China is the next eCommerce giant [Study]

China is set to overtake the US as the world’s largest ecommerce market by 2015. That’s according to research from the Boston Consulting Group (BCG), a firm that specialises in advising on business strategy.

The company bases this assertion on the phenomenal levels of growth the Chinese ecommerce sector has seen in the past few years.

BCG estimates that around 145-million (30 or so percent) of China’s 500-million strong internet population currently shop online.

This is up from less than 10% in 2006 and 23% in 2010. BGC expects the 2010 numbers to more than double by 2015, meaning that 44% of China’s online population will use ecommerce.

The company reckons, however, that people from other markets are failing to use this potential ecommerce boom to their advantage. This, it says, is down to the fact that “they’re allowing merchants that sell on Chinese shopping marketplace giant Taobao.com, as well as other ecommerce companies, to shape consumer perception and the market overall”.

“Consumerism is already big in China—people simply love to shop. But China is unusual in that Internet access has far outpaced the reach of the top physical retailers, which means that ecommerce development probably will not mirror the pattern in other countries,” said Waldemar Jap, a Hong Kong-based partner at BCG.

“Companies that want to compete will not only have to understand how Taobao and others may already be shaping their online presence but they will also have to engage consumers via multiple online — and offline — channels.”

According to BGC one of the reasons that companies have failed to capitalise on the Chinese ecommerce market is down to the fact that it is fundamentally different to other operations around the world.

BGC outlines five factors it thinks makes the Chinese ecommerce market different to others around the globe:

1. Up to a quarter of e-commerce demand in China is for products consumers cannot find in physical stores—a circumstance unique to China, where the immensity of the country limits the coverage of physical retailers. In fact, there are many consumers, especially the younger ones, whose first contact with a brand or type of product occurs on the Internet.
2. The relationship between search engines and retail sites is different in China. In most markets, shopping begins with a Google search. In China, online retailing marketplace Taobao.com blocks the spider of the top search engine, Baidu.com. Therefore, most shoppers start their search within Taobao, which accounted for nearly 80 percent of e-commerce volume as of 2010. “Chinese shoppers are developing the habit of not relying on search engines to find products online,” said Jeff Walters, a Beijing-based principal at BCG and coauthor of the report.
3. Largely because of consumer wariness and distrust of merchants, Chinese consumers are the most likely in the world to check for product recommendations on social networking sites. Forty percent of online consumers in China say they’ve read and posted reviews—more than double the rate in the United States. Conversely, only 19 percent of consumers in China go to official brand or manufacturer sites, compared with 41 to 60 percent in Japan, the United States, and the European Union.
4. China’s shoppers are increasingly not just looking for discounted products as they shop online. Today they are also concerned with finding unique products that are not available offline, better customer service, convenience, and the pure fun of the discovery process that happens online.
5. The concentration of the Chinese e-commerce market by category is much lower than in other countries, with the top-five categories only accounting for half of the total market (while in the United States, Japan, and the United Kingdom, that ratio is nearly 70 percent).

According to Hubert Hsu, a Hong Kong-based senior partner at BCG, any company looking to do well in the Chinese market has to “fulfill the emotional needs of China’s super-heavy spenders”.

“Given the strong emotional ties consumers in China have with shopping, it will be critical to engage them with value propositions beyond mere price savings—for example, by creating a fun shopping experience or by appealing to trend-conscious consumers’ sense of discovery by making them feel they are learning something new in the shopping process”.