FLANDERS INVESTMENT & TRADE MARKET SURVEY

Transcription

1 E H T G N I R E T N E T E K R A M E C R E M M O E-C A N I H C IN FLANDERS INVESTMENT & TRADE MARKET SURVEY

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3 FacultyofBusinessandInformationManagement CampusSchoonmeersenGhent ValentinVaerwyckweg1 9000GHENT Entering(the(E*commerce(Market(in(China:(an(Action(Plan(for( Belgian(Food(and(Beverage(Companies ( Bachelor sthesisfrom:manonacke Degree:BachelorinBusinessManagement Specialization:Marketing Academicyear: Internshipcompany:FlandersInvestment&TradeHongKong Internshipmentor:KatrienLeinders Internshipsupervisor:ElseDeneys Thisbachelor sthesiscanbemadepublic.

4 FacultyofBusinessandInformationManagement CampusSchoonmeersenGhent ValentinVaerwyckweg1 9000GHENT Entering(the(E*commerce(Market(in(China:(an(Action(Plan(for( Belgian(Food(and(Beverage(Companies ( Bachelor sthesisfrom:manonacke Degree:BachelorinBusinessManagement Specialization:Marketing Academicyear: Internshipcompany:FlandersInvestment&TradeHongKong Internshipmentor:KatrienLeinders Internshipsupervisor:ElseDeneys Thisbachelor sthesiscanbemadepublic.

5 FOREWORD( ThisbachelorthesishasbeenwrittenwithintheframeworkofmyinternshipatFlanders Investment&TradeHongKongandmystudiesBachelorBusinessManagementand MarketingattheUniversityCollegeofGhent. IaccomplishedaninternshipatFlandersInvestment&TradeHongKongfromthe23thof Marchuntilthe5 th ofjune2015.duringthisinternshipiresearchedthoroughlythetopicof ewcommerceinchinaanditsopportunitiesforbelgianfoodandbeveragecompanies. TheaimofthisbachelorthesisistoprovideaninWdepthreviewintotheeWcommerce marketforfoodandbeveragesinchina.flandersinvestment&tradehongkongneeded suchastudytobeabletoguideandadvisebelgianfoodandbeveragecompaniesbetterinto thissubjectandpresentpotentialopportunitiesandchallenges. Firstly,IcouldnothavemanagedtowritethisbachelorthesiswithoutthehelpofMs. Leinders,myinternshipmentoratFlandersInvestment&TradeHongKong.Ms.Leinders wasverygenerousinprovidingmewithdatasuchaspresentationsandfilesaboutew commerce,contacts,guidanceandfeedback. Secondly,IwouldliketothankMs.Deneys,myinternshipsupervisor,whocontributed significantlyinthisbachelorthesisbyprovidingmewithherguidance,supportand feedback. Thirdly,Iwouldliketothankmycolleagues,Ms.LamandMs.Keungwhohelpedmewithall thecantonesetranslationsandculturalexplanations.furthermore,iwouldliketothankmy othercolleaguesatflandersinvestment&tradeinhongkong,beijing,shanghaiand GuangzhouforprovidingmewithdataabouttheeWcommercemarketinChina. Toend,IwouldliketoexpressmyimmensegratitudetoalltheeWcommerceand/orfood andbeverageexpertssuchasvincentwong(alibaba),stevebeckers(secretingredients), RonaldDrieduite(LotusBakeries),DidierBoon(EastChinaSeas),LaurenceVanDerLoo (Vistra)andMargauxVercruysse(Pranarôm)formakingthetimetomeetmeandpresent mewiththeirknowledge,adviceandexpertise.

6 (TABLE(OF(CONTENTS( Foreword'...'3 Pre+summary'...'6 Introduction'...'7 Chapter'1:'E+commerce'in'China'...'9 Introduction...9 More%online%shoppers%...%11 Growing%use%of%mobile%devices%to%browse%e9commerce%merchandise%...%12 More%purchasing%power%...%14 Improvements%in%online%credibility%and%security%...%14 The%continued%development%of%popular%Chinese%social%media%platforms%...%15 Marketanalyses...17 Market%structure%of%China s%e9commerce%...%17 Factsandfigures...18 Internet%development%...%18 E9commerce%...%19 Online%shopping%...%19 Chineseconsumerbehavior...20 Evolutionandforecast...21 The%e9commerce%market%outlook%...%21 KeyplayersinB2CeWcommerce...22 TrendsineWcommerce...22 Trend%1:%Social%e9commerce%...%23 Trend%2:%%The%showrooming%effect%...%24 Trend%3:%0nline9to90ffline%...%25 Trend%4:%Rural%e9commerce%...%25 Trend%5:%Online%food%shopping%...%26 EWcommercemarketing...27 Chapter'2:'E+commerce'in'Hong'Kong'...'29 Introduction...29 Chapter'3:'E+grocery'in'China'...'32 Introduction...32 Sectoryanalyses:(foreign)foodandbeverages...32 Factsandfigures...34 Evolutionandforecast...35 CharacteristicsofChina sewgrocerymarket...35 Product%characteristics%...%35 Logistics%characteristics%...%36

7 Marketing%characteristics%...%36 Consumer%characteristics%...%36 TypesofChinagroceryeWretailersandtheircharacteristics...37 KeyplayersinB2CeWgrocery...38 TrendsineWgrocery...41 Trend%1:%health%and%weLlness%...%41 Trend%2:%fresh%foods%...%41 Trend%3:%private%label%products%...%42 Trend%5:%Mobile%shopping%for%groceries%...%42 EWgrocerymarketing...43 Case%Lotus%Bakeries%...%44 Chapter'4:'The'role'of'Hong'Kong'in'China s'e+grocery'...'47 CloserEconomicPartnershipArrangement...49 Chapter'5:'Action'plan'and'recommendations'...'51 Route1:SellonlinedirectlytoChina...54 Route2:SellonlinedirectlytoChinaviaaworldwidecrossWbordereWcommerceplatform...56 Route3:SellonlinetoChinaviaHongKong...59 Conclusion'...'61 Bibliography'...'62 Onlinesources...62 Attachments'...'64 Attachment1:Belgianproductswithprotocol...64 Attachment2:ListoffoodandbeverageproductswithouttarrifsfromHongKongtoChina...64 Attachment3:ListoffoodandbeverageproductswithtarrifsfromHongKongtoChina...70 Attachment4:ListofTPsofTmallGlobal...72

