Tuesday, June 4, 2013

China's E-Commerce Companies Go Global - CKGSB Knowledge

E-Commerce Retailer VANCL's English language website is tailored to western customer's tastes. Will this be enough to make it in international markets? (Source: en.VANCL.com)

E-commerce retailer VANCL?s English language website is tailored to western customers. Will this be enough for VANCL to make it in international e-markets? (Source: en.VANCL.com)

Can China?s e-commerce companies like Jingdong Mall and VANCL replicate their success in international markets?

Just a few weeks before stepping down, Jack Ma, the founder and former CEO of Chinese e-commerce giant Alibaba, addressed the students of Stanford University. While talking of his humble start in China?s e-commerce industry and his rise to the top, he made a remarkable statement: ?I am thankful for the inspiration that Silicon Valley gave me.?

Back in China, Ma explained, he started working in the internet business in 1995 obsessed with how to catch up with Silicon Valley.

And catch up he did.

Fourteen years after its founding, Alibaba is the world?s largest online business-to-business (B2B) platform delivering e-commerce solutions for small businesses worldwide. There are others following in its footsteps?such as business-to-consumer (B2C) players like VANCL, China?s biggest fashion e-tailer, and Jingdong Mall (JD.com, which till recently was called 360buy.com), the second-largest B2C online retailer in China. Jingdong and VANCL account for 16% and 0.9% of the B2C market respectively, whereas market leader Tmall (owned by Alibaba) has 44.10% (owned by Alibaba).

During his speech at Stanford, Ma said he never wrote a business plan. Instead, he embraced what he saw as the best plan: change.

Change, Now the Only Constant

Today, China?s e-tailers are embracing change like never before. McKinsey & Company predicts that by 2020 China?s e-commerce market will equal that of the US, Japan, the UK, Germany and France combined today. To stay competitive in such a huge market these companies need to be nimble. For many, internationalization will help strengthen their brand and create new value.

VANCL and Jingdong have hundreds of millions of active users but they are by no means global giants yet. Venturing abroad will boost their reputation and help balance the already squeezed profit margins in the increasingly overcrowded home market. Ajing-mao, an analyst at e-commerce research institute Analysys International, agrees. ?Going abroad is the only way for a company to grow and develop fast, especially for e-commerce enterprises that have certain inherent advantages due to the internet. That?s the case, for example, of the rapid growth of B2C e-commerce sites like eBay and Amazon.?

Jia Jia, Associate Vice-President responsible for the overseas business of VANCL, explains that the global push was ?a response to the pressure posed by global e-commerce brands aiming at China?. ASOS is one such site. The popular UK-headquartered fashion e-tailer recently announced ambitious plans of launching a Chinese website in October. ASOS was following in the footsteps of other companies like online luxury fashion outlet Net-a-Porter that entered China a few months ago.

But Chinese companies will only be able to compete globally if they offer global consumers unique value proposition. To achieve that and to move up the value chain, they will need to invest in brand-building.

It is early days still and the pioneers have done precious little on that front. Jia Jia, VANCL?s Associate Vice-President responsible for the overseas business, acknowledges that for his company, ?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,? he says.

Casting the Net Wide

VANCL debuted its international website in 2010. But it wasn?t until March this year that the company started to invest more resources in their global strategy. Roughly 10% of their target consumers include overseas Chinese, but VANCL has ambitious plans of expanding into new areas with the help of teams familiar with the tastes of the specific target markets. Additionally, it is testing different business models to see how to tap in markets such as Russia, Southeast Asia and the Middle East. Interestingly, one year after it launched its global site, it made it available in three additional languages?Spanish, Portuguese and Russian.

Jingdong, on the other hand, doesn?t have a diversified market yet and only 30% of their customers are from outside the US. The global website (in English) was launched in October 2012 to embrace the opportunities created by the already developed Western e-commerce market. Shipping the 400,000 products on offer to more than 30 destinations, Jingdong intends to reproduce in an international setting its model of a company that creates value for consumers by selling ?Made in China? products from China. ?Our 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,? says Shi Tao, Vice-President (Retail), Jingdong.

But will these sites disrupt international markets?

The Acid Test

Even though companies like Jingdong have gone global, it appears as if they are really catering to overseas Chinese. This strategy might help them gain momentum abroad while testing their models and progressively diversifying their target markets. But the real test for these companies? global forays will be gaining acceptability with non-Chinese consumers.

A.T. Kearney?s report ?E-commerce is the Next Frontier in Global Expansion?? recommends localization of websites, and development of new business models, shipping options and payment methods as the key to success. Superior costumer experience and not underestimating local players are high on the list of recommendations.

This recipe, however, brings with it a set of challenges that fuel skepticism among some industry watchers with regard to the potential success of these ambitious companies. According to Ajing-mao, among the issues of concern are ?a lack of understanding of user demand in international markets and the customers? distrust toward the quality of Chinese products, coupled with a blind international expansion?.

