The number of Chinese consumers buying online via foreign websites is steadily increasing. According to Chinese online shopping giant Alibaba, cross-border e-commerce in China will account for revenues of approximately 156.6 billion euro by 2018. Recent market research by Nielsen confirms that more than one in three Chinese people regularly purchase products from foreign websites.
This significant growth is due to a number of reasons. For one, China’s middle class continues to grow, meaning that more and more consumers have a larger disposable income. Other factors include the growing number of payment options available and an increasing interest from Chinese consumers in what the rest of the world has to offer. Finally, guarantees of competitive pricing and product authenticity also provide Chinese consumers with reasons to shop more often via foreign webshops. As such, there is great potential for foreign e-tailers to take on the Chinese market. However, e-tailers should be well aware of the challenges and limitations of the Chinese e-commerce market.
A market not without obstacles
One of the main hurdles to overcome is that credit card use is much less prevalent in China than in Europe. Chinese consumers may find their way to foreign sites without much difficulty, but checking out remains a point where many are forced to abandon the transaction because they don’t have an accepted payment card. On the plus side, the number of international credit cards being used is steadily growing, especially among young trendsetters. In order to avoid the payment barrier, many overseas e-tailers are opting to operate through Taobao, which is the Chinese version of eBay and a part of Alibaba. Both private sellers and retailers can use the site to sell new and used products via their own website. Taobao offers payment options to international e-commerce businesses, allowing Chinese consumers to pay foreign e-tailers via their Alipay accounts.
Foreign e-tailers seeking a place in the Chinese market should bear in mind that it’s no easy task to gain the trust of Chinese consumers without a targeted marketing campaign. Organizations must be prepared to make long-term investments in the organic creation of brand awareness in China. Having a strong brand in the U.S. or Europe is no guarantee of success in China.
A wise first step is to gain proper insight into Chinese consumer behavior. Chinese e-shoppers typically have limited trust in brands, are sensitive to pricing and use their smartphones a lot to seek out and finalize their online purchases. On average, they visit two to three e-shops before making their purchase, always on the lookout for the best deal. More than 60% of Chinese consumers use their smartphone to shop online. Those with higher incomes use their smartphones even more, with the number rising to 75%. Social media also has a significant impact on purchasing behavior. Much more than in other parts of the world, Chinese shoppers immediately seek out purchasing advice online.
Finally, we would like to share a few important success factors. The main ones are undoubtedly the establishment of economies of scale and an extensive range of products. Economies of scale will ultimately allow for lower retail prices, while having a wide range of products will make it possible for e-tailers to attract more visitors to their e-shop. Market leaders often start out with the popular, price-sensitive product categories before quickly and extensively expanding their range. They keep a close eye on the browsing behavior of consumers and are quick to respond to what they learn. It’s also important to invest sufficiently in marketing and to ensure that reserve capital is available to balance the losses that inevitably come with establishing economies of scale. E-tailers that opt not to lead with a wide product range would do best to develop attractively priced offerings catered to very specific target groups (e.g., high-end fashion or “mother and child”). By focusing on this strategy and offering attractive prices, specialist e-tailers are able to stand out from the crowd.
Be prepared from the get-go
Careful consideration should be given to the business model and the organization of the supply chain. The vastness of the country creates a challenge for many businesses in this regard. Establishing a logistics network with sufficient coverage demands especially high investments that should be taken into account from the start. Many foreign e-tailers find it difficult to get a foothold in China for this reason. Without a strong logistics network in place, e-tailers cannot guarantee their customers a flawless returns service, which can damage the trust of Chinese shoppers in your brand.
Those wishing to bolster their chances of success must keep their finger on the pulse of China’s fast-evolving e-commerce market. There’s no doubt as to the potential of this market, but those taking the plunge have to be prepared to invest time and resources in making sure they can respond to the needs and wishes of Chinese consumers. So, before you make the leap, it’s important to check whether your business is ready.
As a leading seller of cross-border parcel services, Landmark Global has broad-ranging experience in supporting international e-commerce activities. Furthermore, our knowledge and experience in the Chinese market makes us the perfect logistics partner to make sure you hit the ground running in this gigantic e-commerce market.
 Source: Bain & Company: China’s e-Commerce Prize