1. The Backdrop

China, known as one of Asia’s rising global markets, is a One-Party Socialist Republic state spread amidst a diverse geographic topography in Southeastern Asia. It hosts the world’s greatest population of over 1.41 bn people in 2017, which is forecast to rise by a further 0.4% in 2018, covering an area of ~9.5 mn sq. km.

However, despite the expansive area of land, much of the inhabitancy is concentrated amongst key eastern

“big cities” such as Shanghai, Guangzhou, Beijing, Shenzhen etc., which stand at the fulcrum of economic

activity & international connectivity. Urban migration is a growing trend alongside steady economic development, with the GDP having risen from ~CNY 64.7 tn (~USD 10.4 tn) in 2014 to ~CNY 81.3 tn (~USD 12.0 tn) in 2017; it is expected to reach ~CNY 87.9 tn (~USD 13.3 tn) in 2018, at a year-on-year growth of more than 8%. Demographically the country encompasses a fair share of young blood, with a majority (78.4%) of people under 55 years of age amongst which ~48.5% are concentrated from 25-54. Unemployment is on a downward trend, taking a meagre dip from 4% in 2016 to 3.9% in 2017. Nevertheless, the after-shocks of the 1979 one-child policy cannot be overlooked, with rapidly ageing

population putting a strain on long-term resource consumption. The country is therefore leapfrogging into new trends and markets, which can fuel in greater growth. Most of these avenues are heavily rooted upon

digitalization, which translates into a significant internet user base of 55.7% that is growing by 3%. Traditional industries and practices are readily switching gears into the cyber world. In terms of performance, China ranks 36th globally on the Inclusive Internet Index, which outlines the current state of internet availability, affordability, relevance and readiness. A majority of the population is going online,

which is expected to reach 56% by 2018. However, there lies scope for greater e-penetration ahead, which may speed up amidst a friendly infrastructural and logistical framework.

Logistically, China ranks 26th on the LPI (Logistical Performance Index), reflecting a fairly efficient customs clearance process, trade and logistical services quality, as well as transport infrastructure. However, performance on the Ease of Doing Business and E-Governmental Development Indices can be further improved upon, which currently stand at 78th and 65th respectively. This can stem from incorporating a friendly regulatory environment that encourages new entrants, coupled with undertaking investments in telecommunications, human capital and provision of online services. This will facilitate the creation of a vibrant ecosystem that is well -equipped to embrace digital industries. On a macro level, the Chinese economy has seen a radical breakthrough into e-development, with a surge in online activity and platforms taking over day-to-day activities. People have also been quick to adopt such systems, with a majority using the internet for a variety of activities such as networking, news, search engines, entertainment, shopping, payment, travel etc. Out of these, internet messaging is the most popular, accounting for 720 mn e-users in 2017. At the same time, disruptive technological accelerators such as Artificial Intelligence (AI), Robotics etc. are changing the game behind proactive data management & usage, which is further streamlining e-activity.

2. A BUZZING ECOMMERCE LANDSCAPE

 The digitalization of retail activities has in-turn led to the development of the ecommerce market, which is well up & running in the Chinese landscape. People have turned to a host of online channels when it comes to making purchases, transacting on payment gateways, review platforms and troubleshooting avenues. The added ease & convenience of cyber transactions have given a significant edge to e-shopping, which will only embed further in the coming years.

E-Shopping on the Cards

China currently stands as one of the largest ecommerce markets in the world, with e-shopper penetration having increased by ~29% from 2015-17; the number of e-shoppers is further expected to cross 586 mn in 2018. Meanwhile, the average spending per shopper has also increased by 3.1% from 2015-17 (which is to reach ~USD 694.5 this year), with buyers using this platform to make a range of purchases from clothing to electronics, food & healthcare, travel, sports and more. Out of these, Daily Use Articles is the most popular product category as per 47.3% of Chinese consumers; this is closely followed by Apparel & Footwear and Computer & Accessories, at 46.5% and 41.3% respectively. E-frequency has also been quite active in this regard, with 70% of consumers have transacted 0-9 times, 22% over 10-20 times and 9% more than 20 times, over the last 3 months of 2017.

Buyers are largely going online due to greater ease & convenience in terms of booking, paying and getting goods delivered on time. For example, over 88% consumers prefer webshops that offer free delivery along with a wider range of delivery options. While a variety of players have cropped up to meet these needs, Alibaba leads the charts with a 58.2% share in aggregate online sales. Meanwhile, Chinese consumers also like to utilize a plethora of e-payment mechanisms, with online payment options such as Paypal/Amazon Pay etc. being the top rated choice by 80% of the lot. Reliance on e-payment mechanisms may further rise as more payment gateways are introduced into the market.

However, ecommerce is not merely being driven by online shopping. It is being led by a shift in the nature of shopping, coined as “New Retail.” This is routing towards not just an online or offline channel but an ominichannel platform that merges the best of both worlds. E-shopping ideally would have physical stores/inspection points, with customers taking the call of whether go online or offline.

M-Commerce Going Strong

Shopping online is further fueled by the expansive e-payment penetration in China, with 64% of the population preferring to pay via mobile (highest in the world). In fact, 40% of the population carries less than 100 RMB in cash, with mobile payments projected to generate a sales volume of USD 47 tn in 2019. A handful of holistic apps such as WeChat have gained significant prominence, with consumers (who have initially jumpstarted as mobile-natives) having integrated their day-to-day activities via the phone. Innovations such as live broadcasting shopping events, as well as large-scale QR code adoption by a range of merchants, has made m-commerce a thriving market. In terms of historical growth, the transaction volume of mobile payments has increased by a CAGR of ~176% from 2013-17, with JD.com being the largest player in m-shopping at a 50.2% market share. Meanwhile Alipay is the dominant payment gateway for cross-border shopping at retailers’ standalone Chinese websites (with a 53.7% share of mobile payments in 2017). It further strives to strengthen its share by joining hands with retailers down the line.

