China’s E-Commerce Market

China’sE-Commerce Market

China’sE-Commerce Market

Theinformation age and the digital era are considered as revolutionsthat have affected all aspects of human life, including the way inwhich people conduct business. One of the significant changes thathave been experienced in the digital era include a transformation ineconomic relations between individual consumers, the government, andcorporations, which has resulted in the development of e-commerce (Shahriari, Shahriari &amp Gheiji, 2015). E-commerce is defined astrade in services and products, which is facilitated by the internet(Shahriari, Shahriari &amp Gheiji, 2015). E-commerce is preferred bya large number of internet users because it is more convenient andtime-saving. This paper will focus on the development of China’se-commerce market, with a focus on its history, stakeholdersinvolved, main players, and its future.

Historyof China’s E-commerce

TheChinese e-commerce has been growing steadily for the last twodecades. It is estimated that initial e-commerce websites weredeveloped in China around 1997 (Mengti, 2011). By the end of the year1999, the major e-commerce websites (including Alibaba, Dangdang, andTaobao) that are presently known worldwide had been developed. Therate at which these websites have been growing is influenced by twofactors, namely the speed of internet penetration and the generaleconomic growth. For example, the growth of the e-commerce websiteswas reduced significantly by the backdrop of the internet burst thatwas experienced between 2000 and 2002 (Mengti, 2011). However, trendsindicate that cases of economic crisis favor the growth of theChina’s e-commerce market. For example, most of the medium andsmall enterprises in China were converted to e-commerce serviceproviders during the global financial crisis, 2008-2009 (Mengti,2011). This trend is explained by the fact that a shrink in domesticdemand created the need for businesses to expand their geographicalcoverage by exploiting opportunities provided by the virtual world.

Theperiod between 1993 and 1997 is considered as the embryonic stage inthe development of the e-commerce market in China. During thisperiod, the government initiated the Three Gold Project to enhancethe penetration of technology and establishment of IT infrastructurein the Chinese market (European Business Confederation, 2015). Thiswas followed by the development stage that took place between 1997and 2000, when initial e-commerce websites were developed. Thisperiod was characterized by an increase in the development of onlinebased solutions (such as online tax payment platforms, e-governmentservices, online education, and online registration of companies)that motivated entrepreneurs to offer customers technology-basedservices. The market entered the stable or sustainable developmentphase between 2000 and 2009, when the B2B became the dominant modelon which the majority of the e-commerce companies were based (EBC,2015). Since then, the e-commerce market has stabilized and the mainfocus has been to reach the rural areas

Stakeholdersinvolved in the development of China’s e-commerce

Theprocess of developing the e-commerce in China has been supported bymany stakeholders, but four of them have played the most criticalroles. The first player is the government, which has expressed itsinterest in creating laws and policies, as well as providingfinancial support to ensure that Chinese can conveniently transact one-commerce platforms. For example, the government established apartnership with the China’s leading e-commerce website, Alibaba,in the year 2015. The purpose of this partnership is to help morecitizens living in more than 300 rural areas access e-commerceplatforms (Jielan, 2016).

Thesecond category of the players in China’s e-commerce market is theinternet service providers. E-commerce is a trade that is conductedin the virtual world, with the help of the computers or electronicdevices (such as smart phones) that are connected by the internet.The efforts applied by China’s internet service providers(including China Telecom and China Unicom) to connect more citizenshave created an opportunity for businesses to reach more customersonline. Studies show that the internet service providers had reachedabout 359 million citizens by the year 2009, with the number ofChinese who can access the internet expected to more than doublewithin a single decade (Mengti, 2011). This growth in internetpenetration has expanded the potential e-market in China at anexponential rate.

Thethird category of players in the development of China’s e-commercemarket is the retail companies that have agreed to take advantage ofthe high rate of internet penetration to merchandise their products.More than 100 large e-commerce companies and able to cover more thanhalf of the Chinese urban areas and enter the international market,which indicates that the e-commerce firms have played a critical rolein advancing the online trade (Kearney, 2015).