8 PRE*SUMMARY(( ThisbachelorthesisdescribesChina sewcommercemarketandexaminesitsopportunities forbelgianfoodandbeveragecompanies.introducingforeignfoodandbeveragesinto China s(ewcommerce)marketis insomecaseswaquitecomplicatedprocessandshould onlybeconsideredwhencertainrequirementsarefulfilled.thisbachelorthesisprovesthat althoughtheintricateprocess,enteringchina sewcommercemarketcoulddefinitelyoffer opportunitiesforbelgianfoodandbeveragecompanies. TherecentEUfoodboycottbyRussiaaffectedtheBelgianfoodindustrystronglyand thereforealternativeroutesshouldbeconsidered.china sewcommercemarketcouldbean interestingalternativetoconsider.additionally,belgianfoodandbeveragecompanies, whichhavenotbeenaffectedbytheeufoodboycott,butaresimplylookingtoexpandtheir salesmarket,couldbenefitfromenteringchina sewcommercemarket. China sewcommercemarketisthelargestoneintheworld,yetfarfromsaturated.the continuouslygrowingdemand,logisticsoptimizationandtheriseoftheruralareasareonly afewfactorsthatmakechina sewcommercemarketafertilegroundfortradeand investment. InthisbachelorthesistheeWcommerceopportunitiesforfoodandbeveragecompaniesin especiallychinaarediscussed.ewcommerceopportunitiesinhongkongarelessinteresting thanthoseinchina sewcommercemarket.theewcommercemarketinhongkongisnotas developedasitisinchinaduetotheproximityoftheinwstores 1,thecultureofoffline shoppingandthesmallwscalemarket.however,hongkongcannotbeneglectedasa potentialinterestingewcommercemarketcompletely.hongkong sconsumersneedalot morethanisservedbythecurrentsetofretailers,andtheinternetcannowbridgethatgap. Furthermore,HongKongactsasthenaturalgatewayfortradeandinvestmenttothevast marketinmainlandchina.manybelgianfoodandbeveragecompaniesactiveinchina sew commercemarkethavetheirheadofficesinhongkongduetobusiness,legalandfiscal convenience. ThisbachelorthesisgivesanexhaustiveoverviewofChina sewcommercemarket,hong Kong sewcommercemarket,china sewgrocerymarket,discussestheroleofhongkongin China sewgrocerymarketandprovidesanactionplanonhowtoenterthismarketasa Belgianfoodandbeveragecompany.Itincludestheopinionsandrecommendationsof expertswithinchina sewcommercemarketandfood&beveragefield,andthoroughly analyseddeskwresearch. 1 Insideaphysicalstore. 2 Anorganicecosystemthatismadeofenterprisesandorganizationswithcloserelations,usingtheinternet 6

9 INTRODUCTION( ThisbachelorthesisanswersthecentralresearchquestionhowtoenterChina sew commercemarketasabelgianfoodandbeveragecompany.thefirsttwochaptersinthis bachelorthesissketchageneraloverviewofthemarket.fromchapterthreeonwardsit focusesontheewgrocerymarketandtheroleofhongkonginthisewgrocerymarket.the lastchaptergathersalltheaboveinformationandresumesitintoapracticalactionplanon howtoenterchina sewcommerce,orbetter,ewgrocerymarket. China sewcommercemarketisamaturemarketwithbighomegrowncompaniessuchas AlibabaandJingdong.Althoughmature,itishoweverfarfromsaturated.Themarketin Chinaislargeenoughforothercompetitorsandnicheplayerstothrive,includingsome regionalplatforms. Itisahighlydevelopedmarketthathasbecomeenormousoverthelastdecade. Furthermore,themarkethasbecometooimportantandlucrativeforinternationalbusiness toignore.china sewcommercemarketoffersadeeppenetrationofsmartphonesand internet,averyhighdemandandelectronicbusinessecosystems 2.Thesearehoweverjusta fewcharacteristicsthatmakeitsafetosaythatthemarketinquestionisafertilegroundfor tradeandinvestmentforinternationalbusinesses. ThefirstchapterE"commerce(in(Chinaresumesanintroductionandmarketanalyses.It answersthemainquestionsonchina sewcommercemarketsuchaswhatarethefactsand figures,theevolutionandforecast,themainactorsinb2cewcommerce,trendsandhowto marketaproductorserviceinchina sewcommerce?isewcommercejustanothersales channelordoesitneedawholenewmarketingstrategy?frompage11onwards,this chaptersketchesanoverviewaboutwhatisplayinginthechineseewcommercemarket today. Thesecondchapter(E"commerce(in(Hong(Kong,frompage30onwards,givesasummary onhongkong sewcommercemarket.theewcommercemarketinhongkongisnotas developedastheonesinchinaandinotherasianpacificcountries,thereforethisbachelor thesisonlygoesverybrieflyintothisarea.thischapterismerelyincludedtomakea comparisonbetweenchina sewcommercemarketandhongkong sewcommercemarket. RecommendationsforHongKong sewcommercemarketwillnotbeincludedintothis bachelorthesis. China sewcommercemarketgivesthechineseconsumerstheopportunitytobuyandsell literallyanyproductorserviceimaginableonline.oneoftheproductschineseconsumers 2 Anorganicecosystemthatismadeofenterprisesandorganizationswithcloserelations,usingtheinternet asaplatformtomakecompetitionandcommunicationthroughvirtualalliance,sharingresourcesandmaking fulluseoftheiradvantagesbeyondgeographicallimits.e.g.alibaba sonlineecosystem 7

10 enjoybuyingonline,are(foreign)foodandbeverages.onlinegroceryshoppinginchina startedin2005,butisonlycommonlyknownin2012.thechineseusuallylookforforeign foodandbeverageproductsduetothelackoffoodsafetyandpastfoodscandalsofchinese products,lowerpricesthaninwstoreandstatus. InchapterthreeE"grocery(in(China,frompage33onwards,theeWgrocerymarketinChina isthoroughlyexamined.thischapteranswersthemainquestionsonchina sewgrocery marketsuchaswhatarethefactsandfigures,theevolutionandforecast,thekeyplayersin B2CgroceryeWretailers,thecharacteristics,thetrendsandhowtomarketfoodand beveragesinchina sewcommerce.belgianfoodandbeveragecompaniessuchaslotus BakeriesaretakenasanexampleonhowtosuccessfullyentertheeWgrocerymarket. Variousfactorssuchastheproduct,distribution,marketingetc.havetobetakeninto accountwhenadaptinganddevelopingabusinesstochina sewgrocerymarket. InthefourthchapterThe(role(of(Hong(Kong(in(China s(e"grocery,frompage48onwards, thesettingupofanewgrocerybusinessinchinaisexplained.notallbelgianfoodand beveragecompaniesareabletoeasilyenterchina sewgrocerymarketsimplyduetothe natureoftheirproduct.productssuchasfruitsandvegetables,porkmeat,etc.cannotbe importedintochina,unlessregisteredandapprovedbythechinafoodanddrug Administration.TherearehoweversomealternativessuchastheCloserEconomic PartnershipAgreementbetweenHongKongandChina,workingwithlocal partners/importersetc.thatcouldofferasolution. InthefinalchapterAn(action(plan(and(recommendations,frompage52onwards,afinal actionplanisdevelopedonhowtostepbystepenterchina sewgrocerymarketasabelgian foodorbeveragecompany.furthermore,itpresentsmypersonalrecommendationsand advicesonthesubject. 8

11 CHAPTER(1:(E*COMMERCE(IN(CHINA( INTRODUCTION In(other(countries(e"commerce(is(a(way(to(shop,(in(China(it(is(a(lifestyle. (( Jack(Ma,(founder(Alibaba( This famous quote from the founder of Alibaba, Jack Ma, summarizes the Chinese ew commerce landscape of today very well. Anno 2015 the ewcommerce market in China is boominganditdoesnotseemitwillstopanytimesoon.today,china( boasts( the( world s( largest( e*commerce( market( in( the( world and is predicted to be larger than the ew commerce market of the US, Britain, Japan, Germany and France combined by the end of 2015(Amanda,2013).Intheillustrationbelowagraphispictured,showingthatChina sew commerce transactions surpassed those of the US mid 2012 and is forecasted to increase evenfurtherinthefollowingyears. Source:KPMG,2013 ThistendencyinChina sewcommercemarketistrulyremarkableasin(2000(china(had(yet( to(develop(e*commerce( applications,( and( had( only( 2.1( million( total( internet( users. (Wei, 2013) Payment systems and physical delivery mechanisms to facilitate the developmentofewcommercetransactionswerewelldevelopedinothermarkets,butwere simply lacking in China (KPMG China, 2014). Back then it was difficult to predict the ew commercemarketleadingpositionthatchinaholdstoday. 9

