When it comes to the global ecommerce market, there's one contender who's quickly becoming the world's biggest: China. China's online market is the biggest in the world with an estimated value of 450 billion USD (2014) which supersedes the US' 296 billion USD by far according to Juniper Research. Understanding the structure from which it thrives is imperative if we're to learn anything from its multifaceted success.
Understanding why China ecommerce is so big
We've seen Chinese tourists going crazy in shopping malls and department stores, buying designer bags or baby powder milk in bulk. It's obvious nobody is questioning their purchasing power nor their love for shopping anymore. And since China is such a booming consumer population; most of the big brands – whether it is luxury or consumer goods – are targeting the Chinese consumer with a focused communication strategy, and/or developing specific products (whitening cosmetics for example).
When asking Chinese colleagues in Shanghai what's their shopping budget for their trip to Paris, I often hear something around 10,000 RMB (around 1,500 USD or 1,300 EUR and yes, that's only for shopping and does not include travel related expenses). As a comparison: the annual average wage for urban employees in 2014 in China according to China’s National Bureau of Statistics was 56,339 RMB (around 8,800 USD or 7,800 EUR), making this 10,000 RMB budget more than twice the Chinese average monthly salary.
While they allocate a generous budget to shopping abroad, shopping is also kept for within China's borders, with a large portion transacted online. As mentioned above, China's online market is the biggest in the world overtaking the US one. Aside from Chinese consumers' passion for shopping, China benefits from a vast domestic distribution network enabling fast national deliveries and same or next day deliveries for top-tier cities (e.g. Beijing, Shanghai, Guangzhou and Shenzhen). These distribution networks facilitate ecommerce beautifully and help to make online purchasing incredibly common in China.
I've been living in China for quite some time now and I still am amazed how almost everything can be delivered to my place or office. In addition to having my groceries delivered, there are plenty of smartphone apps and websites to have my meals delivered including McDonalds or matcha tea. As a simple example: on the “let's eat healthy today” days, I can have fruits delivered which can be pre-washed and nicely cut for me. I could basically stay indoors and never go out.
Chinese Internet Giants
In the same way that the Western world has its ecommerce giants, so too does China. Where they have eBay, Facebook, Amazon, PayPal and Google; China has Baidu, Alibaba and Tencent collectively known by the acronym BAT. They can't be compared to the Western companies in ‘like for like' terms since the difference in technology, platform and capabilities make it too difficult to weigh one against the other equally.
- Baidu, whose name translates as ‘hundreds of times' is the Chinese most used Internet search engine. First launched in Beijing in 2000, Baidu includes so much more than Google's offer like an online music player, an encyclopaedia and their own marketplace.
- Alibaba is China's most prolific online retail platform, profiting from a diverse business model. They are known for putting worldwide sellers in direct contact with Chinese producers. Alibaba also owns the China widely used payment gateway Alipay (similar to PayPal) and the Taobao / TMall marketplace duo.
- Tencent is another of China's leading online and mobile market forces. Tencent is best known for their advances in social media platforms like QQ (similar to MSN Messenger) and WeChat. Tencent also have their own secure payment system called TenPay.
Baidu, Alibaba and Tencent provide the backbone for China's own ecommerce market. And since China is so unique in terms of market, they also have their own local online marketplaces.
China's online market leaders are Taobao, TMall and JD. You could loosely compare Taobao to eBay, and JD and TMall to Amazon. And despite product authenticity issues that made headlines in the past, Chinese ecommerce platforms have seen continued business success.
- Taobao, whose name translates as ‘a site searching for treasure' was founded by the Alibaba group and offers an ecommerce site not totally unlike eBay. As an exclusively Chinese C2C selling platform, almost anything can be found on Taobao; but since anyone with a valid Chinese ID can open a Taobao shop, it is not uncommon to run into fake products (sometimes quite fun though).
Chinese consumers are surprisingly quite picky when choosing products due to the long history they have dealing with frauds, and this applies also when choosing on which channel they purchase goods. So the success of TMall and JD platforms comes with no surprise, and here's why:
- TMall (China's most popular B2C platform) requires to own licences for the products sold, which is reducing fake products. Only companies can register for a shop on TMall since a business license is required during the registration process. Companies abroad who have not got a foothold in China yet can also create a TMall shop with TMall Global. TMall is also owned by Alibaba, this explains why users can end up on TMall shops when searching products on Taobao, but not the other way around.
