History of E-commerce
The electronic commerce or e-commerce industry is has grown substantially across the globe with the popularity of smartphone and easy access to the internet. E-commerce is referred to buying and selling of goods and services on the internet. This is a new model of commercial business which is used by corporations worldwide due to its various advantages. This model breaks the national and regional boundaries and enables corporations to expand their operations across the globe. However, the e-commerce market in China is different from the rest of the world because the government has imposed many restrictions on the internet. In this essay, the e-commerce market of China will be discussed. The history and development of the e-commerce market in China will be analysed in this essay. The online shopping market in China and how it is affecting the country and its economic growth will be evaluated in this essay. Various advantages and disadvantages of the e-commerce market in China will be discussed from the perspective of people, organisations and the government.
The history of e-commerce started 40 years ago after which it quickly becomes a key part of people’s lives in various countries. The e-commerce market has proliferated in the past few decades due to innovations, new technologies and thousands of businesses who use this platform for reaching a wider audience. The Electronic Data Interchanges and teleshopping facilities in the 1970s started the operations for modern-day e-commerce stores. The history of e-commerce is related to the history of the internet without which this industry would not have existed. Amazon was the first ever e-commerce website in the United States after the internet become public in 1991. However, online shopping was invented in 1979 by Michael Aldrich in the United Kingdom who connected a modified domestic television with a telephone line which allows users to make a purchase real-time. In 1992, an online bookstore was created by Charles M. Stack who begins selling books online. The first online transaction was made to sell marijuana by student of MIT as per some reports in 1972; however, the first online shopping transaction was made on August 12, 1994, between two friends of a Sting CD.
Between the period of 1960 and 1982, the Electronic Data Interchange (EDI) replaced traditional ways of mailing and faxing. Organisations started using this method for digitally transferring data from one computer to another. Between 1982 and 1990, the population of business to business online shopping become popular with online service used by Videotex terminal machine which connected millions of users to a computing network. In the early 1990s, the internet becomes public, and it opened new opportunities for companies in e-commerce market. Although many parties tried to establish their online operations, however, the marketplace emerged with Amazon entering the market. The company offered about 200,000 books on its website in the beginning; however, due to lack of physical limitations of brick-and-mortar bookstores, the corporation was able to offer exponentially more products to its customers. Later the company started to expand its operations which include not only books but electronics, apparel, food, toys, furniture, music and video downloads and others. As the online payment methods evolved, the e-commerce market started to take over the world and corporations started offering their products on online platforms.
History of E-commerce in China
In China, the history of e-commerce is short, but this market has evolved fast. The history of e-commerce in China started back in 1990 when technologies such as EDI and Electronic Fund Transfer (EFI) started entering into Chinese markets. The period between 1993 and 1997 was the starting period for e-commerce market in Chine. In 1993, the government of China introduced ‘Three Golden Projects’ to build an information-based national economy. The three projects were focused on building a national public commercial internet service which covers the entire country. They were targeted on building a national credit card network in Chine along with digitalisation of currency. Lastly, these projects were aimed to link custom points through EDI system while promoting paperless trade in the country. These three objectives were set by the government which was incorporated in areas such as transportation, healthcare and others. The internet was fully available across China in 1994 which lay the foundation of e-commerce in the country. Jack Ma created ‘China Yellow Page’ in 1995 which provided web page creation facilities to corporations. The first ever vertical website in China was launched in 1997 called China Chemical Network. However, the Chinese e-commerce market changed completely in 2000 and entered into a new phase with setting up of first online advertisement. In 1997, the Chinese Goods Ordering System (CGOS) was launched which allowed customers to order products online. In 1998, the first-ever online transaction was made in China, and official business to customer website was first launched in China in 1999. However, after worldwide dot-com collapse, the Chinese e-commerce market suffered which resulted in disappearing of most B2C companies.