12 InordertobetterunderstandChina sewcommercemarket,itisusefultolookathow(it(all( started. In1978,Chinawasstilloneofpoorestcountriesintheworld.TherealpercapitaGDPin ChinawasonlyoneWfortiethoftheUS.Butsincetheinitiatingmarketreformsin1978, China srealpercapitagdphasgrownatanaveragerateexceeding8percentperyear (Xiadong,2012).Thissustainedgrowthinlivingstandardhastriggeredrapidsocialand economicdevelopment. Inlessthan37yearsChinahasgrownintothelargesteconomyintheworld.The(market( reforms(of(1978explainwhychinawasabletogroweconomicallyandsocially,this implyingimprovedinfrastructure,overallwealthincrease,etc.thesetendenciesaffected China sewcommercemarketdirectly(e.g.ifthereisnoinfrastructure,shippinggoodsisnot possible). However,themarketreformsof1978donotexplaincompletelywhyChina sewcommerce becamesuchasuccess.themainreasonwhyis,thatunlikeamazonandotherusew commercecompanies,chinaewcommercecompanieshaverelativelyweak(offline( competition.theabsenceofstrongnationwideofflineretailersplaysasignificantrolein therapidgrowthoftheentirechineseewcommercemarket.everythinginchinesemodern retailingliterallycameupduringthepast20w30yearsinchina(hencethemarketreformof 1978). Since the development of a favorable ewcommerce ecosystem around a decade ago, the ChinesehavequicklytransformedtheirshoppinghabitsandmindsetsoneWcommerceand embraced this new way of shopping as their new lifestyle. Chinese ewcommerce websites offer a wide range of products and services online going from fresh food to electronic appliancesandevencars. China s( e*commerce( success( story( started( off( in( the( Tier( 1(e.g.Shanghai)andTier( 2 (e.g.xi an)cities.theillustrationonthenextpage,arechina slowertierandruralcities and their characteristics. Foreign businesses often underestimate the huge businesses potentialinthelowertierandruralareaswithoutreason.infact,shopping(online(and(e* commerce( market( in( lower*tier( and( rural( cities((e.g.woxi)( are( growing( even( faster( than( Tier( 1( and( Tier( 2( cities. This trend can be explained by the improvement of the shippinglogisticsinfrastructureandthewealthincreaseofinlandcities. 10

13 Nielsen,2014 BesidestheeconomicandsocialgrowthinChinaandlimitedcompetitionofofflineretailers afew(other(factors(have(driven(china s(e*commerce(revolution. MOREONLINESHOPPERS Source:CINIC,2014 Chinahad632(million(internet(usersbytheendofJune2014.Asillustratedonthegraph above,thenumberofinternetusersinchinahasgraduallyincreasedoverthelastcoupleof years. 11

14 Someofthereasons(why(internetinChinaissopopulararethefollowing: 1. Weak(existing(media:mediaiscensoredbytheChinesegovernment 2. One*child(policy:thispolicyhasbeenaroundforabout30yearsandimpliedthat mostkidsgrewupwithoutsiblings.thesekidshangoutontheinternettomeetkids fromtheirownagetohangoutwith. 3. Wide(choice(of(engaging(sites(and(services:althoughtheChinesecannotaccess Facebook,Twitter,etc.theycanaccessmultipleChineseequivalentsthatoffermuchW neededentertainmentandallowpeopletoconnectwithotherseasily. AccordingtoiResearch300(million(people(shop(onlineinChina.MostoftheChinese online(shoppersarebetween(18(and(35(years(old,withmen(shopping(slightly(more( than(women. TheChineselike(to(shop(online(forthreemainreasons: 1. Convenience:theycanby24/7andsameornextdaydelivery 2. Easytocompare(pricesofthedifferentvendors 3. To( find( products( they( could( not( find( elsewhere:thereisfarmorechoiceonline thanoffline(moreonlineretailersthanofflineretailers) GROWINGUSEOFMOBILEDEVICESTOBROWSEEWCOMMERCEMERCHANDISE Source:Cinic,2014 As shown on the graph above, by the end of June 2014, China had 527 million mobile internetusers,growthof26.99millioncomparedtotheendof2013.inchina,more(people( 12

15 now(access(the(internet(from(a(mobile(device 3 (than(a(pc.amongalltheinternetusers, the proportion of those who use a mobile device to access the internet increased further from 81.0 percent to 83.4 percent, and the size of mobile internet users exceed that of traditionalpcinternetusersforthefirsttime. Thistendencycanbeexplainedbythefollowingfactors: 1. Chinahasthelargest( mobile( devices( market( in( the(world:mobile( devices( are( cheapandrelativelylowaverageincomesmakeitmorepracticalforsomepeopleto foregoamoreexpensivecomputer 2. Phone*friendly(internet(servicese.g.WeChat 4 TheChinesehaveembracedtheuseofmobiledevicesandforaperiodoftimeinthefuture, the growth( of( mobile( internet( users( in China( will( mainly( rely( on( innovative( mobile( applications, which cater the potential network demands of nonwmobile internet users (ATKearney,2014). Source:CINIC,2014 Also important to note is that the proportion of the internet users who used desktop computers and notebook computers to access the internet dropped slightly. As shown on the graph above, the proportion of internet users who use mobile phones to access the internet has exceeded that of those who user traditional PC (80.9 percent) in China this year,andmobile(phones (role(as(the(no.(1(internet(terminalhasbeenconsolidated. This is an important tendency sincechinese( e*commerce( websites( have to make sure theirwebsitesare( mobile( friendly( or( responsive.theillustrationshowsascreenshotof the ewcommerce website Tmall Global on a mobile device (left) versus the website on a desktopcomputer(right). 3 Smartphoneortablet. 4 China sequivalentofwhatsapp,whichcanonlybeconsultedviamobiledevices. 13

16 MOREPURCHASINGPOWER China seconomic( affluence( has( increasedsignificantlyduringthepastdecade.thiscan beexplainedthroughseveralactionsofthechinesegovernmentsuchasthesetting( up( of( special( economic( zones,( favourable( economic( policies,( investment( in( infrastructure( and(education((especiallyinthescienceandtechnologysectors)etc. Due to the implementation of these actions, personal disposal income per capita reached USD3.000in2013andisexpectedtoriseby11percenttomorethanUSD5.000in2018 (ATKearney, 2014). With more( disposable( income( to( spend, the Chinese are likely to spendabigpartofthisincomeonlinethroughewcommercewebsites. Although the purchasing power in China has increased and will do so in the future, the income( inequality( gap( is( still( there.thediscrepancybetweentheincomesinruraland urbanareasinchinaishuge.thisisanimportanttendencytonotesinceitaffects(directly( the(consumer(behaviourofthedifferentincomegroupse.g.lowerincomegroupslivingin ruralareasaremorepricewconsciousandwillcomparepricesonline. IMPROVEMENTSINONLINECREDIBILITYANDSECURITY WhenWeb(2.0 5 arrived,e*commerce(sites(in(china(began(tracking(and(publishing( credibility(records(of(online(sellers,(reducing(the(risk(of(fraud.thishashelpedew commercetoovercomeperhapsitsbiggestpsychologicalbarrier.(atkearney,2014).now Chineseconsumersacrossallthegenerationsarebuyingonlineandfeelconfidentand secureddoingso. 5 ReferstothetransitionfromstaticHTMLWebpagestoamoredynamicWebthatismoreorganizedandis basedonservingwebapplicationstousers. 14

