China was an unlikely birthplace for the world’s largest e-commerce market.
The vast land territory made nationwide delivery seem almost impossible. Unstable Internet service in rural areas－home to roughly half the nation’s population－might also be expected to reduce buyers’ willingness to shop online.
Most important, the Chinese subscribe firmly to the idea that seeing is believing. Bargaining with someone you cannot meet face to face over items you cannot touch is not the way people were accustomed to doing business.
But after Jack Ma’s Alibaba Group Holding made a history-breaking initial public offering on the New York Stock Exchange in September, only a few would doubt the purchasing power of China’s Internet shoppers.
With a market capitalization of more than $225 billion, the online shopping giant based in Hangzhou, Zhejiang province, is valued at more than Amazon and eBay combined.
According to a Ministry of Commerce estimate, Chinese e-commerce transactions, including the business-to-business, business-to-customer and customer-to-customer segments, are on track to top 18 trillion yuan ($2.9 trillion) by 2015. Online retail sales are expected to account for more than 10 percent of the country’s total retail turnover by then.
So what changed the buying habits of Chinese shoppers?
According to Tang Jia, a senior researcher at Analysys International, the first major opportunity for Chinese shopping websites came in 2003. The highly infectious disease known as severe acute respiratory syndrome, or SARS, swept the country, and people locked themselves away at home rather than risk going to shops and becoming infected.
“People in Beijing, Shanghai and other big cities started to try out shopping online because they would not go out,” said Tang.
By 2006, Taobao, Alibaba’s customer-to-customer platform, had claimed more than half of China’s online retail market, overtaking eBay. Chinese buyers were paying more attention to product quality than price, and this contributed to a surge in online retailing.
Vanessa Zeng, a senior analyst at industry consultancy Forrester Research, said: “Alibaba’s Taobao and Tmall divisions are China’s e-commerce darlings.
“Over the past 15 years, Alibaba has built an ecosystem of buyers, sellers, third-party service providers and strategic alliance partners around its platform.”
By leveraging buyer and seller data from this ecosystem, Alibaba has created a data analytics operation that gives a complete view of a customer at any phase of the purchasing journey.
More important, innovation in Internet finance has taken off in China because of the booming online shopping sector. Alibaba’s Web-based personal finance service, Yu’ebao, attracted 81 million users within eight months of its launch.
“Yu’ebao’s success has spurred other Internet companies to burst onto the scene with similar products,” Zeng said. “The sharp rise of the Internet finance business in China－and the acceptance of services like Yu’ebao－is intensifying the pressure on traditional financial institutions, making it imperative that they innovate, and quickly.”
Alibaba handles more than 75 percent of China’s online retail payments every day, making other websites niche players, according to Analysys International.
Analysts say that because Baidu, Tencent and other cyber giants are providing competition, the powerful upswing of the Internet-based economy is emerging as a new engine for China’s growth.
Li Guoqing, founder and CEO of online book store Dangdang, said e-commerce companies have to “change with the times” after the Alibaba IPO.
Li is converting the company into a seller of fashion items, targeting young people who are used to making purchases on smartphones.
The online sector is putting pressure on brick-and-mortar stores to change their approach.
Charlie Dai, principal analyst at Forrester Research, said: “Internet companies are disrupting the retail industry in China, and the growing online population of metropolitan Chinese consumers and resellers is adding fuel to the fire.
“Traditional retailers need to become more agile and accelerate their customer-oriented digital business transformation.”