When it comes to digital retail, no market quite compares to China. In the midst of a growing economy and a strong retail sector, China’s e-commerce sector is the largest in the world, with Forrester predicting it reaching a total value of 1 trillion USD by 2019. Despite the size and rapid growth of the market, success is by no means a given. In this article, we’ll take a closer look at why the market is growing the way it is and what you need to do to ensure your business is a success when expanding into China.
In the Everything You Need to Know series, we take a look at a specific e-commerce market to help you decide whether you should expand online sales across borders. As a provider of comprehensive payment processing services, we at DalPay specialise in cross-border commerce and have first-hand experience facilitating business in over one hundred markets worldwide.
Online marketplaces vary significantly around the world in a wide number of ways, such as their level of economic development, shopping habits, preferred payment methods, access to technologies, legality, logistics, etc. Because of this, there are a great many factors to consider when choosing which international markets to expand to. This series is designed to provide you with all the information you need to choose which countries are a good fit for your business and to begin selling across borders.
Unless otherwise noted, figures in this article are sourced from:
China is the world’s most populous country, so it should be no surprise that, in today’s digital economy, the Chinese e-commerce market is very mature. The population, particularly in urban areas, largely embraces online retail, which is supported by highly developed and low-cost payments and delivery infrastructure. Business-to-consumer online sales are growing by 25% per year and already 80% of online shoppers in China participate in m-commerce. If you’re thinking about expanding your business to this booming marketplace, there are a few things you need to know before taking the plunge.
- Total population: 1.4 billion
- Internet penetration: 45% (618 million)
- Mobile penetration: 92.3%
- Online shoppers: 190 million
- E-commerce sales: USD 297 billion
- M-commerce sales: USD 27.4 billion
- E-commerce annual growth rate: 116.5%
Even though it’s already the largest e-commerce market in the world, there’s still considerable room for growth. Tier-3 cities and smaller have a significantly lower penetration rate than the largest cities, but also have a much more rapid rate of growth. Currently, e-commerce represents less than 10% of the total retail market, but as penetration grows, more of those 1.4 billion potential customers will be going online.
The most popular product categories for online sales in China are consumer electronics, apparel and sporting goods. Chinese consumers mostly make cross-border purchases from merchants in the US, Hong Kong, Japan, the UK and Australia. Future growth will be increasingly driven by mobile and logistical develops, which we will go into detail about below.
What You Need to Know
Preferred payment methods
The online payment market in China is highly concentrated, with the top seven players representing 98% of all transactions. While credit/debit cards are the most popular payment method, the leading e-wallet provider, Alipay, is a close second, processing one out of every four online transactions in China thanks to the market dominance of their parent company, the retail giant Alibaba.
Chinese shoppers are accustomed to having a variety of payment options available to them, including cheque or cash-on-delivery (which together account for 10% of the market), payment cards, bank transfers and e-wallets. China’s domestic card provider UnionPay is used by 54% of all cardholders.
One of the clearest trends in China is the growth of mobile payments, even for a market that already has a relatively mature m-payment infrastructure. The year-on-year growth rate of m-commerce is 168.6%. 83.4% of Chinese internet users connect via their mobile devices, more than the amount that connect via computers, and mobile payment services are used by 38.9% of internet users.
China’s top e-commerce players are investing in and developing their mobile sales at a rate that surpasses their U.S. counterparts, with 67% of businesses having already developed m-payment strategies. As mobile penetration spreads into smaller cities and rural areas, more online shoppers are skipping the computer and going right to their phones. Offering a mobile-ready web store and accepting m-payments is key to tapping into the bulk of the Chinese e-commerce market.
In the same breath, it’s necessary to consider that the growth of more remote online shoppers means that logistics will become an increasingly vital challenge to face. The good news is that the local logistics infrastructure is well-developed, with most retailers able to deliver to Tier 1-3 cities within two days and the rest of the country within four.
Despite that fact, logistics remains an area where online retailers can set themselves apart from the competition. The growth of e-commerce over a wider geographic area in China is outpacing the growth of domestic express delivery. Depending on the type of products you sell, it’s key to form a strategic partnership with a competitive and appropriate domestic delivery company, whether that means a large firm that can provide basic services or smaller, more specialised networks that can handle fragile, oddly shaped or difficult to deliver products.
Barriers to entry
The main challenge when it comes to expanding your e-commerce business into the Chinese market is the sheer size dominance of domestic retailers, Alibaba in particular. However, the growth of new online shoppers and m-payments in a wider geographic area leaves plenty of room for alternatives and niche retailers to gain a foothold in the market.
One of the reasons the largest companies are so successful is because of concerns about online fraud. The Chinese e-commerce market is not heavily regulated and it’s not uncommon for products purchased online to have been fakes. According to Strategic IP Information, up to 10% of all products sold online in China are suspect. For this reason, most consumers avoid unknown merchants, and nearly 80% of shoppers leave a review after making a purchase online. Since Chinese consumers are highly influenced by the comments of past customers, these reviews can be leveraged by merchants to gain trust. The more online reviews a product reviews, the higher the sales.
Chinese E-Commerce in Brief
- Largest e-commerce market in the world
- 190 million potential customers
- Widespread e- and m-commerce penetration
- Not heavily regulated
- Growing population of rural consumers leads to logistical concerns
- Market dominated by local providers
The Chinese e-commerce market is already the largest in the world and expected to triple in size within the next five years. Much of the growth will be accounted for by m-commerce and younger shoppers in less urban parts of the country. These are highly tech-savvy consumers who respond to being given a lot of choice and a niche appeal, but they will also abandon you if you can’t prove the trustworthiness of your business and get your products to their door in good shape and in a reasonable amount of time.
Expanding into a new international market is a risky venture but a very rewarding one if done right. For the latest information about how you can build and maintain a strong e-commerce enterprise and keep it compatible with legislation and buying habits at home and abroad, subscribe to the DalPay Blog and follow us on Facebook and Twitter for the latest industry news.