THE BOOM OF E-COMMERCE IN

CHINA: THE EXAMPLE OF ALIBABA

Oussama Tazi, Hanaa Zidani, Paco W. Brantschen

TABLE OF CONTENTS

I /........................ Introduction
II/.........................E-commerce in China
1/.........................Chinese e-market overview
2/...................... Chinese consumer features
3 /........................Differences between Chinese and
western purchasing behaviors.

III/........................Alibaba, the Chinese giant.

1)........................Presentation of the company
2)........................Alibabas competitors
3)........................Why Alibaba grew so fast?

IV/.......................The singles Day, the best

example of the Chinese boom
1/........................The singles day history
2/.............................Alibabas Singles Day: the day of all
records
3/.............................Emerging countries: Singles Day
vs. Diwali.

I) Introduction
The aim of this modest assignment is to analyse and explain the
recent trends and changes that appeared within the Chinese emarket.
Indeed, during decades, China was stuck in its communist
period. However, for many years now and thanks to many
reforms, China changed completely its landscape. One of the
main points that shows best the Chinese change concerns the
boom of the E-commerce in China.
From a small access to Internet decades ago to a massive
presence on the web today, China showed its ability to move
quickly, much faster than the western countries, despite the
common ideas that the western countries have about China.
This trend follows decades of power concerning the Chinese
manufacture, where China manufactured goods for the whole
world. Now, the boom of the Chinese e-commerce allows the
Chinese manufacturers to sell faster, either it concerns Chinese
consumers or the rest of the world.
This rapid expansion of the Chinese e-market was realised by
the emergence of a local company, known as Alibaba. From the
garage to thousands of warehouses, the success story of this
Chinese company shows how China is capable to expand
rapidly, to learn quickly, and to move much faster than the
western world. Alibaba helped Chinese small and medium
companies to sell their goods to the world, and consequently to
increase the power of the Chinese e-commerce market.
Finally, the singles day is the ultimate evidence of the Chinese
leadership on the e-market, showing its ability to overcome the
best e-commerce companies in the world in terms of volume of
sales.

II/ E-commerce in China

1/ Chinese e-market overview
A simple definition of ecommerce could be the purchase or sale
of services and goods by means of data networks, principally
the internet.
In the last years, more and more consumers around the globe
have been migrating online and ecommerce has expanded
notably. In China changes has been revolutionary and the
growth of ecommerce has followed an exponential pattern. To
make it explicit, between 2010 and 2014 the amount spent
shopping online in China has grown more than 60 percent per
year, actually more than the half of the country online shoppers
made their first purchase in the last five years.

It is a fact that digital retailing is powerfully transforming

shopping habits, and also the way Chinese consumers research
products and services. Retailers and brands that are able to
capitalize on these massive changes in consumer behaviour will
have a world of opportunities.
In China, the number of online shoppers is now 410 million, and
online channels account for 15% of private consumption, while
in 2010 they represented only 3 percent. (The World
Economic Forum)
According to a survey published by PWC, more than half of the
overall online customers (53%) buy each week, compared with
a global average of 21 percent and 14 percent buy every day
online, well above the average rate recorded worldwide (5%).
In China, the total volume of ecommerce exceeded two trillion
and a half renminbi in 2014, more than the 10 per cent of the
total retail transactions. The development prospects are
optimistic, as it is expected that total volume growth of ecommerce for will be doubled by 2017, reaching 3.46 trillion
renminbi, representing over 15 per cent of the whole retail
volume.
This momentum was mainly due to interest from consumers
categorized into the middle-class. China is entering in a new
era; within the burgeoning middle class, the upper-middle-class
households ($24,000 to $46,000 annual disposable income) and
affluent households (more than $46,000) are poised to become
the principal engine of consumer spending over the next
decade. Through 2020, 81 percent of consumption growth will
come from households whose annual income is more than
$24,000. Consumption is growing at 17 percent per year in
comparison with a 5 percent growth rate among low-middleclass consumers ($12,000 to $24,000). However, the fastest
growth will occur in small cities; half of the 46 million additional
upper-middle-class and affluent households that will arise in
China by 2020 will likely be located in tier 4 cities or lower. (The
World economic forum)
Along with this evolution, a new and more globally minded
generation of Chinese, with different needs and expectations
will exercise disproportionate influence in the market.

