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Globalization is the new buzzword in e-commerce

Meng Jing
Updated: Nov 12,2014 8:15 AM     China Daily

The nation’s Nov 11 shopping spree crosses borders around the world.

Inviting celebrities to promote a marketing event is business as usual in today’s advertising world. But ever since the nation’s Nov 11 Singles’ Day online shopping event was launched by Alibaba Group Holding Ltd in 2009, this is the first time the e-commerce giant has used a large number of overseas super stars to do the job.

From French movie star Sophie Marceau to Park Shin-hye, a rising actress in South Korea, the Hangzhou-based Alibaba spared no effort to leverage the influence of A-listers around the world to take the Chinese shopping bonanza global.

“This year marks Alibaba’s first globalized Nov 11 festival, and we want to make it easy for Chinese customers to buy from overseas vendors and overseas customers to buy from China,” said Zhang Yong, chief operations officer of Alibaba Group.

“This is only our first step. The goal is to make Nov 11 a global festival. In another five to 10 years, we want to host an event that helps consumers all over the world buy products from wherever they want,” he said.

As ambitious as the plan may sound, cross-border retail, which holds the promise of easy access to a wide selection of attractively priced merchandise not available locally, is heating up in China.

Many major e-commerce players from Amazon China to Suning Commerce Group Co, China’s biggest appliance retailer, have launched campaigns to help more domestic customers buy overseas products directly online during this year’s shopping festival.

Even companies that do not make globalization a priority in the Nov 11 online sales event have formed international ties to expand their presence in cross-border e-commerce.

For instance, JD.com Inc, Alibaba’s top competitor by market share in China’s online retail world, formed a partnership earlier this year with the agriculture ministry of Australia to help bring more Australian agricultural products to Chinese dining tables.

Going global has become the trend for e-commerce companies in China, just like earlier this year, most of them made going rural a major business direction-a tactic aimed at attracting more online shoppers in lower-tier cities and rural China.

The highly anticipated Nov 11 shopping festival-China’s largest online sales event with more than 50 billion yuan ($8.17 billion) worth of goods sold in 24 hours last year-is a good stage to debut global offerings.

“As China’s e-commerce market becomes more mature, online platforms cannot rely on Chinese consumers spending more and more each year on the same products. They need to expand their product range, which will increase the average purchase value in China, and they need to expand their customer base,” said Neil Flynn, head equity analyst at Chineseinvestors.com, which covers US-listed Chinese companies.

Vanessa Zeng, a senior analyst with Forrester Research Inc, said that with most of the Chinese e-commerce players having gone public, pressure to make a profit will increase.

“Going global is all about finding the next growth point,” she said.

China’s online retail market was valued at 1.8 trillion yuan in 2013, or 8 percent of the total retail market. The online shopping market expanded 46 percent year-on-year in the second quarter of this year, but momentum has slowed from peak growth rates in 2012 of more than 80 percent.

“In this year’s sluggish consumer retail market, we see the mass-premium segment is growing fast, including imported products. There is a segment of middle-income class consumers in first-tier and some second-tier cities. Their disposable incomes are reaching a critical mass to drive a sales takeoff in the mass-premium segment,” said Adam Xu, a partner with multinational consultancy Strategy&, who said that growing consumer trade is one of the main reasons for the emerging trend of cross-border e-commerce in China.

Facing the pressure of a slowing economy, the Chinese government is looking for opportunities to unlock domestic consumption, including trial programs in the China (Shanghai) Pilot Free Trade Zone and other pilot projects with bonded warehouses to expedite customs procedures to encourage cross-border e-commerce.

Xu said that the popularity of cross-border e-commerce will continue to rise, with more global brands becoming aware of China’s online market opportunity. That will allow such companies to leapfrog China’s fragmented offline market.

Costco, a United States-based warehouse club retailer that joined the Tmall Global (a B2C platform of Alibaba) in October, is one such example. Within days of launching, Costco sold more than 3 metric tons of nuts and 1 ton of dried cranberries to Chinese consumers.

According to Analysys International, total transactions in China’s cross-border e-commerce sector reached 2.7 trillion yuan in 2013, of which exports accounted for 2.4 trillion yuan.

However, a recent report from PayPal pointed out that the number of consumers of cross-border e-commerce in China will surge to 35.6 million in 2018, creating a market of more than 1 trillion yuan.

Despite the huge potential for online merchants and consumers, the path of purchasing across borders can still be a bumpy one.

It can take buyers out of their comfort zone, forcing them to pay in a foreign currency at unclear exchange rates, unable to use their preferred payment methods and unfamiliar with duties, taxes, customs, shipping and other hidden costs.

For this year’s Nov 11 shopping festival, Amazon.com Inc has opened six overseas platforms in the United States, Germany, Spain, France, the United Kingdom and Italy to Chinese consumers. But Zhang said being a local platform, its edge is that the company’s website is in Chinese. Most Chinese are not comfortable shopping directly from sites that use foreign languages and want credit cards, he said.

Alibaba’s Tmall Global offers thousands of products from more than 20 countries, compared with more than 80 million overseas products offered by the multinational Amazon.

Wang Xiaoxing, an analyst at Analysys International, said that online cross-border e-commerce also poses challenges to the pricing strategies of brands, which may eventually limit the number of foreign offerings available online to Chinese consumers.

“Some brands tend to have different pricing strategies in different countries. Overseas high-end brands may be reluctant to participate in big sales events such as Nov 11,” Wang said.

The cross-border model helps narrow price disparities for some brands across countries, but it will not completely close all gaps because the disparities are caused by tariffs, transportation costs, local market demand and currency rates as well as companies’ pricing strategies.

“Right now, all of the imported goods purchased through e-commerce sites face certain levels of tariffs imposed by Chinese customs, which means shoppers will not see a big price difference between online stores and brick-and-mortar stores,” he said.

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