Why this article is significant
China, not Us is now leading e-commerce shopping revolution
What are the key points
①The size of the Chinese market is the largest, $2 trn, serving for 850 million digital consumers, bigger than America and Europe combined
②Fierce competition, for example Alibaba’s share of market capitalization dropped from 81% when it was listed to 55% now
③The reason why Chimese model is successful is that
A) Chiese e-commerce blend shopping platform with digital payment, group deals, social media, instant messaging, gaming and live stream celebrities while western model is separated in silos such as Google for search, Amazon for shopping, Facebook is just for connecting.
B) Prices are cheaper and more choices for consumers.
How do I interpret this?
I regard this as one of the examples which shows that Chinese is now innovating, not copying anymore.
Just like Japan was once copying wester products but now innovating them. Same phenomenon is happening in China.
We should be humble enough to learn from China.
Over the past ten months most people in the rich world have participated in the biggest shopping revolution in the West since malls and supermarkets conquered suburbia 50 years ago.
The pandemic has led to a surge in online spending, speeding up the shift from physical stores by half a decade or so.
Forget the chimney; Christmas gifts in 2020 came flying through the letterbox or were dumped on the doorstep.
Workers at a handful of firms, including Amazon and Walmart, have made superhuman efforts to fulfil online orders, and their investors have made supernormal profits as Wall Street has bid up their shares on euphoria that Western retailing is at the cutting edge.
Yet as we explain this week (see Business section) it is in China, not the West, where the future of e-commerce is being staked out.
Its market is far bigger and more creative, with tech firms blending e-commerce, social media and razzmatazz to become online-shopping emporia for 850m digital consumers.
And China is also at the frontier of regulation, with the news on December 24th that trustbusters were investigating Alibaba, co-founded by Jack Ma, China’s most celebrated tycoon, and until a few weeks ago its most valuable listed firm.
For a century the world’s consumer businesses have looked to America to spot new trends, from scannable barcodes on Wrigley’s gum in the 1970s to keeping up with the 🟢Kardashians’ consumption habits in the 2010s. 🟠Now they should be looking to the East.
China’s lead in e-commerce is not entirely new. By size, its market overtook America’s in 🟠2013—with little physical store space, its consumers and retailers 🟢leapfrogged ahead to the digital world.
When Alibaba listed in 🟠2014 it was the world’s largest-ever initial public offering.
①Today the country’s e-retailing market is worth $🟠2trn, more than America’s and Europe’s combined.
But beyond its sheer size it now stands out from the past, and from the industry in the West, in several crucial ways.
②For a start it is more dynamic. In the past few years new competitors, including Meituan and Pinduoduo, have come of age with 🟢effervescent business models. One sign of fierce competition is that Alibaba’s share of the market capitalisation of the Chinese e-commerce industry has dropped from 🟠81% when it listed to 55% today.
COMPETITION SO FIERCE UNLIKE COMMUNIST COUNTRY
CHINA NEW CAPITALISM
Competition has also led e-commerce and other tech firms to 🟠demolish the boundaries between different types of services that are still common in the West.
③Point and click are passé: online-shopping platforms in China now 🟠🟠blend digital payments, group deals, social media, gaming, instant messaging, short-form videos and live-streaming celebrities.
The obvious, multi-trillion-dollar question is whether the Chinese model of e-commerce will 🟠go global. As has been the case for decades, Silicon Valley’s giants still tend to 🟠punderestimate China.
There are few direct links between the American and Chinese e-commerce industries, partly owing to protectionism on both sides (Yahoo sold much of its stake in Alibaba, far too early, in 2012). And Western firms have long been organised in 🟠🟠cosy, predictable 🟠silos. So Visa specialises in payments, Amazon in e-commerce, Facebook in social media, Google in search, and so on.
The main source of uncertainty in e-commerce has been just how many big traditional retailers will go bust—over 🟠30 folded in America in 2020—and whether a few might manage the shift online, as Walmart and Target have.
