The reason for Western compani

1、The reason for Western companies struggles in Chinas e-commerce marketTMO G ROUP探謀網(wǎng)絡(luò)科技(上海有限公司W(wǎng)hy have so many Western companies including heavyweights like Amazon and Google struggled in Chinas e-commerce market?Amazon entered Chinas business-to-consumer marketby acquiring J in 2004for $75 million.

2、From the start, itfaced fierce competition, in particular from T. Today, Amazons market share in China stands at 3.5%, with indigenous companies such as T (53% market share and JD.com (22.7% controlling the bulk of the market. Google entered China bysetting up its local domain in 2006. ThoughGoogle

3、is the de facto wordfor “search” and the number one search engine in many parts of the world, it never gaineda major share in Chinas searchadvertising market. B, a company founded in Beijing in 2000, now has66.9% market share, with Google trailing at around 4%.And these are just two examples. Numero

4、us prominent American companies including eBay, Expedia, Groupon and Yahoo! have also struggled to replicate in China their success in other markets. Which brings us back to our opening question: Why? After years of effort and millions of dollars spent, armed with the most sophisticated technology a

5、nd premium brand names, these Internet giants have all failed to claim a leadership role in Chinas e-commerce. So what happened? Why cant these smart, formidable companies gain more traction in China?Hitting the (Great WallFirst, some background: China is the worlds largest e-commerce market, and, w

6、ith more than half a billion Internet users, China boasts the greatest number of Internet users in the world. Its online shopping market hit 1274.1 billion yuan in 2011 and, according to a recent report from Boston Consulting Group, Chinas e-commerce market is expected to be worth 2 trillion yuan by

7、 2015. At press time, one yuan was worth about .16 American dollars so 2 trillion yuan, at that rate, is the equivalentof $320 billion. No wonder all the e-commerce titans have thrown themselves at the Great Wall, looking for a piece of the market.For our research, we used industry analysis, case st

8、udies and interviews with executives in Chinas e-commerce industry, as well as primary research about companies online store presences. In addition, we examined various high-profile e-commerce entries into China. All told, we identified four key ways in which U.S. e-commerce companies proverbially h

9、it the Great Wall when they tried to enter the Chinese market: 1. A failure to modify thebusiness model forChinese customers. EBayentered China in 2002 withthe acquisition of EachNet,a domestic player in the consumer-to-consumer market. Since then, the company has spent about $400 million on this ve

10、nture. However, it saw its market share plummet from 85% in 2002 to 8.2% in 2007.EachNets market share has subsequently dropped to 0.7%, while the dominant player, Chinas own Taobao, controls 90.3% of the consumer-to-consumer market.What happened? EachNet initially used eBays business model and char

11、ged sellers for auction listings and sales a massive turnoff to many potential sellers. By contrast, when Taobao came along, it charged nothing for seller listings. Its revenues come from seller-paid rankings in search results (“Taobao Express” and its sale of user-defined storefronts (“Taobao Hot S

12、tore”. Sellers positions on the results list depend on their bidding prices. They also pay on a per-click basis for their positions. This innovative revenue model not only brings Taobao a much wider seller base, but also provides a robust revenue stream, since many sellers pay extra to compete on th

13、eir improved visibility.Taobaos Web page provides much more than mere product listings. It actively makes product recommendations and provides suggestions and tips, promoting a sense of social community. Consumers can find entertainment news and fashion trends, along with product reviews and practic

14、al tips for online shoppers, such as how to identify counterfeit products. By contrast, EachNet focuses more on price information and product listings, similar to eBays style in the U.S. As a result, Taobaos site is stickier to Chinese consumers.Taobao also allows for direct interactions between sel

15、lers and buyers, which reduces the risks for both sides. Moreover, products on Taobao are listed by popularity by default since Taobao knows that Chinese consumers are more likely to follow fashion trends in their shopping. By comparison, EachNet lists according to auction ending time which, while c

16、onsistent with eBays global format, is less informative or relevant to Chinese shoppers. Moreover, EachNet does not allow buyers and sellers to interact or bargain directly until after they complete their transactions.2. Insistence on a standard global technology platform. One mistake eBay made was

17、a decision to terminate EachNets homegrown technology platform and move all EachNet users to the eBay “global platform” in 2004. Because data were traveling across borders after the migration, they had to pass through Chinas censorship firewall causing a significant slowdown in browsing speed and le