- JD (JingDong) was launched in 2004 and soon expanded to selling a variety of electrical equipment, such as mobile phones and computers. JD is also a B2C platform and companies wanting to open a store on JD need to prove with official documents they own the brand and products, or are at least they need to show they are official distributors.
The case of WeChat
You've probably heard of WeChat even if you are abroad. If not, don't worry, here's all you need to know: WeChat is a social platform app launched in January 2011 with a simple messenger functionality just like WhatsApp. Quickly, features were added: QR codes scanning (you might think QR codes are dead, well think again as they are pretty well alive in China), personal timeline called “Moments” where friends can like and comments posts, calls and video calls, sticker shops, voice messages, WeChat pay, WeChat money transfers and short videos capture called “Sights”. WeChat has reached this year 600 million monthly active users and is probably the most used app in China.
Let's take a closer look at this WeChat pay function. WeChat is owned by Tencent so the payment tech behind it is actually TenPay. And to make sure TenPay's figures go up, WeChat does not allow Alibaba's babies like Alipay and TMall to be featured on its app. On the other hand, WeChat has increased their partnership with JD (no hard feelings Alibaba). Users can purchase goods online and in-store wherever allowed by merchants, but also pay for taxi rides and pay their utility bills directly from their WeChat wallet. So when I said earlier I could basically stay at my place without going out, well this doesn't really help me stretching my legs.
WeChat is also interesting for companies thanks to the 3 different accounts available: subscription account, service account and corporate account. Subscription account is the most basic one and is like a channel where users can follow brands' news. Service account is more advanced and appears on the app like a friend (with each message sent as a pushed notification) and allows brands to have a shop within WeChat referred as WeShop. Corporate account is for companies' internal use and is more focused on project management and internal communication.
What makes WeChat so unique is its “one format” where users have access to multiple services and features without leaving the app. With WeChat payments and brands have an m-Commerce presence on this app; WeChat definitely plays an important role in the ecommerce scene in China.
What about stand-alone ecommerce?
Although Chinese marketplaces take most of the Chinese ecommerce pie, a stand-alone ecommerce presence is yet incredibly important to have. This allows better control for online-to-offline strategies, new product inventories (vs new products to be approved by the marketplace, which can be a lengthy process) and design flexibility. However, launching a stand alone ecommerce it not without its challenges in China.
Something else China like to have different is payment means. While it is widely accepted in Western countries to use credit cards, Chinese consumers use their bank account information (with UnionPay more popular than Visa and MasterCard). Thus maximum security is highly appreciated. Alipay and TenPay offer payment gateway solutions that provide smooth and secure online transactions, directly linked to users' bank accounts – just like PayPal does.
The preference of Alipay or TenPay over PayPal in China is due to the number of free functions offered to account holders, such as buying bus tickets, topping up mobile credit and paying for products in-store, to name a few.
Hosting and loading speed:
Depending on their target market, businesses need to be selective which web host is best for them. Hosting a European based website while your target market is in China will cause access issues, ranging from lengthy loading times to ultimately poor user experience.
The ICP (Internet Content Provider License) was implemented in 2000 and works along with the nation's ‘great firewall of China' to enforce China's protective internet laws. Obtaining an ICP license is mandatory if you want to operate a website within China. Here‘s an article I wrote on this topic.
The #1 open source ecommerce platform of Magento accounts for most of the projects my agency works on. At IT Consultis, we're advocates of Magento (along with one-quarter of ecommerce sites) as it has a free community edition and a very good level of customization. Its numerous benefits include extensive SEO marketing options, easy to use plug-ins, teams of developers ensuring frequent updates, great security and the fact that it's constantly expanding to keep up with the growing demands of your company. On top of that, it can be plugged with third party systems such a WMS, including Chinese one. Last and most important of all for stand-alone e-Commerce in China: this platform can also be tailored to focus around China thanks to the incorporation of impressive design and tech modules.
I hope to have given you a clear picture of what's going online in China. When thinking of tackling the Chinese market, companies will need to choose more than one selling channel to make the most of their business endeavours. My biggest recommendation for anyone wanting to penetrate this giant market would be to get the right partner. At IT Consultis, we're the perfect partner for helping you understand the intricacies of China's online market and equipping your business with everything it needs to enjoy the varied financial fruits of Chinese ecommerce.
header image courtesy of Alex Tass