E-Commerce In China Will Pass America By Around 2015

THis article points to what we've been speaking about in class. We've put a lot of energy around how mobile/ecommerce will take off in the US, but paid little attention to how the demand in china is actually going to eclipse the US. I think while we may be thinking about amazon.com , there may be opportunities partner with the alibaba and the china 'ebay' in ways that may look to the future.



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“E-Commerce in China may surpass America by 2015,” scream the headlines based on BCG’s
new e-commerce report (below). 2014, 2015, 2016, or 2017–the exact year doesn’t matter. The point is it will happen, and soon. Here’s why.
The Demographic Tidal Wave
Sheer size is a large part of story. It’s also been covered to death–every foreign executive’s eyes glaze over with dollar signs when they think of selling widgets to China’s 1.3 billion.
Still, BCG does a skillful job of presenting it: by the numbers, China has added the entire population of France in Internet users each of the last four years, and will add the entire population of Canada as e-shoppers in each of the next four. All told, China will rise from 145 million e-shoppers today, to 329 million (!) by 2015.


“E-Commerce in China may surpass America by 2015,” scream the headlines based on BCG’s new e-commerce report (below). 2014, 2015, 2016, or 2017–the exact year doesn’t matter. The point is it will happen, and soon. Here’s why.
The Demographic Tidal Wave
Sheer size is a large part of story. It’s also been covered to death–every foreign executive’s eyes glaze over with dollar signs when they think of selling widgets to China’s 1.3 billion.
Still, BCG does a skillful job of presenting it: by the numbers, China has added the entire population of France in Internet users each of the last four years, and will add the entire population of Canada as e-shoppers in each of the next four. All told, China will rise from 145 million e-shoppers today, to 329 million (!) by 2015.
But size is not everything. E-commerce will also become bigger in China than America because of the unique environment.
1) The Limited Reach of Break and Mortar
“China is the first major nation in history to develop e-commerce before establishing a robust physical retail network,” said Jeff Walters, principal at BCG. “More products were purchased on Taobao in 2010 than at China’s top 5 brick-and-mortar retailers combined.”
In the rest of the world, the situation is dramatically reversed. Amazon had $34 billion in revenue in 2010. Wal-Mart? $405 billion. That’s why venture capitalist Hurst Lin of DCM says e-commerce is the Wal-Mart of China.
Many Chinese consumers are ‘leapfrogging’ retail stores for the web:
“Many consumers, especially in lower-tier cities and rural areas, began using mobile phones before landlines, thereby building up the habit of turning to their phones not just for communication but a also for entertainment and other activities that previously would have required a dial-up connection on a personal computer. Consumerism in China could develop similarly, skipping the usual stages of retail development and arriving directly at a heavy reliance on e-commerce–a pattern completely different from the experience of other developed countries.” [BCG report]
2) Better Selection, Better Bargains
These two factors are not unique to e-commerce in China, but they are amplified. Shoppers in top-tier cities often buy online because retailers don’t have the international products they want. Shoppers in lower-tier cities turn to e-commerce because, well, retailers don’t exist or don’t have the domestic products they want either. This is up to one-quarter of total demand.
And China takes bargains to the max. For all the crying I hear about how inefficient logistics is in China, it is certainly fast and cheap. “It costs $1 on average to ship a 1-kilogram parcel, versus $6 in the US,” writes BCG. I just paid 20 RMB for an overnight parcel from Beijing to Shanghai via Shunfeng Express. I think the same service San Francisco to Los Angeles would be more like $20 via USPS, so 6x sounds right.
Moreover, China does not have a ‘brand outlet’ channel, so many brands–especially apparel retailers–use Taobao as a channel for excess inventory. And that’s on top of what’s smuggled out of the Chinese factories through the back door.
Over half of Chinese shoppers would price comparison shop on their mobile phone, far higher than the other developed nations BCG sampled. Maybe I’ve become Chinese, because I share the constant feeling that I’m being ripped off when I’m in a retail store. And, compared to online prices, I usually am.
In the US, the joke is that Best Buy is the showroom for Amazon.com. In China, Best Buy is already dead and I think 360buy will also eat the lunch of Gome and Suning going forward, despite their attempts to also move online.
I sometimes wonder if Chinese e-shoppers aren’t being spoiled by price wars, delivery services, and an e-commerce bubble that is bound to pop. But then I move on and enjoy another order on 360buy.
3) Greater Consumer Trust
The single best sign of consumer trust, which BCG doesn’t mention in this section of its report, is that true brands are being built online. See VANCL (youth apparel) and La Miu (lingerie).
Even Taobao, traditionally the place you go to buy cheap shit, is making strides at boosting its image. It’s getting more and more brands to sign up its TMall B2C platform through a mixture of charm and coercion (if you don’t join, consumers will search and find ‘your brand products’ on Taobao anyway…).
And, there are entrepreneurs building brands on Taobao too. If you counted branded shops like OSA, Hstyle, and Yi Yi independently from Taobao, they would probably rank among China’s top e-commerce sites in their verticals. Such online-only brands in fashion are virtually unheard of in America.
So yes, China’s e-commerce market will surpass America’s soon. But don’t envision America with quadruple the population and a funny language, and think you understand what’s happening here.