18、ading to user frustration. It took only six months for Taobao to overtake EachNet and become the market leader, and it happened while eBay was slowly implementing its technology migration. On the day of the actual switch to the globalplatform the last day of the lengthy migration traffic to eBay Chi

19、na reportedly fell by about half. 3. Overlooking thecompetition. Groupon,the top online grouppurchase company inthe United States, also had a hard time gaining traction in China. One reason: There were already more than 1,000 competitors providing the same service in China by the time Groupon entere

20、d the market in 2011. Owing to the high degree of competition, the average commission rate (12% was drastically lower than thatin the U.S. (50%. In some categories, Groupon had to forgo commission in order to gain subscribers. In its number of unique visitors per month, Groupon lagged behind seven l

21、ocal companies in some cases, far behind. Its leading competitor, Meituan, controls 17% of the market; Groupon China, which is known as Gaopeng, has a market share of 2.5%. To make matters worse, Groupon had aggressively expanded to dozens of cities in China. As a result, regional offices often comp

22、eted among themselves for the same accounts. Within months, the company had to reduce its employee head count and close a number of offices. All this tookplace less than a year after its joint venture investment of $8.6 million in January 2011.4. An inability to address challenges from Chinese autho

23、rities. Google, very famously, has clashed with the Chinese government over the censorship of its search engine and at one point in 2010 withdrew from the China market. More recently, Googles market share in China stands at about 17%, far behind B, the leading search engine in China. Although Google

24、s conflicts with the Chinese government certainly have had an effect on its business, B deserves plenty of credit for its dominance in market share. Specifically, Baidu understands that its customers may not have in-depth knowledge about online advertising or how to conduct advertising campaigns. Th

25、erefore, it has a huge sales force that does an enormous amount of hand-holding with customers, educating them about every aspect of online search and advertising. “Google may have a better search engine, but we know what Chinese customers need and how to sell to them,” said one Baidu executive.Prac

26、tical AdviceBelow we offer a list of workable strategies gleaned from U.S. Internet companies experiences competing in China:1. Adapt your offerings to better befit the social habits of Chinese consumers. Owing to a highly collectivistic culture, Chinese consumers rely heavily on social networks, re

27、views and recommendations when making a purchase decision. Consequently, Chinese customers are also avid content providers. In fact, Chinese consumers are more social online than U.S. consumers. Thus, companies have to make customer service a top priority, as any bad word of mouth can spread like wi

28、ldfire and cause more damage than it would in a Western country.2. Focus on the customer, not just on the information system. Some organizations believe that the key to success in China is superior information technology. Therefore they tend to focus more on system integration than on customer needs

29、. But as our examples demonstrate, meeting customer needs is the most important determinant of success.3. Speed up your decision-making processes; act fast and react faster. Chinas e-commerce companies excel at making rapid, consumer-centric decisions. In China, local market conditionschange rapidly

30、. A long reporting chain with personnel at Western headquarters controlling everything is simply not feasible. Decisions have to be made quickly.4. Consider other forms of market entry. Nowhere is it etched in stone that American organizations must launch Chinese divisions. Given how difficult the c

31、ompetition is, organizations would be wise to consider forming strategic partnerships with local competitors. For example, instead of building an e-commerce channel of their own, several big-name brands including Gap Inc. and Levi Strauss have teamed up with Taobao to sell their products online in C

32、hina. Another form of entry is investing in local companies. Walmart, as part of its online strategy in China, has recently led a consortium of investors in buying a $500 million stake in .5. Be flexible and creative in strategies in response to regulations. China is a fast-evolving economy whose bu

33、siness environments as well as the rules surrounding them are often nontransparent and uncertain. So businesses entering China need to be fully aware of the consequences of operating in such an environment and need to be flexible in their strategies. Google, for example, decided to re-enter China in

34、 early 2012 with differentproduct offerings. The company is now focusing on products and services that are less censor-sensitive, such as maps, shopping services and mobile platforms. In particular, Google is also leveraging its newly acquired Motorola handset division (which has an established pres

35、ence in Chinas cellphone market to promote new services.Generally, successful market entry strategies depend on two critical factors: the complexity of local knowledge of the entry market and the speed at which the industry is evolving something well call “industry clockspeed,” a concept extensively studied by MIT professor Charles H. Fine, author of the