eCommerce in China: the future power of Cross Border Trading?
The economic power of China must not be underestimated, also in the world of eCommerce. The market is an emerging one with many gaps that are yet to be exploited. In fact, all eyes seem to be on China. It is the biggest digital marketplace, making up almost 90% of the overall B2C market and growing at an annual rate of 25%.
China usually brings to mind cost-effective products, much cheaper than those produced in other parts of the world. Made in China has become a brand name. Not only does it imply the origin of the product, but is also indicative of where economic powers currently lie. Chinese eCommerce is no exception.
According to ecomonitor, Chinese eCommerce fuels global online sales and the global momentum will shift to China. In 2014, turnover in Chinese eCommerce surged by 25% and today…
…almost every fourth Internet user worldwide is in China. This means over 640 million Internet users: China has become the world’s largest online retail market.
Generally speaking, China is an emerging market with more sales potential compared to mature marketplaces that are beginning to show a slow downturn. The Internet penetration rate in China is similar to that of developed countries yet the retailer concentration lags far behind.
Online revolution in China
The online revolution in China was driven by a number of factors:
- The number of Internet users: 640 million
- Purchasing power: China is better off economically and the situation has improved immensely in the last decade. The middle class is expanding rapidly and personal incomes have risen.
- Online security: one of the biggest psychological barriers has been overcome. Credibility records of online sellers are tracked and published. Payment methods are reliable and familiar, e.g. Alipay.
- The rapid rise in Internet access, also via smartphones, as well as rising incomes, which has resulted in an emerging middle class that is willing to spend their money on online shopping.
- The rise of information and communication technology
Alibaba: eCommerce giant in China and beyond
80% of the Chinese eCommerce market is controlled by the giant Alibaba. Alibaba’s sales are higher than those of eBay and Amazon combined. Alibaba comprises several primary divisions, including Taobao and Tmall. Taobao is for private persons and small businesses. It is C2C, whereas Tmall is B2C with payments facilitated by Alipay (the Chinese equivalent of PayPal).
Alibaba is a real titan in the world of eCommerce yet one of its biggest challenges pertains to the low recognition of its brand worldwide. This may, in turn, result in lower trust and cause customers from the western world to be more wary about the Far East marketplace.
One of the biggest challenges for the Chinese marketplace is the size of the country and long distances that can make delivery a tricky and long-winded process. This is said to have been improved and heavy investment has resulted in retailers now being able to deliver merchandise to most cities within 2-4 days. The shortage of high-quality logistics providers is often a source of many issues: lost parcels, damaged goods, lost deliveries, poor returns procedures and no special services.
The eCommerce landscape in China is driven by a few factors that have contributed to its dynamics:
- China’s eCommerce marketplace is dominated by the consumer-to-consumer industry (64% as per 2013) and results mostly from Taobao’s early successes. Still, B2C is growing rapidly.
- Over half of China’s Internet users access the Internet via their mobiles. 300 million people shop online in China and mobile shopping is on the increase. 69% of Chinese buyers have made a purchase via their smartphone (in comparison with 46% of US buyers). Alibaba’s platforms account for approximately 76% of the total amount of m-commerce transactions in China.
- 23% of mobile payments are via mobile payment systems such as Tenpay or Alipay. In fact, Chinese consumers are going from cash to cashless at a more rapid pace than many western countries.
- O2O (Online to Offline) is a business model based on the principle of connecting the online world with offline reality by integrating internet-connected services. In other words, customers use online social platforms to use offline real services thanks to e-coupons, e-vouchers and e-tickets, a process which is fuelled by the development of mobile payment systems.
- The omnipresence of social media must not be underestimated in China. We are talking about a social media revolution here with multiple social media platforms, e.g. Weibos, WeChat & Renren. The numerous Chinese networks are used for instant messaging, shopping, travel, dating or microblogging. Many Chinese companies use social media to stay in touch and build relationships with their current and potential customers. Generally speaking, Chinese customers trust social media and word-of-mouth. They find it a more reliable resource compared to advertisements.
In a nutshell…
- The power of social media in China makes us wonder whether we should be talking about eCommerce or social eCommerce.
- The Chinese eCommerce giant, Alibaba, owning two big shopping websites,Taobao and Tmall, is the absolute leader in terms of worldwide online sales.
- The number of customers shopping online has dramatically increased and has overtaken the USA.
Thus, the role China is playing today in the world of eCommerce must not be underestimated.
Time will tell whether the eCommerce behemoth, Alibaba, will overtake western marketplaces, yet the sheer size of it shows it beating giants such as Amazon or eBay.
The speed at which the Chinese eCommerce industry is evolving has taken many by surprise. Its future is likely to be affected by further tech developments as well dynamic changes in consumer behaviour. The role of m-commerce and social media, the key drivers of eCommerce, will definitely be part of this future.
For more information on eCommerce in China, check our comprehensive ebook Made in China: Get ready for a REAL eCommerce revolution Part 1.
Further reading & other sources
Online sales revolutionised: How to sell behind the Great Wall of China
A good time to attract the Chinese buyer to your online shop
Selling online in China: dos, don’ts and common mistakes that Western sellers make