In 2003, Jack Ma founded the Alibaba Group which stepped into customer to customer (C2C) market. HuiCong was the first ever listed B2B Company in China which went public in Hong Kong Growing Enterprise Market (GEM). After introduction of a large number of competitors in the e-commerce market of China, it started to expand rapidly. In 2007, online retail trade in China reached $8.3 billion (56.1 billion CNY). Due to the influence of e-commerce industry in China, the economy of the country started to proliferate with popularity of online payments, logistics, supply chain links and other supporting technologies. After 2008 Beijing Olympics Game, the e-commerce market of China skyrocketed which bring it to the spotlight. In the same year, the number of internet users in China has increased to 253 million, and it dethrones the United States to become the country with the highest number of internet users. A major milestone was set by Alibaba on November 11 by initiating its sales day in which it generates sales of $7.35 million (50 million CNY). In this sale, there was only 27 participating sellers. China becomes the largest online retail market in the world by surpassing the United States in 2013. During this period, the e-commerce transactions in the country reached 10 trillion CNY, and online retail transactions topped 1.85 trillion CNY which is equivalent to 7.8 percent of the total retail sales of the social consumer goods in China. In the same year, Alibaba partnered with other logistic and financial corporations to start Cainiao.
This decision was taken to build a smart logistics network (CSLN) in the country which supports a daily average of 30 billion retail sales (about 10 trillion annually). Due to this system, the parties were able to deliver goods in any region in China within 24 hours in next 5-8 years. The logistics volume of China reached 14 billion in just a short period after its launch, and it became the largest in the world in 2014. In China, more than 15 percent of all retail-based transactions are made through online methods which attributed to e-commerce in 2016 and corporations generate more than $752 billion (5.16 trillion CNY) through online transactions. It shows that China has a short history of e-commerce market than compared to other countries, but it has evolved significantly faster. In the present day, many e-commerce giants such as JD and Taobao gained significant popularity in China. The internet penetration rate reached almost 60 percent in China in 2016 with estimated 731 million Chinese people who were active online. The world started to take notice of this lucrative market in which single day sales of Taobao and T-Mall were surpassing combined sales of Black Friday and Cyber Monday in the United States which were the biggest shopping days in the country. The history of e-commerce industry in China shows how drastically people’s lives in China have changed in the past 20 years with the introduction of online shopping in the country. This also benefits the small and large seller in the country who offers their products and services through the online platform by creating new opportunities to reach a wider audience.
Online shopping is referred to the process by which customers purchase products through an online platform without any intermediary. In this process, the customers did not have to go to shopping centres or different stores to shop. They can visit an online shop to purchase products or services which is an alternative option of bricks-and-mortar retailers. This is called a business-to-customer (B2C) process. Along with B2C, the popularity of e-commerce expanded B2B market as well in which the businesses directly purchase products or services from other businesses. Online shopping comprises B2C and B2B dealing, whereas, e-commerce is referred to a type of business model in which the information is transferred across the internet which include a wide range of businesses from customer-to-retail sites to customer-to-customer. The development of online shopping started in 1990 along with expansion of e-commerce market which becomes popular due to the popularity of the internet. In China, the technology becomes popular in 1999 after citizens were connected to the internet. It started increasing the number of B2C websites in the country which promoted online shopping. However, no everyone was supporting this idea, and there were many businesses and people who were sceptical about e-commerce market.
In 2000, it was found that there were only 8.9 million internet users in China and most of them did not use online shopping. Therefore, at the beginning of 2000s, e-commerce was not a large market in China. There was an issue of logistics as well because the size of China is considerably large and appropriate logistics facilities were not available which connected major cities with other areas. During that period, the issue of online payment was not resolved as well. It was found that most Chinese consumers were afraid to use the online payments system because they were unsure whether these technologies are secured or not. The three golden projects implemented by the government resulted in increasing the trust of the organisations and individuals in the e-commerce sector. These three projects resulted in connecting Chinese consumers from all regions to stable internet and provided opportunities for online payment system which is highly secured and reliable. Due to the involvement of the government, the consumers started getting trust in the online shopping which expanded e-commerce market in the country. The implementation of Cainiao with the collaboration between Alibaba and other logistics firms resulted in building a logistic channel across China which connected small regions with major cities. This allowed the corporations to provide their services and products across China in just 24 hours.
All these factors resulted in developing online shopping in China which was a major milestone for its e-commerce sector. As the number of online shopping activities grows, corporations started to realise that it is a lucrative market with large number of customers. They started selling their own products through e-commerce websites which expanded their operations in the country. It also assisted them in generating a wider audience which created new business opportunities for them. The e-commerce market is China has developed through the ease of access to online shopping facilities. As the online payment transactions continued to become more stable and secured with technologies such as QR-code scanning, two-step authentication and others, it becomes easier for Chinese consumers to take benefit of the online shopping facilities. For foreign companies, it is difficult to establish their business in China due to strict regulatory requirements. However, these strict regulations were helpful for Chinese e-commerce companies because they reduced their number of competitors while providing them access to a large number of consumers. Corporations such as JD, Alibaba and others were benefited from these opportunities, and they continued to develop their online shopping facilities in the country. It assisted them in becoming one of the world’s biggest e-commerce websites who have access to large number of consumer with small number of competitors.
