Industry: Online Retailing in China
Industry: Online Retailing in China
Background
Despite the concerns about China’s decelerating economy, the country has remarkable ratings in the online retailing industry. According to McHugh (2015), a recent report released by Forrester Research established that online sales in China amounted to about $307 billion in 2013. In 2014, the Chinese e-commerce giant, Alibaba Group, generated approximately $25 billion dollars in the largest initial public offer (IPO) in the world’s history (McHugh, 2015). According to Fung Business Intelligence Centre (2013), online retailing is rapidly transforming China’s commercial landscape. Fung Business Intelligence Centre (2013) further notes that consumers in China are embracing online businesses. On the other hand, online retailers are engaged in fierce rivalries (Fung Business Intelligence Centre, 2013). Such competition underlines the fact that the proliferation of digital technologies is transforming how consumers and retailers interact and behave. It offers retail companies across the globe the opportunity to exploit digital technologies and adopt innovation to gain deeper access into the Chinese and international online retail industry.
There are numerous products and services that are traded in the Chinese retail industry, and e-commerce is responsible for most of the growth. By 2013, the consumer-to-consumer (C2C) segment was the largest segment of the Chinese online retailing industry (Fung Business Intelligence Centre, 2013). The C2C market is very stable in China, with three firms controlling virtually the entire market share. Taobao is the main retailer as it controls about 90% of the market share. Eachnet and Paipai control the remaining market share (Fung Business Intelligence Centre, 2013). The business-to-business segment is also a fast growing but highly fragmented segment in the Chinese e-commerce market (Fung Business Intelligence Centre, 2013).
History of this industry & its life cycle status
Traditionally, two major players have controlled the Chinese online retail industry. The two main operators are both open platform operators, with Tmall holding 56.7% of the market share and JD.com controlling 19.6%. As a result of the lucrative Chinese e-commerce market, several overseas players are eager to acquire a strong foothold in the Chinese market. International online retailers have also set ambitious goals for development (Fung Business Intelligence Center, 2015).
The fact that Alibaba’s IPO smashed world records begs for a focus by U.S. retailers on the tremendous growth and potential of the Chinese online consumer market. McHugh (2015) has also pointed out that e-commerce transactions grew by more than 48 percent in 2014. As at 2014, online shopping represented approximately 10.7% of the Chinese retail market, which was an increase of 8% from the previous year. This level of growth surpasses the levels that were widely achieved in the U.S. In addition, mobile shopping is developing exponentially. Specifically, it accounted for 48% of online shopping in the first quarter of 2015 (McHugh, 2015). It appears that mobile platforms offer great potential and opportunity in online shopping over the near future.
Industry Revenues and profitability Indicators
The potential of the Chinese retail industry cannot be ignored. According to Price Waterhouse Coopers (2015), China will gradually become the leading retail market by 2018. Despite the fact that growth is slowing down at the moment, the focus within the Chinese retail market is increasingly moving away from physical retailing toward rapidly growing e-commerce avenues. The same trend is being witnessed in the larger Asian retail industry (Price Waterhouse Coopers, 2015). This probably suggests that online retailing and e-commerce in general present a lucrative opportunity for retail firms to expand their horizons by tapping into the Chinese online retail industry.
The Revenues generated within China’s online retail industry have been growing tremendously since 2007. According to The Statista Portal (n.d), the business-to-business online retail industry in China generated 1.25 trillion Yuan. The revenues increased to 1.89 and 2.3 trillion Yuan in 2008 and 2009 respectively. The revenues further grew to 3.24, 4.4, and 5.67 trillion Yuan in 2010, 2011, and 2012 respectively (The Statistica Portal, n.d). According to KPMG (2014), e-commerce transactions were projected to be about $ 540 billion in China, or about 10% of the total retail dealings. It is also expected that by 2020, the Chinese e-commerece market will surpass those of the U.S., Japan, Britain, France, and Germany combined (KPMG, 2014).This demonstrates that the Chinese online retail industry is very robust and it is characterized by strong positive growth.
Issues that could Influence Future Opportunities and problems
According to KPMG (2014), the future transformation of the Chinese online retailing industry is closely associated with technological developments and consumer behaviors in the Chinese market. Additionally, the strategies that Chinese consumers use to search for products and order products or services online, as well as their preference for convenience and speed, is a major driver for future growth opportunities. In fact, there are four major growth drivers for online retailing platforms in China. These include e-commerce and digital payment platforms, social media, and mobile platforms (KPMG, 2014).
References
Fung Business Intelligence Centre. (2013). Online Retailing in China. Retrieved from: http://www.funggroup.com/eng/knowledge/research/china_dis_issue111.pdf
KPMG (2014). China 360. E-commerce in China: Driving a new Consumer Culture. Retrieved from: https://www.kpmg.com/CN/en/IssuesAndInsights/ArticlesPublications/Newsletters/China-360/Documents/China-360-Issue15-201401-E-commerce-in-China.pdf
McHugh, J.D. (2015). China: A hotspot for Online Retail. The Boston Company. Retrieved from: http://www.thebostoncompany.com/documents/10676/10762/June15_China_Online_Retail.pdf
Price Waterhouse Coopers. (2015) 2015-2016 Outlook for the Retail and Consumer Products Sector in Asia. Retrieved from: http://www.pwchk.com/webmedia/doc/635593364676310538_rc_outlook_201516.pdf
The statistica Portal. (n.d) “Revenue of the B2B E-commerce in China from 2007 to 2013 (in Trillion Yuan).” Retrieved from: http://www.statista.com/statistics/278386/revenue-of-the-b2b-e-commerce-in-china/
