Rise of the Asian Tiger

By Ralf Gladis, CEO, Computop
If you are looking for growth markets in e-commerce, look no further than China.  Once dismissed as too difficult to break into, the Chinese market is now more accessible to retailers than ever before. Ralf Gladis

With more than 500 million Internet users, China boasts an e-commerce market which grew by 29 per cent in 2011, to a total volume of 23 billion USDs. At Computop alone, we have seen a 200 per cent growth in demand for Chinese payment solutions from European and US retailers in the past year.

The Chinese Market
The Chinese government’s currency policy is to increase domestic consumption.  And, due to increasing inflation, Chinese consumers are actually spending a lot – both online and offline. However, knowing where to start to break into an unknown market can be daunting, especially when there are significant cultural, political and economic differences – so here are a few insights…

The leading payment scheme for e-commerce in China is Alipay which is part of the Alibaba Group who also runs B2C and C2C marketplace Taobao, similar to eBay.   With 48 per cent of market share, Alipay is very much comparable to PayPal. It claims to process 34 million payment transactions per day for 650 million registered Chinese consumer accounts. Given that Europe only counts around 320 million inhabitants, the fact that Alipay grew from 550 million to 650 million consumer accounts in 2011 demonstrates the sheer size and growth of e-commerce in China.

The most popular products bought online in China are without a doubt day to day goods such as perfumes and toiletries. Shoe and fashion shops, software downloads and games are very successful, too. Due to low average incomes, high priced goods like electronics or furniture are not always that easy to sell. However, we are seeing an increasing trend towards Chinese consumers saving and investing in prestigious western brands, even if they are expensive.

Successful e-commerce requires a good, solid infrastructure and China actually provides just that. Logistic services are fast and affordable, even to remote areas, and whilst broadband Internet access is relatively fast in big cities, many consumers use their mobile devices to access the Internet from anywhere.

Little differences of note
Unlike in Europe, having a ‘mobile shop’ is considered a key success factor in China. You will find other little differences when conducting business in China too.  For instance, don’t expect Chinese consumers to respond quickly to e-mails – it could take weeks. If you want to get a message across quickly you should integrate messaging services to your shop. Many online shops in China use messaging services like QQ for order confirmations or tracking services.

Another area of difference is payment. Consumers are creatures of habit when it comes to money and unlike in the western world, credit cards are not popular for buying online in China. Visa and MasterCard have no footprint there and even the credit cards from China Union Pay (CUP) are not thriving either. There are several reasons for this: Firstly because Chinese consumers have to specifically apply to use their credit card for e-commerce. Secondly, if they do, they have to pay a fee for every transaction they process over the Internet. Then, last but not least, many Chinese banks redirect their credit card customers to their online banking website. After putting in the card data, Chinese cardholders then need to go through a full online bank transfer process in order to finish the card payment.  It takes an awful lot of time and patience.

As a direct result of these challenges, Chinese consumers have learned to love comfortable wallet payments, such as Alipay. The second largest wallet provider here, with 20 per cent market share, is tenpay.  Tenpay is part of the Tencent Group which is very successful in providing value added Internet and telecom services like QQ.com or QQ Games. Given its origins, Tenpay is good to address younger people and the gaming community.

There are other smaller players such as China Union Pay or 99bill, each of which cover market shares of around eight to nine per cent.

Opportunities and Challenges
Given that the UK economy – and UK e-commerce sales – are slowing down, retailers should have a closer look at the growth opportunities available in Asia. If you sell valued brands or day-to-day goods or services, there is a fast growing market for prestigious European products.

You will most likely encounter challenges, but these can all be overcome.  For instance, some retailers report that slow Internet connections hinder the download of product images. However, this can be overcome by service providers like CD Networks or Datapipe, who offer a kind of distributed proxy service in order to reduce the distance that data has to travel, providing a swift user experience for consumers.

Other challenges that are easily resolved are logistics, tax regulation and tariff calculations. In order to save time and effort, retailers can work with full service providers like arvato, eShop World, Hermes or Moduslink. They provide tools and services that calculate duties and tariffs in an instance. Once you have these lined up, it is relatively easy to test how Chinese consumers will react to your products or services.

And, if you decide to build a legal entity in China, Hong Kong is the perfect place to start. It still provides legal stability and a legal system similar to the UK. Make no mistake: A Chinese national would never deem a Hong Kong company to be Chinese. However, despite this, the Closer Economic Partnership Agreement (CEPA) between mainland China and Hong Kong not only allows retailers to run operations in mainland China without a state owned partner, it also provides significant tax advantages.
It has never been easy to reach out to new shores, however, the opportunity is there for the taking. Provided the product fits the market, the booming Chinese economy promises a bright future and will be worth the effort for many retailers. The sleeping Asian tiger of old – has most definitely awakened.