Global Companies enter the Chinese Market through E-Commerce

By March 27, 2012
Femme ordinateur carte bancaire

Foreign companies see their interest in the Chinese online market increased by the consumer appeal and a lower barrier to entry than for the brick-and-mortar businesses. But their success depends on companies’ abilities to fit market specificity.

In China, online consumption increased by 66 percent in 2011, reaching 195 million consumers - the equivalent of the population of Brazil. This market is actually worth nearly 125 billion dollars. Those figures from a DDMA study also show that e-commerce is one of the best opportunities for foreign companies wishing to enter the Chinese market today. And this, because e-commerce growth and its low development costs increased traditional B&M companies’ installation and distribution costs (rent, logistics, labor). CEO Ecritel China Loic Hennocq Interviewed confirms the information in an interview to L’Atelier. However, he states that even on the Internet, "an unfamiliar brand can hardly do without the physical distribution which contributes to the confidence in this new brand". He adds: "Internet should be seen as a complementary channel".

Anatomy of Chinese consumers

The fact remains that in order to grow, e-commerce has had to adapt to the Chinese consumer, for example by offering deals which are highly valued by this population. Major industry players, such as the auction website Taobao, have considerably contributed to the social acceptance of online purchasing and to increase confidence in the authenticity of products sold. A solution to enter Chinese market? Not necessarily, Loic Hennocq says "because using such websites based on discount may tarnish the image of companies trying to establish themselves in China". He adds that "the notion of Chinese Eldorado is an illusion" and that even on the Internet, the major difficulty for a foreign company "is to adapt to the specific Chinese products sold, the set up of a business or even marketing."

A growth to come?

But it is clear that the growth of e-commerce, resulting from economic development, is likely to keep moving forward. Indeed, China has experienced an overall increase in income. For instance, as Loic Hennocq explains, "Chinese farmers saw their allowances multiplied by 2 or 3 from €400 to €1200 per year" in 2008, unveiling a domestic growth potential. Another feature: the improvement of infrastructure. First, facilitating fast and low-cost deliveries in the transportation network, or even allowing access to affordable Internet pricing and speed, will help extend the scope of online purchase. "The size of the country" he adds, "compels many Chinese today to use smartphones to stay connected, allowing them also to shop." Finally, since the development of brick-and-mortar stores could not grow as sharply as income did, Chinese people would find a wide range of products on the Internet they would not find in the physical distribution. And this will leave room for e-commerce to develop at ease.

Legal mentions © L’Atelier BNP Paribas