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The retail industry is undergoing a considerable shakeup. Traditional retailers, especially small- and medium-sized, are increasingly put under pressure by digital players like Amazon. These agile companies are constantly disrupting the industry by introducing new, innovative solutions to effectively enhance the customer shopping experience. As a result, many traditional retailers see their profit margins dwindling. Especially SMEs are struggling to stay relevant in an increasingly competitive and digital game. But should they accept their fate? Certainly not. Rather, it is time for SMEs around the globe to scale-up their e-commerce activities and think big.

No doubt, the ongoing digitization has introduced numerous complexities and uncertainties to the life of small- and medium-sized retailers. Yet, it unlocks new opportunities that may not have been regarded as feasible before, such as tapping into one of the largest economies in the world.

To date, expanding to China has often been described by SMEs as venturing into the unknown, given the country’s complex regulatory requirements, significant logistical challenges and the unique characteristics of the Chinese consumer. Although these barriers do still exist, the global digitization has fuelled a combination of regulatory, socio-cultural and technological trends in the country, enabling SMEs to enter China in a new, cost- and time-efficient way: via social media.

Why China, why now – 3 key trends at a glance

SME leaders must understand the underlying trends that together pave the way for their businesses to ultimately win in the Chinese e-commerce market. Three critical and mutually-reinforcing trends are:

1. China’s e-commerce market is booming. Between 2010 and 2014, Chinese e-commerce grew by nearly 600%. Online retail sales are expected to exceed USD 1 billion by 2018 (Bain, 2015). Especially cross-border e-commerce is growing as Chinese consumers increasingly demand high-quality products from foreign manufacturers.
2. China is becoming a mobile-first population. Mobile sales outgrew desktop sales for the first time in 2015 and are expected to significantly grow over the next years (Deloitte, 2016). Accordingly, e-commerce is gradually shifting towards m-commerce.
3. The rise of social media. In no other country, social media is such a large phenomenon as in China. Yet, the social media ecosystem is significantly different from the Western one: No Facebook. No WhatsApp. No Instagram. Rather, one single integrated application exists on which Chinese consumers spent more than a third of their mobile internet time, whilst returning to the app ten times per day or more: WeChat.

 

 

Social media as a mode of market entry

Less than 20% of Dutch SMEs are exporting their products or operating outside the national boundaries. This low number does likely not result from the lack of opportunities overseas, but rather from the limited usefulness of traditional modes of market entry for SMEs. Many of these entry modes are sheer not feasible, especially in China, due to the high (financial) commitments and risks involved. And low-cost modes like indirect exporting are deemed to fail, as SMEs often still need to build brand equity in the world’s second-largest economy, which is difficult without a certain degree of control and involvement in the market.

Social media overcomes many of the traditional modes’ shortcomings, representing an effective way for SMEs to gain a foothold in the Chinese market. This is possible, due to China’s unique social media landscape, which is fundamentally shaped by a single, integrated application: WeChat. This app, used by more than 800 million Chinese daily, offers every feature that businesses need to effectively engage with their customers at any stage of the customer journey – from creating awareness through content sharing, to selling products via branded WeChat shops, to ensuring customer loyalty with the help of customer analytics. In fact, e-commerce sales on WeChat increased from 15% to 31% over the last year, a figure that continues to rise rapidly (Deloitte, 2017). Besides, this development is largely enabled by WeChat’s integrated (cross-border-ready) payment solution that gradually pushes China towards becoming a cashless economy – with more than 200 million Chinese consumers having already attached their credit cards to the app.

Given the relatively low risks and requirements involved, foreign businesses can leverage WeChat to effectively enter and test the Chinese market in a cost- and time-efficient way, whilst using customer feedback and customer data to fine-tune their online presence and strategy. Besides building brand equity, SMEs should focus on the generation of first sales to validate the product-market fit. Once a certain amount of sales has materialized, SMEs should carefully craft a full-fledged e-commerce strategy that capitalizes on China’s burgeoning cross-border e-commerce platforms. Clearly, WeChat is not the destination, but merely the start of a promising venture.

 

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References

Bain & Company 2015, China’s E-Commerce: the new branding game. Bain & Company Insights, December 15.

Deloitte 2017, China e-retail market report 2016. Shanghai: Deloitte China.

Gong, F., Lau, A. & Wang, K.W. 2016, How savvy, social shoppers are transforming Chinese e-commerce. McKinsey Quarterly, April.

Nielsen 2014, China sees more sophisticated online shoppers: Precision marketing necessary to win in e-commerce. New York: Nielsen Global.