EBay Inc, the biggest Internet auctioneer, said its investment in unprofitable Chinese electronic retailer EachNet.com will play a small part in its target of generating US$3 billion in sales by 2005.
"There will be a modest contribution from EachNet," Chief Executive Officer Meg Whitman told reporters in Beijing. "I anticipate in time it will be a profitable company."
US-based EBay said last week it will pay US$30 million for a one-third stake in EachNet, which claims it is China's largest Internet auction company. EachNet will incorporate some of EBay's business practices and retain the EachNet brand, Whitman said.
EBay is trying to gain a foothold in Asia's second-largest Internet community, which it expects will become among the world's largest e-commerce markets within four or five years. The company had to withdraw from Japan, Asia's biggest online market, after failing to replicate its successes in the US and Europe.
EBay decided to partner with a local company after its experience in Japan, which will be the first overseas closure for the company, Whitman said. EachNet, whose online transactions are growing by 15 percent a month, provides a successful model, she said.
"One of the lessons we learned was to make sure that when we go into an unfamiliar market we partner with the leader," Whitman said. "We did not do that in Japan."
While China, with more than 33 million Internet subscribers, ranks fifth worldwide in total users, it stands 11th in terms of online sales, Whitman said. The absence of a nationwide credit rating system is a big hurdle.
EachNet said it has developed a payment system that gets around these problems. The company plans to operate in China's largest car, clothing and used electronics markets, CEO Bo Shao said.
EBay may have been prevented from buying a bigger stake in EachNet because of bureaucratic obstacles. Government approval is required for large foreign investments, a process that can take years.
"There is a kind of internal restriction within the Chinese government" for amounts of more than US$30 million, said Wesley Bai, head of public relations and government affairs for EachNet.