Chinese E-Commerce: Who Doesn’t Love a Good Underdog Story?

Who Doesn’t Love a Good Underdog Story?

Once upon a time…China suffered from forced colonization, crumbling dynasties, multiple and simultaneous wars, and wide spread optimum addiction among other things. A century of humiliation left the country weak, exhuasted, and seemingly beaten. That’s why China completely shocked the world when, as McKinsey&Company put it, “became the greatest economic growth story in the history of the world”.

Therefore, I decided to give y’all a preview of my class presentation for this week on the topic of Chinese E-Commerce. I conducted research on Chinese Consumption Trends and E-Commerce with my Chinese Economics and Sociology professor while studying abroad in Beijing, China. This is a very high level sample of a semester long project.

Background: China’s Economic Miracle:

Thirty years of constantly rapid growth has now put China as the world’s second largest economy ( first in terms of purchasing power parity). Pushing to become a more consumer-centric economy, China has more than doubled their consumption in the last ten years. Consumption grew from 650 million to 1.4 trillion, growing faster than any other country in absolute terms. Chinese consumers have evolved from “value consumers” focused on basic needs for survival to both “mainstream” and “affluent” consumer with the disposable income to pick and choose consumption products based on factors such as brand prestige and personal preference. And you know where they are choosing to spend the majority of that newly acquitted disposable income…that’s right…online!

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Chinese E-Commerce, Full Force:

Describing China as the world’s  largest and most dynamic e-commerce market, Mckinsey predicts that by 2016 Chinese e-commerce will be larger than the United States and Europe combined! This is amazing if you think how much the Chinese environment had to develop to even be at the same level these two comparative e-commerce markets and that now China is about to overtake them both combined. This is partly when they say Chinese underwent an unbelievable economic miracle.

Now over 70% of the Chinese market is online. Therefore, if one hopes to succeeded in business in China and remand competitive one needs an online presence.

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Understanding China’s Digital Landscape: 

Chinese consumers LOVE online shopping. Below are quotes from qualitative interviews that I conducted while studying abroad in Beijing, China.

  • “ In China, USA online shopping companies are not necessarily trusted”.
  • “I buy things everyday, every day I get deliveries, really. Sometimes I get as many as 8-11 a day”.
  • “Sometimes I want to buy overseas things, but the payment methods is not convenient, so I rather use Tmall to get things”.
  • “I shop online 70% of the time, offline 30% of the time”.
  • “90% of what I buy online I buy on my phone”.
  • “Online shopping is a pre-sleep activity. I put things in a basket at night, the next morning if I still like it, I buy everything”.
  • “Whenever I have a spare minute, I am on my phone shopping”.
  • “ I really like Taobao and Tmall, I have no interest to go on any other websites to shop”.
  • “ I even now start to buy my food online”.

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An important observation to make when reading these quotes form interview is that Chinese consumer love their Chinese platforms, and they seem to have no interest in using  American platforms to facilitate e-commerce. So…let’s take a closer look.

BAT: BAIDU, ALIBABA, TENCENT

Mckinsey states that it is a  fundamental mistake to compare Chinese e-commerce and social media platforms such as Baidu, Alibaba, and Tencent to American companies Google, Ebay and Facebook. It is important to emphasize these American companies are not counterparts  and equivalents  and that they are fundamental different that the Chinese BAT and perform different function in different ways.

Below I include a chart by Mckinsey where I have highlighted the major differences and unique features in the Chinese BAT platforms

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Case Studies:

Two case study examples which I will present briefly here and elaborate on in my presentation are Burberry and Olay. Both these companies have strategically used Chinese e-commerce to gain a competitive advantage.

Burberry:

  • Burberry partners with Alibaba to set up official online Burberry market
  • Provides online shoppers with detailed information of quality
  • Assure authenticity: combating a prevalent counterfeit market
  • Combines “timelessness with technology”
  • Burberry sales increase significant not only through online sales, but also in retail stores in China
  • Companies such as Louis Vuitton soon followed

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Olay:

  • Olay was struggling to find the right market in China
  • Partners with Baidu to gather information on Chinese consumer
  • Baidu results showed that Chinese woman searched make-up that was associated with maintaining a youthful look
  • Olay creates advertising campaign “stay 25 forever” targeted at the Chinese female consumer
  • Experienced extreme success and helped gain footing in the Chinese market.

