Nǐ hǎo! I’ve recently returned from the “Middle Kingdom” and took my work with me, in a sense. Everywhere I went eCommerce was in the back of my mind, mostly because I’m passionate about what I do – and admittedly I missed my Demac brethren – but also because I couldn’t avoid it. Asia’s forward-thinking countries, who are quick to invent, innovate and integrate are frequently in the news and on our radar. Futurist Herman Kahn made note of the economic strength of Asia, and the influence of Confucian ethics in producing countries with a higher growth rates. It’s undeniable that Asia is driving the world’s growth , and I was in the thick of it – China.
The majority of Asia’s biggest publicly traded companies are in China, in fact their largest public tech company Tencent exceeded a value of $200 billion USD this year! Last year eCommerce in China grew 31%, hitting an astounding total market value of $2.1 trillion USD. To put that figure into perspective – eCommerce in China is worth more than the value of U.S., Britain, Japan, Germany, and France combined. Not too paltry for a country who in 2000 only had 2.1 million internet users.
The figures are unavoidable. I read about it often, it comes with the tech industry territory. Online marketplace Alibaba is frequently in our Weekly eCommerce Wrap-Ups, killing the competition in size, scope, and sales. It was while I was travelling around China that I noticed, this was a country successfully doing things at a different level than what I’ve seen in North America. Granted the population of China is hovering around 1.3 billion (close to that of India’s, another emerging market, but that’s another blog). In comparison the population of North America is about 500 million, but remember China is still a developing country. I couldn’t believe it; there I was wandering a train station on the outskirts of a city in mainland China, whose name I had only learned prior to leaving for my trip, and there was an Alixpress kiosk. Scan the QR code with your phone, pay with your phone, and instantly receive your vital goods before departure – zero hassle, zero human interaction. “We don’t have that here”, was all I could think. Why not? Why and how is China absolutely dominating the competition?
What do We Know About China?
Five Star Red Flag. A Communist power-house? Sort of. The Communist Party of China are the founders and current rulers of what is known as The People’s Republic of China, and one of the eight parties that make up the United Front. Despite adherence to the Marxism–Leninism, Mao Zedong Thought, etc. etc. China is in what they refer to as the “preliminary stage of socialism”. This is the Marxist-Chinese thought brought about during the Mao era before the country’s economic reform that explains China’s capitalistic leanings. Without delving too deep into China’s political past and present, the country operates a socialist market economy, which took the place of Mao’s inefficient and failing planned economy and helped the country avoid the same issues that plagued the Eastern Bloc. I saw it with my own eyes capitalism is alive and thriving in China, even though Chinese thought supposes a triumph of socialism over capitalism, and convergence theory de-ideologize the definition of both terms. Shanghai was a shopper’s dream city; need several new Hermès Birkin bags? Since the economic reform, China’s economy has been on a steep trajectory up and essentially driving the world’s growth. The economic growth of other developing nations – India, Brazil, Mexico – pale in comparison to that of China.
China’s Rapid eCommerce Growth
Since economic reform in China the country saw staggering growth, and with the adoption of digital retail spreading like crazy across the country. Chinese consumers have been quick to bridge the gap between physical and digital and have an interest in understanding and using computers, tablets, or smartphones, at pace much quicker than other developing countries – setting eCommerce expectations in developed countries like the U.S. Smartphone penetration in China is much faster than it is in the U.S. (60% of the population use smartphones to browse and buy), and that rapid embrace of technology has only accelerated the rise of digital retailing. Many of China’s eCommerce markets were purely C2C like Taobao, but that has shifted over to B2C markets like Tmall, which is growing three times faster than overall retail.
A technically inclined culture combined with the support of lead-edge infrastructure has created the perfect storm in China, where eCommerce is not only successful but all encompassing. But don’t get it twisted, online shoppers are using their spend-y smartphones to browse and buy, but they are bargin hunters. Lured online by the promise of deep discounts and deeper competition amongst brands and marketplaces, online shoppers in China are able to find what they want at prices that are appealing due to cheap labour and complex, but efficient, delivery infrastructures. Cashless transactions are increasingly popular in China, with the development of mobile payment applications and popularity of e-transfers via virtual red envelopes between retailers and individuals. It’s easier than ever to buy online thanks to the speed and convenience of these digital payment solutions.
Supply chain coverage in China has been key in the establishment of their eCommerce empire. Same-day delivery has been around for years in China, and markets in the developed world are struggling to keep up. Profit margins are cut to almost zero in a country with cheap labour, and ten of thousands of delivery companies competing to do business. Reach has been furthered and costs lowered. Most deliveries can be made to cities in Tiers 1-3 of the country within 48 hours, while the remaining cities receives packages in 4 days. Companies like JD.com offer a variety of different options to consumers like pickup machines, vans, community centres, convenience stores, and bus stations for their customers in more rural areas. A significant amount of eCommerce growth has been directly tied to China’s rural populations because of the lack of traditional retailers in those regions, forcing consumers online to purchase their needs and wants.
