In 2015 the retail sales of e-commerce in China increased yet again by 15% according to the statistics of eMarketer, China’s total retail sales were $4.227 trillion in 2015 while e-commerce sales were at a $634 billion high. In this article, we shall analyze e-commerce in China to explore why it has become such a success story.
The main thing one should keep in mind in order to understand the degree of uniqueness of Chinese e-commerce is its centralization. It is not like U.S retail sales where every individual is used to operating e-commerce sites independently. In contrast to this, Chinese sellers operate as storefronts on Alibaba’s Tmall.com or Taobao.com which is a business-to-consumer site. It is a matter of fact that 75 percent of Chinese e-commerce gets transacted through Alibaba which includes the sister sites Taobao and Tmall. According to the research, in contrast with this, Amazon only held a 26 percent share of transactions in US e-commerce in 2015.
Amazon and other online retailers in the USA give special discounts on some occasions like Black Friday, Boxer day, Cyber Monday and Christmas day. All these days are selected smartly and special discounts are offered on these days to increase revenue. Alibaba also has the same kind of special day on which it offers special discounts. This day is called “Single’s Day”, it is the most popular e-commerce day in the whole world. Sales on this day are much more than sales on all other days collectively. It shows Chinese know how to do lead in e-commerce.
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Shopping via Alibaba in China
Shopping with Alibaba means to shop with your new e-retailer which is thought to be very easy in terms of shopping. The reason is all the consumers use a single account created on Tmall as part of the store where they are buying.
It is different from the U.S. and every other online shopping system purely because shopping with ten different e-commerce sites means you have to log in with ten different accounts along with different passwords and also go through the different procedures of checking all the websites. While in China you just have to log in with a single account with a single password and use the same check-out for shopping. From that single account, you can shop with thousands of retailers. This is the essence of Alibaba’s model.
It has been found the Chinese e-retailers have to sacrifice some market-share to remain a key player in the shopping experience in this technological globe. In contrast to Alibaba, there is a big player known as JD.com which operates just as Amazon with the direct sales model, it is considered to have a strong market value and it is also thought to be the key competitor of Tmall.
The secret of China’s E-commerce Success
The secret behind the e-commerce success in China is not very simple. Lots of people think that Alibaba and its CEO, Jack Ma, are responsible for this success but it is not entirely true. Yes, Alibaba has the major role in boosting e-commerce in China but there are lots of other factors. For instance, policies of the government are very encouraging for local online retailers.
The increased awareness people have about technology is another big factor in the success of the Chinese e-commerce market. The majority of people in China use smart mobile devices. More than 90% of people in China use mobile phones. It means more than one billion people in this country can use shopping apps and it makes China the biggest e-commerce market in the world. The USA is a country with a very high literacy rate but even in the USA, only 72% of people use mobile phones. The laptop used more than the mobile. In China mobile is king and it facilitates a certain kind of ‘shopping on the go’.
When it comes to information technology and communication, China is one of the most advanced countries. China has its own operating systems, smart mobile devices, software tools, mobile applications, and fast internet connection. All these facilities enable a large number of Chinese people to do online shopping conveniently.
Online shopping is the only way to buy high-quality goods in the rural areas of China. In the USA and other developed countries, most rural areas have the presence of big brands which allow people in those areas to do physical shopping. In China, on the other hand, if you want to buy branded clothes, rare electronic devices, and other expensive goods such as jewelry then you will have to order them online and Alibaba will make sure that you get your desired goods safely in time.
The biggest difference in the e-commerce market of the USA and China is the number of online retailers. USA, Japan, and Western Europe have a large number of online retailers. In the USA there is one giant, Amazon, but still, there are several other online retailers who work independently. All online retailers in these countries except China have their own distribution network, marketing mechanism, and market share. On the contrary, China has a centralized system in which all online retailers are associated with Alibaba and they have the same distribution network.
