The great leap online

2011-11-29 11:15:00

China will become the world s most valuable market for e-commerce

WHEN it comes to e-commerce, America is still top dog, with some 170m punters scouring for bargains on the internet. However, China is not far behind, with 145m online shoppers, and it could become the world s most valuable e-commerce market within four years.

In a new report, the Boston Consulting Group (BCG) calculates that every year for the foreseeable future another 30m Chinese will go online to shop for the first time. By 2015 they will each be spending $1,000 a year about what Americans spend online now. BCG calculates that e-commerce could rise from 3.3% of China s retail sales today to 7.4% by 2015 a jump that took a decade in America.

The Chinese government has heavily subsidised the rollout of high-speed access, so internet penetration now approaches rich-country levels. That boosts e-commerce, of course. But so, too, do the shortcomings of China s costly, inefficient bricks-and-mortar retailers.

For example, a quarter of Chinese shoppers seek products online because they are not available at physical stores. Also, until recently, China lacked a reliable and cheap method of shipping packages, so the e-commerce industry has invested in developing one. Purchases on Taobao, an online Goliath that is a division of China s Alibaba, are thought to account for a staggering 50% of all packages shipped in China. The cost of shipping parcels is now a mere one-sixth of what firms in America have to pay.

The biggest snag holding back e-commerce for years was a lack of trust. Consumers worried (quite rationally) that online firms were fraudsters, or that their credit cards would be abused, or that purchases would get swapped for counterfeits during shipment. Alibaba overcame this by creating Alipay, a clever online arrangement that unlike eBay s system releases payments to vendors only after clients confirm that they are satisfied.

Chinese e-shoppers are also big users of social media. Precisely because they do not trust sellers or advertising much, they devour online customer reviews of the sort made popular by eBay and Amazon. According to BCG, over 40% of Chinese online shoppers read and post product reviews online, making them twice as likely as American online shoppers to do so and four times as likely as Indians. The future of e-commerce is Chinese.

from the print edition | Business