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China - a trillion-dollar-sized pie?

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Author: Iain O’Neill, Head of Innovation, wnDirect

China is currently in the forefront of our minds as we countdown to ‘Single’s Day’ which takes place next month. Singles Day, the single consumer’s Valentine’s Day celebrated in China on 11/11, is the world’s biggest online retail event which last year resulted in Chinese consumers spending a whopping $14.3bn, in just one day!

There is absolutely no question that China represents significant opportunities for Western retailers. Not only does it have a colossal population of 1.3 billion, but it is also the world’s largest and fastest growing eCommerce market. Chinese consumers purchased $589.61bn worth of goods online in 2015, a 33.3% increase from a year earlier, according to the National Bureau of Statistics in China. The market is far from mature with online shopping continuing to rise significantly with online spending estimated to reach over one trillion dollars by 2020. As Jack Ma, the Chinese billionaire and co-founder of Chinese eCommerce giant Alibaba put it, ‘in China eCommerce is a way of life’.

 

And it is not just eCommerce that is booming in China…despite Chinese consumers being relatively new to online shopping, and despite the implementation of a new tax on overseas purchases in April this year, Chinese consumers are embracing cross-border eCommerce.

 

According to digital marketing researcher eMarketer, cross-border eCommerce in China will hit $85.76bn this year, up from $57.13bn in 2015 and that by 2020, half of China’s digital shoppers (or more than a quarter of the country’s population of about 1.4 billion) will be buying foreign products online. According to a recent Accenture-Ali Research report, China is expected to drive much of the growth of cross-border eCommerce in coming years.

 

Cross-Border eCommerce in China Singles Day 11.11

 

But why has cross-border shopping become so attractive to Chinese consumers? A number of factors are fueling the cross-border trend. Firstly, product safety incidents and less than stringent government supervision has meant that consumers have developed a lack of trust in domestic brands. This, combined with the fact that they also have a greater exposure to, and knowledge of, foreign products means that they are now going online to seek higher quality and lower priced products from abroad which they deem more trustworthy.

 

Secondly, incomes have risen in China, 70% of consumers are under 35 and the country’s large and growing middle class (which is equal in size to the entire US population and expected to reach 630 million by 2022 according to McKinsey) are hungry for western quality and brand status. Impatient for the latest products and better prices, they can buy directly from foreign retailers and suppliers at the click of a mouse or the swipe of a screen.

 

So taking all of these factors into consideration, along with the impressive statistics and predictions, the significant opportunities which exist for Western retailers in China are crystal clear.

 

Despite these opportunities, there is still a reluctance to enter the region. It is true that China has always been considered a difficult market to enter and there are a number of not insignificant barriers to entry. Yet despite the challenges there are more than enough opportunities to make the effort worthwhile.

 

China has very specific requirements with businesses requiring a Chinese business licence to operate. Coupled with this, the buying habits are very different from what is witnessed elsewhere in the world. It is vital that brands wishing to access the market not only understand this but appreciate the importance. These factors were key when developing our Chinese offering. We quickly realised that we had to develop much more than a delivery service but a mechanism for retailers to operate within this very specific market. In order to do this we decided to develop a partnership with experts in China who could bring this experience and cultural understanding to our logistics services.

 

So, keen for a slice of the trillion dollar sized pie?

 

 

For more information, please consult our China cross-border eCommerce country guide.

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