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Booming e-commerce in China

  • Factors for exceptional success of e-commerce in the nation
  • Why are companies aggressively investing in O2O?

 

In the span of barely a decade, China has risen as the world leader in the e-commerce space. The online shopping generated c. $1.1 trillion (2017) in the country, which was an improvement of 32% over the previous year. China is the largest e-commerce market in the world and has a significant lead over other countries, which include the US ($450 billion), Japan ($95 billion) and the UK ($110 billion). The nation also claims that it has around 731 million internet users and accounts for c. 42% of the global e-commerce retail.

    

The e-commerce industry saw a rapid increase in its revenues at an annualised rate of 35.3% in the past 5 years in China. This phenomenal growth can be attributed to the cross-border e-commerce; shopping in unmanned physical stores, wherein shoppers used online payment systems (Tenpay and Alipay) to pay with their mobile devices and can be ascribed to online sales of used goods.

The country has a distinct advantage due to a massive domestic market, which has shoppers who are both young and digitally savvy. In general, Chinese consumers spend a considerable amount of time to shop in a store or online as it is deemed joyful and relaxing. It is also regarded more than a mere transaction but is seen as a medium of entertainment and/or social engagement with friends, bloggers, internet influencers and celebrities. On an average, it is estimated that a Chinese consumer spends at least 30 minutes a day on Alibaba’s Taobao; this is almost three times more than the time spent by an American counterpart on Amazon. This is just one of the case and plainly explains how spending more time online translates into increased sales and transactions in China, thereby having a bearing effect on the e-commerce boom in the country.

The staggering growth in e-commerce was primarily driven by an explosive rise and use of mobile payments by the internet users, which grew to 68% from 25% in 2013. The country boasts of more online customers than any other nation in the world. Additionally, it has a huge mobile payment market, which is eleven times the size of its counterpart, the US. In 2017, c. 69.1% of the internet users shopped online in China. 

The country is also one of the world’s largest adopters and investors of digital technologies and proclaims one-third of unicorns globally. China also prides itself with one of the most aggressive digital investments and start-up ecosystems. Its growing venture capital (VC) industry is increasingly digitally focused. Overall, the country’s VC sector has grown swiftly to $77 billion between 2014-16 (or 19% of the total global VC sector) from  $12 billion in 2011-13 (or 6% of the total global VC sector). A majority of the venture capital investments in the country pertains to digital technologies such as AI (artificial intelligence), big data and financial technology companies. China is in the top three internationally, for venture capital investments in key areas of digital technology, including virtual reality, autonomous vehicles, 3D printing, robotics, drones and AI. Besides, the country also has the capability to drive swift commercialisation of several digital business models. It has also rapidly transformed from cash to digital payments. Moreover, within few years, it has transitioned from cash payments to QC code payments through mobile phones; the country has managed to completely negate credit card transactions. This shift was brought about by the launch of platform-specific payment systems such as Alipay and WeChat.

The giant internet companies like Baidu, Alibaba and Tencent are disrupting the entire sector with their aggressive approach. These companies have a global outreach and are creating a multi-industry, multifaceted digital ecosystem that impacts each and every aspect of a consumers’ life. The firms are employing advanced technologies to upgrade the nation’s retail sector and are designing more flexible supply chains, installing e-payment services in malls as well as gathering consumer data to better market their products.

Although, booming e-commerce currently accounts for 23% of the total retail sales in China, this is expected to further rise to 40% by 2021. This implies that physical or brick-and-mortar stores are still relevant in the present dynamic retail environment in the nation. In order to embrace the growth in digitisation, numerous brands and retailers have altogether started experimenting with the O2O marketing (Online-to-Offline), which entails using online channels to drive customers into physical stores.

The O2O category in China encompasses on-demand services, websites offering deals on an everyday basis and click and pick up services by brick-and-mortar retailers. Furthermore, unlike other countries such as the US, services such as home haircuts, dry cleaning or fresh market delivery services are also considered a part of O2O in China. The O2O label is not only restricted to transportation, travel and other services but often includes services that might be arranged online, while being paid for at a respective point of service through an e-wallet/mobile.

Similarly, brands and retailers have started investing in omnichannel capabilities. For instance, Alibaba spent c. $6.7 billion on retail stores since the end of 2016 to further its growth. The company focused on groceries with its Hema fresh food stores, Sanjiang, Sun Art, Lianhua and online grocer Yiguo.com. In addition, the firm also invested in a home improvement chain; Easyhome and a department store operator; Intime. Alibaba also bought its remaining shares in Ele.me (food delivery company). In an identical development, JD.com invested c. $1.5 billion in physical groceries including the likes of 7Fresh, Yonghui and Better Life. It is also a partner of Walmart in both the US and China and these companies operate around 400 stores (China).

In conclusion, it can be stated that China’s online retail market is enjoying a phase of rapid growth. The country’s e-commerce market grew by around 2,000% between 2009-16, which in effect means that it surpassed the combined e-commerce sales in the US and the UK. The country has a conducive atmosphere, which ensures a booming e-commerce market. The online retail in China is further propelled by 300 million plus middle-class consumers with rising disposable incomes and consumption needs. Addedly, the country’s current e-commerce market stands at 23% of the total retail sales, this suggests that there is still an enormous untapped opportunity for market players. Further, companies across the spectrum are improving customer shopping experience as well as delivery logistics infrastructure to better cater to the growing demand of customers. Firms are infusing technology in all aspects as they battle to gain a market share by adopting automated technologies, drones, robots, cloud computing, big data and machine learning.