Skip to main content
Part of complete coverage on

E-commerce bigger in China than United States

By David Wei, Special to CNN
updated 1:33 AM EDT, Thu September 19, 2013
STORY HIGHLIGHTS
  • Unlike U.S., China has not been penetrated by organized retailers or brands yet
  • David Wei predicts by 2014, China's e-commerce will have bigger gross merchandise volume
  • E-commerce model needs to be different, Wei writes

Editor's note: David Wei, who appears in this month's episode of "On China," is a former CEO of Alibaba.com, which operates China's largest online marketplace. See here for show times for "On China."

(CNN) -- Compared with their U.S. peers, Taobao versus eBay, JD.com versus Amazon, Suning vs. Walmart, the Chinese leading e-commerce players have a much shorter history. However, they will take a bigger e-commerce share from the overall retail space soon.

Unlike in the United States, most smaller cities in China have not been penetrated by organized retailers or consumer brands yet. This offers an opportunity for e-commerce to become the mainstream retail format for these cities.

David Wei, who appears in this months\' episode of \
David Wei, who appears in this months' episode of "On China," is a former CEO of Alibaba.com.

Another reason is that the cost of commercial property in China went up significantly in the last decade. Thus, consumer brands and retail merchants are more encouraged to migrate online while in the United States, offline to online migration is mainly driven by labor cost and efficiency request. If not in 2013, no later than 2014, China's e-commerce will have a bigger gross merchandise volume than in the United States. Please be aware that China's total retail sales is still much smaller than the U.S., which further demonstrates that e-commerce's share in China will be much more significant.

2015, a breakthrough year for e-commerce in China

Why 2015? We need to understand the emerging cyber history in China. Almost all of China's leading Internet players' birthdays are in 1999, including Alibaba, Baidu, Tencent, Sina and Sohu, etc. In other words, there were no Internet applications until 2000.

People born on or after 1980 were over 20 years old in by 2000. They started to get access to the Internet mostly after their campus lives. We call them a generation working in Internet.

Why Chinese online sites look 'chaotic'
China a tough market for online business

Take a look at people born on or after 1985. They were teenagers in 2000 when the Internet was just getting started in China. This post-1985 generation is one that lives on the Internet, and started from social, gaming to almost everything. By 2015, this post-1985 generation is reaching their 30s and becoming the core consumer group for almost every category. They have already migrated to the virtual space and they are the mainstream consumption power in China.

E-commerce will take such consumption power and make offline retail even weaker.

Different ecommerce business model is a MUST

Although I put Taobao.com versus eBay, JD.com vs. Amazon.com, Suning versus Walmart into respective peer group, they do not run the same business models and they don't even look similar anymore.

Why the e-commerce model needs to be so different, we need to answer this question from a consumer angle and a merchant angle.

As we mentioned above, Chinese Internet consumers are younger, and they're not mainstream yet. Most of them have never been served by organized, retailed or consumer brands yet.

Taobao.com can evolve from an online flea market to T-mall and become the shopping entry portal, while eBay finds itself having difficulty getting rid of its secondhand products from its auction site. From a merchant's point of view, there are millions of small but professional merchants in China, they will not just fill up Taobao.com but they will also flood into JD.com and Suning.com and become a major sales force in China.

Any e-commerce platform's success depends on winning these millions of merchants and they will make the pure online retail model very difficult in China.

Behind these millions of merchants are hundreds of thousands of factories in China. This is why such phenomenon does not exist in the United States where you can hardly find any manufacturers. The monetization model in China for e-commerce is also very different.

Advertising model is better accepted by millions of small merchants rather than transaction fee or listing fees.

Even service powered by e-commerce needs a different model and will have a different future. When Groupon is under challenge in the United States, I believe that few Chinese survivors, like Meituan.com, from thousands of Chinese Groupons will have a brighter future than its original.

The brighter future is based on at least one-third of restaurants and other small and medium business changing hands every year and their ongoing marketing demand will offer companies like Meituan.com almost endless merchants list for promotion. On the other hand, the price sensitive consumers will be addicted to such service.

Winning tips for foreign players in China

Google, Yahoo, eBay, Amazon, and Groupon, as part of a very long list of U.S. Internet and e-commerce giants, have tried different ways through set-up by themselves, acquisition, joint venture with local key players, none of them can claim any success in China yet.