17 Reliable( payment( methods, such as collection on delivery and Alipay arealso making online( transactions( more( convenient( and( trustworthy (ATKearney, 2014) The collectionondeliverysystemisalsoadoptedbyewcommercewebsitezalandoe.g.youbuya productandonlypayafteryoureceivedit.thissystemenablesclientstoseetheproduct firstandsenditbackwithouthavingtopayanything. THECONTINUEDDEVELOPMENTOFPOPULARCHINESESOCIALMEDIAPLATFORMS China(is(one(of(the(most(restricted(countries(in(the(world(in(terms(of(internet,(but(these( constraints(have(directly(contributed(to(the(staggering(success(of(local(chinese(social( media(sites. ( Synthesio( Social(media(isa(hugesuccessinChina.ThereareafewfactorsexplainingwhytheChinese arelookingtohangoutwithfriendsonsocialmedia: Lack(of(trusted(information( Lack(of(entertainment( Lack(of(opportunities(to(socialize(due(to(the(one*child(policy(( The(Chinese(government(controls(the(social(media,whichmakesitmoredifficultfor foreigncompaniestoenterthesocialmediamarketinchina.withoutaccesstothemajority ofsocialmediausedelsewhereintheworld,thechinese(have(created(their(own( networks,justlikefacebook,myspace,youtubeandfoursquare butwithmoreusers whichiswhyevery(global(company(needs(to(pay(attention(to(these(chinese(social( network(services.(synthesio,2013) 15

18 ((((((((((Social(Media(Service(Providers(in(China( Social'media'service' Active'users' (million)' Platforms' Our'known' equivalent'' QQ 800 Desktop,PC,Mobile Messenger Qzone 600 Desktop,PC,Mobile Facebook Weixin(WeChat) 300 Mobileonly Whatsapp SinaWeibo 350 Mobile,Desktopand PCaccessible Twitter TencentWeibo 250 Mobile,Desktopand PCaccessible Twitter RenRen 100 Desktop,PC,Mobile Facebook Source:KPMG,2013 Popular(social(media(platforms,suchasWeiboarehelping(to(increase(the(exposure(of( goods(and(drive(e*commerce(sales.withalmostinstantaneous(feedback(and(easy*to* use(interfaces,socialmediaplatformshavebecomeastapleinthelifeofchineseew consumers.consumersinchinausetheseplatformsforimmediate buy/don tbuy advice fromfriends,topostproductreviews,andtoseekproductknowledge/advicefromkey opinionleaders.accordingtorecentewcommercestatisticsinchina,40(percent(of(china s( online(shoppers(read(and(post(reviews(about(products(chinabriefing,2013). Oddlyenoughcompaniesoftenignoretheimportanceoftheinfluenceofsocialmediaon China sonlineconsumerbehavior.chineseconsumersoffertheiropinionsonproductson socialmedia,askforadvice,anddiscussbrands.abrand s(presence(on(social(media(is( thus(crucial(if(a(company(really(wants(to(succeed(on(china s(e*commerce(market. 16

19 MARKETANALYSES MARKETSTRUCTUREOFCHINA SEWCOMMERCE Share(of(China(E*commerce(Market( Segment(in(2014( 2% 1% B2BofSMEs 23% 50% B2Bofenterprisesabove designatedsize Onlineshopping 24% Onlinetravel 020oflocallifestyleservice Source:iResearch,2014 In2014theB2B(of(SMEs(intheChina sewcommercemarketcountedfor50(percentofthe totalmarket.24(percentofchina sewcommercemarketaccountsforb2b(of(enterprises( above(designated(size.thismeansthat¾ofchina sewcommercemarketisrepresentedby B2Bsales.Anotherbigpart,23(percent(nearly¼ofChina sewcommercemarket)accounts foronline(shopping.2(percentaccountsforonline(traveland1(percentforonline*to* offline(of(local(lifestyle(service. ChineseeWcommercecanbedividedintofourdifferentmarketsegments,withitsown subcategories: 1. BusinessWtoWbusiness(B2B): W BusinessWtoWbusiness(B2B)ofsmallmediumenterprises(SME) W BusinessWtoWbusiness(B2B)ofenterprisesabovedesignatedsize 2. Onlineshopping: W Onlineshopping(bothPC&mobile) W Mobileshopping W OnlineshoppingviaPC 3. Onlinetravel: W Airtickets W Hotels W Vacation 17

20 4. Onlinetooffline(O2O) 6 : W Leisureandrecreation W Weddingcelebration W ParentWchildcommunication W Beautycareservice FACTSANDFIGURES PleasenotethatthefollowingfactsandfiguresdisplaytheinternetdevelopmentinChinaof June2014aspresentedbytheChinainternetNetworkInformationCenter,China sew commerceofmarch2015aspresentedbyiresearchandtheonlineshoppinginchinaof December2014aspresentedbyiResearch. INTERNETDEVELOPMENT Internetpopulation:632million Internetpenetration:46.6percent Mobileinternetusers:527million Mobileinternetpenetration:83.4percent 28.2percentruralinternetusersversus71.8urbanInternet users 55.6percentmaleinternetusersversus44.4percentfemale Internetusers Internetusersbetween20W29yearsold,accountfor30.7 percentoftheinternetusers ThepopulationwithamonthlyincomeaboveUSD$480(a higherincome)countsfor32.3percentoftheinternetusers WeeklyaveragedurationspendontheInternet:25.9hours orroughly4hoursaday 6 Anintegrationofofflinebusinessopportunitieswiththeinternet. 18

21 EWCOMMERCE Grossmerchandisevalue(GMV)ofeWcommercein2014: USD$1.98trillion ChinaonlineshoppingGMVtotaled$0.45trillionin2014 withahighgrowthof48.7percent Onlineshoppingshared22.9percentintheeWcommerce marketin2014 Chinaonlineshoppingmarketwillmaintainthecompound growthrateofabout27percent B2Cmadeup45.8percentoftheonlineshoppingmarketin 2014 Tmall=No.1inB2Conlinemarketwith60percentofthe totalb2conlinemarket ONLINESHOPPING Frequency:80percentofChineseinternetusersshopat leastonceamonth 60percentofonlineshoppersuse2or3shoppingapps Commododiesmostoftenpurchasedbyonlineshoppers: clothing,shoes,hats,bags,outdooritemsandprepaid phonecard Priceandqualityarethemostinqluentialfactorstoonline shoppers 19

