How to Build a Thriving E-Commerce Business in China

Transcription

1 How to Build a Thriving E-Commerce Business in China In cooperation with A Guide for Western Retailers: Navigating the Fine Nuances of the World s Fastest Growing Economy Contents Executive Summary 1 East-West Cultural Differences 2 Consumer Behaviors and Preferences 2 Government Regulations and Compliance 3 Technology Considerations 4 Flexibility Eases Integration 4 Optimizing Site Performance 4 Customizing Content 5 Platform and Partner Considerations 5 About hybris 6 About arvato Systems 6 Online sales are exploding in China, and western companies are racing to develop successful e-commerce strategies to capitalize on this fertile market. China s Ministry of Commerce reported that webbased B2C sales in 2011 reached $ billion, a 53.7% increase from the previous year. Anticipating that China will soon overtake the U.S. as the largest online shopping market, retailers around the globe are investing heavily in technology solutions to secure a share of the world s biggest e-commerce growth opportunity. Most major U.S. and European retailers have opened traditional brick and mortar storefronts in China, but many maintain only informational Chinese language websites with no transactional capabilities 1. 1 Forrester Research, Trends in China s ecommerce Market, January,

2 Digital marketing experts advise prudent conservatism when implementing an e-commerce strategy on the Chinese subcontinent. There are many complexities involved in East Asian e-commerce implementations, some of which are quite unique to the local buying public, and many of which are unknown to retailers outside the country. Chinese consumers have a number of cultural traditions that should be taken into account. The local government / legal landscape in China must be understood and appropriate adjustments made. There are also significant technical requirements unique to China that must be understood and addressed. Despite these challenges, selecting the right globally agile commerce platform, and an appropriately experienced technology partner, can help retailers to successfully navigate the local landscape and develop a winning online strategy. This paper provides guidance on how to tailor an e-commerce solution to meet the cultural, governmental, legal and technical specifications unique to China. Critical differences are illustrated, and solutions are suggested, on how best to address the distinctive needs of Chinese consumers. There are also strategies and best practices to be considered when evaluating e-commerce vendors and platforms. East-West Cultural Differences China and its more than 1.3 billion residents 2 are culturally and politically distinct from much of the rest of the world. It s difficult to appreciate all of these differences without actually spending time in China. Thus, it s critical for even the most successful European brands to engage global vendors with local teams in China at the beginning of their e-commerce development process. Rather than relying on out-of-country translators to bridge the gaps, a best practice is to employ native Chinese speakers in key project management positions on the implementation team. Language and popular culture differences should not be underestimated, since they can lead to misunderstandings about objectives and technical specifications, and can also result in project delays and cost overruns. Collaborating with local, native-speaking implementation partners familiar with cultural, technical, legal, political and governmental issues will help facilitate the development process. Daily business in China is heavily influenced by interpersonal relationships. Effectively navigating the local landscape can expedite acceptance during the planning and design phases to ensure that the highest quality and most effective solutions are implemented. Whenever possible, team members at all levels should invest time with Chinese colleagues. In-person interactions are paramount to cultivating relationships and ensuring clarity of direction. For example, experienced China e-commerce implementers stress that it s critical to co-locate with local teams during pivotal testing phases to avoid misunderstandings and delays in deployment. 3 Management by remote control from thousands of miles away has been shown to have many disadvantages. Consumer Behaviors and Preferences According to Forrester Research, China s online retail market is poised to grow from $118 billion in 2011 to $356 billion in This is growth unlike any other market in the world. 4 With this rapid adoption of e-commerce, a number of distinctive shopping trends have emerged, and Chinese purchasing behaviors must be taken into account when developing an e-commerce strategy. Like consumers all over the world, online buyers in China love a good bargain, as evidenced by the unparalleled popularity of TaoBao, a leading commerce site with both auctions and fixedprice offers. Bargain hunters flock to the site in search of discounted goods. Consumers in China also seek out sales and promotions. In fact, it s estimated that purchase volumes during promotional events is more than three times higher than non-promotional periods. Online retailers should strive to make their offerings unique by promoting samples, special offers, or special discounts. By attracting consumers to exclusive offers and competitively priced goods, brands can create customer loyalty and gain significant traction. Local retailers can be especially successful by integrating non-traditional marketing to augment their online presence. Using such tactics as campaigns, taxi cab signage, and coordinated in-store POS promotions can intensify the volume of web-based promotions, making e-commerce activities even more lucrative. 2 World Population Review, including ethnic Chinese in Taiwan, Macao, and Hong Kong, February, 2012 Estimate. 3 arvato AG, a Bertelsmann company, China Commerce Best Practices (internal guidelines). 4 Forrester Research, Asia Pacific Online Retail Forecast, 2011 To 2016, April 16,