I really can’t talk about eCommerce in China without mentioning Guanggun Jie, or “Singles Day”. Celebrated annually on November 11, this day for the lonely-hearted is purely dedicated to shopping online, with a little K-TV (that’s karaoke for foreigners) thrown in for good measure. The specific date was picked for Singles Day due to a connection between singles and the number one. eCommerce giant Alibaba have even gone as far as trademarking the phrase “Double 11” to be used in advertising for the day and have threatened legal action against other companies using the term. Singles Day is kind of a big deal in the eCommerce world. Forget about Cyber Monday! Singles Day 2014 netted Alibaba $9 billion in sales a 60% increase over last year, and just two years prior the company had done $3 billion in sales. Singles day is undoubtedly the biggest online shopping day worldwide. To put things in perspective, Alibaba’s Single Day sales are larger than the combined eCommerce spending on Thanksgiving Day, Black Friday, and Cyber Monday from desktop computers in the U.S. However, experts question whether the online shopping holiday will become standard in North America, as the day falls at a time in the year where discretionary spending is at a minimum. Additionally, November 11th is a day where North Americans and Europeans remember the those who have died in the line of duty for Veterans, Remeberence, and Armistice Day.
China’s Top eCommerce Players
This one you’ve heard of. Alibaba is the world’s largest eCommerce company, making headline news last year after raising $25 billion during its IPO, now ranking just below Google, Apple, and Microsoft as one of the world’s most valuable tech companies. Alibaba provides C2C, B2C, and B2B portals for consumers, as well as operates a could-computing service, a digital payment solution, and a shoppable search engine. Alipay, the company’s financial services arm is its most recent addition. Alipay lets consumers pay for just about anything with their mobile devices, and is estimated to be worth $45 billion after a recent round of funding. 78% of transactions on Alibaba are completed through their Alipay service.
Taobao is an online shopping website founded by Alibaba Group in 2003 that is similar to Amazon and eBay. The eCommerce site facilitates C2C transactions. Similar to eBay, sellers are able to post products online and offer them for sale for a set price or have them auctioned. In 2011 Alibaba’s CEO Jack Ma announced that Taobao was to be split into three separate companies:
- Taobao Marketplace – a C2C platform
- Tmall.com – a B2C platform
- eTao – a search engine for online shopping
According to Alexa, an internet data analytics site, Taobao is one of the top ten most visited sites worldwide and as of 2013 had 5 million registered users. This online marketplace dwarfs eBay in terms of sales
Jingdong Mall was founded in 1998, then known as 360Buy.com, is now one of the largest B2C retailers in the country by order volume. Initially launched to sell magneto-optical, the eCommerce company now sells a variety of goods to consumers. Although JD.com only holds a 5% share of China’s mobile shopping market, the site has over 100 million active users, and 40 million different SKUs online. Orders placed during the company’s anniversary sale this year grew 100% over last year, with 60% of orders placed from the site’s native mobile app. The majority of JD.com’s revenue comes from selling electronics, at about 85%, and can be seen as the Chinese equivalent to our Best Buy.
Once known as Taobao Mall, TMall is a B2C version of Taobao and is also operated by the Alibaba Group. Launched in 2008, TMall lets local and international merchants sell to consumers in China. Tmall raised its vendor fees in 2011 and as a result faced backlash from its users. Western brands are flocking to Tmall as a way to aid their expansion into the Chinese eCommerce market. Some of these 200 foreign brands include ASOS and Burberry, in addition to its 70,000 national vendors. This model is very similar to the one offered on eBay.
Suning is one of China’s largest private companies, with 1,600 retail locations and a popular eCommerce store operating in the mainland, Hong Kong, and Japan. Suning sells 3C products (computers, communications, and consumer electronics) with over 3 million SKUs available. In 2014 Suning opened a U.S. eCommerce site for Chinese shoppers looking to buy American products cross-border. It’s predicted that by 2020 Suning will have reached their goal of $49 billion in annual sales. In 2013 Suning opens a center for Research and Development in Palo Alto, CA – aka Silicon Valley – to partner with other tech companies and aid in their transactions with the U.S.
Once an online bookstore, Dangdang is now a mass merchant whose main competition includes Amazon China and JD.com . Over 40% of B2C customers in China have shopped on Dangdang, with nearly 9 million active users in 2014. For the first quarter of 2015, DangDang anticipated earnings of 2.2 billion yuan. In 2014 Dangdang launched what they called “111 super speed delivery” available to 400 cities in China, which will guarantee that orders places before 11:00am will be delivered within 12 hours.
Can We Keep up?
The main takeaway from this is not only impressive stats, but also the notion that the eCommerce industry in China should serve as a goal for the rest of the world. Right now the Western world just isn’t keeping pace with tech developments and adoption in other countries. Of course, there’s politics always involved in anything economic, but nonetheless; I look at Canada and wish that my home country valued technological advances and took time to understand and cater to the massive shift in customer behaviour that technology has brought about. For this very reason, my work at Demac Media and the community I’m involved in Toronto’s tech scene brings me so much satisfaction. We’re serious about eCommerce and realizing the dreams of building a great and powerful industry. Merchants can work towards this on their own too by keeping in mind takeaways from China’s success. Start building your eCommerce operations early, this will not only give you an edge on your competition it will solidify your brand amongst consumers. Your team and website need to be as strong as your strategy. Opportunities for you are increasing cross-channel, make your experience as seamless as possible for consumers. Finally give the people what they want, embrace technology, focus on what works, and grow your business online.
Related: The Anatomy of an eCommerce Site