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GUEST COMMENT What does it mean for global brands if Chinese e-commerce is heading west?

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East meets West: but what does it mean for retailers? (Image Adobe)
East meets West: but what does it mean for retailers? (Image Adobe)
Mark Burgess, business director at global e-commerce agency Melody
Mark Burgess, business director at global e-commerce agency Melody

Brands in the US and Europe know all about Amazon. They know that right now, it’s the premier platform for selling online to millions of consumers in Western markets. But what they might not realise is that as time goes on, it may not be the only player in town.

 

JD.com is China’s largest online retailer and boasts 387 million active users in its home market - that’s 87 million more than Amazon has globally. Those figures are dwarfed by Alibaba though, which already boasts 960 million active users around the world.

 

To date, brands have focused on these platforms as the best – and often the only – way to reach Chinese consumers. Unilever, for example, recently announced a strategic partnership with Alibaba to make use of its cloud services to bolster its operations in China.

 

It’s not the first Western brand to set its sights on the Chinese market but many have failed, including Tesco, Home Depot and French grocery giant Carrefour.

 

Are they looking west?

However, it’s not just one-way traffic – and there is a wealth of evidence that JD.com and Alibaba are both looking to expand their operations beyond their home territory. Regardless of a wary Western market in the wake of the ongoing Huawei saga, the Chinese digital giants are willing to play the long game.

 

Data is at the heart of everything they do. Much like Amazon, they want to know what you’re going to do before you do it.

 

But that said, Alibaba and JD.com have slightly different approaches in how they intend to develop. JD.com wants to be a tech innovator, with a major research hub in Silicon Valley and a huge R&D budget. It is always looking to identify and invest in the next big thing. With innovation at its core, it always wants to be first to market – and its international ambitions are underlined by the fact that more than 10% of JD.com is now owned by Google and Walmart.

 

Like Amazon, whose cloud and web services provide a healthy chunk of its global revenue, it’s starting by developing the data infrastructures across territories, followed by logistics.

 

It already has a data centre in London, while the management of the group’s logistics arm is currently touring Europe to choose a good base on the continent. They recently visited the port of Zeebrugge along with Flemish prime minister Jan Jambon.

 

At the same time, Alibaba is also building its presence with London data centres and logistics. But 86% of Alibaba’s revenue is being driven by its core e-commerce business, with other revenue streams like cloud computing and subscription entertainment services slowly growing.

 

But why, with so many eastern consumers already, is it looking to develop that infrastructure? It may well be because populations in China are shrinking and India’s is likely to as well. Meanwhile, Alibaba’s chairman has some very bold targets for the future. Simply put, there is a considerable threat to his existing market and to have two billion customers by 2036 he’ll have to look west.

 

How should Western brands react today?

Most brands looking to expand in China have done so through partnerships with platforms like JD.com and Alibaba. There is actually a fairly strong argument that the primary thinking behind Google and Walmart’s JD.com investments were to help them build their Chinese customer base rather than inviting JD.com into their own backyard.

 

For example, with Walmart recently launching its new Walmart+ service to compete directly in the US with Amazon Prime, it’s hard to believe it would be in a great rush to bring a Chinese platform into that market as well.

 

It’s also worth noting that for a Chinese e-commerce service to compete directly with Amazon in the latter’s ‘own patch’ would require an enormous investment. Amazon has spent decades building up its data, fulfilment and logistics operations and its expertise in areas such as home delivery is already deep-rooted in most Western markets.

 

At the same time, Amazon is innovating into new areas such as drone delivery, even though its core markets tend to be less tech-focused than locations like China and South Korea. These sorts of innovations could be a clear differentiator for JD.com if and when it does decide to head west.

 

It suggests that what we’re currently seeing is only the first toes in the water from the Chinese platforms, which in turn means that partnerships will be of the most value to brands looking to sell in China and other Asian markets where those platforms are currently entrenched. Those looking to build their online and e-commerce presence in Western markets may be better placed to stick with the existing players for the short and medium term.

 

A long-term ambition

As for the long term, it’s a more intriguing question. The Chinese e-commerce platforms and Amazon have similar goals: to become dominant within each and every market, allowing the breadth of products to be vast – from books, to toys to technology and even to groceries, as Amazon’s latest announcement highlights with free delivery from Amazon Fresh.

 

When this comes from a delivery cost base that is disproportionate to a one-stop online shop, it’s hard for brands to match what the digital marketplaces can offer. Whether the likes of Alibaba and JD.com will be able to exceed Amazon’s achievements in Western markets will depend, fundamentally, on their ability to offer the same level of customer satisfaction.

 

Author

Mark Burgess is business director at global e-commerce agency
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