Unlike other Internet applications, the e-commerce sector is least regulated and restricted by Chinese authorities in comparison to other Internet verticals. In my opinion, U.S. players cannot offer the real value to local consumers since their global technology and supply chain advantage cannot be leveraged in China.

The cross-border management slows down the quick reaction required in this fast-moving market.

My advice for U.S. players is to humbly buy in minority shares in some emerging Chinese e-commerce players and focus on cross-border synergies, such as cross-border tourism, education or shopping behaviors, etc. These cross-border activities will be growing more rapidly and such synergy can really leverage U.S. peers' strength and offer real value to Chinese consumers.

ADVERTISEMENT
Part of complete coverage on
See CNN's complete coverage on China.
updated 10:30 PM EDT, Thu July 17, 2014
Some savvy individuals in China are claiming naming rights to valuable foreign brands. Here's how companies can combat them.
updated 5:11 AM EDT, Wed July 16, 2014
Is Xi Jinping a true reformist or merely a "dictator" in disguise? CNN's Beijing bureau chief Jaime FlorCruz dissects the leader's policies
updated 11:44 PM EDT, Mon July 7, 2014
With a population of 1.3 billion, you'd think that there would be 11 people in China who are good enough to put up a fight on the football pitch.
updated 2:31 AM EDT, Fri July 4, 2014
26-year-old Ji Cheng is the first rider from China to compete for competitive cycling's highest honor.
updated 7:24 AM EDT, Mon July 7, 2014
China's richest man, Wang Jianlin, may not yet be a household name outside of China, but that could be about to change.
updated 12:14 AM EDT, Fri July 4, 2014
Hong Kong's narrow streets were once a dazzling gallery of neon, where banks and even bordellos plied their trade under sizzling tubular signs.
updated 7:57 PM EDT, Thu July 3, 2014
When President Xi Jinping arrives in Seoul this week, the Chinese leader will have passed over North Korea in favor of its arch rival.
updated 7:59 AM EDT, Thu July 3, 2014
Three more officials have been given the chop as part of China's anti-corruption drive, including former aides to the retired security chief.
updated 9:05 AM EDT, Tue July 1, 2014
As thousands of Hong Kongers prepare for an annual protest, voices in China's press warn pro-democracy activism is a bad idea.
updated 12:37 AM EDT, Mon June 30, 2014
Hong Kongers are demanding the right to directly elect their next leader, setting up a face-off with Beijing.
updated 2:56 AM EDT, Tue July 1, 2014
The push for democratic reform in Hong Kong is testing China's "one country, two systems" model.
updated 7:56 AM EDT, Mon June 30, 2014
Along a winding Chinese mountain road dotted with inns and restaurants is Jinan Orphanage, a place of refuge and site for troubled parents to dump unwanted children.
updated 4:36 AM EDT, Thu June 26, 2014
CNN's Kristie Lu Stout invites Isaac Mao, Han Dongfang, and James Miles to discuss the rise of civil society in China and social media's crucial role.
updated 11:34 PM EDT, Wed June 25, 2014
Chen Guangbiao wants rich people to give more to charity and he'll do anything to get their attention, including buying lunch for poor New Yorkers.
updated 7:44 AM EDT, Thu June 26, 2014
Architects are planning to build the future world's tallest towers in China. They're going to come in pretty colors.
updated 7:47 AM EDT, Mon June 23, 2014
Anna Coren visits Yulin's annual dog meat festival. Dogs are part of the daily diet here, with an estimated 10,000 dogs killed for the festival alone.
updated 2:38 AM EDT, Thu June 19, 2014
People know little about sex, but are having plenty of it. We take a look at the ramifications of a lack of sex education in China.
updated 4:12 AM EDT, Fri June 13, 2014
Hong Kongers have reacted angrily to a Chinese government white paper affirming Beijing's control over the territory.
The emphasis on national glory -- rather than purely personal achievement -- is key.
updated 12:14 PM EDT, Mon June 16, 2014
A replica of the Effel Tower in Tianducheng, a luxury real estate development located in Hangzhou, east China's Zhejiang province.
What's the Eiffel Tower doing in China? Replica towns of the world's most famous monuments spring up all over China.
updated 8:13 PM EDT, Tue June 10, 2014
Rapid development hasn't just boosted the economy -- it has opened up vast swathes of the country, says a man who has spent much of his life exploring it.
updated 2:54 AM EDT, Tue June 10, 2014
The World Cup is apparently making a lot of people "ill" in China.
ADVERTISEMENT