Another conversation in China part 4
With online retail sales exploding in China, some information technology (IT) graduates are moving quickly to establish their own company instead of working for software company. Similar to the U.S., web sales in China are growing much faster than sales at physical stores. During my short time in China this year, I notice a number of small shops are closing as the number of on-line stores is increasing.
A student named Zhen, who owns an on-line store told me: “Most people sell things in local market, I sell in the global market and I did much better. My website is in English and I specialize in sporting clothes for young people as they often buy more. I compare price of popular clothing in the U.S and European market. They are very expensive, about thirty to fifty times more. For example, a sport coat in the U.S is $90 dollars, but I can sell the same for $50 dollars since I can get them at much lower price from wholesale factories here. Even shipping cost is $10 dollars to send by airmail to customers in the U.S, I still make a lot of money. Do you know how much I buy that sport coat here? Only $15 dollars. Last year, I made over hundred thousand dollars and my business is growing fast.”
Another university student named Yue, who will graduate next year but already own an on-line store explained: “It is easy to create an on-line store. As an IT student, I can create a website in a few days. My company is an extension of my family business. My parents own a small jewelry store; they know their business well so I just help them to open an on-line store. We did not do well in the first few months because local people who buy jewelry often visit stores and try on before buying. I was disappointed so I created another store in English language for foreigners and it took off. Since our items are not expensive, mostly handicrafts made in plastic and inexpensive stones, we often sell them for less than $15 dollars but they are “Hit” with foreigners. Later I started to compare prices then I found that our prices were so low as compared with stores in the U.S. so we increased our price. Global market is great and on-line business is great. My parents are so proud of me now.”
During my short time there, I notice that there was “a fever” in on-line business as it triggered a lot of competitions among on-line stores. There are probably hundred thousand or million on-line stores in China, most just started in the past few years, especially when the economy began to slowdown. According to a government report, China has over 500 million Internet users, of whom 200 million have purchased online but this number could grow higher as more people will be shopping online using their smart phones and tablets.
A business professor told me: “It is easy to open an on-line store to sell things. Since China is the manufacturing capital of the world, we made many things here. You can almost buy anything here to sell in the U.S or to the whole world. There are plenty of things to sell but the issue is shipping since most on-line customers do not want to wait. A one to three days delivery is a must so everything must be shipped by air and it is expensive. Small items such as jewelry or clothing are easy but larger items are difficult. If we can ship furniture and large electronic items within seven days by ship then I think the business will explode a hundred times more. Today, it is still considered a small business but it is changing fast with larger companies getting in.”
Another professor added: “The profit of almost every on-line store is low now because everybody is reducing prices. Since operate an on-line store is cheap and it is easy to get in, many people are rushing into this business. Some are investing lots of money to make their website looks attractive, hoping to grab more customers. Traditionally, Chinese are very good of small business so on-line store fits our culture very well. However, many have not understood that they can also expand to global market by their on-line store. Most of them are still focusing on local business but when they expand into global market, it will be a big economy boost for us. Of course, to do that they will need to improve their management capability, such as supply management and channel management. They will need to have experienced website supports as many current websites are done by people with minimum knowledge of IT and on-line business. That opens up new opportunity for people who have skills in web development and search engine optimization (SEO).”
Today China already has several giant on-line stores. Some are much bigger than the biggest store in the U.S. According to a report, the biggest is Tencent, which make several billion dollars on its e-commerce business. The second is 360Buy that started to sell electronics online, but later diversified into a wide range of other consumer goods. The company announced that its web sales last year were more than $3 billion dollars. The third is Tmall, part of Alibaba Group, is an online marketplace that features products from 70,000 brands with 25 million people visit their site on daily basis.
The success of on-line business triggers global company to come to China too. The U.S giant, Amazon started its Chinese business with Amazon China few years ago. Its online store provides a lot more than just computers and book. It has 11 distribution centers that offer same-day delivery in 17 cities; and next-day service in another 53 cities. The skills of management and operation excellence of Amazon make it one of the most profitable companies in e-commerce. Within a short time, it has already built a reputation for better customer's services, high quality products and customer satisfaction.
The business professor told me: “As Chinese begins to sell more things to the U.S via the Internet, more Chinese are buying from U.S on-line stores too. The reason is better products, better services and guarantee of quality. Today there are so many fake products and dangerous products, we do not trust Chinese brand anymore. For medicine and foods, we prefer to buy direct from the U.S online stores.”
Sources
- Blogs of Prof. John Vu, Carnegie Mellon University
