Another conversation in China part 2
This summer when teaching in China, I have several conversations with professors and entrepreneurs about the explosion of information technology, and I was surprised at the fast pace of on-line business.
An economics professor told me: “Online business or e-commerce generated $121 billion in sales in China last year. The size of our ecommerce market is exploding and could reach $500 billion by 2015. That is much bigger than the U.S.'s e-commerce market.”
Another professor added: “With a population over a billion people, we probably have over 200 million online shoppers,more than any other country. Sooner or later you will see more on-line stores than actual stores. It is very expensive to open a store in the city but very easy to open an on-line store. Chinese are well known for small business so a majority of them go on-line instead. With high-speed Internet access and more mobile phones, more people are buying and selling things on-line than anything else. In past few years, transportation and shipping prices have been improved and it is much cheaper than the U.S. The largest on-line company, Alibaba also owns Taobao the shipping company, so you can buy many things here at better prices than the U.S.”
I asked: “Why on-line business is so successful in China in just a short period of time. Few years ago, when I was here, there were only few startups but now it is much larger market than the U.S?
The professor answered: “Many Chinese buy things online because they cannot get it at local stores. The prices of on-line merchandises are much cheaper than actual stores and good reputation on-line stores do not sell fake merchandises so quality is guaranteed. In China, many things are fake, especially foods and medicine so most people shop on-line for it. The only things people worry is the issue of computer security and credit card fraud. Large on-line company such as Alibaba use a system called Alipay, which allows users to make purchases without sharing their credit card details with individual vendors. As an extra security measure, Alipay only transfers payments to vendors after clients have received and expressed satisfaction with their merchandises.”
The number one on-line item is clothing, making up half of all online sales in China. Clothing is very inexpensive in China; especially popular items for young people are very cheap compared with the U.S. The three biggest companies in China are Alibaba for ecommerce (The eBay of China), Baidu for search engine (the Google of China) and Tencent for messaging (the Facebook of China). The founders of these companies are young entrepreneurs who follow the role models of Bill Gates, Sergey Brin, and Marc Zuckerberg. However, there are several thousands of young entrepreneurs, mostly computer science or information system graduates who owned their companies, selling everything from electronic devices to toys and clothes. One young entrepreneur named Yang told me: “I do not want to work for a company; I want to be my own boss. I started my company with three college friends. We borrow money from our parents to sell used textbooks for college students. I advertise in universities to buy old textbooks and resell them to students. Last year, each of us making several hundred thousand, much more than working for a software company.”
Another popular on-line among Chinese people is the social network. The most well known are Qzone, Tencent Weibo and Xina Weibo. For college students, Renren is their favorite. With graduates and working young people, Kaixin is also well known. All of these companies are created by young entrepreneurs, many are less than 30 years old. Some already achieved the status of multi-millionaires.
Today young people do not want to work for state-owned companies or government agencies as previous generation. Many want to start out on their own and entrepreneurs are highly respected for their success. One people told me: “they are the future because what they do is strictly on their own, without government supports or family connection. Many on-line stores are considered by the public as “Clean and honest” business as compared with others.
A professor told me: “If you look at wealth creation in China today, some come from these on-line stores. It is inexpensive, it is clean and it fits the small business tradition. Of course, there are competitions as everybody tries to sell thing at lower prices but it is good for most people. It is changing our economy, we cannot depend on exports forever as the wages are increasing fast and many factories are moving to Africa. The fact is developed countries outsourced manufacturing works to China but China is now outsourcing works to Africa because they are cheaper. In past years, there are many closing factories and large numbers of unemployed workers, not because of the financial crisis in the U.S or the European economic meltdown but the wages in China is no longer competitive so these companies are moving elsewhere, mostly to Africa. However, our young people now are driving the economy in a different direction by creating a new consumer market and new business of their own. I think we are transitioning to the information economy, whether we know it or not.”
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
