Among the recent Australia China Alumni Association Awards, were two winners in an industry on the move in China – Mr. Liu Junling, co-founder of www.yihaodian.com, and Dr. William Dong, co-founder of www.jiapin.com. The industry: e-commerce.

 

Take Halloween for example. There is surely no better place to buy a costume than China’s famed online shop for everything, Taobao. Inflatable sumo – easy. Cowboy riding a dinosaur – no sweat. And all delivered inside two working days. Spurred on by millions of sales the e-commerce sector in China is in the midst of a boom.

 

Anyone that has ever been to China, can vouch for one fact: Chinese people simply love to shop. Consumerism is King. And what yihaodian.com and jiapin.com have undeniably proven, is that there exist significant opportunities in the Chinese e-commerce sector, available to those businesses that understand exactly what makes online shopping – and the consumers – in China unique.

 

In 2011, online retail across China generated sales of over US$121 billion, representing a 66 percent increase on the year before, according to figures released by Barclays Capital. The size of China’s e-commerce market is expected to more than triple over the next three years, with sales reaching US$420 billion.

 

China has an estimated 193 million online shoppers, more than any other country. By 2015, those consumers will be spending an average of US$1,000 per year online — the same amount that the 170 million online shoppers in the USA currently spend annually. By that time, e-commerce could account for more than 8 percent of all retail sales in China, Boston Consulting Group predicts. So what exactly is behind the growth of e-commerce in China?

 

It helps to start by considering the growth of internet use. Government-subsidised, high-speed internet, now allows broadband access around the country for as little as US$10 per month – far below access rates in developed countries and a mere third the price of access in India and Brazil. Combined with the rapid expansion of infrastructure and increased accessibility of smart phone connectivity, the number of internet users in China pushed further beyond all other global markets to over 520 million in 2012. It goes without saying that is already a huge pool of potential e-consumers.

 

And this growing pool of consumers has access to a growing pool of retailers. A large reason for more retailers going online lies in the simple physical realities of brand building in modern China – the country is huge and retailing is not cheap. The middle class continues to grow and research indicates that by 2015, China will have 365 cities with over 100,000 middle class
consumers. At the same time, commercial rental prices continue to rise, further eroding profit margins.

 

Consequently, brand can’t reach all these new consumers. The nation’s largest retailers, Suning and GOME, have stores in only 260 cities, while large multinationals such as Walmart, can only cover 120 cities. The end result is very low retail consolidation – with the Top 20 stores accounting for only 13 percent of total urban retail sales, less than half the comparative rate in the USA.

Contrast this with the aforementioned prevalence of internet use – in a society with a nearly sociopathic urge to shop – and we now have extremely fertile ground for a boom in e-commerce.

 

But, there is one other very clear reason for the rise of e-commerce in China – increasing levels of trust in the safety of online commerce platforms. Since e-commerce first arrived in China, consumers have justifiably been very wary that the internet would provide just another hideout for the same cheats and frauds we have all encountered on shopping trips from the street stores of Beijing to the market stalls of Kashgar. In the face of rampant credit card and counterfeit scams, consumers were wary and e-commerce was slow to take off.

 

One of the first to combat consumer skepticism was Chinese internet giant, Alibaba Group – with a payment system neatly labeled “Alipay” that only releases payments to vendors after customers have confirmed their satisfaction. This year, Alibaba

Group has forecast that their sales could exceed sales on eBay and Amazon combined.

 

Founded in 1999 and with over 500 million users, there is no mistaking that the Alibaba Group has been a poster child for the rise of Chinese e-commerce. Further to their success with the Alipay system, Alibaba have succeeded with B2C platforms such as Taobao.com and Tmall.com (restricted to registered businesses), and B2B platforms such as Alibaba.com. While Alibaba has been ahead of the curve, earning a vast and loyal community of users, there remain opportunities for competitors.

 

In the shadow of Alibaba, a raft of other competitors are jostling for their share of this lucrative market. Following Taobao and Tmall, are other B2C competitors 360buy.cn, dangdang.com, and of course the site with the Australian connection, yihaodian.com. Alibaba may be a monolith in the market, but this brings its own disadvantages, allowing smaller competitors the opportunity to instead seek a competitive advantage with better quality assurance, professionalism, delivery speed, reliability and flexibility.

 

More and more major retailers are finding their feet in the online market of China. Suning identified the traditional strength of retailing electronics goods online and have now gained significant market share. Alternatively, sports retailer Li Ning, have demonstrated the success of a multi-channel strategy, selling goods via authorised consumer-to-consumer agents, via official stores on popular e-commerce platforms such as Taobao, and via an official brand store online. In August of this year, the American giant Walmart made their first foray online in China and others continue to follow.

 

For brands that are already strongly leveraging their social media options in China, engaging in e-commerce can provide synergies. Researchers from Boston Consulting Group noted that over 40 percent of Chinese people shopping online either read and posted product reviews, double the rate of Americans and four times more likely than Indian consumers.

 

Similarly with mobile technology, Chinese consumers use mobile phones to access the internet as much as other consumers in the USA, Australia or Japan, but are far more likely to use their phone for shopping or price comparison. Consequently, as social media, mobile shopping platforms and e-commerce converge further, more opportunities will arise.

 

With Chinese authorities predicting that online sales will hit RMB 2.8 trillion by 2015, opportunities abound for companies willing to invest online. So whether a company is a retailer or an e-tailer, the next few years will be a formative period for the entire e-commerce industry in China. A unique chance to not only build a business – but to forge a brand identity. ■

 

 

*Geoff Tink has been lived, worked and travelled China for over seven years. Originally from Sydney, he previously worked with the Australia China Business Council and now manages marketing events and communications for international brands in China. He speaks mandarin fluently and can be found on weibo at @T_丁先生.