Being Social on Social Media

Consumers are not simply using their mobiles and other smart devices to pay but rather speak up about their experiences well. Social media ecommerce has gained quite an appeal in the Chinese market, with 60% of consumers using WeChat to make purchases in 2017. Inherently, the number of official WeChat accounts with ecommerce links has also hiked up by 68% from 2017-18, with a greater number of users joining the bandwagon. This includes sharing post-purchase experiences, with 60-70% consumers posting comments over online stores and/or sharing product feedback via WeChat & other social media channels. For players this means leveraging the platform to provide timely and buyer-friendly experiences, making such review pages a source of competitive advantage.

Stepping Cross Border

While a majority (57%) of Chinese consumers shop domestically, cross-border ecommerce volume has steadily increased at a CAGR of 26.8% from 2013-17, which is forecast to reach USD 1,281.3 bn by 2018. Around 33.5% of cross-border shopping is done 3-4 times a year, with a majority of the purchases being done via desktop/laptop/notebook (48%), driven by 30-year-old women who prefer to spend overseas on merchandize that is not available in China. Logistical speed becomes a significant issue here, with over 43% of consumers preferring delivery in less than 7 days.

While Chinese consumers do not readily engage in cross-border shopping out of choice, this market may nonetheless continue to drive up ecommerce. For example, China imports over USD 131 bn worth of goods from South Korea, which is closely followed by the US and Japan at USD 128 bn and USD 116 bn respectively. Transacting internationally will therefore increase the need for agile online platforms that ramp up efficiency.

Steady Market Prospects

All these drivers play well economically, with B2C ecommerce turnover having risen at a CAGR of 40.6% from 2015-17, which is to reach USD 600 bn in 2018. Meanwhile, E-GDP has increased from being ~3.2% in 2015 to 4.5% in 2018. These figures are on an increasing growth trajectory. The market dynamics also play well for the broader macro environment, with the number of employees

engaged in ecommerce increasing rapidly over the last 5 years to reach more than 28,000 heads in 2017. While some believe that the introduction of new technologies in this domain may eat off many human job profiles, Chinese consumers do not believe this to be a significant threat. Technological breakthroughs will complement human effort and lend an extra pair of hands, which becomes critical during an influx of seasonal demand. For example, Alibaba’s use of robotics alongside real workers during Single’s Day poses to be an effective strategy that curbs out the hike in orders.

3. Key Challenges

While the further dissemination of ecommerce in China is inevitable, it does come with strings attached. Players must be wary when designing their business models, keeping a tab on how well they are able to create an experience for their customers, putting security concerns at bay.

Balancing out Online and Offline Channels

While ominichannel has become the new trend, deriving the perfect blend between online and offline channels requires an intricate framework that feeds upon proactive data management. In today’s e-retail arena, having a plethora of data points that measures’ consumers logged and non-logged sessions become critical. This raw data is analyzed into meaningful information, in order to deduce reasonable conclusions about people’s past, present and future behaviors. Unfortunately, a lack of sound data availability continues to create obstacles for operating in the Chinese market, with players unable to understand the entire market and trends. Concurrently, the integration of online and offline

channels is even harder with there being no solution provider to cover the entire cycle of information. For organizations wishing to become comprehensive omnichannel gateways, revamping the entire internal structure becomes paramount, integrating processes from the top-down. Disruptive innovation must not be feared upon, but rather embraced in a timely manner.

Being wary of fraudulent Transactions & Markets

Cyber fraud has always been a looming concern over technological adoption, with ill-designed IT/IS architectures bearing the brunt. Given that a single incidence of unintended transaction/information leakage that compromises upon security can plunge consumer confidence down, players must continue to invest in good data practices and advanced authentication systems such as biometrics/AI that mitigate such risks. Meanwhile, firms in China also face a challenge when it comes to combatting fake products, which eventually erodes into profit margins. Many overseas businesses have responded to this threat by shifting their original sourcing points from destinations outside China – i.e. Hong Kong, which can bring in curious mainland customers who crave to buy exclusive goods, keeping

counterfeit goods at bay. Planning an optimal route is key here.

Thinking Local to go Global

One of the most crucial yet challenging tasks for carrying ecommerce forward in any market involves having a thorough understanding of the local market, before linking it electronically around the world. Often times there may be specific problems associated with a certain location that needs to be taken into account before designing any strategy. In China, this may be linked with understanding the reasons behind an 80% offline shopping rate, why downloading and installing dedicated apps seem to be a nuisance amongst local consumers, or looking over how linguistic barriers can be overcome to better connect with different origins. Players may also find it useful to bridge the gap by establishing presence on major social platforms such as WeChat and Weibo, creating a “teaser” to test the first contact and then undertake fragmented marketing to keep peoples’ interest levels in-tact. Meanwhile technological accelerators such as robots & drone delivery can also be brought into the picture; however, only after having a thorough understanding of what the local consumer demands and how he/she will react. Proactive local management can only take business global.

4. Way Forward

On a broader note, China’s plunge into technology – and particularly ecommerce – has been quiet intensive in comparison to other developed markets that took a gradual step forward. Chinese consumers can be tech-savvy, updated and readily willing to engage online – especially when it comes to mobile payments – with many having developed sound trust in the system. Nevertheless, e-tailers must be wary of understanding the broad consumer profile that is located in different parts of the country, and test the waters before undertaking a significant strategy. Alongside this, while innovations in big data analytics and AI will be also used to understand & forecast e-retail demand in the time to come, the mantra would be to embed the right thing at the right time, in line with local factors that stand against a global setting.

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