Yet however safe and siloed Western e-retailing may appear to be, it is now 🟠unlikely that it will become the world’s dominant mode of shopping.
Already, outside rich countries, the 🟠🟠Chinese approach is gaining steam.
Many leading e-commerce firms in South-East Asia (Grab and Sea), India (Jio), and Latin America (Mercado Libre) are influenced by the Chinese strategy of offering a “super-app” with a 🟢cornucopia of services from 🟠🟠noodle delivery to financial services.
The giant consumer-goods firms that straddle the Western and Chinese markets may transmit Chinese ideas and business tactics, too.
Multinationals such as 🟠Unilever, L’Oréal and Adidas make more 🟠revenue in Asia than in America and their bosses turn to there, not to California or Paris, to see the latest in digital marketing, branding and logistics.
Already, Chinese characteristics are emerging in the retail heartlands of the West, partly as a result of the pandemic. The silos are breaking down as firms diversify.
Facebook is now promoting shopping services on its social networks, and engaging in “🟠social commerce”, including in live-streaming and the use of WhatsApp, for messaging between merchants and shoppers.
In December Walmart hosted its first live shopping event within TikTok, a Chinese-owned video app in which it hopes to buy a stake. In France in the past quarter the sixth-most-downloaded e-commerce app was Vova, linked to Pinduoduo’s founder.
And new entrants may finally make progress in America—the share price of Shopify, a platform for Amazon exiles and small firms, has soared so that it is now valued at more than $140bn.
This shift to a more Chinese-style global industry promises to be excellent news for consumers.
🟠Prices would be lower, as China has seen fierce discounting by competing firms.
🟠Choice and innovation would probably grow.
Even so, Chinese e-commerce has flaws. In a Wild West climate, fraud is more common. And there are those antitrust concerns. It is tempting to see the crackdown on Mr Ma as just another display of brutal Communist Party power (see Free exchange). It may partly be that, but China’s antitrust regulators are also keen 🟠to boost competition.
That means enforcing 🟠interoperability, so that, for example, payments services on one e-commerce platform can be used seamlessly on a rival one.
And it means preventing e-commerce firms from penalising merchants who sell goods in more than one place online.
So far American and European trustbusters have been 🟢ineffectual at controlling big tech, despite a flurry of lawsuits and draft laws at the end of 2020.
They, too, should study China, for a sense of where the industry is heading and how to respond.
There is a 🟠🟠pattern to how the West thinks about Chinese innovation. From electronics to solar panels, Chinese manufacturing advances were either ignored or dismissed as copying, then downplayed and then grudgingly acknowledged around the world.
Now it is the Chinese consumer’s tastes and habits that are going global. 🟠🟠Watch and learn.
c)アメリカとの違いは中国ではオンライショッピングとsocila net work が一体になっていて、消費者が商品の価値や使い方snsで発信し、それをみた他の消費者が買うという形が定着している、social commerce、グラフ３参照
How do I view this article.
このsocial commerceというやり方は Facebook Liveによって日本でも最近注目されている。
Almost everyone in China knows “Austin” Li Jiaqi. The 28-year-old “Lipstick Brother”, started out flogging make-up products in Nanchang, a provincial city, and now sells them to millions by live-streaming on Taobao, part of Alibaba, China’s biggest internet retailer—once shifting 15,000 sticks of lipstick in five minutes.
Some will recognise Chen Yi, nicknamed “Little Monster”, a 24-year-old girl-next-door from the coastal city of Qingdao who sells sunscreen, snacks and lots more besides to her 20,000 followers on WeChat, a ubiquitous messaging app: a nice supplement to her day job as a bartender.
More obscure but no less enterprising, farmers and fishermen show off juicy apples or prize lobsters in short videos, digital showmanship accompanied by new delivery networks that allow city dwellers to procure the produce.
