China vs. the West: Who's the Biggest Fish in E-Commerce?

  |  June 27, 2012   |  Comments

As the numbers continue to mount, and China continues growing its slice of the pie, retailers will have to start the process of figuring out how to succeed in China.

It's no secret that China is huge, but have you ever stopped to consider just how huge? And what does the country's exponentially expanding population mean for e-commerce?

According to an April 2012 report by The Boston Consulting Group, China is expected to account for almost 10 percent of all online retail sales by 2015, when it will become the largest online retail market in the world. In addition, the China Internet Information Center, a web portal authorized by the People's Republic of China, reports that online sales in China will reach $420 billion by 2015.

To break it down, in just three years from now, the world's most populous country will reach an Internet population of more than 700 million, which will nearly double the combined Internet population of Japan and the U.S.

That's a lot of people shopping online. So how do you capitalize on the giant potential in the East? First you have to begin an investigational journey into the culture and online shopping patterns of the Chinese people.

By all accounts, the Internet experience in China is vastly different from the one we know and navigate here in the West. Besides the obvious governmental regulations imposed on web users in the country, there is also the issue of complex diversity and culture within the country, a challenge that can't be met without extraordinary research and planning.

Also, having a local Chinese partner who is expert in your particular industry appears to be a non-negotiable must-have for firms looking to expand there.

But you don't have to take my word for it, just look at Groupon's failed attempt at cracking the Chinese market.

According to an article by Julia Q. Zhu, a leading expert on international e-commerce in China who formerly held multiple management positions for Alibaba Group, China's largest e-commerce company, Groupon made several mistakes that contributed to its failed expansion plans.

First, Groupon went into the country with a sense of arrogance that clashed violently with expected norms in the Chinese business world where Groupon's bold hiring practices and confident declarations came off all wrong.

Second, Groupon betrayed a complete lack of business acumen when it didn't pay heed to China's established group-buying environment and attempted to negotiate more typical Western sales deals with vendors.

The blunders, unfortunately, don't stop here. The group coupon giant continued down the wrong path when it disregarded the importance of the country's unique work culture and hired non-locals into management positions. This misstep quickly resulted in high employee turnover.

These examples highlight only a few of the many issues that must be figured out before entering into China's world of e-commerce. Even payment systems vary drastically from those, like eBay, that we are accustomed to here in the West.

Alipay, for example, the largest online payment system in the world, releases payments to vendors only after clients confirm they are satisfied. The company was created in direct response to the Chinese people's lack of trust.

A November 2011 article in The Economist revealed that, "Consumers worried (quite rationally) that online firms were fraudsters, or that their credit cards would be abused, or that purchases would get swapped for counterfeits during shipment."

With all of these known hurdles, it's perfectly understandable why more organizations aren't jumping to expand their business into China. However, for those companies looking to secure top spots in the world of e-commerce, the issue cannot continue to be put on the back burner.

But, as evidenced by its May 16 IPO filing, even Facebook is cautious when it comes to expanding its empire into China. The social network said, "We continue to evaluate entering China. However, this market has substantial legal and regulatory complexities that have prevented our entry into China to date."

Additionally, Facebook listed China as a factor that could affect the company's future performance.

"China is a large potential market for Facebook, but users are generally restricted from accessing Facebook from China. We do not know if we will be able to find an approach to managing content and information that will be acceptable to us and to the Chinese government."

As the numbers continue to mount, and China continues growing its slice of the pie, retailers will have to start the process of figuring out how to succeed in China. The consumer base of the country is staggering, and for those companies who are able to bridge the challenges that come along with doing business in China, including cultural differences and governmental regulations, there will continue to be opportunities of massive proportions.

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Aubrey Beck

Aubrey is director of content for Salted Stone, an award-winning boutique digital agency that drives increased revenue for clients by producing extraordinary websites, digital collateral, and search marketing campaigns.

Aubrey specializes in helping businesses engage with their clients and respective audience. She has experience working in a broad range of industries, including technology, e-commerce, licensing, marketing, and publishing.

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