Lessons learned: The roadmap into Chinese e-commerce for Western companies
In a nutshell, the Chinese market still offers immense e-commerce potential. However, it should be noted that it is also already heavily served by local providers and that several international e-commerce companies have failed to tap this lucrative market until now. Nevertheless, there are some success stories. This last part of our analysis will focus on the key factors that are essential for a successful participation of western e-commerce companies (and internet ventures in general) in China.
To successfully compete in the Chinese e-commerce sector as a foreign company, it's highly advisable not to establish yourself as a discounter and sell by price. Foreign companies should rather focus on premium products that are exclusive and unique. The nationwide delivery service is relatively expensive and only a few providers operate nationwide. So high logistics costs don't justify the sale cheap products with low margins.
The localization of an already existing e-commerce platform marks an important first step for a successful online presence in China. Western users find Chinese websites to be extremely cluttered and confusing -- many Chinese users prefer this style of site and see it as vibrant and entertaining, rather than cluttered. See screenshots comparing eBay's sites in the U.S. and China.
While Chinese users prefer colorful and playful designed websites, you need to be careful about color selection. In China colors have a different and sometimes even contrary meaning to the western world. In the West red represents danger, war and sexuality. In China, the color is traditionally associated with joy, wealth, summer and south, but also stands for government and authority. And the notorious red light districts of the West would be referred to as yellow districts in China.
Similar stumbling blocks can also be found in symbols. In most Western countries an owl represents wisdom and intelligence, in China, however, it stands for, crime, anxiety and misfortune. The disgust of spiders in very pronounced in the Western world, but in China the spider is a symbol of luck. Rats in China are regarded as a symbol of prosperity. The leading Chinese social network www.51.com for example uses a bat in its logo. The animal in China is a symbol of happiness and longevity whereas in the West it rather symbolizes night and its foreboding nature.
A peculiarity in the Chinese culture is the use of numbers in domain names, SMS, chatting and other electronic messages. Numbers have always played a central role in China and loom large in daily life. There are lucky numbers (6, 8 and 9) and cursed numbers (4, 13, 14). This is due to the similarities in the pronunciation. For example, 4 in Chinese sounds like death, or 8 like prosperity. The most diabolic number of all is 14, it sounds like die and should be avoided at all costs. E-Commerce entrepreneurs have not been slow to recognize the dual meaning of many numbers, taking advantage of the most auspicious numerical formations in their domain names, for example, www.7cv.cn -- qi cai valley -- colorful Valley (an erotic online store) or www.m18.com -- yao fa – want to be rich (online portal of the largest Chinese mail order company, MecoxLane). Similarly, many leading non-e-commerce related websites use number in their domain names such as www.51.com – wo yao – I want, www.9158.com – jiu yue wo ba – date me (dating site) or www.1ting.com – yao ting – I want to listen (music portal).
There are some special regulations that need to be taken into account if looking to establish and operate an e-commerce site in China as this sector is regulated by the state. An e-commerce website is classified as a Value-Added Telecom Services (VATS) and means that foreign enterprises can only own a stake of up to 50 percent and are subject to license. Foreign investors may find ways to circumvent these restrictions. However, such structures are obviously fraught with risk and can by no means be recommended as a safe solution.
The booming Chinese e-commerce sector and the internet industry in general are without any doubt very tempting for many Western companies and investors alike. However, anyone seriously considering expansion into the Chinese market is well advised not to take any hasty steps. All major global players have so far failed in the Chinese market or are experiencing enormous difficulties.
As a good friend of ours and China watcher Paul Denlinger said, it's time to go beyond talking about whether foreign or Chinese companies will succeed in China. Instead, it makes more sense to ask "What companies do all their product development and management in China for the Chinese market?" In other words, a local presence is mandatory for doing business in the country. When serving a market as large and as important in China, it's very important that all engineering, product and management decisions be made in China so that products can compete in faster development and launch cycles to reach Chinese customers.
The reason companies such as eBay, Google and Yahoo have failed is because they did not make all their business decisions in China and because they had to report elsewhere to get final approval by senior management, virtually all of whom do not understand the dynamics of the Chinese market.