How to Capitalise on the E-commerce Opportunity in China

By any measure, e-commerce in Asia is booming, nowhere more so than in China.

KPMG predicts that e-commerce in China could be bigger than France, Germany, Japan, UK and US combined by 2020. What's more, the Asia Pacific region as a whole is set to overtake North America as the world's largest e-commerce market this year, reaching over $525.2bn (£316.8bn, €397.9bn).

Some 80% of the 200 senior e-commerce decision-makers at UK and US firms we polled recently confirmed they are looking to expand into Asia in the coming year.

Yet senior managers at Western e-commerce businesses are concerned it won't be an easy ride: almost all of the e-commerce decision-makers we polled claimed they face specific challenges establishing their business in Asia.

What's more, while China is by a long way the top destination, they are also, according to respondents, the hardest markets to crack. The Chinese government however is gradually liberalising and opening up the Renminbi (RMB) controls.

Chinese tax regulations and compliance are the top concern for Western businesses, with 44% citing it as the number one barrier.

There are many sectors, such as cosmetics and food and drink, which are so tightly bound in regulation that companies find it a struggle to understand and comply. Companies have to gain approval and/or register their products with local regulators before they're allowed to start selling them and taxation regimes vary widely.

Next on the list of barriers comes understanding the local market, voiced by 43% of respondents, followed then by language barriers, cited by 41%.

Some of the biggest concerns highlighted by our survey, however, relate to taking and processing payments, and cross-border settlement.

For example, the Chinese market is dominated by a wide-variety of home-grown payment systems, such as Alipay and Tenpay.

By contrast, Visa, MasterCard and Amex users are in the minority.

E-commerce sites need to be able to process these different payment methods, and remit funds to the country (and the currency) determined by the business. Indeed, cross-border settlement was highlighted as a key issue by 39% of respondents to our survey.

Indeed, when it comes to the key success factors highlighted by our respondents, the right payment platform emerged as a key issue. In particular, acquirer connections in China were flagged as the number one key success factor, by 45% of respondents, closely followed by risk and fraud management (43%).

Successfully mitigating fraud risks relies on strong local market insights and good relationships with banks and payment schemes.

Partly as a result of these concerns, many major Western retail brands have opted to work with local 'e-mall' providers such as T-mall and Shangpin, who provide the shopping platform, the payment processing, and settlement capabilities.

Peace of mind on these fronts, however, comes at the expense of a fully branded, digital customer experience, around which businesses differentiate themselves and build brand loyalty: the shopping experience on many of these sites is vanilla at best.

Retailers wishing to build their own brand locally with a site they manage for themselves, will need to partner with a payments and e-commerce provider with the right facilities both inside and outside the 'Great Firewall'.

These, along with deep local market insights and links to local acquiring banks, can ensure retailers can level the playing field with local competitors and retain total control of their brand online.

Len Padilla is the vice president of product strategy, NTT Europe at NTT Communications