eChina, the picture
According to estimates by Global Data, one of the world’s leading data analysis companies, the Chinese eCommerce market, the largest ever since 2013, will record growth of 17.2% this year, reaching $2.1 trillion, roughly half the value of the global market. Thereafter, this value is expected to grow at a rate of 11.6% between 2021 and 2025 to reach $3.3 trillion in 2025.
The strategic importance of the phenomenon is demonstrated by two important indicators: the ratio to gross domestic product and the penetration rate in the entire national retail sector.
In the first case, by combining the 2021 projections of Trading Economics and Global Data, Chinese digital commerce will be worth $2100 billion, against a GDP of $15600 billion, representing a fraction amounting to 13.46%. To give an idea of the actual significance of this value, in the United States this fraction accounts for 4.1% of the total GDP, in the United Kingdom (the most digitalized of the European markets) for 4.8% and in Italy for 2.4%.
In the second case, Digital Commerce 360 estimates updated to April 2021 see Chinese online sales stand at 27.7% of the total, compared with 19.6% in the United States. In Italy, Osservatori.net of the Polytechnic of Milan values the impact of Italian eCommerce at 10%, while the UK is confirmed as the European leader at 21%.
The Chinese government assigns to eCommerce a crucial role in the development of the country, which has recovered at a very high rate the digital gap that existed at the beginning of the millennium.
According to data from the China Internet Network Information Center, in the early years of this century China had network coverage for only 12% of the population, concentrated, moreover, along the coasts and in large cities such as Beijing, Guangzhou and Shanghai. Today, after connectivity has been extended to rural areas, the network in China is a common resource for the whole country.
The high penetration of mobile internet has been supported by investments in infrastructure so as to facilitate its accessibility and increase its speed, and in urban planning considerable space is reserved for land earmarked for eCommerce logistics.
The high penetration of the internet and the smartphone has been the basis for the rapid and tumultuous evolution of eCommerce in recent years. China today has more than 930 million mobile internet users. The digital services platform WeChat is a kind of emblem of China’s digital revolution and it is the only app in China to boast more than one billion active users and one of only five apps in the world to have passed this milestone.
At the end of 2020, there were 780 million active online consumers in the country, more than double the population of the U.S., its main commercial competitor, and not only. Just looking at Alibaba’s platforms, 4.5 million sellers are active on them, whereas in Amazon they number around 1.5 million. More than 90% of eCommerce sales are driven by mobile devices, compared with 43% in the United States.
Payment systems have been drivers of the growth of eCommerce purchases. According to Global Data, these account for 57.6% of total value of eCommerce, and the share of mobile payments compared to non-mobile payments rose from 4% to 85% (2012-2019). WeChat Pay has over 900 million users and recently overtook Alipay as the most popular payment service.
Delivery services have been key to the development and consolidation of China’s mobile payments and huge investments in warehouse automation and intelligent logistics management systems have been devoted to these. Cainiao (Alibaba group), the largest online delivery company in the country, manages to deliver a parcel anywhere in the country, on average within 48 hours. JD.com, another Chinese eCommerce behemoth, offers same day or next day delivery in over two hundred cities. Ten years ago they were only six.
Chinese eCommerce differs substantially from Western eCommerce in the type and mode of participation, and imposes an essential discrimination for those who want to operate in it: mediation.
The first and essential form of mediation is the platform. In China, digital commerce of the kind we are used to is unthinkable. No one will prevent the creation of a commercial website, but there will be no sort of Google to direct buyers in their search. Also of particular importance for those who operate, among the distinctive features of the new eChina is the attention to social media and the understanding of the live streaming phenomenon.
The obligatory way to establish the brand’s presence is to sell through the most important platforms: Weibo, Baidu, Alipay, Dianping, Ctrip, Tmall, Douyin (TikTok) and Xiaohongshu (Little Red Book). The differences are remarkable, and it is not worth to classify them here.
What has been written about the digital nature of the country, which is as recently acquired as it is extensive and deep-rooted, entails a first elementary consequence: the commercial presence, whether direct or indirect, must rely on the availability of advanced digital assets, of skills useful for the governance of delivery systems, and the knowledge necessary to carefully combine brand identity with local specificities.
Obviously it is not possible to face such a rich and complex market without adequate means. Within China, there is considerable diversity across markets, geographic areas, consumer types and social structures. The risks and difficulties are of course proportionate to the enormous opportunities offered. Indeed, recent history has brought to common attention the incidents and disappointments encountered by even leading brands of the Western scene.
In order to reach and retain consumers who are increasingly evolved and strict in their purchasing choices, it is necessary to effectively promote the brand and its products in a huge space where the digitalization of consumption is the norm. There is therefore a need for an operational mediation with a partner that is qualified in terms of technological resources, commercial and communication skills, relationship and local presence.
Digital internationalization on the Chinese market and development and go-to-market strategies must all pass, without any alternative, from here.