Encouraged by the rapid growing of internet penetration all

over the country, new technologies will have a major impact
over them. According to the Internet World Stats China Internet
Network Information Center (CNNIC), in November 2015 China
had 674 million internet users. To get some idea of what this
really means, it is twice as much as the internet users in the
United States. At the same period in China the internet
penetration rate was equivalent to 49.5% of the population,
which is quiet below most of developed countries, like Australia
(93, 1 %). This data shows an important scope for progress, but
it is starting to slow down (annex 1). However, as that happens,
the influence of the Internet on peoples lifestyle is becoming
more profound.
Despite the countrys rapid economic change and social
transformation, important differences have persisted among
Chinese population, and consequently among internet users
related to levels of education and income, age or geographic
location. In the future, these gaps will be partially filled while
others will increase. Given their importance, as in 2015, 61.7
percent of internet users in China had purchased products
online (annex 2), we will briefly analyze these factors
The CNNIC reports that the number of netizens in Chinese rural
areas reached 186 million in June 2015, accounting for 27.9% of
total users in the country. Meanwhile, huge differences remain
between Chinese urban and rural populations, as the internet
penetration is 34, 4 percent higher in urban areas (64, 2
%percent and above 70 percent in Tier1/2 cities) than in rural
areas (30, 1%). The difference is considerably smaller (15, 5%)
for populations aged between 10 and 30, so it is not hard to
guess that this gap will tend to disappear in the future.

Furthermore, despite lower Internet penetration, over 60

percent of Chinas rural digital consumers are e-commerce
users who are just as active online as their urban counterparts,
according to a recent McKinsey research. In fact, the growth of
online shopping in counties and villages is superior than in
cities, in 2013, the growth rate was 13.6 percentages higher in
rural areas that in cities. (China Internet Watch)
The penetration rate among Chinese young adults is high, 80%
of China internet users who are between 18 and 34 years old
access internet monthly. More specifically, the largest
proportion of netizens among all groups, aged between 20 and
29, account for 31, 4 percent of the national total internet
users.

Consumption
among
the
young
generation is growing twice the pace
(14%) of consumers older than 35. By
2020, the portion of total consumption
of the young generation is expected to
increase from 45% to 53%.
(The
World Economic Forum)

Young-generation Chinese are increasingly willing to pay

premiums for higher-end products and may value price over
quality. They travel overseas twice as much and are eight times
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more likely to be college

graduates
The increase of Internet
users
below
20
years
indicates that the Internet
continues to penetrate into
the younger population. In
fact,
if
classified
by
occupation, school students
are the largest part of
Internet users (24, 6%).
However, Internet is also penetrating into low-education-level
population groups: between 2014 and 2015 the increase of
internet has been higher among population with the lowest
education. (Internet World Stats China Internet Network
Information Center)

2/ Chinese consumer features

In China, it is impossible to talk about one profile consumer
without oversimplifying. We can define some common and
representative traits and compare them with other costumers,
principally with those in the West.
Something particularly marked among Chinese consumers has
been the lightning-fast penetration of new technology, which
has speeded adoption of digital retailing. Indeed, Chinese
consumers incorporate habitually social media, smartphones,
tablets and PCs in the shopping process. The country leads the
world in mobile shopping: more than three out of four Chinese
consumers have used a mobile phone to shop, compared with a
global average of 43%, according to the PwC survey results.
More meaningfully, one out of four Chinese consumers says
they shop with a mobile phone at least weekly, while the global
average is only 9%.
A few years ago, Chinese consumers usually mentioned
cheaper prices as the main reason for shopping online.
Nowadays, even if price is still a major incentive, they are more
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nuanced (annex 2). In fact, they are willing to pay for better
value and quality (annex 3) and spend more time researching
and are exploring product and brands. On average, they verify
two to three websites before making a purchase.

3/ Differences between Chinese and western

purchasing behaviours.
Unlike Westerners, who almost take for granted that the
shopping websites are reliable, Chinese consumers are
distrustful by nature, particularly towards Chinese brands.
Predictably, Chinese consumers need guarantees and
assurances during the shopping process. They are
comparatively demanding far more information about products
or vendors, and depend on recommendations from online
reviewers in social media and forums probably more than any
other shoppers in the world. Peter Stein, CEO of Razorfish,
pointed out this key difference in a Forbes column, stressing
that 75 percent of Chinese Internet users post online feedback
on their purchases at least once per month, compared with less
than 20 percent in the U.S. In fact, nearly nine out of 10 Chinese
e-shoppers find important that the service they receive online
should be personalized (by the seller) to their individual needs.
This is very different from the behavior of consumers in the
West. (Multichannel Merchant)
Chinese shoppers move easily between physical stores and
online retailers. Nearly 70 percent of shoppers who bought
online went first to a to see the product in a physical store and
make their selection, before purchasing online; in a certain way
online sites support physical stores sales, and vice versa.
Comparing to Western consumers Chineses they value physical
retail experience less, and value e-retailing more.
(Multichannel Merchant)
Another notable difference is the percentage of ecommerce
done by Chinese buyers through online Marketplaces; which is
around 90 percent, while in the west; stand-alone shopping
sites are more used. (PricewaterhouseCoopers)
As Chinese buyers seek to differentiate from the others, they
want personalized products and services. They buy online for
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articles they cannot find in the domestic market in search for