22 CHINESECONSUMERBEHAVIOR TheconsumerbehaviouroftheChinesecanbesubdividedintodifferentconsumergroups witheachtheirownsubdivisions. ((((((((((((((((((((((((((((((((((((((((((((((Chinese(consumer(groups( The(older(generation(( Frugal(retired( Wealthy(retired( Traditional spendinghabits(price> quality) Price*consciousduetogrowingupin poorconditionsintoughpoliticaland economictimes. Less(price*conscious(and(quality(is( often(valued(morethancostdueto growingupindecentconditionthough alsoinpoliticalandeconomictimes. The(middle*aged(generation( Frugal(forties( Wealthy(forties( Mixbetweentraditionandtrends Price*consciousduetothefactthat theseconsumerssavealarge proportionoftheirearningstotake careoftheirchildrenandparents. Less(price*conscious(and(are(willing( to(pay(premiums(for(quality(products duetohigherwages. The(younger(generation( Thirties( Twenties((one(child(policy( youngsters)( Westernizedandqualityconscious Save(less,spend(more(on( entertainment(and(often(shop( online.theypursuevalue(and( qualityratherthanlowprices.this tendencycanbeexplaineddueto bettereducationandgrowingupina moreopenenvironment. Barely(saveandspendmostoftheir incomeonentertainment,advanced electronics,andothertrendyproducts. Theyoften(shop(onlineandlookfor products(that(can(help(distinguish( their(personalities.theyfavourhigh qualityandconvenienceproducts. ( The(new(generation((>20(years(old)( The(rich( ( Most(Westernized(and(open(to(new( products.theseconsumerspursue individualismandoftenusethe internettofollowglobalbrands.they aregreat(influencers(to(their( parents(on(what(to(buy.socialmedia isaneffectivemarketingtooltoreach thisgroup( Thisgrouppursuesthebest(products( available,particularly(imports,and aretheperfectcandidatesformarketing newproducts.( 20

23 EVOLUTIONANDFORECAST THEEWCOMMERCEMARKETOUTLOOK AccordingtoiResearch,amongChinaeWcommercemarketsegments,mobile(shopping(will( develop(fastandmaintain48percentofcompoundgrowthrateinthenextfewyears.it willbethekey(push(for(the(rapid(development(of(online(shopping(market.moreover, online(travel(and(o2o(will(sustain(20(percent(of(compound(growth(rateaswell.inthe future,online(shopping(and(o2o(will(be(the(fastest(developing(segmentintheew commercemarket. Thesoaringusageofmobileinternet,shiftfromPCtomobiledeviceofinternetusers, improvedmobileshoppingscenarios,ewcommerceoperators risingeffortsonmobile businessanddevelopmentofmobileshoppingplatformallcontributetothesurgingof mobileshoppinginchina.therefore,itisexpectedthatmobileshoppingwillmaintainfast growthinthefutureyears. O2O(of(local(lifestyle(service(grow(tremendously,especiallycatering,leisureand recreationhavecomeintoitsearlystage.however,ithaslowpenetrationinthelocal lifestyleservicemarket.inthenextfewyears,itwillincreasebyleapsandbounds,ascribed totheincreasingofonlinepurchaseofonlinephysicalgoodsshoppersandsurgingof mobileinternet(iresearch,2015) 21

24 KEYPLAYERSINB2CEWCOMMERCE China(Top(B2C(Websites(Market(Share(by( Total(Transactions(in(Q2(2014( 3% 2% 1% 2% 2% 4% 1% 7% Tmall JD.com Suning.com Vip.com 21% 57% Gome.com.cn Amazon Dangdang Yixun yhd.com Source:ChinainternetWatch,2014 Fromthegraphaboveofthetop9B2CwebsitesappearsthatTmall(is(the(biggest(player( andaccountsfor57percentofthetotalonlinesales.tmallisanopenbusinesswtowconsumer (B2C)platformenablingbusinessesworldWwidetoreachChina svastandgrowing consumermarket.tmall.comhasestablisheditselfasthedestinationforquality,brandw namegoodscateringtoincreasinglysophisticatedchineseconsumersandisthemost visitedb2conlineretailwebsiteinchina. JingDong(is(the(second(biggest(playerandaccountsfor22percentofonlineB2Csales. TmallandJingDongarefollowedbyafewsmallerwebsites,suchasSuning.comand Vip.com.Surprisingly,AmazontakesonlyasmallpartofthemarketshareofB2Cwebsites inchina.toincreasetheirvisibilityandsales,amazonopeneditsownshopontmall. TRENDSINEWCOMMERCE ThefollowingtrendsarebasedonthereportChina s%iconsumer%2015:%a%growing%appetite%for% choice%and%changepublishedbytheconsultancyfirmmckinsey&company.thesearethe sametrendsthatcameforwardduringthepresentationofthealibabagrouppresentedby Mr.Wong,SeniorDirectorCrossWborderB2CWTmallGroup(Global,2014).Thesefivetrends shapethebiggestewcommercemarketintheworldin

25 TREND1:SOCIALEWCOMMERCE Chinahas500millionsocialnetworkusers(McKinsey&Company,2015).Social(platforms( suchasqqandwechat(haveavery(large(impact(on(the(shopping(behaviour(of(its(users. SocialengagementandshoppingbehaviouraresointertwinedthatChineseshoppersrank theirfriend srecommendations bothonlineandofflinewasthemostimportantfactorin theironlinebuyingchoices(mckinsey&company,2015).quitea(few(companies(are(also( making(use(of(the(direct*sales(model(to(mobile(platforms.anexamplecaseofa companysellingdirectlyviaitsbrandpageonachinesesocialmediawebpageisdellon Renren. Dell,theAmericanmultinationalcomputertechnologycompanyhasadoptednumerous strategiestoengagechineseconsumers.toboostfanparticipationlevels,dellcreatedan onlinestoreonitsbrandpagewhereconsumerscanlearnaboutproductsand communicatedirectlywithsalesassociates. Duringthe2010Christmasperiod,Dellcombinedanonlineinteractivegamewithacoupon promotion.usersearnedpointsthroughplayingthegame,andthosepointscouldbe convertedintodellproducts.in2011,the DellMoneyJar programwaslaunched. FollowerscouldearncreditsbycompletingtasksthroughRenrenandgainingthesupport oftheirnetwork.thosecreditscouldbeconvertedintocouponstobuyproducts.theresult ofthisnovelsocialmediainitiativewasthatwithinthreemonths,dellhadacquired newfansandsoldnearly4.000computerswhichgeneratedapproximatelyUSD3 million. McKinsey&Companyexpectstoseecompanies(selling(referral*and(recommendation* driven(productssuchascosmetics,healthcareandinsurancein2015.retailerswhoareon topofsocialmarketingandadvertiseonsocialmediapromisetobeastepaheadofthe others. 23

26 ThearticlebelowshowsanexampleofonlinefashionretailerZalorawhopartneredupwith WeChatonSingle sday 7 onthe11 th ofnovember. WeChat will be collaborating with local online retailer Zalora to launch the latter s official WeChat account. 10/11/2014, Marketing Interactive ( WeChatusersinSingaporecannowconnectwiththebrandthroughtheofficialaccountandkeepupwith thelatestnewsandcampaigns.throughthefeature,customerscanalsoeasilynavigatezalora sonline shoppingappusinginwbuiltkeywordshortcutswithoutleavingthewechatplatform.( ( Tocommemoratethestartofthispartnership,ZaloraislaunchingtheirSingles Day(whichfallson11 November)campaignontheirofficialWeChataccount.Thefirst1,000fanstotextin ILoveZALORA on 11NovemberwillwinZaloravouchersworthSGUSD11,withnominimumspendrequired.Thecampaign willlastfrom11amto7pmon11november.( ( DioneSong,marketingdirector,ZaloraSingaporesaid: WeChatwithitshugepopularityandreachinthe region,isavaluablepartnerforustoimprovemobileshoppingexperienceinasia.ourpresenceon WeChatwilldeepenourengagementwithconsumersandwillallowustoreachthemevenwhenthey re messagingontheirmobile. ( WeareexcitedtopartneroneofthelargestonlineretailersinSingaporeandprovidingouruserswith personalizedaccesstozalora,sharingwiththemawholenewshoppingexperience.withonlineand mobilecommerceontheriseinthisregion,westronglybelieveinthepossibilitiesthiscollaboration couldbringourusers,bothnowandinthefuture, saidposhuyeung,vicepresidentofinternational businessgroupattencent,thecompanybehindthewechatapp. Source:MarketingInteractive2014 TREND2:THESHOWROOMINGEFFECT AnothertrendinChina sewcommercemarketisthe showroomingeffect.the showroomingeffectiswhereshoppers(browse(in(stores(but(buy(elsewhere(including online).thistrendisreallysettingoffe.g.only16percentcustomers,amongthosewho haveinternetaccess,boughtelectronicgoodsatphysicalstores(mckinsey&company, 2015). To(retain(sales,(more(brands(are(choosing(to(collaborate(with(online(shopping( platformsandplace(qr(codes(next(to(their(products(and(sending(customers(digital( coupons(and(daily(tweets((mckinsey&company,2015). 7 Thehighlypromoted24Whourperiodduringwhichonlineretailersheavilydiscounttheirwares,celebrated on11w11(november,11).itisthemostimportantdayin(online)chineseretail. 24

