Yahoo! in China: Local Problems for the Global Internet Giant

Yahoo! in China: Local Problems for the Global Internet Giant
Case Code: BSTR260
Case Length: 18 Pages
Period: 2000-07
Pub Date: 2007
Teaching Note: Not Available
Price: Rs.300
Organization: Yahoo!
Industry: Internet and e-Commerce
Countries: China
Themes: International Expansion Strategies
Yahoo! in China: Local Problems for the Global Internet Giant
Abstract Case Intro 1 Case Intro 2 Excerpts

"We believe that to be successful in China, we absolutely have to have strong local management, and Jack Ma and his team are the best-of-breed Internet management team inside China."

- Jerry Yang, Co-founder, Yahoo! Inc., in 2005.

"Yahoo still hasn't made a major impact in China."

- Duncan Clark, Managing Director of Beijing-based consulting firm BDA China Ltd., in 2006.

"Specialization is the key. If Yahoo! is going to win, it has to do so in a new way. What's the point of building another"

- Jack Ma, CEO of Alibaba Group, in 2007.


In January 2007, Jack Ma (Ma), CEO of the Alibaba Group (Alibaba), announced that Yahoo! Inc.'s (Yahoo!) China portal (Yahoo! China) would be reorganized into a business-oriented search engine. While announcing the new strategy, Ma admitted that Yahoo! China was not doing well and also hinted at some key technological and organizational changes to foster growth. Ma was confident that the new strategy would help Yahoo! China gain leadership and succeed in the highly competitive Chinese Internet market. Yahoo! was one of the first international Internet companies to enter China (formally in 1999). Initially, Yahoo!'s portal in China was modeled on the lines of its globally successful portal.

But Yahoo! China found it difficult to compete with local companies like Sina Corporation (Sina), Inc. (Sohu), and, Inc. (NetEase), who together were popularly known as the "Big Three" Chinese Internet firms. (Refer to Exhibit I for information on China's local Internet companies). In 2005, Yahoo! handed over the management of its Chinese operations to Alibaba. As of 2006, Yahoo! China still lagged behind local Chinese Internet firms like Sina and Sohu in popularity. Even in the Internet search market, Yahoo! China's share was lower than that of, Inc. (Baidu) and Google Inc. (Google). Yahoo! China's move to target business customers was the outcome of an internal research study, which found that while Baidu was the most favored choice among college students, Google and Yahoo! China were preferred by affluent and business-oriented customers. As part of its new strategy, Yahoo! China's search results were to be directed more toward corporate or business-oriented websites.

"We don't want those not interested in business or making money. They can go to Baidu. Our main focus is the high-end. We don't need to compare ourselves with Baidu in market share," Ma said, describing the new strategy. Yahoo! was not the only international Internet firm to have faced problems in the Chinese market. eBay Inc. (eBay), one of the world's leading e-commerce websites, too, for instance, was struggling to establish in China. In December 2006, eBay announced its partnership with Tom Online, a Beijing-based Internet portal, to boost its position in China. Even Google, the world's leading search engine, had had problems in capturing a substantial share of the Chinese online search market. Analysts said that Google was able to make inroads into the high-end segment, but on the whole it lagged behind the market leader, Baidu, which was popular among the youth, who constituted the major chunk of Internet users in China.

Some of the main reasons cited by analysts for the failure of foreign companies in China were strong competition from local Internet firms, the complexity of the Chinese language, the inability of these companies to understand local culture and preferences, and rigid government regulations. Due to these hurdles, most of the foreign Internet companies chose to collaborate with local companies, which had a good understanding of local business and culture....

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