Lastly,consumers in China have been willing to change their traditionalshopping habits and adopt online-based purchasing practices. Studieshave shown that about 150 million Chinese do their shopping online,which has created a large customer base on which e-commerce marketcan flourish (Kearney, 2015). The concerted effort and contributionmade by each of the stakeholders made the China’s e-commerce one ofthe largest virtual markets in the world.

WhereChina’s e-commerce market is at the moment

Thegrowth of China’s e-commerce market is characterized by anexponential increase in the number of internet users, entry of newonline vendors, and the government’s interest in the sector. Thishas created a favorable environment for e-commerce sector to keep ongrowing. It is estimated that the Chinese consumers purchased goodsworth 3.877 trillion Yuan, which is equivalent of $ 589.61 billion in2015 (Tong, 2016). This number represented a 33.3 % annual growth inthe size of revenue that is generated from e-commerce trade. The samedata also indicated that over 500 traders had joined the onlinemarket by early 2016, which represented a 33.6 % increase in thenumber of online sellers from the previous year (Tong, 2016). Today,about 668 million citizens can access internet services from theirresidential areas, while about 89 % of them have devices that canhelp them access websites, including the e-commerce sites (Tong,2016).

Althoughtrends indicate that e-commerce have been growing exponentially inChina, it is evidence that there is a disproportionate expansion ofthe market in favor of the urban areas, especially the large cities. From Figure 1, the city of Guang Dong has the largest number ofe-commerce participants (24.9 %), followed by Zhe Jiang and Shanghaiwith 14.8 % and 14.2 % of all national e-commerce participantsrespectively (Tong, 2016).

Figure1: Growth in e-commerce trade in urban areas

Source:Mengti (2011)

Fromfigure 1, most of the e-commerce business takes place in the cities,which indicates that there is a room for growth in the rural areas.Most of commercial activities taking place in the rural areas areagricultural-based, which means that encouraging the sale ofagricultural produce on online platforms is the easiest way topenetrate the untapped rural market. Over 186 million internet userslive outside the Chinese main cities, but 60 % of them have neverdone even a single online transaction, which is an indication of alarge market that is yet to be tapped (Tong, 2016). In 2015, about5.76 billion worth of fresh agricultural produce was sold online,which is a 50 % growth in a period of three years. This growthsuggests that the stakeholders in the e-commerce market arecontinually discovering the potential of the rural market.

Therange of products sold online has grown over the years. Currently,there are about 14 categories of products that are sold on a dailybasis. The first three categories of products include garments,books, and visual cards, representing 27.9 %, 16.6 %, and 11.9 % ofall goods that are traded online respectively (Mengti, 2011).

Figure2: The range of products sold online in China’s e-commerce market

Source:Mengti (2011)

Mainplayers in the current e-commerce in China

Manycompanies have joined the China’s e-commerce market since the late1990s, but a large number of them collapsed since they could notwithstand the stiff competition. Currently, Alibaba is the dominantplayer in the market, representing about 38.5 % of the nationalmarket share (EBC, 2015). Alibaba is followed by mysteel.com (8.0 %),globalsources.com (6.7 %), HC360.com (5.4 %), DHgate (4.2 %), csc86(2.8 %), made-in-china (1.3 %), china.globalmarket (0.7 %), and acombination of small companies that take up about 32.4 % of themarket share as shown in Figure 3 (EBC, 2015).

Figure3: Market share of different players in China’s e-commerce market

Source:EBC (2015)

Alibabahas become a dominant player in the market because of its capacity toadjust to emerging challenges and provide services that address theneeds of a diverse clientele.

