A lucrative market pioneered by Alibaba:
China’s ecommerce market is a hive of activity and innovation. With the rise of Alibaba as a world leading e-commerce giant (the corporation boasts a record breaking IPO on the NY stock exchange) the world is really taking notice of this lucrative market and the opportunities it presents for cross border retail and online business. With a population of 1.4 billion people and an internet penetration rate of 55% we are talking about a whopping 750 million netziens online, that’s twice the population of US. This coupled with the rising Chinese middle class and higher disposable incomes has facilitated the rise of a hugely profitable e-retail industry, pioneered largely by Jack Ma’s innovative Alibaba empire.
In this article I will analyse the key elements of Chinese e-commerce that contributes to its impressive and continued success:
Innovative and different ‘’China Specific’’ platforms
Chinese e-commerce sites are not simply ‘’copy cat’’ versions of western players but rather world leading platforms in their own right. They have developed under the unique conditions of the Chinese market where government restrictions and censorship blocked other global players from entering the market. With no established competition Alibaba could develop without hindrance and with state support, this has led to an intelligent, innovative series of platforms catered for Chinese users.
Alibaba’s Tmall: Tmall is renowned for quality in a market often associated with fakes. They are changing the game when it comes to purchasing brands online with a large market reacting against fakery, the Chinese middle class consumer is discerning and seeks quality. Tmall hosts official stores and guarantees brand authenticity, it is the largest platform for brands as their target market regularly shop here.
Tmall Global is a key cross border platform where international brands can ‘’host’’ stores and sell their official products. The platform offers a service whereby products can be sold, marketed and delivered to Chinese consumers by utilizing their extensive storage and delivery network in mainland China. see also Tips to success in Tmall
Alibaba’s Taobao: Taobao is akin to China’s e-bay but places little emphasis on bidding and more on instant purchasing. Retailers from across China can register to sell products, it is more commonly associated with counterfeit goods as any retailer can open a store on Taobao, having said this though this branch of the company have taken strong steps in the last year to cut down on illict goods with many warehouses closed and retailers removed from the platform for mis-selling.
These are the two largest platforms by the corporation which presides over a whopping 75% of the e-retail market in China, therefore for cross border opportunities and selling in China utilizing this existing and established sales infrastructure is key.
JD.cn is associated with technology and electrical appliances. It also is renowned for quality and has increased its market share to 15% of overall e-retail market as of the end of last year. It is the main competitor to Alibaba.
Social media and micro-commerce
There have been significant developments in micro commerce and social media with ‘’WeChat’’, China’s largest social network boasting 700 million registered users starting to launch microstores within the platform itself, brands and businesses can tap into this huge consumer community by linking stores to their official accounts on the network.
This is potentially signaling the future of electronic commerce that might rely more on the subtle use of social media to drive sales instead of traditional advertising campaigns.
The most powerful selling point is how WeChat’s payment system links to a users bank account, the e-wallet service allows for ease of payment whilst within the eco system. Users just need to upload a picture of their bank account and set up a password to make instant payment through selection on mstores or via the scanning of QR codes. With the dominance of WeChat is likely that users will take to purchasing products online via WeChat stores, they never have to leave the network! It is a logical step in many ways for the ‘’one stop shop’’ that is Tencent’s WeChat.
That makes WeChat attractive to both the user and e-commerce companies, because it simplifies the user’s experience and maintains their enjoyment of the app, and helps companies increase sales.
William Bao Bean, managing director of Chinese startup accelerator Chinaccelerator, spoke of the importance of WeChat on the future of e-commerce in a November 2015; he said that the seamless way WeChat allows for purchases within the app is the future of doing business on mobile devices. Bean added that U.S. customers would similarly make such purchases if they had the app with which to do it.
“It’s not that Americans haven’t been willing to press ‘buy’ — they haven’t been given the opportunity. It doesn’t exist,” he said. His comments highlight that businesses in China and internationally are already aware of the changes WeChat is making to e-commerce, and that other countries are bound to follow suit.
This combination of a social network directly hosting e-commerce opportunities is unique and an innovative way to further monetize the actively engaged members of a social network. China in this sense is world leading.
A vast and expanding delivery infrastructure for smaller cities
In – fact China’s delivery network is now the largest in the world. In the past commerce was largely confined to the largest urban areas such as Beijing, Shanghai, Guangzhou, Shenzhen or Hangzhou. However Alibaba have over the last five years developed a vast delivery network across China linking up the smaller 2nd and even 3rd tier cities which were previously less accessible. The fastest consumer growth is now in 3rd tier cities. With the culture of e-commerce providing the same opportunities for more cites outside of the urbanized east coast.
Quality products, not just ‘counterfeits’.
The rise of e-commerce is partly because of the consumers desire for quality, original products. There remains a desire for counterfeits, however these are available in most market stalls or cheaper outlets across China, for guaranteed authenticity users will now turn to established and reputable platforms such as Tmall or JD.com.
Tmall Global, the platform for western brands has been so successful because products from Australia, Europe and America are a byword for high quality in China. The presence of a fake market is exactly what makes international products so appealing and online platforms have grown thanks to this USP. The strong backlash against counterfeits continues in China and western products can certainly profit from such positive association.
Mobile e-commerce and digital payment apps
Mobile Commerce is huge, there are now almost 550 million Chinese smartphone users, this is due to large scale, mass market brands such as Xiaomei or Vivo offering affordable models for the mass market. It has led to a mobile centric culture where users are glued to their phones and shop ‘’on the go’’. Content in China is always optimized for mobile with mobile web versions visited 5 times as much as the standard site.
Alipay, is Alibaba’s third party digital payment app, it functions like WeChat’s e-wallet and links to a users bank account, they can transfer money to other users, make payments, apply for funds and even make investments, it is seen as the most professional payment APP and is still the largest player. Most shops across China now feature Alipay payment stations where users can just scan the code to purchase items from their Alipay account.
It also is linked to all of Alibaba’s commerce platforms to facilitate speed and ease of payment, this ease of use is a key factor for consumers which I shall go onto explore now..
Consumer and market behaviour
Consumers in China have proved to be famously adaptable and receptive to developments in the online sphere, e retail has proved to be no exception. With deeply ingrained digital culture and mindset modern China is hurtling towards the future with the growth of VR commerce and Augmented Reality shopping as pioneered by Baidu’s AR lab in Beijing. These latest developments are at the forefront of commerce technology and may well be launched on mass to the Chinese market before we see such developments in Europe or America.
Consumers are now used to the frenetic pace of modern life in China, this is a key point, the modern economic miracle of China has been a headlong rush towards the future, whilst financial growth is slowing down slightly the behaviour of consumers is not set to change. They desire ease of use, payment, established and reputable platforms and mobile engagement. E-commerce has tapped into and capitalized on these trends very effectively.
The lucrative Chinese market is hugely profitable yet very distinct from western markets, because of the ‘Great Chinese Firewall’ companies have to start over again in many ways. If your products are not visible on the right platforms, on the right search engines and if you have no Chinese content you are practically invisible in China.