Over the last two weeks, I have been bombarded with e-commerce news from China. Amazon set up shop in China’s Shanghai free trade zone to give Chinese customers access to its products from its global supply chain and to help SMEs in China to export their products to customers in other countries. Amazon’s biggest competitor, Alibaba, has unveiled plans for an initial public offering that values the company at $US 155 billion, one of the largest listed in the US and one of the biggest stock market debuts ever. Chinese real estate conglomerate Dalian Wanda formed an alliance with two Internet giants, Baidu and Tencent, aiming to become the largest O2O (online-to-offline) e-commerce platform in China.
Each of these movements reflects the increasingly fierce competition in China’s e-commerce market. As many multinationals initiate their 2015 planning, I believe all of them need to think deeper about their e-commerce strategy for China.
China’s e-commerce market is now bigger than America’s
China already has the world’s largest Internet user population, representing 22% of the world’s total in 2014. It has also overtaken the US as the biggest e-commerce market in the world and is set to be worth US$ 541 billion by 2015. These facts make China an ideal location for expansion, as 49% of its population made an online purchase last year. This figure is set to rise to an unprecedented 71% by 2017, so expanding into this profitable international market is becoming more and more inviting for online businesses.
Making the e-commerce decision a part of your “go deep” or “go wide” decision
This decision will be integral to your China 2020 “go wide” or “go deep” strategy, and it can’t be ignored because local companies are already making deep inroads and leveraging the current prevailing online platforms. See the chart below to get a sense of how important online sales are going to be in future. Something else worth mentioning is that online research will have a tangible impact on offline sales, as well.
Companies that delay the development of their online channels now will forego a significant portion of this enormous market. In the future, they will have to scramble to take market share away from their faster-moving peers.
Bypass the retail bottlenecks in China
The Internet’s extraordinary reach in China offers companies a way to bypass the fragmented retail bottlenecks and expand their customer base in lower-tier cities. Companies that aim to capitalize on the growing consumer base in China’s lower-tier cities must develop an effective e-commerce strategy; those that depend solely on brick-and-mortar retailers for their expansion will be left behind. See the chart below to understand how wallet share increases from tier 2 to tier 3 and 4 cities.
- Build a strong fan base by leveraging social media platforms and engaging with opinion leaders
- Leverage multiple websites to capture browsing shoppers, i.e., open more than one Internet channel to capitalize on Chinese consumers’ online shopping habits. However, make sure that you are cognizant of the effect your online channel is having on your current distribution partners
- Choose e-tailing partners beyond Tmall to target the right customer by adopting a hybrid model with complementary approaches may be worth exploring too