On the 11th November, in celebration of Single’s Day, Chinese e-commerce giant Alibaba generated $14.3 billion in sales in just 24 hours. The rise of e-commerce in China is a telling sign of what is to come in emerging economies and has triggered an investment wave in India, SE Asia, Latin America, and Africa. Developing countries, characterized by weak existing economic, political, and legal institutions, are ripe in e-commerce opportunities. Modern online shopping behaviours in China have been shaped by the country’s landscape, namely inefficient payment structures, lack of widespread use of credit cards, and poor logistic infrastructure. Despite the fact that less than half of the Chinese population is still offline, e-commerce is predicted to reach over 1/5th of total retail sales by 2020.
In this article, we examine the social and economic trends that continue to characterize the world’s largest e-commerce market.
China’s e-retailers leapfrog the US e-commerce market
In 2016, China’s online sales surpassed those of the United States, with more than 450 million online shoppers generating $750 billion for the year. It is estimated that by 2020, China’s online shoppers will make up almost two-thirds of the world’s online sales (source: eMarketer). E-commerce giant Alibaba has pioneered a revolution that has given rise to a surge in innovative business models and has seen household names like eBay flounder in this unchartered market.
Homegrown giants Tmall and JD enjoy an overwhelming market share, partly due to failings on behalf of Western e-commerce providers to understand and tailor their platforms to the local market. US companies such as eBay or Amazon found success in a high-trust environment where consumers and companies enjoyed secure, widely available payment systems, well-known offline brands that moved into the online space, and deep-rooted trust in a legal system that would take care of them if anything should go array. As such, they neglected to adapt fully to the different needs of the local Chinese consumer market.
From rice cultivation to rating systems: the cultural importance of social
One striking difference between e-commerce platforms in China compared with Western counterparts is their inherent social aspect. One plausible theory that explains these cultural differences stems from farming practices: whereas wheat farming relies on rain for irrigation and therefore does not require any meaningful collaboration between neighbouring farmers, rice cultivation relies on standing water, which requires farmers in rice regions to work closely together to succeed in building effective irrigation systems, forming tightly knit communities. Far-fetched though it may seem at first, researchers have also found cultural differences on a national level between the rice-farming South and wheat-farming North of China. These cultural differences prevailed in cities, suggesting that cultural traits linger over the centuries from ancestors whose farming activities centred around wheat-farming or cultivating rice.
This group-focused legacy seems to permeate across all facets of e-commerce, for example:
- Chinese consumers are more likely to leave reviews or recommendations on products, and rating systems for e-commerce platforms here are more detailed and gamified than on Western counterparts;
- WeChat is so much more than a Chinese answer to Facebook: it’s an entire ecosystem of community, commerce and content;
- Taobao allows sellers to set up their own clubs and organise meet-ups. Alibaba members can nominate sellers for awards and communities would vote for their favourite nominees.
A focus on social offerings is part of what drove Taobao’s enormous success. Taobao leapt from a 7% market share to 83% in just a few years, and caused eBay to withdraw from the Chinese market. While a high-trust environment helped shape the rise of e-commerce platforms in the West, a low-trust society like China’s would need a bigger nudge to convince shoppers to make the purchase. Taobao responded enthusiastically to this need, offering for instance a detailed ratings system that helps potential buyers to differentiate between merchants. Ratings are given on a much wider range of factors, including accuracy of product descriptions and pleasantness of service and sellers can also give ratings to buyers. All these scores are fed into an overall scale from hearts, to diamonds, to blue crowns, to red crowns.
Unlike eBay, Taobao also enables real time communication between buyers and sellers through an online chat function: AliWangWang. It helps buyers get to know sellers and their products and allowed for a strong Chinese tradition: haggling.
Several other factors also contributed to its success.
First, by allowing third party merchants to create customisable, interactive online storefronts, Taobao effectively facilitated the creation of dynamic micro-sites. This was so effective that many merchants included their Taobao URL on their business cards. Taobao therefore evolved its business model by being seller-centric, as opposed to product or customer-centric.
Second, Chinese shoppers are more attracted by visual stimulation and colourful, exciting online design. This is a far cry from the minimalistic, Scandinavian-feel trending in Europe or America. Visually, websites that appeal to Chinese consumers are more colourful, with a higher concentration of links and tricks to engage the eye and draw attention.
The future of e-commerce activity in China
E-commerce platforms in China are social animals. Social media continues to have a profound impact on online purchasing behaviour. Users that initiated their online purchases on WeChat more than doubled from last year (15% to 31%, source: McKinsey). 91% of the online population in China has a social media account, and almost half of social media users are interested in products shared by friends on social networking sites. And it’s not just real-time communications: brands are using video, games, and other entertainment approaches to entice consumers into making purchases.E-commerce platforms in China are social animals. Social media continues to have a profound impact on online purchasing behaviour. Users that initiated their online purchases on WeChat more than doubled from last year (15% to 31%, source: McKinsey). 91% of the online population in China has a social media account, and almost half of social media users are interested in products shared by friends on social networking sites. And it’s not just real-time communications: brands are using video, games, and other entertainment approaches to entice consumers into making purchases.
A recent study has revealed that even though consumers in low and middle-tier consumers are outspending those in high-tier cities, there is still tremendous potential for more online sales. This is partly being driven by increased investment in reliable infrastructure, facilitating access to more rural areas. Some 160 million people in low-tier cities who use online services have yet to begin shopping online. That’s nearly as many people as the number of online shoppers in high-tier cities today.
The boom of e-commerce in China is a telling tale of what is to come in emerging economies, but it hasn’t finished yet. Homegrown and international brands can still do much to adapt to the increasing expectations of the online Chinese shopper.
About the Author
Manuela leads the Marketing division at IMS, advising clients on branding and market positioning in both Europe and Asia.
Prior to joining IMS, Manuela worked in financial regulation and compliance. Past experiences include representing France in roundtable discussions in Brussels for the European Venture Capital Fund (EuVECA) Regulation.
She obtained her LL.B (Hons) at UCL before graduating from Sciences-Po, Paris, with a Master’s in Financial Regulation.
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