China primed for e-commerce supremacy

China primed for e-commerce supremacy

Summary: Characteristics such as Internet access outpacing presence of physical retail outlets and strong consumer demand set to make China top global online commerce destination by 2015, new research finds.

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China is likely to become the world's most valuable e-commerce market in the next four years as more people get access to the Web and physical retailers are unable to cover the country's vast geography fast enough to meet consumer demand, study finds.

The Boston Consulting Group (BCG) released a research paper on Tuesday stating that China already has more Internet users than the United States and Japan combined and has 145 million online shoppers currently, second only to the U.S.'s 170 million. However, this is expected to change as "exponential growth" will propel the number of Chinese online shoppers to 329 million by 2015, making it the "most valuable e-commerce market" globally, it noted.

In fact, the study revealed that less than 10 percent of China's urban population shopped online in 2006, but jumped to 23 percent in 2010. This figure is expected to nearly double to 44 percent by 2015, it noted. It is also projected that 30 million additional Chinese consumers are expected to shop online for the first time each year until 2015.

Understanding China's unique online traits
Commenting on these findings, Waldemar Jap, a Hong Kong-based partner at BCG and co-author of the report, said that consumerism is already a big phenomenon in China as people there "simply love to shop".

"But China is unusual in that Internet access has far outpaced the reach of the top physical retailers, which means that e-commerce development probably will not mirror the pattern in other countries," he added.

Elaborating, the report noted that up to a quarter of e-commerce demand in China is for products that consumers cannot find in physical stores. This is a circumstance unique to China, BCG said, as the immensity of the country's geography limits the coverage of physical retailers.

"There are many consumers, especially the younger ones, whose first contact with a brand or type of product occurs on the Internet," the report stated.

Chinese PC maker Lenovo has latched on to this trend by shifting its focus to online sales channels to court local consumers. In a ZDNet Asia report earlier this month, the company stated that its e-commerce business had seen sales volume grow by between 200 percent and 300 percent year-on-year since it started in 2008, and its emphasis on online sales is to corner the main customer demographic that are born post-80s and post-90s.

Another trait unique to China is the relationship between search engine and e-commerce operators, BCG pointed out. For instance, online marketplace operator Taobao.com "blocks the spider" of top search engine operator Baidu.com, which compels most shoppers to start their search within Taobao. These shoppers who went straight to Taobao.com accounted for nearly 80 percent of the company's e-commerce volume as of 2010, the report stated.

"Chinese shoppers are developing the habit of not relying on search engines to find products online," said Jeff Walters, a principal at BCG and co-author of the report.

Fulfill consumers' emotional needs
As such, online commerce companies that want to make a dent in the Chinese market will need to navigate through these unique consumer characteristics, Jap surmised.

"Companies that want to compete will not only have to understand how Taobao and other may already be shaping their online presence but they will also have to engage consumers via multiple online--and offline--channels," he suggested.

These companies will also need to appeal to "super-heavy spenders", which are defined as being from the middle and affluent classes in society and have been shopping online for more than four years, the report stated.

Hubert Hsu, senior partner at BCG and another co-author, explained that "fulfilling the emotional needs" of China's super-heavy spenders is key to succeeding in the local e-commerce market. This is because given the strong emotional ties Chinese consumers have with shopping, it will be critical to engage them with value propositions beyond price savings, he added.

He suggested companies to create a fun shopping experience or appeal to trend-conscious consumers' sense of discovery by making them feel they have learnt something new during the shopping process as ways to retain customer loyalty.

Topics: IT Employment, Apps, Browser, CXO, Cloud, E-Commerce, Software, China, SMBs

Kevin Kwang

About Kevin Kwang

A Singapore-based freelance IT writer, Kevin made the move from custom publishing focusing on travel and lifestyle to the ever-changing, jargon-filled world of IT and biz tech reporting, and considered this somewhat a leap of faith. Since then, he has covered a myriad of beats including security, mobile communications, and cloud computing.

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