Such are the faces—lipsticked, sunscreened, weather-worn or besnorkeled—that have helped propel an explosion of e-commerce in China. In rapid-fire videos or days-long jamborees, they flicker across hundreds of millions of smartphone screens in a cyber-bazaar that in 2019 was almost twice the size of those of America, Britain, Germany, Japan and South Korea combined—and growing faster (see chart 1).
As online shopping has soared, even before covid-19 added extra fuel, Chinese internet firms have dreamed up new ways to engage consumers.
In contrast to Taobao, the new ventures do not yet make money. But they are growing apace. Chinese tech firms are pouring fortunes into them.
Some of this capital flows straight back out as subsidies to entice buyers and sellers to the platforms, which clearly cannot go on for ever. But the effervescence is here to stay—and Westerners are only starting to notice.
“If you want to see the future, look at China,” Mark Schneider, boss of Nestlé, the world’s biggest food company, instructs his executives. Lubomira Rochet, head of digital marketing at L’Oréal, a French beauty behemoth, contrasts the bottom-up, “consumer-centric” vibrancy of Chinese e-commerce with the West’s “tech-driven”, top-down approach.
Some Western tech executives dismiss the Chinese experience as a function not of creativity and enterprise but of structural forces. They cite China’s higher mobile share of e-commerce—90% versus 43% in America (see chart 2).
Others put it down to a concentrated market, where the top three firms, Alibaba, jd.com and Pinduoduo, account for more than 90% of all digital merchandise sales, a state of affairs that is beginning to trouble Chinese trustbusters, who on December 24th announced an investigation into Alibaba (see box on subsequent page). In America the online titan, Amazon, and its two challengers, Shopify and eBay, accounted for less than 50%.
Yet a survey of Chinese e-commerce reveals genuine dynamism. It is not just Alibaba making the running. In a few years Pinduoduo has captured 14% of the market, helping to trim Alibaba’s share from 67% to 61%—and forcing the giant to moderate the “take rate” it charges those selling via its platforms.
Digital firms from outside retail are muscling in, including Meituan, which started out in food delivery, and ByteDance, which owns TikTok and its Chinese short-video cousin, Douyin.
The newcomers bring the sort of verve to online shopping in China that characterised America’s consumer boom of the 1950s and 1960s.
Indeed, to understand the evolution of Chinese e-commerce, look back to the birth of 20th-century consumerism in America. It was built around overlapping technologies. The car carried people to the suburbs, giving rise to the shopping mall, a place not just to shop but to mingle and have fun. Although radio and television played a role, through advertising and product placement, Western retail’s bedrock was—and continues to be—bricks and mortar. According to Bain, a consultancy, America has 🟠3.3 times as much physical shop floor per person as China does. Bernstein, a broker, reckons that America’s 330m people have 30 times as many malls as 1.4bn Chinese do.
The West’s finest shops are as dazzling as ordering on Amazon is drab. They also represent legacy investments that retailers are loth to undermine. As a result, neither retailers nor their customers have had much of an incentive to shun them—at least before covid-19.
Not so in China. Like everyone else in the world, Chinese still buy most things in physical shops. Especially outside big cities, though, many of these are shabby. Some sell fake goods. So China’s nascent middle class, armed with smartphones and broadband internet, finds online shopping both more rewarding and comfier than in the West, says Marc-André Kamel of Bain. A high population density makes delivery cheaper for consumers.
The result is a mix of shops, entertainment venues, food courts, games arcades and gathering places that replicates the 20th-century American mall in digital form, and hybrid links of the virtual with the physical.
Videos show something being crafted by hand. Influencers draw attention to how the item is used. Friends recommend it (or not) on social media. Shoppers band together with other netizens to buy it in bulk at a discount. Live broadcasts turn the whole process into entertainment. And a network of real-world businesses delivers the purchases.
