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04/12/2011 by

China’s Exploding Growth In E-Commerce

Western countries have discovered the power of E-Commerce for over a decade, rising country China has adopted this trend rather swiftly. Boston Consultancy Group reports China’s E-Commerce will surpass the US market size by 2015.

China has the largest internet population of 457 million in 2010, that’s larger than the United States and Japan combined. With a market growing so rapidly it might be worthwhile to consider investing your business to the east.

Internet is widely available in China, broadband internet costs $10 per month and is accessible to approximately 90% of China’s population.

Key take aways from the report:

  • Between 2007 – 2010 China gained 73 to 88 million new internet users
  • Less than 10 percent of China’s urban population shopped online in 2006. The figure jumped to 23 percent in 2010 and will nearly double to 44 percent by 2015.
  • 30 million additional Chinese consumers are expected to shop online for the first time every year until 2015.
  • E-Commerce in China will go from representing 3.3 percent of the country’s total retail value today to 7.4 percent in 2015. It took the United States ten years to achieve that growth.
  • 7 percent of E-shoppers are responsible for 40 percent of the total online spending

The numbers don’t lie and definitely sound astonishing, however before stepping in the Chinese E-Commerce think about what makes this market different. BCG reports four factors that are important in China’s E-Commerce business:

1. Market Leader Taobao
The popular shopping site is part of the Alibaba group (which also owns accounts for 79 percent of the total transaction value in 2010. To illustrate the large scale of this: Amazon has a share of 14 percent in the United States. The shopping site has more than 800 million online products. Every minute 48,000 products are sold.

2. Delivery & Logistics
Due to immature logistics delivery services in China, consumers worry about delivery costs and the risk of damage during delivery. Moreover 45% of the online consumers worry their purchases will be swapped for fakes during transit.

3. Online Behavior
As China is mainly known for being copycats in producing products this fundamentally shaped the online behavior of online consumers. The lack of trust from Chinese consumers means the purchasing process is heavily influenced by reviews and recommendations from friends and online sources.

In other words Chinese consumers need to interact with one another to gain knowledge and trust before they buy.

This is where official brands can actually make a big difference; at the moment only 19% of consumers in China go to official brand websites. In US, EU and Japan this percentage lies between 41 to 60 percent.

Consumers are not buying on these websites because it’s basically a localized brand website with little to none fan engagement. Brands should invest in a community where they can facilitate the consumers and gain their trust.

4. Online Shopping Ecosystem
In most countries consumers rely on search engines to find specific products, or better said we use our best friend Google to find products. Google’s replacement in China is Consumers in China don’t use Baidu to search for products, this is due to the fact Taobao blocks the Baidu crawler. This basically means consumers go to Taobao to find products, Chinese shoppers have already gotten used to this.

And with the monopoly position of Taobao this will not change anytime soon.

Brands and retailers are also having a hard time reaching & engaging their target audience through social networks. Unlike the west who has Facebook, China’s got multiple social networks with their own specific audience such as Kaixin (office workers), Renren (college students), QQ (young and active adults) and micro blogging service Sina Weibo.

For brands there is no easy way out, they need to think carefully before entering these social networks.

After reading all this, why should CMOs even consider a market that’s practically already owned by monopolist Taobao? Well, China is the fastest growing E-Commerce business. Moreover with an expected 44% online shoppers of the entire Chinese population in 2015 the market would still see a large untapped market.

How can brands enter the market and outsmart Taobao?

  • Taobao has a high learning curve before users can really start shopping. Make your online shopping experience an easy and accessible one for users
  • Facilitate consumers with a community where they can interact with each other – definitely hire moderators and community managers to ensure qualitative conversations and engagement
  • Chinese consumers are very price driven. Give them better deals or discounts than other 3rd party retailers. If you don’t want to compete with price, give them incentives to still buy from your official store (think about a rewards program).
  • Integrate your offline channel with the online experience

Has your company already thought of entering the rapidly growing Chinese market? Let us know in the comments below.




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