Benefits of Centralized E-commerce in China
The centralization of e-commerce in China has provided the retailers with a bundle of sales-driving advantages. As compared to other markets, the advertising of e-commerce on media and TV has provided countless benefits. It is very common in China to buy something on text, via video or image which benefits e-retailers in a way that they can get benefits of earning even if their consumers do not visit their dedicated apps or websites. It is really beneficial for e-retailers, if the whole store is digital they can earn a lot. This extension of digital shopping is the age of mobile e-commerce where customers are just a single click away from a purchase. During 2015, mobile characterized about 50 percent of all e-commerce in China whereas 22 percent of such sales were found in the U.S.
The Centralized system has made delivery of every kind of product very easy. In a decentralized system, you can’t get your product quickly unless you are shopping for big online retailers like Amazon. If these big retailers don’t have your desired product, then you may have to wait several days and your online shopping experience may not be very pleasant because small online retailers have a relatively weak distribution system and a less user-friendly interface.
In China, you can find almost everything at any time on Alibaba’s retailing websites like Tmall because a large number of companies have their special account on this website. They are selling their products through Alibaba’s platform and Alibaba provides basic facilities like secure transactions, a professional online environment, customer support, and quick delivery.
Due to this reason, every online shopper in China experiences the same high-quality service no matter what they want to buy. It is one of the biggest advantages of a centralized system. In China, you don’t need to have multiple accounts to buy anything from any retailer. You can buy virtually anything from any retailer through your single Alibaba account because Alibaba provides all basic facilities, to all retailers. The Chinese e-commerce market has got this centralized system because they accepted the dominance of Alibaba and all other retailers are ready to work with Alibaba. On the other hand, in the USA and other countries, no one is ready to accept the supremacy of any other online retailer. Amazon is, in fact, the e-commerce giant outside China but still, other retailers prefer to work independently without any collaboration with Amazon. It is because of the unfavorable policies of Amazon for small online retailers. China is the living example of the fact that if you work together you can achieve the unachievable. It is very difficult for any e-commerce market in the world to achieve what the Chinese e-commerce market has achieved especially in this era of extensive competition.
Mobile e-commerce in China!
People think Chinese retailers have some top secret techniques when it comes to mobile e-commerce. The main reason for successful mobile e-commerce in China is that majority of people access the internet on mobile, the percentage according to a statistical report of such people is 87.4 while in the U.S. 64.6 percent gain access through mobile.
Another improvement in Chinese e-commerce is that online platforms are the forum from where the Chinese can buy non-Chinese products. For U.S. buyers products can now be bought from any place where they live. While for Chinese buyers the situation is different. They have the option of online shopping to purchase such Western items, which they increasingly desire. Big players in every e-commerce market know the importance of mobile in the future and therefore almost all of them have already launched their mobile application and made their websites more responsive. The main difference is the execution and characteristics of the market.
Delivery in China
In the case of delivery, China offers services that are much cheaper when compared to the charges offered in Western markets. This is the reason that the e-commerce of the Chinese market is thriving, it results in a very active shopping culture. For example.. If anyone wants to get ready for a meeting and he orders toothpaste and a toothbrush he will get them within an hour at his office with the lowest shipping rates.
In short, China has now become the world’s largest e-commerce market due to some key reasons, among them is their standardized single account system that has added to the ease of customers online shopping. Most of the retailers work within the Alibaba system whilst only a few retailers work outside this system.
Chinese E-commerce is Crossing Borders
From outside it seems that everything is going well in Chinese e-commerce market but Chinese online retailers are also facing some serious challenges when it comes to foreign goods. The Internet is making it super easy for everyone to visit websites and mobile apps of foreign retailers and buy foreign branded products at lower rates. It is difficult for local online retailers to sell foreign brands at lower rates due to custom and copyrights issue. This is the only aspect of the Chinese e-commerce market where foreign online retailers like Amazon are dominating because people want high-quality products at lower rates no matter who is selling it. In 2015, Chinese people spent 40 billion US dollars to purchase foreign products. It means 259 billion RMB went out of China to other countries. It was 6% of total online sales in the consumer e-commerce market in that year and it is expected that these imports are going to increase up to 50% every year. There are lots of reasons for this increase in imports. Some of the most important reasons are:
- First of all, the average income per person in increasing in China. The increase in income is allowing people to have some unique goods from foreign countries. It is the common behavior of people all over the world, therefore, businessmen in China’s e-commerce market are not worried about this factor as they can always sell foreign products.