With the rapid change in technologies, the e-commerce industry has developed considerably fast in China. It is opposed to the brick and mortar (retailing) industry which took many years to become a significant industry because of physical restrictions. On the other hand, the e-commerce market is China proliferated rapidly which provided various advantages to consumers, businesses and the government. Following are various advantages of e-commerce market in China.
No time or space limit
When compared with traditional retailing business methods, the e-commerce sector has the biggest advantage of no time and space limit. Traditionally, corporations have to purchase or lent a location to build their stores. Purchasing the land was risky because the prices of the property could fluctuate and if the store did not work, then the company suffers a loss. On the other hand, renting a property is also expensive because the corporation has to pay rent every month irrespective of the fact that the business is working or not. Many times the landlord starts charging high rent due to which the company might have to switch their position that resulted in loss of all customers. Thus, there is a space limit in traditional retailing business model. Similarly, there is a time limit as well because the stores close in the night. There are many 27×7 stores available, but they are not present everywhere, and it is expensive to run these stores because the sales are relatively low in the night. The sales and customers of brick and mortar stores are limited to a particular area as well. People prefer to purchase products from their nearby stores which limit their audience. On other than hand, the e-commerce sector eliminates all these factors and provides a competitive advantage to businesses. Firstly, there is no space limit in case of online stores because the website can be operated from its headquarters and the businesses can continue to sell their products from their current locations.
Many corporations such as Amazon invests in warehouses, however, it is not necessary, and products can directly be sold to businesses to consumers without setting a physical store. Secondly, there are no time limitations in the e-commerce sector. The internet is available 24×7 which means that customers can shop whenever they want too. With the introduction of 24 hours logistics systems in China, people are able to get their products in just one or two days which means the process must easier. Lastly, the audience of businesses expands substantially in the e-commerce market. One company can easily sell its products and services throughout the country through just one website, whereas, the retail stores are limited to a single location. The ability to sell products throughout China assisted corporations in quickly expands their business through e-commerce market which supported the economy of the country. Small businesses which were not able to build large stores were limited to sell their products in their nearby areas; however, they were also able to sell through products to a large customer base through e-commerce sector without paying charges for setting new stores. The popularity of e-commerce market created new jobs in China in logistics sector which reduced unemployment from the country. Thus, the development in e-commerce sector provides various benefits to small businesses, and it created more jobs in the country.
Ability to check specifications and compare products
In the traditional retailing stores, customers would go to one or two of the nearby stores and purchase their products. It limits their choices because they have to go to another place if they did not find something which they like. On the other hand, the internet has opened up a new world for customers where they can check out new products online and compare their information with other products to know what is best for them. It has makes it easier for customers to choose the products which suit their requirements. The e-commerce market has made it easier for consumers to get what they want through online shopping. These websites display a wide range of products from all categories which are displayed on the website along with their description. All the specifications and information about the products are mentioned on the website for customers. The consumers who purchase the products also have the option to give a rating and review regarding their experience about the product. It makes it easier for consumers to compared different products based on the available information and the experience of other customers. It makes the choice easier for them. These options are not available in traditional retailing stores where the customers have limited options to compare products with, and they cannot get reference from other customers to learn about their experience with the products. Chinese consumers can go to different websites such as Taobao, JB or Alibaba to compare the specifications of different products which help them make a better choice. It is a key reason due to which the e-commerce sector is highly popular in China.
Display of products
The e-commerce websites use online multimedia facilities to display the products to consumer. Chinese consumers prefer to purchase products by thoroughly checking them before making a decision just like customers in other nations. Therefore, the online shopping websites provide services such as zooming of products and videos to let consumers know about the products. While purchasing a product through retail stores, the consumers cannot check all the types of products closely, and they certainly cannot see any videos to understand who the product works and whether it is suitable for their needs. However, the e-commerce websites provide them this option where they can closely check out as many products as they want and watch videos on them to understand how they work which makes it easier for them to make a decision.
