Alibaba, TaoBao, Tmall. Three little names with big pull. China’s e-commerce giants have successfully converted the world’s largest population into a nation of electronic shopaholics. Spearheaded by founder and executive chairman Jack Yun Ma, whose understanding of the market and consumer habits has marked him as one of our generation’s greatest innovators, Alibaba Group’s success continues to bloom in a market that caters to over a seventh of the world. Like the name’s origin, a user could hop online and with a click and secret password, enter a space ridden with treasures from all corners of the globe, all at alluringly low prices.

China’s e-commerce market started primarily as a platform to facilitate business-to-business trading, both domestically and internationally. In late 2003, Taobao emerged as an online shopping website operated by Alibaba Group — marking the genesis of the e-commerce industry in China (TUSIAD, 2015). The nascent e-commerce site served as a consumer-to-consumer market, bridging the gap between individuals looking to trade goods and services with each other via the convenience of the internet. The two-sided trading platform attracted large groups of buyers and sellers with incentives like free registration and commission-free trading — ultimately leading it to become the largest e-commerce market in China and even surpassing Walmart to become the largest retailer in the world after exceeding 3 trillion RMB ($485B) in annual tradings on April 2016.

With such brisk growth, how has the performance of e-commerce in China changed after over a decade? This article takes a closer look at the impact of e-commerce on the Chinese economy, the challenges faced and overcome by the industry, as well as its future prospects in the region.

Impact Towards Chinese Economy

How big? Meteoric. Just in 2016, there were 466.7 million online shoppers: the digital buyer penetration rate was nearly exceeding 50% of the total Chinese population. An astonishing sales record was broken at $17.8 billion during the November 11 Global Shopping Festival (Single Day Sales) in China by Alibaba, compared to nearly $100 million when the festival was first launched in 2009.

Despite the global economic slowdown in recent years, China has escaped from the headwinds with robust economic growth — mainly attributed to its growing middle class. The lingering aversion from the older generation towards online shopping has been dispelled with the air of confidence of a highly tech-savvy youth culture. With higher incomes than ever before but less time to spare in a fast-paced world, a new pattern of Chinese consumer spending has emerged: one not restricted by time or place, and where hunting for the best deal takes only a few clicks.

Small and Medium Enterprises (SME) in China have benefited from the emergence of e-commerce as more business opportunities are given to them (Qu & Chen, 2014). In contrast to the pre-internet era, SMEs in China faced monumental geological and logistical constraints that restricted them from marketing their products across a population of 1.3 billion people, spread over 3.7 million miles square of land. With the advent of e-commerce, SMEs now conduct business limitlessly within the potential domestic market. With logistical improvements leading to cheaper transportation costs, SMEs can continue to cater to the consumers’ demand for convenience, undeterred with overhead fees.

Besides contributing to the local consumers in China, e-commerce also plays a pivotal role in boosting exports trading to the region. In recent years, the volume of cross-border transactions have increased drastically as more foreign consumers from East and Southeast Asia are participating in the shopping frenzy taking place in the mainland, coaxed by word-of-mouth endorsements and great deals. Export trading is expected to evolve once barriers hindering cross-border exchanges are solved, opening up opportunities for SMEs to expand their businesses internationally.

Challenges in the E-Commerce Market

As good as it sounds thus far, some challenges remain that continue to hinder the development of Chinese e-commerce. The short and long-term implications of these obstacles, should they be left to brew, may threaten the very foundations of the market itself.

A recent survey from Baymard.com shows that 68% of the time, shoppers abandon their digital shopping cart. Despite the near seamless process of internet shopping, the payment process still proves to be a hitch, particularly when local payment options are unavailable to buyers overseas. Identifying the source of their hesitation, market giants have introduced innovations like Alipay (Alibaba) and Tenpay (Tencent) to convince fence-sitters to stop chickening out at the checkout. Centralized, effective, and above all user-friendly, these digital payment options continue to prove their worth to both sellers and buyers.

The vastness of the internet has allowed many businesses to flourish – but this freedom comes with its own negatives, one being the abundance of scams and cybercrime. Without the ability to appraise the quality of the object and to verify the authenticity of the retailers, many remain wary of online shopping. According to this 2017 survey, carried out by the Centre for International Governance Innovation, 49% of those surveyed cite a ‘lack of trust’ as a key reason for their aversion. Poorly designed sites, ad bombardments, offers that sound too good to be true, and the powerful stigma attached to ‘Made in China’ labels all check the sceptics’ boxes. The Chinese government, sensitized to the nation’s image as it becomes increasingly enmeshed in globalisation, have begun implementing stricter regulative policies at the production level to raise the quality of locally-made goods.

