Analysis | Chinese e-commerce companies head to the countryside
Chinese e-commerce companies like Alibaba and JD.com are finding a lucrative opportunity in rural areas. But what kind of strategies will work there?
The low-hanging fruit of China’s e-commerce industry, the urban market, is running its course, as consumers become savvier and competition becomes more intense. As these initial boom years recede, companies are looking to expand and innovate in order to consolidate their positions.
To that end, e-commerce giants Alibaba and JD.com have begun branching out to harder-to-reach markets, namely China’s rural areas. “Developing [these] is our first priority in the second half of this year,” Liu Qiandong, CEO of JD.com, said in a CCTV interview aired in November 2014.
Meanwhile, Alibaba Chairman, Jack Ma said, “Alibaba plans to expend a lot of energy in the entire field of rural ecommerce,” at a December 2014 event in Guangdong province. “We’re really hoping to bring e-commerce to all of China’s [many] villages, so that rural people can get a taste of the city life and sell their own products in the cities.”
The case for such a move is clear. A report from AliResearch, Alibaba Group’s research arm, released in October 2014 estimated sales from rural e-commerce would reach a value of RMB 180 billion ($29 billion) by the end of that year, and predicted that would increase to RMB 460 billion ($75 billion) by 2016.
That is not an insignificant portion of China’s total internet retail sales, which reached RMB 2.4 trillion ($390 billion) in 2013, and is predicted to reach RMB 3.3 trillion ($530 billion) in 2015, according to consulting firm, Bain & Co.
Alibaba’s Alipay Annual China Spending Report for 2013 also noted that consumption growth is gradually shifting from the country’s prosperous coastal regions to inland provinces. Additionally, the company’s first county-level economic and e-commerce forum held in May 2014 reported that e-commerce growth in counties and villages outpaced that in cities by 13.6 percentage points in 2013.
“This is one of the greatest growth areas in China,” says Teng Bingsheng, Associate Professor of Strategic Management at the Cheung Kong Graduate School of Business. “So for these big internet players to position themselves as early as possible does make sense.”