Just a click away

When Ren Xin decided to replace her mobile phone, she didn't go to her local shop. Instead the 27-year-old office worker's new handset was just a few clicks away after she compared models and prices on the Internet.

Online shopping - once mainly confined to books and CDs - has grown in popularity in China for a young and tech-savvy generation looking for bargains.

"For a similar handset model, except for the prices and after-sales services, there was no difference no matter if you are shopping online or offline," says Ren. "You can check and compare models and their features before you make an online purchase. And for sure, the price is usually much lower."

A survey by Internet portal Netease.com and the B2C online shopping portal Taobao.com, found around 2 million mobile phones were sold on Taobao.com. A total of 86 million handsets were sold in the country, according to Beijing-based ResearchInChina.

"There are more than 10,000 online shops in China selling mobile phones," says Qin Gang, marketing director of 18900.com, an online shop focusing on mobile phone sales.

Qin's firm was launched in 2002 and was authorized to sell Motorola phones initially. During the early days of its launch, sales were not very brisk due to fear of fraud and a poor logistics system.

But in the past 2 to 3 years, sales have been growing "at an average of 120 percent", says Qin. Beijing-based Norson Telecom Consulting estimated 200,000 mobile phones were sold online China but the figure grew 60 times to 12 million units in 2006 and 15 million last year.

Sales revenue hit $225 million last year compared to $33 million in 2005, Norson says in a research note, adding that young consumers, familiar with Internet applications, are the major buyers.

Underlining that trend, Joyo Amazon (Amazon's China operations after it acquired Chinese online retailer Joyo.com in 2004) says mobile phones and MP3 music players are the hottest items on its website. Joyo has generated most of its revenue from books, music and DVDs and last November, it was authorized to sell Apple Inc's iPod Touch in China with prices lower than traditional shops.

Rising labor costs, partly triggered by China's new Labor law, has increased the cost of selling mobile phones through traditional channels. "It is forcing manufacturers to switch to low-cost online retailing," Norson says.

Late last month (Feb), New York-listed Chinese handset maker CECT announced a partnership with Joyo Amazon.

Under the deal, CECT will provide "competitive mobile phone products" to Joyo Amazon, says CECT chairman Wu Zhiyang.

That comes on the heel of a 1-billion-yuan deal by CECT to sell its mobile phones in 139shop.com, the top online shop for mobile phones in China.

Booming handset sales pushed 139shop.com, little known on the Internet just a few years ago, to become the country's fourth largest B2C company in the fourth quarter of last year, according to Beijing-based research house Analysys International.

139shop owns a 7 percent of the whole B2C market, compared to 17 percent and 14 percent for the top two players Dangdang.com and Joyo Amazon.

CECT has been one of the most aggressive handset retailers. Besides traditional channels. It uses TV marketing to sell phones with a platform provided by NASDAQ-listed Acorn International, an integrated multi-platform company and set a record of selling 3,000 handsets a day. That encouraged the firm to further diversify its retail channels.

"An online platform could help us better present our products and help buyers to compare and make choices," says Wu. "We believe there is much untapped potential for online sales given the country's huge Internet population."

China has an estimated 210 million Internet users with most being young people, according to the China Internet Network Information Center (CNNIC).

Almost all the major brands including Nokia, Motorola, Sony Ericsson and Amoi have launched online shops or partnered with the third parties in online sales. Other manufacturers such as Dopod and UTStarcom have launched online shops at Taobao.com.

And some are already receiving venture capital investments to expand their operations. US-based Highland Capital Partners and IDGVC Partners have injected $40 million into 139shop.com, which is gearing up for a NASDAQ listing.

The online boom of mobile phones sales is in line with a global trend. A research by Informa Telecoms & Media projects that global handset sales will triple to account for 21 percent of the total sales in 2012. Asia Pacific will see a four-fold increase between 2007 and 2012, with the market worth $4.5 billion by the end of the period.

But in China many hurdles remain to be cleared.

"The online fraud and rampant sales of smuggled handsets are still hurting online consumers confidence," says Wu.

Some shop owners have been smuggling mobile phones from Hong Kong to sell on mainland for prices up to 50 percent cheaper than normal. But buyers of those smuggled phones, usually foreign brands, are not guaranteed after-sales service.

And for online shop owners the biggest hurdle remains the paying-cash-on-delivery quandary.

"Many consumers are now accustomed to buying books online by paying with credit cards or the third-party payment systems," says Qin. "But when it comes to expensive items such as mobile phones, they are still only wanting to pay cash on delivery," says Qin. "That results in great inconvenience and puts sellers under high financial pressure as the profit margins in the mobile phone industry are already razor-thin."

(China Daily 04/07/2008 page7)