The anchor cyber-tenant is commonly a super-app like WeChat, which has 1.2bn users. It is owned by Tencent, China’s biggest internet company—and directs traffic to jd.com and Pinduoduo, in which Tencent holds stakes.
The line in people’s minds between social networks and shopping websites does not exist in China, notes Frédéric Clément of Lengow, a consultancy.
Shoppers love it. Bernstein expects e-commerce to account for more than a quarter of all retail sales in China by 2021, roughly 🟠twice the share in America, even after the pandemic-induced stampede online.
The first pillar of this new retail architecture is “social commerce”. This relies on three related technologies:
live-streaming, short-form video and social-networking.
The biggest live-streamer is Alibaba’s Taobao Live. In just 30 minutes of presales for Singles Day, China’s answer to Black Friday, it notched up $7.5bn-worth of sales, about as much as Amazon is thought to have sold in its “Prime Day” in October (which actually lasted 48 hours).
In June Douyin set up its own shopping platform, having earlier hosted live-streams where the likes of Taobao teamed up with celebrity influencers to sell products.
The video-app’s 600m daily users confer a valuable resource—their attention. In the autumn it made its proprietary debut on Singles Day.
Fitch, a ratings agency, thinks the market for live-stream retail neared 1trn yuan ($153bn) in 2020, double the prior year’s amount (see chart 3).
Kuaishou, Douyin’s short-video rival, expects the gross value of goods sold on live-streams to rise from 4.2% of online sales in 2019 to almost a quarter by 2025.
Live-streaming has boomed as covid-19 confined Chinese to their living rooms while many captivating alternatives, like Netflix, remained banned in the country.
For people on relatively low salaries, the discounts on some of the merchandise are worth time spent glued to a live-stream.
According to Elijah Whaley, marketing chief of parklu, one of a booming cottage industry of influencer agencies, Western brands shipped unsold products to China, where live-streams offered a way to flog them. Ms Rochet says L’Oréal’s boss in China was flooded with emojis, likes and questions when he live-streamed a recent sales event. It included “lucky charms” that gave a few fortunate shoppers big discounts.
Many bargains are available for bulk purchases. This is where the social networks come in. Pinduoduo, founded in 2015 and now worth $175bn, enables groups, often formed via WeChat, to haggle with merchants, especially on groceries. It still makes a loss and burns cash. But its revenues are soaring, by almost 90% year on year in the third quarter. Seven-year-old Xiaohongshu, or Little Red Book, is already one of China’s most popular apps for cross-border commerce, with an estimated 85m users, according to Tenba Group, a consultancy.
Its customers, most of whom are young women, exchange shopping experiences via text, images and video. Tenba calls it a Chinese mix of Instagram and Pinterest, two American photo-sharing apps.
The second pillar of China’s great digital mall is familiar to Western retailers as “omnichannel”. Like social commerce, it too has boomed amid pandemic lockdowns and shop closures. In China the biggest e-emporia have their own supermarket businesses, such as Alibaba’s Freshippo and jd.com’s 7Fresh grocery chain. jd.com also has what it calls a “new-markets” business, which works with some of China’s 6.8m local grocery stores. It ships them branded goods, delivers what is already on their shelves to local buyers, and feeds them data to optimise their operations.
Some physical retailers, for their part, offer digital coupons to encourage customers to pay a visit, as well as using live-streaming to generate buzz and, hopefully, foot traffic. Others offer “grab-and-go” shopping, including staffless stores and smart vending machines where payments are made by scanning qr codes.
Alibaba says that its hybrid sales more than doubled in the 12 months to March 2020, year on year, to 86bn yuan. They rose from 11% of its main retail revenues to 17%. Sales from jd.com’s supermarket business grew by 48% year on year in the third quarter.
Meituan has broadened its speedy deliveries from takeaway meals to groceries. Mini-warehouses built by startups such as Missfresh, which promises 30-minutes grocery deliveries, are mushrooming in Chinese cities.
