How to build a thriving eCommerce business in China

On its way to becoming the world’s biggest economy, China is poised to become the largest online marketplace in the world.

Last year, online retail in the region generated $210.4 billion in sales, up 64.7% from 2011, according to Forbes. By 2020, it is forecast to be bigger than the existing markets in America, Britain, Japan, Germany and France combined.

After nine years locked in trade negotiations it’s become unlikely that Australia and China will ever sign a free trade agreement. But this doesn’t limit the ability of Australian brands to push into Asia and pitch to a burgeoning middle class market.

Ebay last month launched its China site, eBay Style, after witnessing a 40% a year increase in products being ordered from its English language sites by Chinese customers. Supporting eBay in the local market is Xiu.com, a Chinese online clothing retailer that will manage its sales, logistics and customer service.

Demonstrating how things are shifting, eBay tried to break into the China market a decade ago but was unable to withstand competition from Alibaba Group, which now dominates the country’s eCommerce sector.

China’s fast-growing market represents a significant opportunity for Australian retailers wanting to do business in Asia. China already boasts the highest number of people who buy goods online in the world – nearly 220 million in 2012 according to eMarketer – thanks to increasing internet penetration and a burgeoning middle class. This number is set to double by 2016, with the average online spend per user growing from $670 today to $1039.

Given the growth projections for China’s retail market, it’s no surprise that Australian and other Western brands are looking to capture a share of the rapidly growing digital opportunity. But China is an extraordinarily challenging market to enter, and must be navigated with prudence.

Consumer behaviours and preferences

While Chinese consumers have enthusiastically embraced eCommerce, trust remains a primary issue. The early days of online shopping in China were plagued by credit card fraud and counterfeit goods, but the introduction of PayPal-like payment services have gone a long way to address these issues.

Chinese consumers distrust advertising and news sources and, as a consequence, recommendations from online reviewers and peers on social networks have a heightened promotional role. The key social media outlets include Youku (similar to YouTube), Kaixin (a Facebook-like site), Tudou (another video site), Tencent Weibo and Sina Weibo (microblogging platforms similar to Twitter), and the MySpace-like Qzone.

According to BCG, more than 40% of online shoppers in China consume and post product reviews online, yet consulting firm McKinsey says many western companies are failing to leverage Chinese social media to create meaningful value for their business or effectively mine consumer insight data from these platforms.

Shopping trends

Online buyers in China love a bargain, as evidenced by the popularity of TaoBao, a leading commerce site with both auctions and fixed-price offers.

TaoBao also provides customers with an easy option to compare products and prices without going from one side to the next. For retailers who consider going into China, integrating into platforms such as TaoBao is certainly a very attractive and easy option.

Retailers can also profit from TaoBao’s investment into logistics infrastructure, which can be a big hurdle otherwise.

However, retailers should be aware that they are essentially trading in a market place which limits the way they can promote and highlight their products and will predominantly compete on price. Thus, in parallel, retailers should think about a strategy how to build their own brand outside of TaoBao and how to migrate customers to their own side to improve margins and create customer loyalty.

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