Next level of Made in China is here

Four fundamental changes brought about by e-commerce have shaped the country's business landscape

Twenty years after the first generation of Chinese e-commerce companies (Alibaba, Dangdang and Joyo) came into being, e-commerce has shaped China's business landscape with four fundamental changes - mobile payment, big data, platform model and C2M(consumer to manufacturer).

These four changes proved to be the stepping stone for wider innovation. Mobile payment laid the foundation for almost all digital applications (from food delivery to shared bicycles) and is the critical link to integrate the online and offline worlds.

Big data analytics is used most in targeted marketing and retail operations. The platform model has proven its feasibility and efficiency not only in Alibaba but also in e-commerce startups such as Handu, and is being embraced by more and more companies.

C2M is still emerging but indicates in which direction the manufacturing industry in China is headed.

With 659 million active users, China has the largest population of mobile payment users in the world, followed by India (74 million) and the United States (55 million). In India, mobile payment is supported by government initiatives (such as Aadhaar ID system, payment bank system). In the US, it is mostly driven by mobile OS operators (Apple and Android). In China, the e-commerce space underwent a payment revolution when Alipay was launched in 2003 as a third-party trust between buyers and sellers on Taobao.

Mobile payment laid the foundation for wider digital innovations, as it enabled various O2O (online/offline) service offerings - food delivery, shared bicycles, unmanned stores. Wider acceptance of digital payment supports the dynamic online finance market. And at $25.5 billion in 2018, China leads with 46 percent of global fintech funding.

Alipay (under China's largest e-commerce player Alibaba) and WeChat Pay (under the largest social media operator Tencent) hold 90 percent of the mobile payment market share. As a significant share of offline transactions are settled by mobile payment, it helps track and analyze consumers' offline behavior, draw a complete picture of omnichannel consumer journey and enable retail analytics and innovation with powerful big data.

Chinese consumers feel the power of big data, as every shopper sees a different page when he or she opens his/her Taobao mobile app. Their whole experience on Taobao (recommended products, advertising video and promotion coupons) is customized, based on past online behavior - what was browsed and for how long, what was purchased and what coupon was used.

In addition, as Alibaba (holding company of Taobao) owns more online applications - the third-largest video website Youku Tudou, second-largest movie booking agency Taopiaopiao, and second-largest digital navigator AutoNavi - it consolidates data from the entire portfolio to understand consumer preference from various aspects of life.

In China, e-commerce is a leader in big data application because it is a highly concentrated market - Alibaba holds 58 percent of the market share, followed by JD (16 percent) and Pinduoduo (5 percent). Besides, brands and retailers' own shopping websites ("brand.com") never took off. In contrast, Amazon's position in the US, where it has a 47 percent market share, and Europe (16 percent) is not so dominating. As a result, brand.com sites are important players there, resulting in a more fragmented market.

In China, tier-1 players manage a majority of transactions as well as other online applications, and therefore control the data of full categories and the whole ecosystem. The concentration and completeness of consumer data enable top e-commerce companies to lead in big data innovation in China.

The third change, platform model, is one in which a company operates the infrastructure platform that facilitates a large number of front-end suppliers and/or buyers. The platform model was not invented by e-commerce players. Still it is in the e-commerce space where the most successful platform companies have emerged, including Alibaba, an e-commerce marketplace, and Handu, an online apparel company.

Alibaba is the largest platform company connecting 5-8 million sellers and 600 million buyers. It's secret formula lies in a powerful middle office which offers big data and data-driven marketing services for millions of sellers.

Handu started as an apparel shop on Taobao and is a 1.5 billion yuan ($212 million) business today. Different from conventional apparel brands, Handu is famous for fast product launch - more than 30,000 new items are launched every year. It is supported by an agile front organization of over 300 product units. Each product unit consists of fewer than 10 people and takes full responsibility of the design, launch and sales operation of a product series. The company provides strong supply chain support to the product units.

The platform model, featuring an open ecosystem, agile front end and data-driven middle office, is now being embraced by more and more companies in and beyond the retail space, driving a new wave of organization revolution in Chinese enterprises.

C2M(consumer to manufacturer) emerged as a concept in manufacturing industry in the 1980s but no viable business model has been founded until very recently. Platform model and big data analytics opened the door for real C2M, where consumer demands could be communicated to factories rapidly for small batch production at lower costs.

The recent trend of "celebrity e-commerce" is actually supported by a powerful C2M supply chain. In the conventional apparel industry, over stock is a critical issue. But now "celebrity e-commerce" is revolutionizing the value chain by keeping zero stock. This is how it works: Online celebrities use their social media or live streaming to introduce products (just samples before production starts). Factories then start to produce on the basis of orders received.

E-commerce has changed Chinese consumers' daily life. Now its impact is moving upstream along the value chain, re-engineering the manufacturing end and bringing "made-in-China" to the next level of competitiveness.

Sherri He is a global partner of A.T. Kearney, and Si Yujie is a manager of A.T. Kearney. The authors contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

(China Daily Global 10/28/2019 page13)