Ties That Bind - Bay Area Council Economic Institute

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Ties That Bind
Looking to tap into China’s large domestic talent pool, Google tapped Microsoft vice president
for interactive services, Dr. Kai-Fu Lee, in late 2005 to establish an R&D center in Beijing. Dr.
Lee, an engineer and expert in speech recognition technology and interactive media who had also
served in senior management at Apple and Silicon Graphics, had previously recruited engineering
talent from universities and research institutes to found Microsoft Research China. Google
expects to have 150 engineers at the Beijing center by mid-2006, working on both Chinese
and global projects. In March 2006 the company established a Taiwan center, headed by Dr. Lee-
Feng Chien, a specialist in Chinese-language data management and retrieval, as well as language
and speech processing.
Among Google’s top priorities, according to vice president for Asia and Latin America Sukhinder
Singh Cassidy, are expanding business-to-business (B2B) search to connect buyers and suppliers;
furthering global business-to-consumer (B2C) advertising, particularly through its Adwords
capability to target ads to users based on their search patterns; and enhancing the mobile
phone/PDA search experience. The company is also competing head-to-head with Alibaba and
others through a network of local resellers that encourage small business to list and advertise.
eBay has grown since the mid-1990s into a global auction and e-commerce site, with active
communities in more than 30 countries. While the site was accessible and had grown in popularity
in China during that time, eBay truly entered China through its two-part, $180 million acquisition
of a Chinese-language competitor EachNet in 2002–03. The two companies were integrated
and launched as eBay EachNet in September 2004.
EachNet was begun in 1999 by two Chinese-born Harvard graduates with $400,000 from friends
and $27 million in venture funding. It delivered to eBay 4.3 million loyal Chinese users as of
2003—roughly two-thirds of China’s online auction market, worth $230 million. Many of them,
in fact, were reliant on the internet site for their livelihoods. With layoffs from restructuring of
state-owned enterprises, the massive rural migration to cities in search of work, and limited
shopping and transportation options in rural provinces, large numbers of users found work on
the internet buying and selling clothing, cosmetics, office equipment and other products.
Chairman and CEO Shao Yibo told Business Week magazine in 2004 that EachNet used a government
database of national identity numbers to create a seller verification system; courier
services sprang up to compete with the postal system for deliveries; buyers used banks and post
offices to wire payments. In 1999, nearly 90% of EachNet’s business was within the Shanghai
area; by 2004 major cities accounted for barely half of transactions, and most sales were between
cities and regions across China. eBay brought to the table global marketing reach and name recognition,
as well as technology to improve feedback, fraud detection, online payment and other
functions. The merged entity started up with 6.9 million users.
Competition with Alibaba’s Taobao site was immediate beginning in 2003, and has intensified
steadily since then. Building on its initial $12 million investment, Alibaba committed another $42
million to Taobao in 2004 to increase security and upgrade the payment system, including tie-ins
with Visa and Industrial and Commercial Bank of China. It has expanded into business-toconsumer
(B2C) arrangements with retailers, to match eBay and Amazon.com’s Joyo. When