Cheaper products
The princes of products and services in traditional retail stores are comparatively higher than e-commerce market because there were a large number of middlemen. The process of bringing the products to the stores from the manufacturer requires that companies must have warehouses to store and protect the products. They have to transport them and pay for insurance charges. They also have to deal with defective products. On the other hand, there are comparatively fewer issues in the e-commerce sector. Firstly, there are no middlemen which mean that businesses can directly sell their products to consumers without dealing with retailers. The online websites did not have to invest in building warehouses to stores and protect the products. They can simply connect the seller to the buyers through their platform, and the logistics companies handle the rest of the work which includes insurance and transportation charges as well. Thus, it resulted in reducing the prices of products which are available online which attracts more consumers to the e-commerce platform. In China, the demand for cheaper products is relatively high because there are a large number of consumers who did not prefer to pay higher prices for everyday products. Therefore, e-commerce sector is successful in the country because it enables companies to offer lower prices to Chinese consumers.
Close relationship with consumers
The internet is used by e-commerce websites as an interactive communication tool to express their feeling. It is easier for customers to contact the e-commerce platform to resolve their queries regarding the products. They can simply call or message the company to raise a query and get a quick reply which built a close relationship between the consumer and the organisation. Moreover, consumers can easily share their feedback on the websites regarding their experience with the product and the services of the e-commerce websites. It helps to resolve issues faced by other consumers. Alibaba and JB are known for providing effective consumer services in China which assist them in building strong relationships with their consumers.
Along with various advantages, there are many disadvantages relating to e-commerce sector in China as well. These disadvantages are faced by Chinese consumers, businesses and the government which hinders the effectiveness of e-commerce transactions. Following are various challenges relating to e-commerce sector in China.
Lack of human connection
Chinese consumers prefer to purchase products from their local stores because they have a strong connection with them. It is in the culture of China that they prefer to build strong relationships with their local sellers. However, with the introduction of e-commerce websites, this culture is quickly becoming scares. Many old consumers in China still prefer to purchase from local stores where they know the seller. The lack of human connection in online transactions resulted in reducing the number of consumers for Chinese e-commerce companies, especially older people.
Limited scope of application
Although, in theory, the implementation of e-commerce services resulted in increased efficiency and effectiveness of online purchases, however, the scope of application of these features is limited. The online structure is still not suitable for many products in China due to attributes and characteristics of products. For example, Chinese prefers to purchase meat from local markets where they can check whether the meat is fresh or not. There are many other products which are popular in the country relating to food items which customers did not prefer to purchase online. It limits the scope of e-commerce market in China.
Lack of psychological satisfaction
Many people like to shop in the traditional way by visiting their local stores or supermarket. They prefer to see and feel the products before purchasing them for psychological satisfaction. The consumers did not get this satisfaction in online shopping because they are not able to enjoy the shopping experience. The satisfaction level of Chinese consumers cannot be attained through e-commerce websites in the country; therefore, still, retailing stores are competing with e-commerce websites in China.
Conclusion
In conclusion, the history of e-commerce market in China is not very old, but the market has grown rapidly in the past few decades. Unlike the history of online retailing in general, the popularity of e-commerce market in China was less fluctuating, and it quickly becomes a significant part of people’s lives due to popularity of websites such as Taobao, JD and Alibaba. The government and e-commerce websites played a significant role in promoting online shopping in the country by making it easier for consumers to purchase products online. The e-commerce market expanded in the country due to reliable internet connection available in different regions and strong logistics connection in the country which assisted in quick delivery of products. The advantages of e-commerce sectors such as lack of time and space limitations, cheaper products, close relationship with consumers, and ability to check and compare products resulted in expanding the popularity of e-commerce in the country. Still, there are still various challenges for e-commerce industry in China which include lack of human connection, no psychological satisfaction and limited scope of application. However, the e-commerce market in China has still grown substantially becoming the world’s biggest online retailing platform which provides business opportunities to a large number of small and large businesses in the country. It will continue to sustain its growth in the future with technological advancements and innovations.
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Websites
Kim, Jay, The evaluation of China’s ecommerce space (2018) <https://www.techinasia.com/talk/evolution-china-ecommerce> viewed 17 November 2018.
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Taylor, Kate, Alibaba just had the biggest online shopping day of all time, nearly tripling every company’s 2017 Black Friday and Cyber Monday sales combined (2018) <https://www.businessinsider.com.au/alibaba-singles-day-2018-biggest-online-shopping-day-2018-11> viewed 17 November 2018.
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