Current State of China s E-Commerce

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Current State of China's E-Commerce

The China Internet Network Information Center (CNNIC) in January 2002 claimed that the number of Internet users in China had reached 33.7 million, with 6.72 million using leased lines and 21.33 million using dial-up connections. The "Statistical Report on Internet Development in China" said the number of users accessing the Internet via both means was only 5.65 million. Additionally, another 1.18 million people were connected through appliances such as mobile telephones and various home information appliances. According to the reports made by CNNIC in the past three and a half years, we can see clearly the development of Internet in China (see Exhibit 1 and Exhibit 2) (CNNIC, 2002).

Exhibit 1: Internet Users in China (in Thousands).

Exhibit 2: Internet Hosts in China (in Thousands).

In terms of the Internet population, China had 33.7 million users by January 2002 (a 27.2 percent increase from the previous year) (CNNIC, Statistical Report on Internet Development in China. In the U.S., there are 168 million Americans who are now online, according to Nielsen/NetRatings, but data is not available as to how many of these who do not use English to access the Internet (Global Research, 2001). However, the statistics that only 2.5 percent of the whole population are on line in China reflects the fact that China's e-commerce is still fledgling, while in the U.S., the above exhibit from Jupiter's report shows that internet users now comprise half of the whole U.S. population.

In China, women Internet users are increasing rapidly. According to the "Statistical Report on Internet Development in China" by CNNIC, 38.7 percent of the Internet users in China are women. Internet users in China tend to be younger than those in the U.S. In China, 52.9 percent of the users are in their 20s and 30s while in the U.S. those with ages from 18 to 54 comprise 60 percent of the total users. Among those people in China who access the Internet at least once a day, 74.9 percent of them use the Internet to check e-mail and every Internet user possesses 2.3 free email accounts on average; 51.3 percent of them use it to surf the Web (CNNIC, 2001).

Most Internet users in China are very conscious of the time spent online as the dominant telephone carrier, China Telecom, still charges per-minute telephone fees. Although a lot of large corporations such as China Unicom have been formed and introduced to enter into the field of telephone and Internet business, the existence of monopoly seems to be a fact that cannot be denied.

In China, almost every telecommunication company issues its own calling cards that can be used in accessing the Internet, however, a separate per minute fee is still charged by the telephone carrier—mainly China Telecom. In the U.S., due to the flat-rate access to Internet, American Internet users care nothing about the time spent online.

Only 31.9 percent of Chinese Internet users have had some experience of buying online. In the U.S. 82 percent of the Internet users purchased at least one product or service online (NetSmartAmerican.com, 2000). The most popular goods for Chinese online shoppers are books and magazines, purchased by 58.7 percent of those who shopped online at least once. Computer-related products were ranked the second item that Internet users bought. Cases in the U.S. are quite similar to that of China.

Different Payment and Logistic Systems in the U.S. and China

For online shopping behaviors in the U.S. and in China, payment options are analyzed here. Most U.S. shopping sites offer only credit card payment either online or off-line (meaning that a customer must call a given telephone number to provide a credit card number or fax credit card information to a given fax number). According to the report by NetSmartAmerica.com, 70 percent of those who have shopped online at least once paid with a credit card. On the other hand, the most common method of payment among Chinese online shopping sites in 2000 is cash payment upon the delivery and receipt of ordered goods, reflecting the Chinese culture of cash-based payment. The pick-up/payment can be done by hourly workers hired by those shopping sites. Most of the shopping sites established their branch offices in the big cities of China.

Statistics show that payment methods for online shopping in China are as follows: cash and carry 39.16 percent; credit card 19.87 percent; post offices remittance 17.58 percent; Internet 12.54 percent; bank remittance 4.87 percent; EMS 3.35 percent; bank accounts transfer 2.63 percent. Statistics also show that payment method that users prefer when for over RMB1000 (approximately USD 121) are as follows: cash and carry 48.74 percent; credit card 22.08 percent; Internet: 9.18 percent; post offices remittance 5.63 percent; bank remittance 5.30 percent; EMS 4.90 percent; bank account transfer 4.17 percent. The primary obstacles of online purchase are also listed here: security can not be guaranteed 31.76 percent; quality of products, after service and creditability of the merchant can not be guaranteed 28.33 percent; inconvenient payment 13.34 percent; delivery is time wasting, the channel is not expedite 10.14 percent; unattractive price 7.74 percent; unreliable information 7.28 percent; others 1.41 percent (CNNIC, 2000).

The above-mentioned phenomenon of Chinese COD payment manner can be explained from the following sides:

1. China lacks real credit cards. According to statistics made by China People's Bank—the central bank of China, the banking cards issued by various banks in China increased from 140 million in 1999 to over 350 million by June, 2001. But most of the banking cards are debit cards. Only 25 million are real credit cards, and in most cases they virtually work as debit cards. It's very difficult and inconvenient to apply for a real credit card. And some of the Chinese card holders call their credit cards "non-credit cards". Unlike in the U.S., some one billion banking cards had been issued by the end of 2000, and most of them were real credit cards.

2. China lacks a centralized settlement system. Different banks issue their own credit cards and the cards can only be used in certain shops and restaurants and hotels, etc. Each bank has its own territory and they don't talk to each other. Cash, instead of credit cards, is the dominant payment method.

3. The inherent value and attitude of Chinese people. According to a research made by China Women Journal and Mastercard, among the banking card holders, 62 percent of them possess one to three cards, 36.6 percent of them possess three to six cards, and the rest of them even hold more than six cards. However, only 34 percent of them use credit cards occasionally, 15 percent of them never use any card (Shao Hua, 2001). The trouble is that few Chinese people trust the Internet for business. A Chinese saying goes that one should "never let out your hawk until you see the hare." So, frankly speaking, providing a more effective way of paying online will not solve the "attitude" problem of Chinese online purchasers.