- The middle-class and upper-class group in China prefer to use foreign brands especially when it comes to clothing and fashion. It has become a status symbol to use foreign products. Local online retailers can’t do much about it but continue to convince foreign brands to let them sell their products.
- The sense of security is another reason for the increase in imports in the consumer market. People don’t trust local retailers of foreign brands because there are lots of local retailers in China who are selling replicas and counterfeits of high-quality brands. Due to this reason, people prefer to buy directly from the manufacturer. The government is taking steps to eliminate all these retailers because it also creates a bad image of the country.
- People also get low prices when they buy directly from the parent company. Moreover, they also get proper customer support and warranty directly from the manufacturer.
- The government is also facilitating customers to buy products from foreign countries. The laws of duty tax are very favorable for customers. This situation is not very good for the government of China as it wants the people of China to spend their money in the country. This will likely result in a stronger internal cross-border e-commerce service.
All these reasons are increasing cross-border sales. Alibaba is also taking serious steps to compete with foreign retailers in order to penetrate this market segment. To achieve this goal, Alibaba launched the global version of Tmall website. This online store displays products from all over the world and allows Chinese people to use their Alibaba’s account to import any product in few simple steps. Alibaba also partnered with foreign brands and retailers like Lotte Mart, a popular online retailer in South Korea, and Costco, a USA based retailer, to gain the competitive edge. It clearly indicates that Alibaba is not going to let any company enjoy a leading position in any segment of the Chinese e-commerce market. All these activities from local retailers, foreign brands, government, and customers are doing nothing but making the e-commerce market in China stronger and richer than ever.
Forecast for 2017
Online shopping is a casual thing in China now. This year more than 90% of all consumers will shop online which is not surprising at all. E-commerce giants like Alibaba and Amazon are still going to lead the market this year too. Cross-border e-commerce is expected to grow more. In 2016, cross-border online shopping crossed the 80 billion USD mark and this year it is expected to grow more. It can even surpass 100 billion dollars because foreign companies are providing special discounts in China for increasing their sales. Right now more than 40% of people involved in online shopping participate in cross-border e-commerce by buying a product or service of the foreign company. In 2017, this figure is expected to reach 50% and by the end of 2020 almost, 25% of the whole country’s population will buy foreign products through online retailers. It means that almost 350 million people will purchase foreign products, therefore, foreign brands should now focus on China. It is hard to predict total sales volume for this year because every year this e-commerce market breaks new records leaving jaws open. One thing is for sure, this market is going to take a huge amount of money out of China but the Chinese government will find innovative ways to bring that money back into the country through domestic cross-border services and taxation, this is what they have been doing for the last three to four years.
So, the bottom line is that China has the most profitable, vibrant and diverse e-commerce market with huge scope for both local and foreigner players. The entrance of new player in this market is very challenging because of an extremely competitive environment but there are some ways to enter and penetrate this market. Alibaba has developed a system which allows new online retailers to promote and sell their products all over China through the online platform of Alibaba. It has created a centralized e-commerce market which is one of the major reasons for the success of this market. Right now local e-commerce companies are winning in this market but foreign companies are also making efforts to increase their market share. They have some leverage in the market segment which prefers foreign products at lower rates. Chinese local e-retailers are finding it difficult to compete with foreign companies when it comes to foreign products, especially Amazon. The overall e-commerce market in China is growing exponentially and it is going to break all previous records in terms of both number of sales and revenue generation. Other countries must learn from the Chinese if they similarly seek to boost the economy of their country in this way.