<-China->: E-Commerce & China-The shape of things to come.
Hi Kemble:
Here is a brief analysis on E-Commerce in general and the scope of the phenomenon in China.
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The Internet for Information, Entertainment & Commerce
By: Leon Halperin
The world wide web's (www) expansion into business and homes grows every day and year like a forest fire. More and more people are using the www as a source of news, entertainment and shopping. The major internet companies in the world are well established in the United States and Europe. Their current mission is to expand into the world's untapped, or emerging markets, in Asia, Latin America and Eastern Europe.
According to a recent survey conducted by the International Data Corp, China is set to become the largest market for internet use in Asia, with an estimated 9.4 million internet users by 2002. In China, web based business is growing exponentially with 78.1% of the more than one million internet users expressing an interest and desire to shop on-line. Cities like Beijing, Shanghai, Shenzen and Xiamen have opened up internet home pages with links to on-line shopping sources in China and beyond. In addtion, the world is watching and ready to enter China's internet market full throttle.
Recently China Internet, Xinhua News Agency and China Telecom held the Third CIC china.com Conference in China where the issue of China's internet usage and application was discussed in detail. In this forum, over 40 of the world's leading internet experts discussed the latest trends, technology and news affecting China's developing internet market. The speakers at the conference were not concerned with when the internet will be big in China, but how it will be big in China.
America Online (AOL) operates two worldwide internet on-line services: AOL with more than 13 million subscribers and CompuServe with around two million members. AOL International currently has services in local languages in Australia, Canada, Japan, Germany, France, the United Kingdom, Sweden, Switzerland and Austria. AOL plans on launching AOL Hong Kong in the early part of 1999. The success of AOL International is attributed to its success in linking up with strong local providers and AOL's user friendly format, President Jack Davis stated at the conference.
AOL represents an example of consumer demand for internet services and access in native languages with ease of use, but for business e-commerce within the structure of AOL's simplicity becomes a very real way of selling products over the internet. The ability to allow consumers to shop for products, spend their money and receive goods overnight or next week at affordable prices from the convenience of your own home, is the swelling use for the internet and its users. With this in mind it becomes critical for major corporations to make e-commerce services a more important priority in their business. E-Commerce is not just about convenience but a shifting of the global economy and fundamental changes in the conduct of business, Steve Mckay of Anderson Consulting stated.
One of the most successful companies based solely on e-commerce is Amazon.com (NASDAQ: AMZN). Amazon.com is an on-line bookstore retailer, offering more than 2.5 million in-print and out-of-print titles. Amazon.com also sells a small number of CD's, videotapes, audio-tapes and other products. For the nine months ended 9/30/98, revenues rose from $81.7 million to $357.1 million. Net loss totaled $78.1 million, up from $20.2 million. Revenues reflect growth of the customer base and repeat customers. Higher loss reflects a $25.9 million merger and acquisition related charge. Amazon.com offers consumers an easy shopping environment with on-line book reviews written by professionals and average consumers. In addition, Amazon.com's business practices allow it to never have back stock. Amazon.com only orders product for filled orders allowing their warehouse to become more of a large sorting station than a place of storage.
With the success of Amazon.com and AOL in the United States can China expect to see similar high revenue results? Ultimately, time will tell, but if Amazon.com and AOL represent a global trend the answer is certainly yes, but when will China's internet and e-commerce numbers begin to look like that of the United States is the more pressing question.
In Xiamen an on-line shopping outlet by First General Merchandise Co. Ltd. has proven to be one of China's most successful ventures to date in the e-commerce realm. Over 210,000 people from around the world have visited the website since the Xiamen company opened in late 1997. Che Wancheng, the company's general manager, said that e-commerce has helped them increase sales, better understand market trends and has been a good publicity tool. In addition, Mr. Che has been able to duplicate some of the success of Amazon.com by only ordering those products which it already has sold to consumers. Mr. Che expects over 100,000 people to shop and look at his website each month, the majority of them Chinese.
When China began its market reforms in the 1970's the emergence of a working and financially able middle class began to form. Today, this middle class resides in China's major cities and is eager to spend their money on goods of luxury. This has been shown through increased imports of western goods, western style coffee shops (Starbucks is opening its first stores in Beijing in the beginning of 1999) and the growth in China's physical fitness industry. In a sense, China is facing one of its greatest times for economic expansion on all fronts.
In Robert Reich's book 'The Work of Nations' he describes the global economy and the establishment of labor and service countries. Mr. Reich argues that the United States is clearly heading to be a service country with American companies continuing to manufacturer overseas, leaving little to manufacturer in the United States. Along this line of reasoning, countries like Mexico and Indonesia are becoming the manufacturing centers in the world, labor countries. However, where does China fit into this mix?
With an emerging and ever growing middle-class and a large manufacturing industry, China almost bridges the gap between the two country types Mr. Reich describes. Therefore, it should follow that e-commerce on the internet may end up being the next large selling tool in China because e-commerce bridges the gap between consumers and manufacturers in a convenient and innovative fashion. If the numbers of increased computer sales, internet popularity and the increased demand for major software products in Mandarin and Cantonese are correct, China is moving towards becoming a powerhouse of computer users and more importantly consumers of major goods manufactured the world over.
[Leon Halperin is the editor for Millennium's China Reporter. Mr. Halperin received a bachelors of arts degree in Political Science from Sonoma State University in California. Mr. Halperin also works for Hoi Tak Millennium a research associate.]
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