27 TREND3:0NLINEWTOW0FFLINE O2O(is(the(biggest(pie(in(e"commerce( (this(is(just(the(beginning (( Wang(Jianlin,(Chairman(of(Wanda( 0nlineWtoWoffline(020)eWcommercepromisestobeagameWchangingtrendinChina sew commerce.020istheintegration(of(offline(business(opportunities(with(the(internet. Suchplatformsattract(customers(online,(butthe(real(consumption(of(services(is( experienced(by(consumers(offline.italsoinvolvestheuseofinternettechnologiesto interactwithcustomersandtrackshoppers behaviour. AccordingtoMcKinsey&Company ssurvey,71(percent(of(chinese(consumersare alreadyusing(020*services,andonethirdofthosewhohaven tclaimtheywouldliketotry inthecomingsixmonths.o2oareexpectedtodrawthemostmarketdemandsin entertainment,healthcare,andhousingandmotorservices(mckinsey&company,2015). TREND4:RURALEWCOMMERCE Alibaba(plans(to(expend(a(lot(of(energy(in(the(entire(fields(of(rural(e"commerce.(We re( really(hoping(to(bring(e"commerce(to(all(of(china s([many](villages,(so(that(rural(people( can(get(a(taste(of(the(city(life(and(sell(their(own(products(in(the(cities. ( Jack(Ma,(founder(Alibaba( Despitethelowerinternetpenetrationintheruralareas,over(60(percent(of(rural(digital( consumers(shop(online,(making(them(just(as(active(as(their(urban(counterparts. Despiteloweronlinepenetration(28.2percentinruralareasversus71.8percentinurban areas)inruralareas,over60percentofruraldigitalconsumersshoponline,makingthem justasactiveastheirurbancounterparts.theaddedbenefitisthatofhigherenjoyment (highersatisfactionandlesspicky)inruralareascomparedtourbanareas (McKinsey&Company,2015). Thereareseveralchallenges(to(enter(the(Chinese(rural(e*commerce(marketsuchas increasinginternet(connectivity,(building(infrastructure(roadstoensuredeliveriesand otherlogistics,bankstofacilitateonlinebanking,electricitysourcestopowercomputers andmobilephones)(ckgsbknowledge,2015). AlibabaandotherbigeWcommercecompaniesinChinaaremakingbigeffortstoenterthe ruralewcommercemarket.astheurban(e*commerce(market(becomes(saturated,(the( next(opportunities(and(challenges(lay(in(the(rural(e*commerce(market.platformssuch astaobao 8 helppeoplelivinginruralareastoselltheirproductsandsetuptheirown businessonline.aninterestingsideeffectistheriseofthe Taobao(villages. 8 Alibaba sc2cewcommerceplatform. 25

28 Taobaovillagesarefarmingcommunitiestransformedthankstonewjobopportunities createdbytaobao. TheillustrationbelowshowsascreenshotoftheTaobaopageofentrepreneurLv Zhenhong.LvZhenhongusedtosellsesamebuns,earningUSD8,000ayear.Todayhis companybswolfgeneratesusd8millioninannualsalesofoutdoorgear.hisusd16 sleepingbagsareabestsellerontaobao. Source:Taobao,2015 TREND5:ONLINEFOODSHOPPING Packaged(and(fresh(food(tops(the(carts(among(online(shoppers,withaverage34times ayear,comparedwith22timesayearforapparels,accordingtothesurveybymckinsey (McKinsey&Company,2015). Whilethefoodcurrentlyofferedonlineismostlyofthedrypackagedvariety,freshfood optionsareexpandingrapidly.companieslikeyihaodianandyummy77arealready deliveringfresh,styrofoamwpackagedmeat,fruits,andvegetablestochinesedoorstepsin 24hours,andeWcommercegiantslikeJDarebusybuildingcoldchainsinlargeChinese cities.thewaytothechinesedigitalconsumer sheartappearstobethroughtheirstomach, andaddressingthisimportantbasicwneedcategorywillbecriticaltodrivestickinessand frequencytoewcommercesites(mckinsey&company,2015). Theillustrationbelowshowsthat40(percent(of(online(shoppers(have(bought(packaged foodsinthepastthreemonthsand14(percent(of(online(shoppers(have(bought(fresh( foods.thismakesfoodthesecondmostpopular(afterapparel)producttobuyonline 26

29 (McKinsey&Company,2015).Buyingfoodonlinehasbecomesopopularbecauseofthe sameornextdaydelivery,cheaperpricesandbroaderassortment. Source:iConsumerChina,2015 EWCOMMERCEMARKETING China s(e*commerce(market(is(a(mature(market.a onewsizewfitswall ewcommerce strategymighthaveworkedatthestart,butnowchineseewconsumersaremuchmore( sophisticated.anadditionalmatteristhatchinahasareally(big(market(andisrather( scattered(and(diverse(in(terms(of(consumer(behaviour.itisnotatallahomogeneous marketduetothedifferenttieredcities. InTier(1(citiessuchasShanghai,manyconsumersaree*purchasing(vacations,(cars,(or( high*end(personal(care(accessories,(including(cosmetics,(handbags,(and(high*end( fashionwithgreatertransactionalfrequencythantheircounterpartsintier2,tier3,and Tier4cities(KPMGChina,2014). Brand(loyalty(isalso(materializing(at(a(markedly(higher(rate(in(Tier(1(citiesthan anywhereelseinchina.incontrast,insmallermarketssuchasdalian,xi an,orfuzhou,one mayfindgreatervariabilityamongstwhatproductsandbrandsarefavoured forexample 27

