There’s little doubt that the Chinese market has an enormous opportunity for ecommerce. But there are many things retailers should consider as they embark on breaking into it.
Online shopping is also driven by contours of the Chinese market. The vast majority of Chinese citizens reside in lower-tier cities, which lack access to top-tier retail outlets. The rapid proliferation of mobile and Internet in these lower-tier cities has presented ecommerce retailers with a rich opportunity to meet the demand for consumer goods in the lower-tier cities and enable mainland Chinese consumers to buy foreign products that would not otherwise be available.
There are risk factors, however. While 81 percent of online buyers in the U.S. have completed their purchase using a credit card, China is underdeveloped relative to other geographies when it comes to ecommerce-transaction security and credit card use. Cash on Delivery remains one of the leading online payment types in China and is frequently the first option listed at leading online retailers. The most prominent ecommerce sites, such as TaoBao, a virtual shopping mall, use an online payment system that holds customer payments until the purchases receives the product and is satisfied. Commerce sites that require credit cards also typically charge fees of anywhere from 5 to 10 percent, raising costs for consumers.
According to Forrester, a large percentage of online orders are delivered by courier in the large metropolitan areas. Although these are low-cost, delivery times are not always guaranteed and can be erratic. Since a significant percentage of China’s population lives outside urban areas in lower-tier cities, the courier delivery system is not always feasible and many cities lack the logistics and supply chains to make products available locally. Successful ecommerce will require efficient means to house and deliver products across the country.
Many companies will also experience complications when setting up shop in China because of an extensive government bureaucracy that is difficult to navigate. The Chinese government exerts significant control over market practices and policies, and the ability to obtain the necessary approvals is often based on relationships with government officials and entities. It is extremely important to build and maintain well-established government relations.
Looking out over the next decade or two, the Chinese middle class is expected to wield enormous spending power as it reaches 600-800 million people, with a disposable income of more than $2.7 trillion. As the recovery of the U.S. economy continues to stagnate, the days of unbridled consumer spending in the U.S. are all but gone. Although establishing operations in China differs greatly from the U.S, China’s ecommerce opportunity is so great and well worth the upfront investment in time to better understand the marketplace and learn from others who have paved the way.
Karen Jackson is a vice president at Acquity Group, an ecommerce and digital marketing firm.
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