Opinion

Why the West has failed to crack e-commerce in China

Kristie Lu StoutIn this guest post, CNN’s Kristie Lu Stout points out why so many foreign players have struggled to succeed in China’s brutal e-commerce market.

One hot mess. That’s what you’ll see on the front page of any leading e-commerce site in China.

There’s a maddening array of banner ads, and rows upon rows of links and icons touting promotions and discounts. It’s a jarring user interface that seems to bring out the worst in web design.

And it was designed that way.

“They want this shopping atmosphere,” says Yu Gang, Chairman and founder of Yihaodian, one of China’s leading online retailers.

“Our consumers like a page that is very crowded, busy with a lot of links so they can open lots of windows at the same time.”

David Wei, China tech investor and former CEO of e-commerce giant Alibaba, couldn’t agree more: “When I worked for Alibaba, I cleaned the homepage to an international standard. It doesn’t work.”

Ahead of the upcoming Alibaba IPO, I got the full download from China’s e-commerce insiders this month for CNN’s “On China.”

They tell me that in the mad, mad world of Mainland e-commerce, the rules of the road from the West simply don’t apply.

The superlative stats are well known: China has the world’s largest online population with over 591 million internet users. China is the world’s second-largest online retailing market, clocking in up to $210 billion in sales in 2012.  Taobao, Alibaba’s consumer e-commerce engine, boasts sales bigger than eBay and Amazon combined.

The scale of China’s e-commerce market is tantalizing. But it’s also a tough one to crack due in part to inadequate delivery services throughout the country.

“The logistics industry is very fragmented in China, with the likes of UPS and FedEx in China still unable to provide nationwide coverage and quality service,” Yu points out.

As such, many Chinese e-commerce companies including Yihaodian provide their own last mile delivery to reach customers with a network of mopeds and motorcycles.

Another point of distinction is the extremely social nature of its customer base.

“Social media is a big one in China,” says Oliver Rust, senior vice president at Nielsen. “50 per cent of consumers in China are leveraging social media to learn about new products.”

“Retailers need to engage in this social conversation and interact with China’s tech-savvy consumers who are increasingly open to boosting e-commerce spending.”

And that doesn’t just mean opening a branded Weibo account. Online chatting between customers and merchants is the norm with instant messaging embedded in almost every e-commerce platform.

But don’t let all the friendly shop talk fool you. The business is brutal.

When David Wei was at the helm of Alibaba, he led the offensive to undermine and defeat eBay in China.

“When Taobao fought against eBay, we listed the top ten things eBay was doing in China – and we did it 100 per cent differently,” he tells me.

So while eBay charged for its listing fees, Taobao offered no listing fee at all.

While eBay used an auction model to rank its listings, Taobao used a retail model to rank fresher listings at the top.

And while eBay limited communication between merchants and customers, Taobao created an instant messaging tool to encourage buyer-seller communication.

eBay eventually shut its main website in China.

“The top ten things, the most important things eBay was doing, their winning elements, their winning recipe in the United States, actually became the poison killing their business in China,” says Wei.

So if you’re a brand manager, investor or entrepreneur eyeballing the market, observe with an open mind and proceed with caution.

In China, e-commerce is a bloodsport.

Kristie Lu Stout is an anchor of CNN International and the host of CNN International’s “On China” based in Hong Kong. She tweets at @klustout and is also on Facebook.

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