exclusiveness. There is also, a growing interest for the luxury
brands. Affluent Chinese shoppers recognize luxury brands as
social status symbols, as do many in the West, but when it
comes to everyday purchases deep brand loyalties are not
solidified.
The whole concept of brands is rather new to China, but this
does not mean brands for everyday items are unimportant.
According to Bain & Co, brand is a top purchasing consideration
among Chinese for all kinds of product, but they dont
necessarily show exclusive loyalty to a single brand. In fact,
they not only tend to buy multiple brands, they also buy from
different e-commerce stores. (Bain & Company)
Despite of the differences of language and culture, the China
consumer market has more similarities than dissimilarities. This
is reinforced by the fact that in many ways they are increasingly
behaving like their counterparts in the developed world. As
Westerners, Chinese consumers are eager to experience more
of what the world has to offer through their product choices,
they also want to be informed about products and brands in a
sophisticated way. In addition, they are more demanding and
pragmatic as their expectations expand beyond mere concerns
about products features, something that the online retail
environment is completely suited for.

III) Alibaba, the Chinese giant.

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1) Presentation of the company

Jack Ma, a former English schoolteacher in his garage, founded
Alibaba in 1999.
Alibaba is the biggest Chinese company, which controls 80 % of
the Chinese e-commerce market (Loeb, 2014).
Alibaba sold more than 3 million mobile phones on singles day
(success in Electronics) (Kodaka, 2016). The company is listed
on the NYSE as BABA.
Alibaba dominates the online retail market in China owning 80
% of market share (Financial Times, 2016).
What is interesting to see with Alibaba is that even if the
Chinese economy slows down a little bit, they still continue to
grow. This situation is explained by the E-commerce situation in
China, which tends to expand rapidly over the years (The
financial Times, 2016).
Alibaba is the biggest e-commerce market in the world. At the
beginning, the idea was to connect small Chinese
manufacturers to potential customers.
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The initial idea was to support Chinese small and medium

companies (SMC) giving them the opportunity to sell their
manufactured products to the whole world.
Then Alibaba has divided itself in two different subsidiaries: one
where companies sell directly to the public or consumers
(Tmall) and the other where private individual sell to each other
(Taobao). At the beginning, Taobao was designed for the
Chinese exporters in order to meet the US buyers. It completely
changed the Alibabas reputation. (Jung, Ugboma, Liow,
2015).
Tmall has the same concept than Amazon, the American
company. Companies that sell their products through T-Mall
have to pay a commission for every transaction.
Just to give an idea of how Alibaba is big, in 2012, Taobao and
Tmall processed 1,1 trillion Yuan ($ 170 billion) in transactions,
more goods than passed through Amazon and eBay combined
(The Economist, 2013).

2) Alibabas competitors
a) The Chinese competitor.
Jingdong Mall (JD.com) is the second biggest e-commerce
company in China after Alibaba (Bloomberg, 2015).
Both companies Alibaba and JD.com tend to expand their
activities, especially in the financial sector (JD finance and
Alipay).
Moreover, they have partnerships with overseas companies (JD
has a partnership with the US start-up Zest Finance) (Fortune,
2016).
b) Two international competitors: Amazon and EBay.
If you compare Alibabas sales with its main international
competitors, they serve as dwarfs: in 2013, EBay reported sales
of $16 billion, less than one-tenth Alibabas 2012 sales (Loeb,

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2014) (Annexe 2, valuation comparison between the 3

companies).

3) Why Alibaba grew so fast?

One of the main reasons that explains the Alibabas growth is
the technological change in China over the years as well as the
growth of the Chinese economy (huge GDP growth for years).
The weak competition in the e-commerce field allowed Alibaba
to expand rapidly, even if now they have some competitors as
JD.com.
According to Mc Kingsey Global Institute (MGI), 76% of
online retailing involves people buying from individual
merchants. In China, it is only 10%. The other 90% comes from
businesses that allow buyers and sellers to find each other (The
Economist, 2013).
As we saw in the course, it is not easy to build a trustworthy
relationship with Chinese people. This comes from the fact that
Chinese people are reluctant to trust people.
Consequently, Alibaba provides the necessary tools to protect
the transaction between a seller and a buyer.
There is an independent verification service where a third party
verifies the demand of payment made by sellers. Obviously, the
sellers pay for this service.
Then, there is Alipay, which takes money and puts it in an
escrow account. Consequently, the vendors can be sure that
payments made through it will be honoured.
Also, Alibaba has to convince the Chinese consumers that the
greatest Chinese banks supported their payment system (Jung,
Ugboma, Liow, 2015).
Moreover, Alibaba can enjoy from the huge population: 1,4
billion people so as much as potential customers. Thus, as we
saw previously, the populations needs and behaviour have
changed over the years, which allow much more consumption
than formerly (see annexe 1).

