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American E-Commerce Bombs in Beijing

SMG’s Justin Ren studies why we can’t crack China’s market

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Foreign bricks-and-mortar retailers do fine in China, but consumers there snub American e-commerce firms. Photo courtesy of Flickr contributor IvanWalsh.com

Google. Amazon.com. eBay. In this country, they are giants of Internet business. But in China, they’ve behaved more like the bungling Three Stooges.

Amazon, the largest e-tailer on earth, bought a Chinese website in 2004 to break into the largest nation on earth—and promptly belly-flopped. It has a less than 9 percent market share against homegrown competitors. eBay dumped $400 million in the last decade into its China operation but has netted just 8 percent of the market, while China’s Taobao dominates with more than 80 percent. Google, to be fair, famously faced Chinese government censorship and hacking. But it never gained a foothold with Chinese advertisers, has barely a quarter of the country’s market against 70 percent for Chinese rival Baidu.com, and has pondered fleeing China altogether.

Add in Expedia.com (the otherwise formidable travel site just crawls in China, with a trifling 9 percent of the market) and you begin to wonder if Chinese consumers are too confounding for Western businesses. Wrong, says Justin Ren, associate professor at the School of Management. In ongoing research with Xin Wang of Brandeis University, he argues that the e-firms flamed out in China because they misunderstood the nation’s culture and tried to transplant unworkable, homegrown business practices there.

Ren pooh-poohs the notion that China is an unbreachable Great Wall to American e-commerce. Other foreign firms thrive there, including automakers (VW, Toyota, GM), retailers (Walmart, IKEA, McDonald’s), electronics providers (Motorola), and services (AIG may have needed a bailout, but it pulls down more than $1 billion revenue in China, says Ren). Moreover, American e-commerce firms have done well in non-Chinese foreign markets, he says. “Clearly, the e-commerce model can be exported.”

But the Chinese are much more social online, he says. Far greater percentages of them than Americans upload photos and videos, and many more micro-blog (23 percent versus 7 percent of Americans), according to Ren. Whereas Americans see blogs as a way to publish their writing, the Chinese use them to keep in touch. This social outlook has implications for the technology e-firms should use. “Most e-commerce companies, when entering China, prefer to use the same information systems as the ones they use in their home countries,” designing their websites in China to be virtually indistinguishable from the ones back home, Ren says. It doesn’t work.

Case in point: eachNet.com, eBay’s Chinese site, is similar to its homesite, emphasizing low-priced products. Taobao, by contrast, puts news links and pictures on its site. “There is less about selling,” Ren says, “but more about discussing trends, news, giving advice, sharing shopping or beauty tips,” all in recognition of the more “collectivist” mindset of the Chinese. By downplaying selling, Taobao ate eBay’s lunch in cornering the retail business.

Ren and Wang cite two other potholes over which firms e-stumble in China:

Business methods. Consider that staple of American consumerism, the credit card. People routinely use their plastic here for online purchases, but cards are a rarity in China, where the credit system is still nascent, Ren says. “So e-commerce companies operating in China have to come up with new payment solutions.”

Management. Foreign e-commerce companies hire Chinese managers for their on-the-ground workforce. But very often, “their local managers’ hands are tied, due to the centralized management philosophy of the headquarters,” says Ren. Consequently, foreign firms respond more slowly than their Chinese competition to everything from technical glitches to changes in consumer demand in China.

Ironically, those dinosaurs of the pre-Internet economy—brick-and-mortar retailers—may be learning from the fumbles of their e-brethren. Ren says Louis Vuitton, Levi Strauss, and Ray-Ban have teamed with Taobao to sell their products on that site in China, rather than create their own sites.

“Foreign e-commerce companies should be acutely aware of the differences in China’s cultural, political, social, and economic development, and adapt to those differences,” he says.

Rich Barlow can be reached at barlowr@bu.edu.

3 Comments

3 Comments on American E-Commerce Bombs in Beijing

  • weiwei on 07.28.2011 at 9:57 am

    It’s a very interesting article, and I agree with the idea that foreign companies should take Chinese cultural, social and political elements into account.

    Taobao is a very successful e-commerce website in China, but I am not sure whether it is a good idea that branded products such as LV, Levi’s, and etc. sell their products on Taobao website. If they do so, they might not know Chinese cultural and social environments very well. In most Chinese mind, Taobao sells cheap and fake branded products. Plus, people are very suspicious when buying products on Taobao. This is about the issue of “trust”. Hence, the results would be that the rich won’t buy expensive products on Taobao because they don’t care about the price, they will buy them in a department store for guaranteeing the quality. Meanwhile, the poor don’t want to spend the same price as they will in a department store, because they just want to buy fake ones to gain face.

  • Janiye on 08.11.2011 at 1:37 pm

    Chinese interest in blogging

    It is interesting that you mention the Chinese interest in blogging to high-light the fact that any successful ebusiness model must factor in local interests, practices and peculiarities. Having been behind the Iron curtain for that long, the Chinese naturally are discovering self-expression in the era of the Internet and economic liberalization. Any marketer must factor such local characteristics to succeed, may it be in China or elsewhere.

  • goalsurfer on 09.01.2012 at 9:20 am

    Maybe it’s not worth mentioning, but the Chinese have their methods. Once I needed one tablet and ended by buying two, because of misunderstanding and at the end it wasn’t worth pain to get the purchase of the second undone.

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