May 25, 2018

E-commerce in China - Current status

 

 

By Hans Henrik Pontoppidan, Secretary General

Danish-Chinese Business Forum

 

China has become the world’s largest e-commerce player. By 2020 it is expected that the e-commerce volume in China will surpass the e-commerce market in the United States, UK, Germany, Japan and France combined! As the Chinese have not had a tradition of using credit cards, as in the West; and having leapfrogged the widespread adoption of PCs, they have instead moved directly to the usage of smartphones. This in turn has driven the development of a wide variety of apps, which have made China leading within FinTech technologies. The development is primarily driven by what in China is referred to as the BAT suppliers, which covers Baidu, Alibaba and Tencent (owns among others WeChat).

 

China has around 750 million internet users and the number of citizens who used smartphones is around 90% of the total number of internet users. For approx. 490 million Chinese or 65% of the smartphone users, their smartphone acts as a purse; again, the largest penetration rate in the World. To put that into perspective: in 2016 China transacted mobile payments for 790 bn.$. or 11 times the equivalent number in the US! China’s share of total retail e-commerce in the world (transaction value) is now close to 43% (against 24% in the US) a dramatic shift from just 10 years ago, when China’s share was a mere 0.6%!

 

Today roughly 55% of China’s population is aged between 20 and 60. Citizens born in the 80’s (35+ years old) are fast becoming a dominant force in the consumption market. The share of total consumption by this generation is projected to be the main driver in the next decade. In the longer term, China’s population at or above 60 is expected to more than double by 2050, signaling a long-term trend towards increased spending on healthcare. From 2012 to 2022 the upper middle class is expected to increase from 20% to 56% or a projected average annual growth rate of 22% p.a.

 

You have most likely heard of Alibaba’s Singles Day shopping event which takes place every 11thNovember. 812 million orders were made on Single’s Day 11thNovember 2017. Sales on that particular day was 25.3 bn. US$, up 39% compared with the year before! Alibaba processed 256,000 transactions per second at its peak on Single’s Day 2017.

 

Surely Danish companies are eager to tap into this attractive e-commerce market.

 

Challenges and opportunities for Danish companies

 

The Confederation of Danish Industries have recently announced a very depressing statistic. Out of Denmark’s export of 1,111 bn. DKK., only 18 bn. DKK. or a mere 1.6% of our total export numbers are through online sales. As individuals we are very good at buying on the internet and companies also source from there, but apparently, we are very poor at selling via e-commerce. Only 1/3 of the Danish internet sites are prepared for sales outside our borders. We clearly have a substantial and serious “e-commerce deficit”; in fact, Denmark is only placed 26thin Europe when it comes to online export and even countries like Greece and Croatia are placed higher!

 

On a positive note (and not an information which is reflected in the daily business press unfortunately), in the last 10 years, we’ve seen a growth rate of 72% in the number of Danish SMVs’ exporting to China!

 

If we can assist Danish SMV’s and the largest companies to become successful in selling on e-commerce platforms, the general idea is that we can sell much more than we are doing today.

 

I therefore welcome our member company Ehubnordic which is providing an effective interface to Alibaba Tmall Global + other platforms for the companies for which it is a too big task to try on their own. Danish companies are generally too naive on the complexity of Chinese e-commerce, thus an Ehubnordic solution can eliminate many of the challenges. In many ways, Ehubnordic resembles the old East Asiatic Company task in the past century of acting as agent on behalf of their Danish customers. When the demand has been proved, companies at a later stage can choose to take the steps themselves making an agreement with a third-party platform on their own, but at least such decision is done when the company have been convinced that there was sufficient demand for their products. Often Danish companies are surprised to find out what sells well in China. Thus, it would be much safer to take a decision to invest even more in the China venture, once success has been proven.

 

Danish-Chinese Business Forum’s offerings in this respect

 

DCBF took a decision during the summer of 2016 that one of the key offerings would be to offer insides to the attractive but tricky e-commerce market in China, by way of full and half day courses to its members. Basically, DCBF trains our member companies in all the disciplines of e-commerce being front-end, customer service, logistics, payments, approvals etc., by expert speakers chosen carefully by DCBF. These courses are currently within B2C e-commerce, but the ambitions are to extend this to B2B e-commerce from 2019 as well.

 

The courses also explain the difference between horizontal and vertical platforms and investigate alternative go-to-market strategies to the more traditional ones. Some of the e-commerce courses focus on specific themes like ‘Home and Living’, ‘Treated Food products’ or ‘Pharmaceuticals products’ which all requires different approval processes.

 

Most recently DCBF is working on developing a pilot project. It is the belief of Danish-Chinese Business Forum that China has enormous potential for Danish companies, which the project VERIFIED DANISH seeks to strengthen through authenticity and storytelling. If completed, it will be a sort of extra layer on top of the company’s e-commerce offerings. The interest and the need for storytelling, authenticity and traceability are going to explode in China in the coming years because Chinese consumers wish to get an authentic product i.e. surely that it is not a fake product they have bought, an opportunity Denmark should not miss out on.

 

In addition, the Confederation of Danish Industry and Copenhagen Business School are working on a project with the ultimate ambition, among others, of establishing a platform which can ease individual companies’ IT-integration with exiting platforms like Amazon, Ebay and presumably Chinese e-commerce platforms. This project will also be interesting to watch.

 

The initial challenges should not be a barrier, but it is important that Danish companies seek help from organizations who offers relevant and accurate advice like Ehubnordic and/or via the many offerings at Danish-Chinese Business Forum or other relevant organizations with this focus.