As the use of smartphones begin spreading to even the furthest provinces of the nation, more consumers are beginning to shop through the mobile screen rather than their desktops. Having the world’s market at their fingertips has motivated consumers to shop even more – China Internet Watch reported mobile shopping accounted for 80.4% of total transactions.

However, marketers face the significant challenge of developing attractive and easy-to-use mobile apps that facilitate these transactions. Keeping the apps up to date, secure, and error-free requires time and substantial expertise from app developers. Should marketers fail to foresee the expected increase in expenditure for creating apps, an opportunity would have been lost and the e-commerce market would experience stunted growth.

Producers face a hard time determining the demand for a certain product due to the volatility of online demand and the elasticity of prices due to the increase in competitors (Deloitte, 2017). This will lead to either a shortage or a surplus of products, each of which is not only a disadvantage to the producers and consumers, but also to the economy as a whole. Inefficiencies caused by this incurs a heavy price — that is, the unnecessary increase of product prices and a decrease in consumer and producer surplus.

Future of China’s E-Commerce Market

Technology has altered consumer-retailer interactions forever. As mentioned earlier, Alipay is among the largest online mobile payment platform, both online and offline (Alipay can be used in storefront retailing as well). As e-commerce in China expands into the local retail market, cashless payment has gradually become a common phenomenon in day-to-day transaction by utilizing the Alipay service — bleeding daily and virtual reality together.

Facing fierce competition in the e-commerce sector, businesses are constantly striving to outdo one another to court customers, sometimes striking up ingenious solutions and innovations. Amazon, for example, is in progress of realising the idea of drone delivery which could revolutionize shipping for decades to come. If drone delivery experimentation in US prove to be successful, there is no doubt that China’s highly advanced technological environment will propose a similar, if not a better delivery method in little time. Alipay continues to lead the show in cybersecurity — protecting buyers from fraud and identity theft by monitoring every transaction and utilizing the best encryption technology in securing their user’s financial information.

With the success of AI systems being implemented in the financial field to carry out tasks such as trading stocks, the next big step for e-commerce will be the application of AI systems in the e-commerce sector. Evolutionary algorithms are constantly being designed by IT experts to bring the e-commerce user experience to the next level. It is not inconceivable that in the near future, the Chinese market could be ready to introduce an AI personal shopper — one who combs through users’ purchase history, preferences and seasonal trends to curate a feed tailored to their tastes.

Conclusion

There is no denying that the common perception of markets and sellers will shift tremendously towards a more digitalised economy as time marches on. The problems that e-commerce faces right now will ultimately be solved, if handled deftly by a generation of digital youths taking over the global economy. Perhaps the only real question left is whether to completely forgo the old ways in favour of the new. Face-to-face trading has been carried out for millennia, and has become ingrained in every human culture in the world. Gods and charms that protect and dispense prosperity, the ebb and flow of a busy marketplace in the heart of a city, and even the simple handshake when a deal is agreed upon — these are all symbols of civilization rooted in trade and commerce. Is the advent of the information age then a sign that we are losing the human touch and personal connection that brings us closer together not only mentally, but also physically?

That should be left to the people to decide for themselves, and of course, to the universal law in which the economy runs: that of supply and demand.

Prepared by:
Researchers – Chong Ker Sun, Wong Zi Heng, Lee Yang Ler
Editor – Lee Bao Jin

Download the article here:

Emergence-of-Chinas-E-Commerce.pdf
References
  1. TUSIAD, 2015, China’s E-commerce Sector, China Business Insider. http://www.taysad.org.tr/uploads/dosyalar/16-10-2015-09-16-201509-E-commerce-in-China.pdf
  2. Qu, Lili and Chen, Yan, 2014,”The Impact of e-commerce on China’s Economic Growth”. WHICEB 2014. http://aisel.aisnet.org/cgi/viewcontent.cgi?article=1000&context=whiceb2014
  3. Deloitte, 2017, China E-Retail Market Report 2016. https://www2.deloitte.com/content/dam/Deloitte/cn/Documents/cip/deloitte-cn-cip-china-online-retail-market-report-en-170123.pdf