3 Chinese consumers have enthusiastically embraced e-commerce, but they remain cautiously wary of big brand names. Inferior quality and counterfeit products are common, and shoppers are skeptical of bold claims made directly by retailers. For this reason, third-party online customer reviews, social media, and blogs are becoming increasingly important promotional vehicles in China. Government Regulations and Compliance The Chinese legal system exercises tight government control over many aspects of daily life, making the e-commerce environment in China unique. One crucial point of difference is how the Chinese government deals with international companies wishing to sell goods in China. The government refers to them as wholly foreign-owned entities or WFOEs. It s critical for western retailers planning to do online business in China to retain an in-country legal counsel who can help navigate the various levels of bureaucracy within the Chinese government. This is especially important when securing an Internet Content Provider (ICP) License, which is mandatory when selling anything online in China. The ICP licensing process is highly complex, and most of the documentation and government resources relating to it are generally not available in English. Given the complicated nature of local licensing, securing assistance is the sensible approach and can save much time and expense. It is estimated that over 40% of Chinese online shoppers read and post product reviews 5. Social media outlets, including Youku (video uploads similar to YouTube), kaixin (Facebook-like social applications), Tudou (another popular video site owned by Youku), weibo (similar to Twitter, but with twice as many active users) are attracting an increasing number of people accessing user-generated content, reviews and testimonials. Understanding these trends and buying behaviors can help retailers avoid spending unnecessary amounts of time and resources on features such as in-store review systems, and instead enable them to focus on executing other proven digital marketing tactics. Another reason to obtain local counsel is to guide the development of online sales policies. Sales terms and conditions, along with policies for returns or exchanges, should be cleared with an expert who can advise how best to address relevant legal mandates and cultural norms. Careful planning for mobile transactions is another valuable checklist item during the development of an e-commerce strategy in this market. Mobile commerce is on the rise in China with increasing numbers of mobile device owners indicating an interest in purchasing online. Planning and implementing a seamless integration with a mobile commerce solution should be a high priority. 5 Boston Consulting Group, The World s Next E-Commerce Superpower; Navigating China s Unique Online Shopping Ecosystem, November

