In was around the mid-2000s when many Internet-based sales companies started eyeing China as the big economic prize. With a rapidly expanding middle class and over one billion people, the country had—and still has—enormous purchasing power. eBay, the San Jose, California-based online consumer-to-consumer corporation, nearing its 10th birthday at the time, entered the country in 2004 with hopes of beating competitors to the reward. Two short years later, then Chief Executive Officer Meg Whitman flew to Shanghai to announce the company’s exit from China’s online auction market.

So why did eBay fail in one of the world’s most populous countries when it had succeeded so successfully here in the United States? Researchers think they have finally found the answer by analyzing the sales data from TaoBao, an eBay-like operation founded by Jack Ma; TaoBao currently holds 96 percent market share in China.

“There is only one big winner, so eBay has failed,” said Paul A. Pavlou, professor of management information systems at Temple University’s Fox School of Business. Along with Tilburg University’s Carol Xiaojuan Ou and Robert M. Davison of City University of Hong Kong, Pavlou found that TaoBao had a better grasp of what makes Chinese consumers tick. “Those buyers really want to get to know the sellers,” Pavlou said.

The use of technology to accommodate a worldview such as guanxi could mean more savings for consumers all over the world, not just those in China.
TaoBao helps buyers and sellers simulate close personal relationships and build something called “swift guanxi.” This is a Chinese concept “broadly defined as a close and pervasive interpersonal relationship” and “based on high-quality social interactions and the reciprocal exchange of mutual benefits,” according to a study by Ou, Pavlou, and Davison, “Swift Guanxi in Online Marketplaces: The Role of