Skip to main content
Part of complete coverage on

E-commerce bigger in China than United States

By David Wei, Special to CNN
September 19, 2013 -- Updated 0533 GMT (1333 HKT)
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
October 29, 2014 -- Updated 0518 GMT (1318 HKT)
A top retired general has confessed to taking bribes, becoming the highest-profile figure in China's military to be caught up in President Xi Jinping's war on corruption.
October 27, 2014 -- Updated 0507 GMT (1307 HKT)
A group in China escapes from a stuck elevator thanks to one man and his trusty hammer. CNN's Kristie Lu Stout reports.
October 23, 2014 -- Updated 1352 GMT (2152 HKT)
Facebook's founder says he taught himself Mandarin and tested his skills with students in China.
October 24, 2014 -- Updated 0133 GMT (0933 HKT)
China launched an experimental spacecraft that is scheduled to orbit the moon before returning to Earth.
October 28, 2014 -- Updated 1619 GMT (0019 HKT)
Full marks for ingenuity: This was a truly high-tech scam.
October 21, 2014 -- Updated 0526 GMT (1326 HKT)
The rationale behind Confucius Institutes -- an international chain of academic centers run by an arm of the Chinese government -- is understandable.
October 24, 2014 -- Updated 1511 GMT (2311 HKT)
Smooth jazz saxophonist Kenny G wants everyone to know that he's not a foreign agitator trying to defy the Chinese Communist Party.
October 17, 2014 -- Updated 1113 GMT (1913 HKT)
A smuggler in Dandong, a Chinese border town near North Korea, tells CNN about the underground trade with North Korean soldiers
October 28, 2014 -- Updated 0511 GMT (1311 HKT)
Yenn Wong got quite a surprise one morning earlier this month when she found out an exact copy of her Hong Kong restaurant had opened in China.
October 15, 2014 -- Updated 0315 GMT (1115 HKT)
When I first came across a "virtual lover" service on e-commerce site Taobao, China's version of Amazon, I thought it was hype.
October 14, 2014 -- Updated 1315 GMT (2115 HKT)
Each year Yi Jiefeng does what she can to stop China turning into a desert.
October 13, 2014 -- Updated 1454 GMT (2254 HKT)
As its relationship with the West worsen, Russia is pivoting east in an attempt to secure business with China.
October 8, 2014 -- Updated 0229 GMT (1029 HKT)
Aspiring Chinese comics performing in Shanghai's underground comedy scene hope to bring stand-up to the masses.
September 30, 2014 -- Updated 1654 GMT (0054 HKT)
Liu Wen is one of the world's highest-paid models and the first Chinese face to crack the top five in Forbes' annual list of top earners.
October 3, 2014 -- Updated 1144 GMT (1944 HKT)
Cunning wolf? Working class hero? Or bland Beijing loyalist? C.Y. Leung was a relative unknown when he came to power in 2012.
October 2, 2014 -- Updated 1125 GMT (1925 HKT)
 A man uses his smartphone on July 16, 2014 in Tokyo, Japan. Only 53.5% of Japanese owned smartphones in March, according to a white paper released by the Ministry of Communications on July 15, 2014. The survey of a thousand participants each from Japan, the U.S., Britain, France, South Korea and Singapore, demonstrated that Japan had the fewest rate of the six; Singapore had the highest at 93.1%, followed by South Korea at 88.7%, UK at 80%, and France at 71.6%, and U.S. at 69.6% in the U.S. On the other hand, Japan had the highest percentage of regular mobile phone owners with 28.7%. (Photo by Atsushi Tomura/Getty Images)
App hopes to help those seeking a way out of China's overstrained public health system.
October 3, 2014 -- Updated 0020 GMT (0820 HKT)
Yards from pro-democracy protests, stands the Hong Kong garrison of the People's Liberation Army (PLA), China's armed forces.
ADVERTISEMENT