How eBay Found a Secret Way into China

There's always been one sure way to make executives at the online marketplace eBay (EBAY) cringe: ask them about China. In 2003, eBay paid $150 million to buy EachNet, at the time China's top e-commerce site. Chief Executive Officer Meg Whitman invested $100 million more in the operation, but a combination of management mistakes—not giving enough power to local executives, for example—and tough competition from local rival Taobao crippled the business. By 2006, eBay gave up and folded eBay EachNet into a joint venture with Tom Online. Taobao, which unlike eBay doesn't charge commissions, has never lost the lead. "It's very hard to compete with free," says Jay Lee, eBay's senior vice-president and managing director for Asia Pacific.

While eBay doesn't aim to challenge Taobao anymore, it does have a Plan B for China: linking Chinese entrepreneurs and exporters to eBay consumers elsewhere. The strategy is centered on sellers such as Tang Fengyan, 35, who goes by the English name Maggie. Four years ago, Tang decided to start her own dress business. She has found eBay an ideal way to sell her $50 cocktail and rockabilly swing dresses and did $700,000 in sales last year. Although eBay has minimal presence inside China, Tang doesn't mind, since she's chasing global customers. To reach them, eBay makes the most sense. "It's the most famous," she says.