Barriersto the growth of the e-commerce market

Thereare many factors that tend to hinder a rapid expansion of thee-commerce market in China, but three of them are the most common.The first challenge is the lack of trust between vendors andconsumers, which has resulted in a large number of cases of deliveryof poor quality goods. According to Clemons, Jun, F., Ren, Wang &ampWilson (2012) about 37.4 % of all online buyers in China reports thatthey have experienced at least one case of delivery of a substandardproduct that was purchased online. This trend is a significantbarrier to the growth of e-commerce market in China since most of theaffected consumers might decide to return to traditional off-lineshopping method.

Secondly,many consumers fear that engaging in online trading could expose themto cyber-security issues. Currently, it is estimated that about 15.47% of the consumers who engage in online shopping in china experiencescases of fraud in 2014 (Zheng, Favier, Huang &amp Coat, 2012). Thiscould scare away potential consumers who wish to try e-commerce inthe future, thus hampering the growth of the market. Cases ofcyber-based fraud include the loss of money and personal identity.

Thethird barrier is the formulation of inhibitive laws and policies thatlimit the progress of e-commerce market in China. Although thegovernment has demonstrated its support for e-commerce, theintroduction of new duties for goods purchased outside China in 2016will hinder the growth of e-commerce (Amoscato, 2016). This isbecause local consumers will be forced to pay more for goods thatthey buy from foreign countries, irrespective of whether they buythem via domestic e-commerce platforms or platforms owned byforeigners.

WhereChina’s e-market is headed to

Thefuture of e-commerce market in China can be forest on the basis oftrends observed in the last two decades of its existence. Trendsindicate that the stakeholders have shifted their focus from theurban areas to rural areas, where more than 186 million citizens canaccess the internet, but lack the knowledge that they need in orderto engage in e-commerce (Tong, 2016). In addition, the heavyinvestment being made by the government to support the penetration ofthe internet and electronic devices in the rural areas indicates thateconomic activities (such as agriculture) that are dominant in therural areas will take a bigger market share of e-commerce in thefuture.

Inaddition, China’s e-commerce market is likely to become the world’ssingle largest internet-based economy in the world. Studies show thatthe number of internet users in China is likely to grow to 778.2million people by 2018 from a figure of 674.3 million in 2015(Statista, 2016). The rapid increase in the number of internet usersand the penetration of smart electronic devices, coupled with thedrastic change in the negative consumer’s attitude towards onlinetransactions (Jun &amp Jaafar, 2011) suggests that e-commerce couldsurpass offline trade in the future.

Thefuture of China’s e-commerce is also likely to be characterized byan increase in cross-border transactions. Domestic consumers will beable to buy goods from any part of the world and traders sell theirmerchandise to any consumer in the world via e-commerce platformsbased in China. This new trend is confirmed by the government’sdecision to support the Internet plus and the Cross-board e-commerceprojects starting from 2015 (EBC, 2015). Therefore, e-commerce willbecome one of the leading contributors of China’s internationaltrade and GDP in the future.

Moreover,China’s e-commerce will become more innovative and effective, whichwill be accomplished through a strong collaboration betweene-commerce traders and stakeholders in the support industry. Forexample, the announcement by the People’s Bank of China in 2015that it will finance the development of internet finance projects,with the objective of facilitating a faster and safer payment ofgoods purchased online suggests that most of the current bottleneckswill be eliminated (EBC, 2015). Most of the online shoppers who fearcyber-security issues and inefficiency in the e-commerce market willgain confidence.

Conclusion

China’se-commerce market has been growing at a high rate due to a rapidincrease in the penetration of the internet, the use of smartelectronic devices, and support from the government. The market hasexisted for about 20 years, where it has experienced growth in termsof an increase in the number of online vendors, online shoppers, andthe range of products that are traded online. Some of the keystakeholders that have played a critical role in the development ofe-commerce market in China include the government, internet serviceproviders, consumers, and internet-based retailers. E-commerce markethas become more competitive, but the main players (such as Alibaba)are able to survive, since they are able to introduce innovativeproducts that satisfy the needs of the consumers. In future, playersin China’s e-commerce market will focus on the rural areas anddiversify their market segment to fresh agricultural produce.

References

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