4 Technology Considerations Understanding and embracing cultural preferences and purchasing behaviors can significantly increase website traffic and conversions. However, if an organization doesn t build its e-commerce strategy on technical specifications tailored for the Chinese market, chances of success may be diminished. Flexibility Eases Integration An e-commerce platform must be carefully architected from the earliest phases of development to deliver a highly flexible and customizable solution that will expedite implementation. Working with a system integrator who has a local presence in China and a deep understanding of local technical specifications will go a long way in expediting the launch of a new commerce site. Commerce platforms should be highly agile and able to be integrated with ERPs and other enterprise systems, some of which might be home grown. Some standards will be unique to China and will have particular integration requirements that cannot be met with an out-of-the-box e-commerce solution. Payment solutions and fulfillment operations should be tailored to the unique needs of local buyers. Consumer trust has long been one of the biggest barriers to the acceptance of e-commerce offerings in China. According to The Economist, Consumers worried (quite rationally) that online firms were fraudsters, or that their credit cards would be abused, or that purchased goods would be swapped for counterfeits during shipment. 6 Alipay, an electronic payment system similar to PayPal, is ubiquitous in China. Because Alipay is escrow-based and doesn t finalize a payment until the shipment is received by the consumer, it reduces buyer concerns about online transactions. Cash on delivery (COD) is another popular payment preference in China. Consumers frequently insist on completing purchases in person and examining products before paying with cash. Therefore, businesses should offer either a buy online, pickup in store option or make it easy for the buyer to inspect their purchase and, if necessary, easily return it via the same shipper. China is leading the world when it comes to highly personalized fulfillment models one fashion e-tailer has partnered with FedEx to offer a personalized service where delivery people wait at the door while the customer inspects the item, tries it on, and decides whether to keep it or return it to the courier. 7 Fulfillment solutions must be customized to meet the logistical challenges inherent to Chinese e-commerce. For example, in metropolitan areas, deliveries are largely fulfilled by couriers. Shipment options that Western consumers are familiar with, such as FedEx and UPS, are also offered as express delivery alternatives. Shipments to more remote areas can be tricky. Many major e-commerce sellers will only ship to the 200 or 300 largest cities in China, and e-commerce systems have to be built to accommodate these shipping prohibitions. Chinese customers are fiercely loyal to domestic merchants and view conversion drivers such as free shipping as the exception, not the rule. Optimizing Site Performance To ensure a successful e-commerce implementation, organizations must be aware of various technical specifications unique to China. Many organizations setting out to develop a foreign e-commerce solution are aware of the need for currency and language customization. However, doing online business in China includes some lesser-known technical nuances that also must be embraced. Despite Microsoft s best efforts to encourage Chinese users to upgrade to a newer release, Internet Explorer 6 (introduced in 2001) is the browser of choice for about a third of China s 505 million Internet users. E-Commerce designers must make IE6 part of their test matrix and ensure that all aspects of the e-commerce site work seamlessly in this outdated browser. Programmers should think twice about relying on functionality from the latest versions of JavaScript or other scripting languages, as these may conflict with IE6. Optimizing sites for IE6 and scripting languages is necessary, but equally important is avoiding any integration with Google technologies such as Google Analytics, Google Products or Google Webmaster Tools. In the past, the Chinese government has slowed or denied access to Google websites, limiting users ability to complete Google searches or access any of Google's Chinese-language sites. Google is in negotiations with the Chinese Government to resolve access issues, but it is advisable to consider current limitations during the development process. Limited Internet throughput should also be taken into account. China s Internet infrastructure has yet to be optimized, due in part to web traffic filtering and monitoring by the government. Developers must assume wide swings in network performance in their design considerations. There are two things that western retailers can do to prevent these issues from slowing down their websites. The first is to integrate with a local Content Delivery Network (CDN) such as China Cache. China Cache is designed to be optimized for the eccentricities of China s Internet infrastructure. In addition, it has a close relationship with Chinese regulators, including a nationwide operating permit from the Ministry of Industry and Information to provide content delivery services. The second strategy is a thorough understanding of the local caching rules. Knowing when and how to distribute content across a CDN is just as critical. 6 The Economist, The great leap online, November 26, Power Retail, July

5 Customizing Content Modifying site configuration and system integration according to local specifications will help ensure optimized site performance and consumer ease of use. Incorporating features and creating content optimized for Chinese markets is equally important. Developers don t need to build their own ratings and reviews modules within their platforms. Instead, focus should be placed on smooth integration with local social sites including Youku (like YouTube), kaixin (similar to Facebook), Tudou (Video), and weibo (like Twitter, but larger). Chinese consumers are intensely interested in foreign brands, but online retailers should translate their product content for the local audience. Something that resonates culturally in Los Angeles and New York might not make sense in Shanghai or HangZhou. According to Forrester Research, Fifty-nine percent of online adult consumer electronics buyers and 34% of online adult apparel buyers state that their preference for foreign brands is driven by superior quality. By contrast, the key reason why a Chinese consumer buys Chinese brands is price. 8 As a result, Chinese consumers turn to foreign brands for luxury items, which are most successful when they remain true to a western-style design, but feature a relevant Chinese twist. 59% online adult consumer electronics buyers of foreign brands 34% online adult apparel buyers of foreign brands In determining site design, developers should also consider local technical limitations. Slow network speeds are common, and consumers may have trouble navigating rich-media sites that Western companies often develop. It s also important to be aware of the preponderance of older computers still being used throughout China, especially outside the major urban centers. Consumers using these systems may struggle with outdated technology and slow processors, so commerce sites should be optimized for all levels of client devices. For instance, Flash animation should be avoided and content should be designed to work on lower resolution monitors. 8 Forrester Research, Starting Your ecommerce Business In China, May 17, Platform and Partner Considerations China is an extraordinarily challenging market to enter, and must be navigated with prudence. Retailers need a good understanding of the unique cultural, legal and technical issues, as well as local shopping customs, in order to implement an effective e-commerce solution. Fully comprehending and planning for these differences will facilitate a quicker and more cost-effective implementation. Choosing the right e-commerce platform and implementation partners are equally critical to success. There are a number of considerations to take under advisement when selecting an e-commerce solution for the China market: Choose an e-commerce platform that can be quickly and easily integrated to meet the unique specifications in China (local payment systems, IE6, etc.). The ideal platform will be highly flexible, enabling seamless integration and easy customization. Ensure the chosen platform has native support for multibyte language, local currency exchange and other localization demands. Select a local vendor with a history of successful e-commerce implementations in China. The value, guidance and advice that a local partner can provide should not be underestimated. Choose an implementation partner who has solid relationships with local vendors, a keen understanding of legal and governmental regulations, and the ability to provide guidance on navigating unique local business customs. Consider the advantages of a partner with a strong competence in delivering the entire end-to-end value chain, including financial services, local customer service, global call centers, payment solutions (including COD), fulfillment, returns, and server hosting. To recognize the substantial revenue potential of reaching into tier two and tier three cities without the expense of opening retail outlets, engage a partner with deep experience in penetrating these markets through online channels and in providing all the support required to serve these markets successfully. This includes the appropriate local payment, remote shipping, fulfillment and customer service capabilities mentioned previously. There are benefits to vendors who can provide one contract for all services, a single point of contact, integrated teams with stronger alignment between different services (and no finger pointing), and best practices expertise. Such comprehensiveness can save time and money and is likely to be less stressful for your personnel. Service providers with global capabilities and proven integrations can more easily help you expand into new markets and still offer local expertise in your existing geographies. 5

