Distribution systems separate men from boys as e-commerce grows

Mainland consumers are buying and selling more goods over the internet, prompting the nation's largest online retail players to sharpen their distribution systems to keep customers satisfied and help the industry further expand.

'Only those companies with a mastery of logistics as part of their value proposition will succeed in China's e-commerce race,' Deutsche Bank analysts in Hong Kong said in a recent 'China Internet Insights' report. Logistics, they said, comprised warehousing, trunk transport and delivery.

The mainland's profitable business-to-consumer and consumer-to-consumer e-commerce market segments are forecast to grow an average of 42 per cent annually over five years and be worth 1.523 trillion yuan (HK$1.78 trillion), or 7.2 per cent of the country's total retail sales, in 2014, according to the report.

Taobao, the mainland's leading online retail services provider, has championed what analysts call the 'platform' approach, which involves outsourcing most logistics requirements to specialist third-party partners. The other approach is called 'self-build', which provides more control to the e-commerce player.

Tom Group, the diversified media arm of conglomerate Hutchison Whampoa, in August unveiled what could be considered the best example of the self-build approach.

Tom's new internet retail joint venture with China Post, known as Beijing Ule E-Commerce, had a highly developed, nationwide infrastructure not possessed by the likes of Taobao and Joyo Amazon, owned by United States-based Amazon.com.