30 lastseason itemsmaysellpoorlyinshanghai,butstillsellwellinothermarkets. ConsumersfromlowerTiercitiesarestillmorefocusedmoreonbasicvaluepropositions whenmakingpurchasedecisions(kpmgchina,2014). Themethodsofinfluencealsodifferbetweendifferentmarkets:Tier(4(cities(tendto(rely( more(on( key(opinion(leaders (andlessonwordwofwmouth,oruserreviewsandblogs. Contrarytoexpectation,Tier4cityresidentshaverelativelyless(discretionary(income,( yet(theyappeartobe(spending(similar(amounts(online(as(consumers(from(tier(3(or( even(tier(2(cities(kpmgchina,2014). DespiteChina sewcommercemarketpotential,successiscertainlynotagiven.findingand adaptingtherightmarketingstrategycouldpossiblybeoneofthemostchallenging obstacleswhentryingtoenterthechineseewcommercemarket.businessesneedtodotheir homeworktoreallyunderstandthetargetmarket,andhowbesttoinfluenceanddirect theironwlinepurchases.acommonmodelistosellthroughestablishedewcommerce platformssuchastmall. Asmentionedbefore,AmazonopeneditsownshoponTmalltogetmoreconversionand visibility.therearemanyroutestosuccess,butitisuptothecompanyandtheirmarketing teamtofindtheplatformthatsuitsthetargetedconsumerprofilebest. 28

31 CHAPTER(2:(E*COMMERCE(IN(HONG(KONG( INTRODUCTION That(is(the(opportunity(for(e"commerce(in(Hong(Kong.(Hong(Kong s(warehouses( have(some(great(products,(brought(in(by(small(to(mid"sized(importers(and( distributors,(who(just(cannot(find(retail(shelf(space.(hong(kong s(consumers( need(a(lot(more(than(is(served(by(the(current(set(of(retailers,(and(the(internet( can(now(bridge(that(gap. ( Nishant(Kapoor,(CEO(and(founder(of(PetProject.HK,(LifeProject.HK(and( Toddler.HK( The(e*commerce(market(in(Hong(Kongisquitesmall(compared(to(the(e*commerce( markets(in(other(asian(pacific(countries(and(in(particular(china.themarketinhong KongseemstolagbehindwhenitcomestoeWcommerceanditssubset,mWcommerce 9.Hong Kongpeoplelovetoshop(in*store(and(can(buy(anything(24/7(in(the(in*store(stores. VerydifferentfromChina,wheree*commerceisconsideredalifestyle,inHongKongitis just(another(channel(to(buy(or(sell(products(on.hongkongisasmallmarketandew commercecompaniesbenefitfromservinglargepopulationsacrosswhichtheycanspread theircosts.itsimplyhasnotmadesenseformanyewcommercecompaniestotargethong Kongwhentheycanfirstfocusonitslargerneighbours. HoweverHongKongshouldnotcompletelybeneglectedasaninterestingmarketforeW commerce. At63percentHongKonghasthehighest(smartphone(usage(penetration(rate(in(the( world(bpostinternational,2014).astudybygoogleandipsosmediact,conductedin 2013,alsoshowedthat96percentofHongKongsmartphoneuserssurf(the(internet(daily (MarketingInteractive,2014).Additionally,theWi*Fi*penetration(inHongKongis(among( the(highest(ones(in(the(world.inapril2014,therewere20.820privatewiwfiw connections.injune2014,hongkongcounted10.000freepublicwiwfiwhotspots,spread over5.400places(bpostinternational,2014). Howeverthingsarechanging,slowlybutsurely,HongKong sewcommerceandmwcommerce marketsarestartingtodevelop.researchofthehongkongmarketbypaypalshowsew commercein2011countedforusd1.92billionandgrewtousd2.02billionin2012. PayPalforecastsitwillreachUSD3.49billionin2015(MarketingInteractive,2014). 9 Thedeliveryofelectroniccommercecapabilitiesdirectlyintotheconsumer shand,anywhere,viawireless technology 29

32 Thistendencycanbeexplainedthroughseveralfactors: Thecostsofimplementingane*commerce(business(fall:moreeWcommerce platformsinhongkongimplymoreopportunitiestoshoponline Distribution(and(storage(spaceare(expensive:rentingstoragespacesinHong Kongisextremelyexpensive.Itisthusmoreinterestingforretailerstooffertheir merchandiseonline People(are(busy,(so(no(time(to(shop(in*store:itismoreconvenienttoshope.g. groceriesonline,whichwillbedeliveredonceyougethomeandarereadytocook; Click(and(collect(services(are(popular( Retailersembracetheconceptofomni*channel(retailingwheretheinWstore experienceisextendedtowebandonline InallHongKongisnotthatbadofaneWcommercemarketforcompaniestoselltheir productson.hongkongisanideal(test(market(before(entering(the(chinese(e* commerce(market. AnotheradvantageisthattheHongKongconsumersareverypicky,sooncetheylikeyour productthechinesewillprobablydosotoo.forhongkong,shoppingisanationalpast timeandconsumersareusedtoconvenience.thefactthatconsumershavesuchhigh expectationsperhapsexplainsthedifficulty(in(providing(e*shoppers(with(total( satisfaction.infact,only38percentofhongkongshoppersaresatisfiedbytheirew commerceexperience,incontrastto83percentofamericansand78percentofeuropeans. ThetypicalHong(Kong(e*shopperisrelativelyyoung(between(25*34(years(old).Online HongKongpeopleareoftenlooking(for(good(deals.Thethreemostvisitedsites (accordingtomastercard)are: 1. Sites(with(good(deals( 2. Cinema/theatre(sites( 3. Restaurant/food(delivery(sites( Owingtothehousingconfiguration(littlestoragespaceforfoodandsmallkitchens)and localcustoms,thefood(sector(is(highly(regarded(by(consumers.acompanythatforesaw thistrendissecretingredient. SecretIngredientisaHongKongeWcommerceplatformthatoffershomedeliveredreadyWtoW cookmealswitharecipeandalltheingredients(prewchopped).itiscomparabletothe DutchinitiativeHelloFresh.Onthewebsiteyoucanorderanicelookingdish,placeyour orderandsecretingredientintheirturn,takesonthehassleofshopping,choppingand preppingamealwhichtheywilldeliverrightatyourdoorstep.secretingredientisan excellentexampleofasuccessfulewcommerceplatforminhongkong.theystudiedthe marketwellandfoundagapinthemarket,namelyhomedeliveryofreadywtowcook 30

33 restaurantworthymeals.asthemostvisitedewcommercewebsitesinhongkongare websiteswithgooddeals,cinema/theatresitesandrestaurant/fooddeliverywebsites,itis bestforcompaniestocomeupwithbusinessideasthatfitwithintheseewcommerce websites. TheillustrationshowsscreenshotofSecretIngredient swebsite. Source:SecretIngredient,

34 CHAPTER(3:(E*GROCERY(IN(CHINA( INTRODUCTION China(has(become(the(perfect(market(for(launching(online(supermarkets(with(foreign( new(products. (( Sam(Mulligan,(director(of(Data(Driven(Marketing(Asia((DDMA)( AsChina sewcommercemarketisbooming,soisitsewgrocerymarket 10.Online(shoppingis attractive(to(chinese(consumers.gettinggroceriesdeliveredwithouthavingtoleavethe houseisespeciallyappealingtobusymiddlewclassfamilies(mainlyinthefirsttiercities). Asthequoteabovestates,China s(e*grocery(is(particularly(interesting(for(foreign(new( products.forchineseshoppers,foreign(labels(guarantee(quality.thistendencyisdueto theconstant(stream(of(food(safety(scandalsoverthelastcoupleofyears(moreaboutthis subjectinthenextsection).thechineseareparticularly(interested(in(buying(products( from(the(us(and(europe.howeverthechinesearenotonlylookingforsafeproducts,as thelivingstandardsimprove,nutritional(valuealso(becomesan(important(factorduring ewgroceryshopping. TheChineseprefertobuymoreexpensivefoodandbeverageproducts(aslongastheir budgetallowsit)astheyassumetheproductwillbefresherandsafer.e.g.chinese consumersbelievethatdevondale(apremiumwpricedimportedmilkbrandfromaustralia) mustbefresherandmorenutritiousthancheaperbrandsstockednearby. SECTORYANALYSES:(FOREIGN)FOODANDBEVERAGES TherapidlygrowingChineseeWgrocerymarketisdrivenbythefollowingfactors: More(and(more(people(shopping(online:300millionChinesepeoplebuyingonline Domestic(food(scandals:severalfoodsafetyscandals,e.g.themelaminemilkscare, havetosomeextentunderminedtrustinchineseproductionprocesses.thosewho canaffordtodosowillcontinuetoshowpreferenceforimportedbrands. 10 AplatformwhereeWconsumerscanbuytheirgroceriesonline 32