6 We have found that highly flexible e-commerce solutions work best for companies entering Chinese markets, said Burghardt Groeber, VP, Asia of hybris. By leveraging an agile platform, retailers can more quickly and easily integrate with local systems, resulting in a more effective e-commerce solution. About hybris hybris helps businesses around the globe sell more goods, services and digital content through everytouchpoint, channel and device. hybris delivers OmniCommerce : state-ofthe-art master data management for commerce and unified commerce processes that give a business a single view of its customers, products and orders, and its customers a single view of the business. hybris' omni-channel software is built on a single platform, based on open standards, that is agile to support limitless innovation, efficient to drive the best TCO, and scalable and extensible to be the last commerce platform companies will ever need. Both principal industry analyst firms rank hybris as a leader and list its commerce platform among the top two or three in the market. The same software is available on-premise, on-demand and managed hosted, giving merchants of all sizes maximum flexibility. Over 500 companies have chosen hybris, including global B2B sites W.W.Grainger, Rexel, General Electric, Thomson Reuters and 3M as well as consumer brands Toys R Us, Metro, Bridgestone, Levi's, Nikon, Galeries Lafayette, Migros, Nespresso and Lufthansa. hybris is the future of commerce. If you d like to discuss the strategies described in this paper, or meet with one of our e-commerce solutions experts to help you expand upon these concepts, please feel free to send us an message. sales@hybris.com Web: We have devoted significant time and resources into building our global end-to-end e-commerce value chain and strong relationships with local partners in China, said Frank Zimmermann, the CEO of arvato Systems North America. This investment has paid off for our customers, enabling us to expedite the deployment of their e-commerce solutions and ensure that their local online presence is highly successful. Our customers benefit significantly from our fully integrated fulfillment, customer care, and financial services solutions. About arvato Systems arvato Systems is a systems integrator with a solid reputation. We not only implement standard software, but also offer tailor-made, industry-specific and individually developed solutions. More than 2,500 dedicated employees at 25 sites throughout the world are always there for their customers. As part of the arvato network, a leading global BPO provider belonging to Bertelsmann, we have the unique capability to create entire value chains and combine IT with other arvato services to deliver an integrated service offer from one source. The strength of arvato Systems lies in the intelligent combination of planning, operation, systems integration and support. Our customers appreciate the way we bring in-depth industry know-how, cross-platform expertise, a true partnership approach, and genuine entrepreneurial spirit to the table. Our solutions pave the way for your success. With arvato Systems at your side, you have a powerful partner with extensive expertise in brick-and-mortar and online retail processes gained from the arvato Group's many years of experience in service-providing operations and consumer transactions. Our E-Commerce-Software, solutions and services enable successful Cross-Channel Commerce around the globe. To begin crafting the right tailored solution for China or to speak to our consultants with global and local expertise, please feel free to . e-commerce@arvato-systems.de Web: Tel: Version: October 2014 Subject to change without prior notice hybris hybris is a trademark of the hybris Group. Other brand names are trademarks and registered How to Build trademarks a Thriving of the E-Commerce respective companies. Business in China 6