Many ways have been suggested on how to resolve the above-mentioned settlement system problems. One successful case is the improvement in China's Postal Savings Banks.

In many countries, the largest consumer banks in terms of branches are in the postal savings systems, and China will likely follow. Chinese consumers need options and branches in local post offices extend throughout the country. Other financial institutions may be hard pressed to compete.

The China Postal Bureau has now announced a new effort to develop electronic commerce. A press release by a leading provider of financial software indicates that the bank card system will develop 16 gateways with nationwide settlements for automated teller machines (ATMs) used by the post office. The firm, Shanghai Huateng Software Systems Co., Ltd. ("Huateng"), is a veteran provider for China's Golden Card system and likely to assure a workable payments scheme to allow Internet transactions.

Exhibit 3: U.S. Online Users, 2000–2006 (Millions).

Considerable difficulties remain for electronic commerce in China. Consumer banking still lacks extensive services and foreign exchange controls hamper transactions across borders. Still, the announcement of developments in payments schemes and the rapid adoption of e-commerce platforms by banks are impressive. Before China Posts, the Industrial and Commercial Bank of China, China Construction Bank and China Merchant's Bank among others have launched platforms. With new electronic payment arrangements, China is making strides to create nationwide bankcard and "e-commerce" systems.

As to the logistic system, which is another serious problem of e-commerce development in China, the successful online shops in China adopt a pragmatic method—to order online, to pay offline. Such a strategy is based on such a logic of trying to avoid much involvement of delivery and transaction infrastructures. In fact, the development of delivery and transaction infrastructures is out of the reach of internet companies in China. The worst situation is that Internet companies invest a lot of money to develop infrastructures that are supposed to be done by the government and other industries. When the infrastructures are not available, e-commerce companies should focus on building up information platforms to make that part electronic and seek more physical solutions for delivery and transactions, which is called the partial e-commerce models. Unlike in the U.S., the delivery function of online shops is contracted out to major courier firms such as UPS, FedEx, etc., the only viable delivery system to both business and homes is the state-owned Post Office. But the Post Office is notorious for being slow and mishandling goods. Foreign competitors, such as DHL and EMS are starting to have presence in large cities of Shanghai, Beijing and Nanjing, but they are targeting office buildings and the cost they charge is excessively high for an ordinary online shopper. So, a lot of Chinese online shops, together with foreign ones, are taking advantage of cheap labor resource in China to combine with electronic solutions. Physical solutions in delivery and transaction are not necessarily second best solutions in China since labor is still very cheap in China. For example, in current e-commerce models, the most effective one is to order on line, deliver by labor and pay cash when delivered. Thus, the above-mentioned way of hiring hourly workers to deliver goods and collect money for those goods is very popular and effective in China.

How to Remove Language Barriers for Net Growth

Today, half the people on the Internet are American. By 2004 it will only be a third, according to Barry Parr, a senior analyst at the San Francisco-based International Data Corporation, and two-thirds of all Internet spending will then be outside the United States. Because nearly 80 percent of Americans will be online, there is simply more opportunity for growth outside the United States.

Cisco, the largest supplier of communication equipment that runs the Net and its television advertisements, knows what's going on. Their television advertisement shows a flock of children from all over the world asking: "Are you ready?"

They aren't. In fact, IDC's research shows that more than half the U.S. sites surveyed are doing nothing to internationalize their sites and this could threaten their future. Another U.S. company, Forrester Research, says leading U.S. websites now turn away almost half of the orders that originate outside the U.S., and that three-quarters of the sites are not designed to handle non-U.S. addresses or work out shipping costs. This is partially due to these companies' not having their international strategy—maybe lacking the translation strategy in the first place.

In fact, there are two kinds of translations—linguistic translation and cultural translation. Relatively speaking, linguistic translation is fundamental and easy to fulfil, while cultural translation is more difficult to carry out. Thus, using linguistic translation to design a web site in the target market is only the first step to internationalize. For example, mainland Chinese use a kind of simplified Chinese characters compared to the ancient Chinese characters that people use in Taiwan and Hong Kong. Therefore, if a company in the U.S. wants to expand its business in the Greater China area, the company has to know the above fact.

Here, two kinds of strategies might be adopted concerning who will be invited to do the translation job. One strategy is to hire professional website translation companies like Alis Technologies, Berlitz, Geonexus or Worldpoint Interactive. Such a strategy is only used in the beginning of the internationalization of a website. When an American firm seeks to sell online to China and make this avenue as a large percentage of its total profits, they might want to use another strategy—to set up a dedicated web site that is only for the Chinese market, have the Chinese technical team manage this site in China and provide after sale service, etc. Moreover, if a firm wishes to test the water first, they might want to contract a third party to handle part of the e-commerce activities.

Many people think that businesses that don't begin preparing today could find themselves outflanked by their more internationally oriented competitors.

Of course, some are already well advanced. Yahoo!, the Microsoft Network (MSN), and a few others have been globalizing their businesses for three or four years. As a result, they are among the top five sites visited by home users in many different countries including China, judging by the number of unique visitors per month, according to Media Metrix, an audience measurement company based in New York.

Both Yahoo! and MSN are competing by making their local offerings as local as possible. Yahoo! now has operations in 20 countries including China. Jerry Yang, a co-founder of Yahoo!, says: "Our goal is get local when the growth starts to happen." If you ever have a chance to surf Yahoo!'s Chinese website in mainland China, Taiwan and Hong Kong, you will see that the formats of these three websites are quite similar to each other. By localizing with similar style and format in the Greater China area, Yahoo! can save a lot of money.

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