35 Source:TheGuardian,2013 Price(advantage:apriceadvantageisreceivedascomparedtotraditionalimportW orientedfoodretailerssuchastesco,metro,carrefour,etc.thepriceadvantageis mainlyduetoonlineretailer sabilitytostreamlinetheirsupplychainandreduce overheadcost,allowingthemtoofferbetterpricestotheendconsumer. Counterfeit:overseasgoodsaremuchlesslikelytobecounterfeited,asignificant bonusinacountrywherefakegoods(includingfakefoodsandbeveragessuchas eggs,meat,etc.)aresocommon. Thesemarketfactorsoffermanyopportunitiesforforeignfoodproducersaimingtoexpand theirbusinessinchina.opportunities(exist(forforeignenterprisesinthefoodand beverageindustry,especiallythosein(dairy(products,(snack(foods(andalcoholic( beverages,(with(special(attention(given(to(the(rapidly(developing(second(and(third* Tier(cities(AsiaPerspective,2014). TheillustrationshowsoneofAlibaba ssuccessstoriesontmallglobalofausfarmerwho soldhisproductstochinaintwoweekswhichwasequivalentto9years worthofcherries soldatamediumwsizesupermarket. 33

36 Source:TmallGlobal,2015 FACTSANDFIGURES PleasenotethatthesefactsandfiguresarederivedfromastudyconductedbyiiMedia ResearchinSeptember2014. TotaltransactionvalueeWgrocerymarketChina:USD$13.85 Amountofonlinefoodorderingusers:158million(47 percentincreasecomparedto2013) 20.1percentofChinainternetusershaveusedonlinefood orderingservices 31.1percentorderedonPConly,27.80percentorderedon mobiledeviceonlyand41.10percentorderedonpcand mobiledevice Mobilewillbethekeychannelinonlinefoodordering market Mostimportantfactorswhenbuyingfoodonline:food hygiene,qlavor,deliverytime,wordofmounthandprice 34

37 EVOLUTIONANDFORECAST China sewgrocerymarketiscommonlyknown(to(appear(in(2012,(but(already(existed(in( YiguowasthefirstfreshfoodeWretailertoappearinChinafollowedbyFieldsChinain2009. Later,cameTootooandYoocaiin2010withonlinefreshfoodsupermarkets.In2011, TaobaoandWomaiaffiliatedwithCOFCO,andopeneditsfirstfreshfoodchannel.In2012, freshfoodchannelsappearedinsfbest,benlai,jingdongandtmall.in2013,yihaodianand Suningalsostartedafreshfoodandbeveragebusiness.ChinaEasternAirlinesrolledout Eaemall. TheChineseeWgrocerymarketwillkeepgrowinginthefollowingyears.Therearealready 3000eWcommerceplatformsprovidingtheserviceofonlinegroceryshopping.The competitionamongthemisreallybiganditseemstherewillnotbethatmuchmore opportunitiesfornewcompetitorstoenterthismarket. CHARACTERISTICSOFCHINA SEWGROCERYMARKET PRODUCTCHARACTERISTICS Product(characteristics: Small(peasant(economy 11 :scatteredproduction Product(properties:highwastageofproducts Lack(of(industry(standards:fewregulationsonfoodandbeverageproducts,e.g. fakemeat,eggs,etc.theillustrationshowsafakechickeneggmadeinchina.the mainingredientsoftheseeggsarecoagulants,starch,andresin.theshell,onthe otherhand,iscomposedofwax,calciumcarbonate,andgypsumpowder. Accordingtoreports,theconsumptionofthesefakeeggscanleadtomemory loss. Source:TheDailyPedia, Aneconomybasedonagriculture,whichisproducedbyfamilyunits. 35

38 LOGISTICSCHARACTERISTICS Logistics(characteristics: Fresh(keeping(of(food:coldchain 12 isneededtokeepfreshandfrozenfood, freshuntildeliveredathome Reduction(of(food:coldchain Reduction(of(wastage:coldchain Large(input(and(long(construction(period(of(logistics(system:smallcoverage, notallareasarecoveredespeciallyinruralareastherearealmostnodelivery options MARKETINGCHARACTERISTICS Marketing(characteristics: High(price(&(intensive(marketing:onlyforupscalefreshfoodandbeverage brands:marketwskimmingstrategye.g.imported,expensivefoodandbeverage productsareconsideredtobesafer Enhancement(of(brand(awareness:mainlybrandads(foreign)brandsare importantforchineseconsumers CONSUMERCHARACTERISTICS Consumer(characteristics: Different(communities(in(different(cities:differentTiercitiesimplydifferent consumerbehaviours,e.g.middlewclassconsumersinshanghaiarelessprice consciousthaninruralareas Mainly(distributed(in(off(hours:concentratedontime Middle(&(high(end(consumers:consumersfromTier1andTier2citiesmainly buyforeignfoodandbeverageproductsmoredisposableincometospend 12 AtemperatureWcontrolledsupplychain 36

39 TYPESOFCHINAGROCERYEWRETAILERSANDTHEIRCHARACTERISTICS ThreedifferenttypesofChinagroceryeWretailersandtheircharacteristicscanbedescribed: 1. Vertical(B2C(grocery(e*retailers VerticalB2Cfreshfoodretailersholdmuch(strength(in(capital(and(cold(chain,but theyarecomparatively(weak(in(control(of(suppliers.theirsatisfactory distributionservicehelpstoconsolidatetheirstatus: Limited(product(varieties:smallerofferduetonopossibilityofperfect substitution,e.g.traditionalvegetablemarketbecauseoftheirmaker positioninganddistributionservice Less(traffic(and(userscomparedtoe.g.TmallorJingdong High(price(and(good(quality,(high(end(consumers:highrequirementsof middleandhighendconsumersonproducts Well*capitalized( Vulnerable(in(logistics(but(with(local(advantage:dependentonalogistics partner Some(cooperation(with(offline(stores:cooperationwithofflinestoresis helpfultodistributeflexiblyandenhanceuserstickiness e.g.benlai,sfbest, 2. Grocery(retailers(on(e*commerce(platforms(( Theseretailersaremoreadvantageousinplatform,aslarge(B2C(platforms(have( stickier(users(and(wider(geographical(coverage.however,restrained(bytheir cold(chain(distribution(system,(distribution(coverage(and(efficiencyhaveyetto beimproved: Some(user(base:largeeWcommerceplatformse.g.Tmallholduserbaseand userloyaltywhicharewithoutparallel Middle(and(high(end(market( Complete(logistics(but(no(cold(chain(system( Powerful(strength(and(channel(of(parent(company( One*stop(shopping(in(one(online(shop( e.g.:tmall,jingdong, 37