By Lin Chen

China’s e-commerce marketplace is dominated by a few large retailers. According to eMarketer, online retailers accounted for 20% of total sales of consumer goods in 2018. Alibaba (Taobao and Tmall) and JD.com captured between them over three quarters of the market share, at 58.2% and 16.3%, respectively. Trailing in third place was Pinduoduo with 5.2%. Of the top 10 retailers, seven were pure e-commerce businesses, with the other three conventional retailers combining for a market share of only 3.3%. By contrast, the US domestic e-commerce marketplace is very different. In 2018, Amazon captured 44.8% of all US online purchases, followed by e-Bay, in a distant second place with just 6.8%. In tenth place was Wayfair, an online retailer specialising in home furnishings, with 1.1% of the market share. And of the top 10 retailers, only these three are pure e-commerce players. While the oligopoly in China’s e-commerce market place took shape at least five years ago, Amazon only cemented its dominance in the US e-commerce market place beginning in 2017. In addition, US brick-and-mortar retail stores started to come under pressure and fare worse only two or three years ago.

China’s e-commerce retailers wield a much stronger influence than their US counterparts largely because of a lack of big names in the brick-and-mortar retail sphere, and a reluctance of established players to go digital. According to a 2013 McKinsey survey, only 25% of small and medium-sized enterprises in China actively use the internet to engage customers, while in the US, that figure was 85%. Many corner stores and small restaurants in the US have established their own website or online and offline membership programmes, while in China, many SMEs and even large enterprises have neither the ability nor the awareness to do so. Instead, they generally rely on internet companies to help build online capacity.

The key concept here is data sovereignty. US retailers are more sensitive to data sovereignty than Chinese companies. They only give up pursuing an independent online path – either closing down or being acquired by an internet titan – after an unsuccessful fight. By contrast, many Chinese retailers are quicker to throw in the towel without a fight, as many likely believe that it is best to let internet companies do what they themselves are not good at. Additionally, they often allow internet companies to acquire or take majority control of their operations. For many, this is often an example of both lacking drive and not knowing their purpose. For retailers, consumers are their most important assets, and therefore they should go where their customers are. In short, digitalisation is a must and not going online means never being able to serve customers properly. In an era where data is king, it is unimaginable for a business to be able to establish a foothold in the market without obtaining user data.

The retail industry is probably hitting an inflection point, and new players can emerge at any time. The industry started out as a production-shops-consumers value chain dominated by manufacturers that made products for distribution by retailers to customers. Later, it evolved into a shops-products-consumers model, where distribution channels were the key link. Big brick-and-mortar names, such as Gome and Suning reaped generous profits, but later ceded their dominance to e-commerce giants like Alibaba and JD.com. Now, a new model of consumers-shops-products is emerging. Under this model, everything will revolve around consumers, and products may not be distributed through shops, physical or virtual, but through social platforms to loyal users’ followers. This will to a great extent disrupt the existing model, where consumers look for products using search engines on e-commerce platforms that have amassed large quantities of data. Large amounts of data mean that highly placed search results are most likely paid-for listings.

Lin Chen is an Assistant Professor of Marketing at CEIBS. For more about her research and teaching interests, vist her faculty profile here.