E-commerce goes Global Via Acquisitions Arun Kottolli

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

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

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.

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

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

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

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

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.

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

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

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

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