You often read about website and e-commerce localization targetting emerging markets outside of the US and Europe. As their own market is reaching saturation point, Chinese companies are now expanding their scope and looking global. In this post we explore how Chinese e-commerce websites are approaching foreign online markets.
CKGSB Knowledge recently published an interesting article looking at the expansion plans of Chinese e-commerce giants. Founder and former CEO of the Chinese-based e-commerce Alibaba Jack Ma recently gave a lecture at Stanford University in the USA where he stated “I am thankful for the inspiration that Silicon Valley gave me.” This statement perhaps sums up what is happening in the digitial, online space and ecommerce space at present in China. The inspiration has led to a desire to catch up with the likes of Silicon Valley.
Alibaba, which was founded fourteen years ago, is currently the largest online business-to-business platform worldwide and specialises in e-commerce solutions for small businesses. There are a number of others following in its path; B2C companies now have their eyes set on the global market as well. Names include VANCL, China’s biggest fashion retailer, and Jingdong Mall.
The Potential of Chinese e-Commerce
Unlike other parts of the world, “E-tailers” in China aren’t afraid to embrace change. In fact, McKinsey & Company predict that the e-commerce market in China will be equal to the combined markets of the US, Japan, the UK, Germany and France of today in 2020. If true, that’s impressive.
The realisation is that internationalization can aid Chinese companies to strengthen their brands abroad. VANCL and Jingdong might have millions of active users, yet they are not the global giants they could be. Going global will enhance their reputations and allow for more growth as the Chinese market is now quite saturated.
Jia Jia, Associate Vice-President responsible for the overseas business of VANCL, explains the decision to enter the international market as “a response to the pressure posed by global e-commerce brands aiming at China.” One of these businesses is online fashion store, ASOS. The recognition among stakeholders and commentators is that Chinese brands will only find international success if they have something unique to offer. To be able to do this, they need to “invest in brand-building,” researcher Iris Mir says. However, a lot of work needs to be done in this field. Jia Jia, for example, commented that, “it’s too early to do branding. [We] don’t have any advantage yet compared to other e-commerce websites especially in the US, or in Spain with Zara.”
In 2010, VANCL launched its international website. However, it was not until March that they started to look into their global strategy. About 10% of their consumers are Chinese people living abroad, but the company is planning to expand to foreign markets by targeting the tastes of specific markets. Contrastingly, Jingdong approaches the international market as one, big market. 30% of their users are from outside the US and stem from over 30 different countries. They are planning to expand. Shi Tao, Vice-President for Retail says that Jingdong’s “advantage is low prices and we will keep that. Our team is based in China but people can buy from other markets and then we ship from China.” Will this strategy be internationally successful? Investment from Saudi Arabia in the company seems to point to a recognition that it could be.
Approach to Internationalization
The “globalisation” of Chinese companies through the internationalization of websites to date seems to focus on Chinese expats. This is a good way to test their models, but according to Mir, the real test will come when they try to target other cultures. A.T. Kearney’s report “E-commerce is the Next Frontier in Global Expansion” suggests website localization and new business models, shipping options and payment methods are the way to achieve international success. This does involve a number of challenges. If companies do not understand the target culture and fail to remove the distrust western consumers have of Chinese products, expansion might not be successful. “Made in China” still does have certain negative connotations.
As they are still in the first stages of going global, Jingdong’s Shi says the company is using a “wait-and-watch strategy:” “We launch the website first, then we see the behavior of the people: what they like, what pictures they click on, etc. In the future, if we notice a given country likes red color, we will then switch the color of the website to red.” This might eventually determine both the business strategy and the key target markets of the company. In addition, Shi says that categories are Jingdong’s main strategy. Every culture has a different way of displaying categories, and Jingdong is using the available information about this to attract more customers.
However, Mir states this is not enough for a succesful global expansion. International SEO is also a very important part of international success, she says. Moreover, even though customized websites are a very good strategy, Chinese companies must have a great understanding of the data that is generated by the transactions of international users. This will also help businesses in understanding consumers’ shopping behaviour. Assistant Professor of Marketing at CKGSB I Yang: “Chinese firms lack enough understanding of the Big Data concept, let alone of using it in a foreign environment.” This might affect the consumer’s privacy, as the Chinese are used to business models that do not take data security or privacy protection into account at all.
Challenges of Global e-Commerce
Jingdong sells a great deal of Chinese books, which implies that the Chinese community abroad knows its way to the website. However, an English website is needed to target more foreign consumers. Shi believes it is not a good idea to compete with eBay or Amazon – he wishes to build trust with consumers and emphasise their low prices to conquer foreign markets. Jingdong has an elaborate logistics network in China and is planning to set up local warehouses abroad to ensure speedy delivery. Other items will be shipped from China directly.
Mir believes both strategies come with a number of challenges. Chinese e-tailers have very low shipping costs and offer next-day deliveries to lure in customers, but it might be difficult to achieve this abroad. Third parties that will charge higher fees probably have to be called in. This puts local companies at an advantage over their Chinese ecommerce counterparts.
To increase their success in the international market, Chinese companies must localize their websites as much as possible. Foreign currencies must be included on the website, for example. Jia Jia also believes a good relationship with the consumer will help to crush the negative image Chinese products have abroad. Moreover, social networks are seen as key in helping to strengthen the position of the Chinese brands as well.
Local partnerships are also seen as a great way to increase a company’s value and to build trust. In 2012, VANCL launched their first country-specific website aimed at Vietnam. The company has a Vietnamese partner that creates an inventory of VANCL products that are then sold via the Vietnamese website. This model is also employed in cooperation with a Russian website. Here, the Russian parent handles consumer service and payment solutions.
Company cooperation and platform cooperation greatly aid the internationalization process, Mir says, as it enables companies to offer a better service to international users and helps to earn their trust. Shi: “In the future, this will probably be a better strategy to land into different markets. Amazon chose to acquire or set up their company and their own team. I think in the future this won’t be the only way to do this kind of businesses.”
The ecommerce space continues to excite. Whereas the dialogue has traditionally been about localization from West to East, it appears the East is catching on to the potential that exists online. The ambition, budgets and technical know-how are certainly there; the question is will they grasp local culture, local expectations and local behaviour enough in Europe or the USA to really penatrate the markets? Or will they find other means and ways of conquering our screeens? Watch this space…
However, don’t forget that China still offers lots of potential for companies looking to expand their e-commerce operations into the market. Click the chart below for an infographic on China’s $265 billion e-commerce world which should illustrate what we mean.