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Thoughts on Chinese E-Commerce Moving Forward:

Although Chinese Economic growth has slowed as a whole, Chinese e-commerce continues to gain traction.

In conclusion, Mckinsey states…

  • The Chinese consumer will continue to be a crucial and complex player in the world market
  • As technology advances and Chinese consumers become richer, it is quite possible that one day the will be the most valuable world consumer
  • China continues to be…

“BEST CONSUMER GROWTH STORY IN THE HISTORY OF THE WORLD”

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To be continued Thursday…

Work Cited:

http://www.mckinsey.com

 

7 comments

  1. fernaneq4 · ·

    So I confess… I found a website my senior year of high school called “ioffer” where it looked like eBay but sold cheap, fake products from China. The products took about a month to get here but they looked good! Eventually, all the girls in my school were on it and then when they went to college, now I swear all the Florida State Universities are buying from ioffer. It’s not only chinese consumers who purchase from China! I find that I order items off amazon (rarely when it’s not amazon prime) and it’s coming with Chinese labels! I loved all your statistics and research backing up your blog and the case studies you chose. Did you go abroad in China or something? Great read!

  2. jagpalsingh03 · ·

    Awesome post! Very rarely do we venture outside the US in class but I like how you widened the scope of discussion. Developing countries never become “developed” countries in one lifetime and although it seems like China could break that trend, I think there is reason for skepticism. China has a history of “fudging” its economic numbers and some people speculate that their growth rate is half of what the Chinese government states. Also, while BAT are not 1:1 equivalents of FB, Google, and Amazon, BAT have been successful due to the obstacles China forces American companies to endure to do business in the fasting growing e-commerce market. Even so, it is impressive how successful these young companies have been and they seem poised to continue growing. And it’s crazy how much the Chinese consumer has evolved. Interesting post and I look forward to hearing more about this topic!

    http://origin-www.bloombergview.com/articles/2015-11-03/china-s-slump-might-be-much-worse-than-we-thought

  3. China has definitely come a long way from it’s not so long ago history of strict government that made it difficult to see things like Tencent and Alibaba even potentially carve out marketshare. I loved your insight that BAT should not be compared to the social media outlets we use here. Rather, these applications have become more of a lifestyle rather than just a single application. Take a look at WeChat – people can do so much other than just message each other. Great insight on this post. Thanks for sharing!

  4. After seeing the success of Ali Baba, I knew that e-commerce was big in China, but I had no idea how big it is or how diversified many of these firms are. Your on-the-ground interviews really hammered the dominance of e-commerce in China home and made me wonder what strategies start ups are employing to gain market share in the face of such behemoths. Looking forward to your presentation!

  5. michaelahoff · ·

    Awesome in depth and historical look at a staggering market. As you mentioned, e-commerce is even more important in China right now because it is still a huge growth sector. While the rest of the economy may be struggling to adapt with the growth rate leveling off ever so slightly, this part of China’s economic story is still sky rocketing.

  6. Great post. I’ve always been fascinated with the different nuances of the Chinese SM market.

  7. Having studied both Chinese language and Chinese history, it’s quite clear how much China takes pride in its capability to thrive on its own, including creating products/services for its own people. While I agree China has greatly developed alternatives to American e-commerce sources (i.e. Alibaba to Amazon/Ebay), but I’m not sure if the quality of the goods/services or the customer service they provide are up to scale. I recently ordered dresses from a Chinese website for a culture show at BC, and ended up ordering from Amazon instead due to my mistrust of how they handled payment and how unaccessible they were to communicate my concerns. Also, China is a very large country, and I don’t quite know if the success of Chinese e-commerce showcased in this blog would be representative of regions outside of big cities like Shanghai and Beijing.

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