Before 2020 both social commerce and hybrid shopping provoked mostly bemusement in the West. Covid-19 has led to a swift reappraisal. As George Lee, Facebook’s head of product, puts it, the pandemic was a “call to action”.
The social network caters to the 160m businesses, mostly small and medium-sized, that use its apps and had to shift online as authorities ordered many physical shops to shut.
In May it introduced Facebook Shops, enabling businesses to set up a single online store on its core social network and its sister app, Instagram.
In November Instagram redesigned its home screen for the first time in years, introducing tabs called Reels and Shop, which promote short videos, as well as online retail.
Facebook’s messenger apps, including WhatsApp, can be used to communicate with businesses on its platforms and may eventually be used for sales. Facebook Live also does streaming. In December Walmart, America’s largest supermarket chain, held what it called a “Holiday Shop-Along Spectacular” on TikTok, with which it has formed a partnership. It allowed viewers to buy some of its fashion items exhibited by celebrities directly via the video app, apeing what Douyin has been doing in China.
Vishal Shah of Instagram makes a distinction between “buying” and “shopping” to describe Facebook’s aim—in other words, turning a utilitarian process into a more personal experience.
Other social-media firms are moving in the same direction. Since 2020 Snapchat users can try on make-up and shoes virtually, bolstering what the app calls “shopability”. Shopify has enlisted TikTok to enable its 1m-plus merchants to market their wares by video.
In omnichannel sales, as in most things e-commercial, Amazon is ahead of the pack. It owns almost 500 Whole Foods Market stores and has opened some Amazon Fresh grocers in America that offer free same-day delivery to some members of its Prime subscription service. But big-box retailers like Walmart and Target, whose in-store pickups on online purchases have been a hit with covid-wary shoppers fearful of crowded aisles, have made huge strides.
Not everyone thinks that America will follow the trail blazed by China. Bain says that recent inroads notwithstanding, social commerce accounts for a much smaller share of total retail sales in America than in China.
Russell Grandinetti, Amazon’s head of international retail, says consumers want different things at different times. Sometimes they just want to buy stuff quickly and cheaply, not be wowed by celebrities. He says Amazon pioneered certain browsing techniques, such as online book reviews and tips that “people who bought this also bought that”. He notes that Prime Video and Twitch, Amazon’s gaming platform, have attracted “millions of customers” primarily interested in entertainment to its free shipment of goods. As for live-streaming, “It just hasn’t taken off in the West the same way it has in China.”
It will do eventually, Mr Grandinetti thinks. Other observers point out that the sheer size of America’s physical retail presence makes the logistics of weaving offline and online cheaper—which may encourage more hybrid shopping models.
In other ways America will chart its own path. Pricier labour than in China may lead to faster automation of online fulfilment. Greater concern over privacy relative to convenience may dampen shoppers’ appetite for sharing their spending habits with friends on social media.
And China’s retail razzmatazz could yet lose its vim. An ageing population will eventually reduce supply of cheap warehouse workers and delivery drivers. That may mean higher delivery fees, longer waiting times, perhaps even unions demanding better working conditions, further raising costs. Trust in influencers, particularly those paid big money to promote brands, is waning. Those making less may lose patience and stick to their day jobs. “The top 1% make a killing. The rest are starving artists,” says parklu’s Mr Whaley.
Perhaps the main reason Western firms have been slow to emulate Chinese e-commerce is not its inherent flaws but their overspecialisation. From Amazon’s home in Seattle and Facebook’s in Silicon Valley to Walmart’s in Bentonville, American companies have tended to focus on their core business—be it e-commerce, social media or supermarkets.
Only recently have they begun to invade each other’s turf. In time that may lead to more blurring of business boundaries. As Eric Feng, Facebook’s head of commerce incubations, summed it up at a recent virtual panel, tongue only slightly in cheek: “China, you are the light that will show us the way.”