Tuesday, July 05, 2016

What’s next for China’s booming e-commerce industry?

“There has been a big boom in e-commerce and what we call the online-offline arena. But in the past half-year there has also been talk about whether the winter’s coming; a lot of companies haven’t been able to sustain their cash flows or financing and they’ve had to close their business. But there are good companies, and one of the ones I like a lot is Jing Dong (JD.com). They have been doing very well in terms of their strategic investment and commitment and have found a very unique way to compete against incumbents like Alibaba or Taobao. I think in the future whether it’s e-commerce, online or offline, it has to be the efficiency and viability of the business models.  Amazon can do very well because they are extremely efficient in their operations. If you go to Amazon’s warehouses, you will see that the number of people is much fewer than in the typical Chinese e-commerce company warehouse. A lot of the work is done by the Kiva warehouse robots. Amazon is building huge warehouses in the US. These are about 10 or 20 stadiums in size. Once they reach scale they can use their own truck fleet, they’re starting to buy or lease their own air cargo fleet as well, so it’s all about efficiency, scale, scope. And that’s something that every company, whether it’s Chinese or American, has to think about. At the end of the day it’s about how efficiently you can compete in the market. It’s an efficiency driven business.

On the other hand, there can be multiple types of business models. Amazon is just one successful model but not necessarily the model everyone should use. If everyone does what Amazon does, then there’s no differentiation. Even Amazon is now starting to look at whether they should have physical stores.  That’s because other than efficiency, low cost and low price, retail consumers want something else – they want the real shopping experience. Online shoppers cannot replicate the traditional shopping experience. So in that sense I think in the future there will be different kinds of business models co-existing for e-commerce”. ~ Yu Zhang, CEIBS Prof. of Management