired firm is critical • Knowledge management during and after acquisition plays a major role in determining the success or failure of the acquisition

11. Unique Challenges • Challenges faced by each firm expanding abroad is unique to that firm • E-bay will have to adapt to different means of payment collection in India • Google will have to avoid certain types of advertisements which are prohibited in China • Amazon will have to build network of local suppliers and distributors to service customers in UK and Germany

12. Global Success • Success of recent acquisitions is yet to be seen • Amazon.com has been successful in U.K but is struggling in France • "It is costly to establish international facilities and operations, promote our brand internationally and develop localized websites, stores, and other systems.“ – Amazon.com • Firms will avoid repeating their earlier mistakes – an advantage for US based firms as they have learnt from the dot.com crash – But will make new mistakes in their global expansion

13. Closing Thoughts • Global success will involve lots of trial and errors, lots of missteps – till firms learn the art of doing e-business abroad • E-businesses in Asia and India like rediff.com or sify.com can either build a strong market position to defend their market share or look to make a profit by selling out to global e-giants • The global expansion stage is just the beginning – we will soon hear stories about a few successes and lots of disasters in the new era of global e-Commerce