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IV/ The singles day, the best example

of the Chinese boom

1/ The singles day history

Launched in the 1990s in Nanjing university, the antiValentine day encouraging single persons to forget
their situation by doing shopping.
The following "1" designating the date of this event
refers to the 11th day of the 11th month of the year
refers to celibacy.
However, the trade fair has flown during this period
with Jack Ma, who used this day to drive sales in this
period of the year. Thereby, the first Single 's Day took
place on Alibaba website.
Indeed, since 2009, the giant Alibaba offers
promotions in order to comfort those who do not live
as a couple, but in reality all these offers are
accessible to everyone. The concept of the day is to
provide millions of deeply discounted products. The
brands offer special discounts from -30 % to -70 %,
with a stock, provided specifically for this outsized
operation.

2/ Alibabas Singles Day: the day of all

records.
Created 6 years ago by Alibaba, Singles day breaks all records
despite the slowdown in Chinese economic growth.
The concept of the day is to provide millions of deeply discounted
products. As if all the sales period was concentrated on one day and on
the web. This year, sales were on a "sample" of 6 million products from
30,000 different brands.

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We can noticed through the chart above that the Chinese ecommerce giant has matched the 2014 Singles Day figure of $9.3 billion
just during the first 24 hours. Singles Day also became truly mobile-first,
with 42.6 percent of sales via mobile for 2014.
To evaluate the importance of these figures, note that sales during Cyber
Monday in 2014 had represented just 1.35 billion dollars comparing to
the singles days figures (over $7,5 billion).
For 2015 (although we have not yet all statistics regarding this
year), Alibaba says beating its previous record of 2014. At 11:49
Wednesday, Chinese Internet users had already spent on popular online
shopping platform Tmall -property of Alibaba- much as during the whole
publishing 2014, announced the site (57.1 billion Yuan or 8.34 billion
euros) : the equivalent of the annual GDP of the Bahamas and more than
a third of that of Cyprus. According Tmall, the purchases were made
three-quarters via smartphones and tablets. Indeed, 73 % of buyers are
passed via a mobile device.
Numbers to remember: 14.3 billion dollars in revenue, a team of
1.7 million deliverymen , 200 aircraft and 400 000 vehicles for one day. In
just 8 minutes, Alibaba had managed to achieve 1 billion dollar sales.
With such figures for 2015, the Singles Day Alibaba outperforms the
Black Friday and Cyber Monday.

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So, after domination of an American e-commerce model that will be

initiated and influenced us, the market is heading straight for a Chinese
influence on the online business with the enormous advantage that have
the ''marketplaces'' model: no need to move to a country to sell products.
this explains the fact that during the '' single day '', the website Tmall
Alibaba has received orders from more than 200 countries.

3/ Emerging countries: Singles Day vs.

Diwali.
Another event that we will probably hear about it more and more
is the Diwali.
This year, the 11 November, marked two significant events for the ecommerce sector in the emerging countries: the 'singles day' in China,
and Diwali in India.
The date regarding this Indian event Diwali day varies every
year between October and November according to the Hindu calendar
(15th day of the month of Kartika), also fell on 11 November.
On the occasion of this festival, the Indians celebrate this period with
cleaning their house, buying new clothes, and participating in family
prayers, often followed by fireworks. But Diwali is also a time for families
to get together: they wear their new clothes, we offer gifts, and make
long feasts. Although India is still customary making purchases directly
from merchants in recent years, more and more Indians do their
shopping Diwali directly online.
The giants of the Indian e-commerce such as Amazon,
Flipkart or Snapdeal, have embarked on campaigns advertising directly
encouraging consumers to shop online Diwali. Whether the 'Grand Diwali
Bazaar' Amazon (launched exclusively for the occasion) or the
advertising campaign Diwali with Mi of Xiaomi, this leaders of the Indian
market adapt their businesses to meet a demand which tends
increasingly to online shopping. According to a study by cashkaro.com
(coupons and cash back website), 83 % of participants reported wanting

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to shop online Diwali, and are particularly interested in the balances for
clothes, cell phones and other electronic devices.
So we can conclude that sales during these two competitors
events have confirmed the trends observed in recent years. The online
sales sector, in China and India, should continue to exceed all records
for the greatest happiness of the giants of e- commerce but also all the
addict consumers.

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