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%.
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 customer 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.
[This article has been reproduced with permission from CKGSB Knowledge, the online research journal of the Cheung Kong Graduate School of Business (CKGSB), China's leading independent business school. For more articles on China business strategy, please visit CKGSB Knowledge.]