VANCL and Jingdong are still in the first stages of their global expansion. They are using their websites to experiment with products, categories, shipping and payment solutions, customer service and website design. Jingdong?s Shi says that it?s 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.? In a way, how the global customer reacts to this constant optimization and customization of the website will eventually determine their business strategy as well as their key target markets.

?Categories would be our main ?strategy?,? says Shi. Since the launch of the global website, Jingdong has been trying to learn about the global market, the culture of these consumers, their preferred categories and payment options. As a result, the site has undergone a few changes here and there: books, for instance, is now at the top of the categories menu, the less popular categories have been removed and there?s a bigger offer of domestic products.

But this alone won?t do the job. User experience and search engine optimizion (SEO) play a crucial role in their chances to compete in globally. Doug Pierce, Founder and CEO of analytics at Cogney SEO agency, reckons that compared to Amazon, China?s e-tailers lag behind in determinant factors of search engine rankings, such as like organic keywords, ad keywords and referring domains. Also, in terms of localization of the websites, ?they must be in perfect English, allow photoshopping of products and open links in new tabs?, he adds.

On the other hand, accurate customization of their websites also implies a thorough understanding of the data generated by user transactions of international users, something that will also help companies figure out the shopping behavior of target consumers. Li Yang, Assistant Professor of Marketing at CKGSB, says, ?Most Chinese firms lack enough understanding of the Big Data concept, let alone of using it in a foreign environment.? Which is why, these companies will find it difficult to deal with important aspects of Big Data, such as data security or privacy protection since they are used to their domestic business models where they can make profits without taking into account consumers? privacy, he adds.

The China Advantage

For Jingdong, the fact that Chinese books are one of the top sales items is an indicator that the site is well received by the global Chinese community. Nonetheless, if Jingdong wants to reach a wider pool of consumers it will have to urgently deal with inconsistencies of the English site, where many product categories and specifications are only in Chinese and ads and banners are mostly targeting the global Chinese consumer.

Shi thinks it wouldn?t be smart to confront giants like eBay or Amazon. Instead, he aims at wining other markets by building trust with customers, always without losing sight of their very-low price advantage. The company?s self-built logistics network in China will give them an advantage when shipping Chinese goods from their own warehouses in the country. In the future, given the importance buyers give to speedy delivery, Jingdong plans a combined strategy where the most popular products will be stored in local warehouses to cut delivery times, while the rest will be shipped directly from China.

Nevertheless, both options pose great challenges. Domestically, Chinese e-tailers are used to extremely low shipping costs that allow them to remain competitive in the domestic market by offering next-day deliveries and free (or very low price) delivery services. CKGSB?s Li says that overseas they will find it hard to achieve the same efficiency. They?ll have to rely on third-party delivery companies that charge higher fees. On the other hand, local players will enjoy an advantageous position making it hard for Chinese companies to compete against such cheap shipping options.

Li says, ?The delivery cost for Amazon is already low as Amazon is able to leverage its negotiating power with shipping companies. When Chinese internet firms go to these countries, I doubt these new players would get cheap shipping as Amazon does.?

Connecting and Localizing

As they go global, China?s e-commerce players need to increasingly localize their offering to suit different country contexts.

Jingdong?s site, for example, now offers the option of checking prices in currencies like Euros, Pounds, Australian Dollars and Hong Kong Dollars, a part from US Dollars. Shi explains that providing wider currency choices helps non-US consumers avoid the inconvenience of going to Google to check the price of the goods they want to buy in their own currency.

Moreover, VANCL?s Jia Jia thinks the strategy of building a strong relationship with the user also helps overcome the negative perception often associated with ?Made in China? products and brands. In addition, investing in social networking through sites like Facebook or Twitter will help ?strengthen the exchanges with the local consumers, narrow the psychological distance with the overseas consumer and keep track of their needs,? notes Ajing-mao. VANCL?s global site, for instance, has a style guide book, a blog and an affiliate program. Combined with other social media tools like Facebook and Twitter, they are used as critical channels to get closer to the new market.

Local partnerships appear as a key strategy to build trust and create higher value. Last year, VANCL launched its first country-specific website in Vietnam. As a B2B2C platform, the Vietnamese partner is responsible of developing its own inventory of VANCL products that the company later sells to the local consumer through VANCL?s Vietnamese web portal. It might try this model in other markets in Southeast Asia in the future. Jingdong is also working in a similar partnership with a Russian site. In this case, the Russian platform would handle costumer service, delivery and payment solutions, whereas Jingdong would take care of the website, provide the products and ensure the low prices are maintained.

The model of company cooperation and platform cooperation gives a dramatic advantage in terms of localization because it provides companies a bigger margin in terms of offering a better service to international costumers and earn their trust. According to 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.?

Source: http://knowledge.ckgsb.edu.cn/2013/06/03/china/chinas-e-commerce-companies-go-global/

Zayn Malik miss america 2013 Oscar Nominations ABC Family social security social security paulina gretzky

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.