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China online – Asia’s economic tiger

Jack Ma, the founder of China’s biggest ecommerce company – Alibaba Group Holding Ltd – recently announced the next five years will see the most exciting changes in China’s e-commerce landscape. With roughly 220 million online shoppers, the Chinese market is almost double the size of the USA (150 million)1. In addition, e-tailing produced more than $190 billion sales in 2012 and is estimated to reach $411 billion by 2015 (Analysys International); indicating that this Asian tiger is fast becoming a dominate leader in the online consumer sphere.

Factors such as increasing internet penetration, a burgeoning middle class with a growing trust in online shopping, government-driven campaigns promoting consumerism, improved product selections and services, has largely influenced its dramatic change.

Online consumer behaviours
Online consumers are not only rising in numbers, they are growing in online sophistication. A survey conducted by McKinsey (April 2012) revealed Chinese consumers are often suspicious of official news-led sources and advertising, preferring to trust reviews and social media networks as an invaluable source of knowledge.

The facts 

91% of 5,700 respondents polled used social media in the last six months, compared to 67% in the USA and 30% in Japan (McKinsey)

The Chinese spend 46 minutes per day on social media sites, significantly higher than the USA (37 minutes) and Japan (7 minutes)
More than 40% of online consumers post product reviews on the web – that’s double the percentage of the USA (Boston Consulting Group)

More than 70% consider a friend’s recommendation before purchasing online. Over the last year microblogging site, Sina Weibo, has become increasingly popular for consumers to share feedback about products

The e-commerce landscape holds’ only 10% of independent merchant e-tailing sales

E-commerce players like Alibaba Group’s Taobao dominate the industry, capturing 90% of the e-tail market share

While Western shoppers are motivated by convenience online, Chinese consumers are interested in price incentives

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Source: PwC March 2012

Urban online spending
Consumption patterns reveal 266 Chinese cities account more than 70% of online retail sales (Mckinsey). For every dollar spent online it replaces roughly 60 cents of sales offline (Mckinsey). Interestingly, those who go online to shop are predominately from underdeveloped Chinese cities that are either small or medium sized. In terms of spending, consumers from smaller sized cities spend just as much money online, than customers from more prosperous cities, despite a disparity in salaries. For instance online consumers in fourth-tier cities, like Wuzhou in China’s eastern Guangxi province, spend almost 27% of their disposable income online, compared to 18% of big-city dwellers (Mckinsey).

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Source: China Internet Watch

What’s next?
As the Chinese e-commerce market rapidly develops online consumers’ willingness for convenience will grow. Building logistical channels for delivery imposes the greatest limitation in terms of cost and will be the biggest challenge for businesses. This hurdle will inevitably encourage more store-based retailers and manufacturers to fully embrace multichannel strategies. Moreover, it will enable new entrants to cease opportunities to operate independently; focusing on superior customer service, fast and reliable delivery and a better shopping experience overall for online Chinese customers.

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1. eMarketer, 2012