Insight - China's smartphone shoppers ripe for Aussie revolutionaries
This insight by Michael Clifton, Country Manager for China and Senior Trade Commissioner in Shanghai appeared in The Australian, 8 October 2013
LAST year, love-struck shoppers with a smartphone in one hand and a credit card in the other set an extraordinary record on Taobao, China's top retail website, spending $US3 billion in a single 24-hour period. They were buying gifts for November 11, Single's Day in China, the equivalent of Valentine's Day.
The online revolution is putting a radical new shopping experience within easy reach of millions of consumers across China, and the scale of this revolution is staggering.
Almost 80 per cent of users in China - some 464 million consumers - access the internet through smartphones or other wireless devices and, according to research released by Bain & Co, China's total online market is now the largest in the world.
It is predicted to reach $US650 billion (A$690 billion) by 2020, exceeding the combined value of online sales in the US, Britain, Japan, Germany and France. Australian business, especially exporters, need to focus on this huge growth to develop markets in China and integrate business models with the online world.
According to recent estimates from a Nielsen and PayPal survey, Australia exports about A$5 billion a year online. Given Australia's total annual exports are about A$300 billion, there is scope for business to expand online exports.
There are several powerful forces at work behind China's online retail revolution, the most important convenience and cost.
Another issue is access. China has almost 180 cities with populations of more than three million. Consumers in these second and third-tier cities are flocking to online shopping platforms. Many of these cities don't yet have the range of bricks-and-mortar stores available in centres such as Beijing and Shanghai.
A recent McKinsey study found that in smaller Chinese cities almost 30 per cent of household disposable income is being spent online. Even in the tier-one cities, online shopping provides a welcome relief from China's notorious traffic congestion and long queues at the checkout.
In an effort to rebalance the role of investment versus consumption, China's new leadership team is steering the economy towards a growth model in which consumer spending will contribute a far greater share of China's GDP growth.
In addition to the well-known Alibaba platforms, savvy consumers are tapping into alternatives such as Jingdong, Tencent, Suning and Yihaodian for products ranging from luxury brands through to home appliances, books and groceries.
For instance, since its launch in July 2008, the Shanghai-based Yihaodian ('Number 1 Shop') has emerged as a major player with triple-digit sales growth and annual revenue of more than $US2 billion. In Shanghai, it has a delivery team of 3000, each averaging 50 deliveries a day.
Supermarket shopping is increasingly shunned by young middle-class families drawn to the convenience of online shopping. These developments provide tremendous opportunities for Australian businesses, which already have a reputation for quality and safety. Australian brands such as Devondale UHT milk, Jacob's Creek, Tim Tams and Blackmores are popular with online shoppers in China. In the past 18 months, the appetite for imported dairy products has seen Yihaodian's sales grow from one container a month to five a day.
Australian firms would do well to heed the advice of Yihaodian's chief executive, the South Australian-educated Liu Junling: "It's tough, it's fierce, and no market can be as brutal as China."
China will remain the world's most exciting market for a long time to come. And, while networks and guanxi (connections) play a role in building a business in China, nothing is as important as value. Australian business needs to maintain absolute focus on quality and service, as well as price, to compete effectively.
Developing quality local partners and allies is also critical. The online boom is underpinned by a rapidly growing, multi-billion-dollar service sector that ranges from online advertising through to payment systems and logistics.
Having a great product counts for little in the absence of local partners who can manage sales and marketing, and provide the all-important warehousing and distribution needed to guarantee the rapid delivery demanded by Chinese buyers.
And despite the rapid pace of change patience, perseverance and a spirit of genuine partnership remain, as always, key to business success in China.
Australian companies and their local partners will need to invest time and money to grow their brands and to stay abreast of demand in an increasingly discerning Chinese market.
For further information download the China Online Retail Sector Report (PDF, 360KB).