eCommerce in the #1 Market in the World - China

78,037,000,000,000 Armenian Drams

China’s e-commerce market racked up a whopping 1.3 trillion RMB (78,037,000,000,000 AMD or $190 billion USD) worth of transactions in 2012, according to a report by the China Internet Network Information Center (CNNIC) (linked article is in Chinese), an increase of 66.5 percent over 2011′s total. With that growth rate, China will surpass the United States as the largest e-commerce retail market in the world. The question is what are Armenian companies doing about it? Are they laying the foundation and building relationships needed to be successful in years to come? Are they just thinking it is too strange and difficult, so just keep with the safe and familiar “Western” market? The first step is to acknowledge China and to learn about it. This article is the first step in Armenian business expanding to the Chinese market - it provides awareness.

Last year, 140 million Internet users purchased goods online, and e-commerce transactions accounted for 6.1 percent of total retail sales of consumer goods.

The growth was driven in large part by mobile users: during the last half of 2012, 40.7 percent of online shoppers used a mobile device to browse e-commerce merchandise. More than half–53.6 percent–browsed a merchandiser’s mobile app instead of accessing its main Web site through their device’s Internet browser. 53.3 percent of the respondents who used their mobile devices to shop said they did so while at home, and many stated that their smartphones had begun to replace their home PCs. 26.2 percent said they browsed items on their smartphones while at work or school, and 10.6 percent said they spent time with their smartphones during their commutes or time waiting in queues to shop.

In addition to mobile, social media platforms also drove e-commerce sales. 41.8 percent of shoppers said they had first seen information or promotions for a product on a social media site before deciding to purchase it.

Each shopper spent an average of 5,203 RMB (about 346,238 AMD or $843 USD), an increase of 25 percent, from the year before. According to the report, the most frequently purchased items were clothing and shoes, which 81.8 percent of online shoppers bought during the last six months of 2012. General merchandise accounted for 31.6 percent of sales, while consumer electronics made up 29.6 percent of the total.

The Major Players

The three big Internet companies in China are Alibaba, Baidu and Tencent, which dominate three different categories of the market: e-commerce, search and messaging, respectively.

The vast majority of online transactions in China — 85% as of 2009 — take place between consumers, according to AT Kearney’s estimates. Approximately 90% of those transactions are executed on Alibaba-owned Taobao, frequently described as the “eBay of China.”

Like eBay, users on Taobao can purchase and sell new and used goods at fixed or negotiated prices, as well as through auction-style listings. Unlike eBay, most goods are new, and there are no listing or transaction fees — the majority of Taobao’s revenue comes from advertising. Next year, the company will bring in $716 million in pre-tax earnings and will be worth $14.3 billion.

While the latest figures from CNNIC are impressive, China’s e-commerce market still has plenty of room to grow and is set to overtake America’s. As this Economist story notes, the Chinese e-commerce market is currently dominated by Alibaba, which last year handled 1.1 trillion yuan ($170 billion USD) in sales through two of its portals, Taobao and Tmall, and is on its way to becoming the first online retail company in the world to handle $1 trillion a year in transactions. Taobao is a C2C marketplace with more than 800 million product listings and 500 million registered users, according to Alibaba. B2C platform Tmall counts major international brands like Microsoft, Nike and Unilever among its 50,000 merchants.

Social Media’s Role

Because Chinese consumers distrust advertising and news sources, recommendations from online reviewers and peers on social networks have heightened roles.

Ninety-five percent of Internet users living in Tier 1, 2 and 3 cities in China are registered on at least one social media site, according to a study released by McKinsey in April. They’re active, too: 91% of the survey’s 5,700 respondents said they had visited a social media site in the previous six months, compared to 67% in the U.S. and 30% in Japan. They spend 46 minutes per day on social media sites, compared to 37 minutes in the U.S. and seven minutes in Japan.

More than 40% of online shoppers in China consume and post product reviews online — about double the percentage of online shoppers in the U.S., according to BCG. Why the distrust of advertising? Advertising is associated with [government] propaganda, Social media is the people.

In terms of volume of users, MySpace-like Qzone leads with 536 million, followed by microblogging platforms Tencent Weibo (310 million) and Sina Weibo (250 million), according to a November 2011 report from we are social. Renren, a Facebook-like site particularly popular among students, has 137 million users. Kaixin, another Facebook-like site popular especially among white collar office workers, has 116 million. Demographics vary among networks: Consumers who identify Sina Weibo as their favorite site tend to have higher incomes and are more likely to live in Tier 1 cities, McKinsey finds.

McKinsey believes that social media has a greater influence on purchasing decisions for consumers in China than for anywhere else in the world. “People rely more on word-of-mouth from friends, family and key opinion leaders, many of whom share information on social media,” the study reads. But many companies in China have yet to leverage social media properly. There’s a lack of familiarity with online social platforms because they are Chinese only, and not used in the West.

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