We interviewed Marco Gervasi, the author of the book “East Commerce: A Journey Through China E-commerce and the Internet of Things”, published by Wiley and available worldwide from April 2016.
Originally from Italy, Marco has been living in China since 2004, advising companies on their investments in and from China. Initially, he joined a local company and in 2007 he established a management consulting firm, The Red Synergy Shanghai. Since 2013, Marco has observed “how, thanks to e-commerce, China has created a super-connected world that is now taking over Asia, African and will soon influence the West”.
This was what prompted him to write a book to describe the new technological revolution coming from China and to interview Asia’s Internet giants such as Tencent, Alibaba, Baidu, Xiaomi, Rocket Internet and Snapdeal. In the last 1.5 years, Marco has been focusing on helping global Internet platforms and digital marketing agencies to understand China’s digital market.
IEV: Alibaba and Tencent are the two giants in the Chinese e-commerce market. They were initially copycats of Amazon/eBay and Facebook respectively but have now outperformed their international competitors. Can you explain how and why this has happened?
Marco: Chinese e-commerce companies began by copying something that already existed in foreign markets and adapted it to their market. I call this process “adaptive innovation” instead of “creative innovation”. You take an innovation and you adapt it so many times that it becomes something completely different.
Nowadays Alibaba has less to do with Amazon or eBay than it had at the beginning. It’s now a mix of Amazon, eBay and Paypal. Tencent is a combination of Facebook, Skype, WhatsApp and many more. It integrates a mobile payment system as well.
What we are seeing now is that foreign companies are starting to be inspired by the Chinese internet models. This is the case of Facebook now adding a “buy” button to include a social commerce function just like WeChat.
IEV: Do Alibaba and Tencent have the ambition to reach overseas markets and will they succeed?
Marco: They are already expanding into other markets. Alibaba has been successful in entering the Indian market and Southeast Asian market. It also opened a headquarter in Milan and will open one in Munich. The “Ali model” i.e. the marketplace model works very well in the emerging markets since they have a very similar infrastructure, payment habits and a strong mobile presence. In Western markets, currently, Alibaba functions more as a sourcing office for brands who are not in China yet.
However, Alibaba is thinking of becoming a competitor of Amazon in the European market because it needs to grow out of China. I also think that the Chinese tech companies, when going overseas, are still inexperienced on how to communicate to foreign markets. It is still the beginning and we will probably see more Chinese tech companies outbound investments in the future.
For example, Tencent has entered the South African market just a few months ago. Its app WeChat is a good tool for brands even outside of China to have a direct dialogue with the Chinese consumers. Chinese consumers are not just buying online; they are looking for an experience.
Brands must make the consumers feel that they are buying something special. So, you need an Alibaba platform to buy but you also need a tool like WeChat to interact with the consumers, educate them or inform them about new releases. WeChat has created a whole ecosystem, including WePay for the payment side, and it is just the beginning. It is known as social commerce: I can chat with a friend about fashion, for example; this friend will tell me about a product and I will be able to go straight to the e-commerce platform and buy it.
IEV: So, social commerce is already happening in China?
Marco: I think it is and WeChat is a clear example. For example, the on-demand laundry pickup service app eDaixi, which lately raised 120 million dollars, acquired over 50% of its customers through WeChat app. China’s second biggest e-commerce platform, JD.com or even Uber-like services (but not Uber itself) can also be accessed from WeChat without the consumers never leaving the app.
IEV: O2O or “online-to-offline” is now the buzzword in China (referring to offline services starting online such as taxi hailing apps, food deliveries, restaurant bookings etc.). Why is China leading the O2O revolution?
Marco: O2O has been the fastest growing sector in Chinese e-commerce in 2015 and will also be in 2016. China is more advanced in O2O than the West due to a lack of physical infrastructures. A disadvantage has actually been turned into an advantage. In fact, Chinese e-commerce did not wait for physical infrastructures to develop, it created a virtual alternative system despite the lack of commercial infrastructure and with the aim of becoming “The Infrastructure”.
For example, Baidu, whose business model was originally similar to Google, has now become an O2O business for example investing in take-out delivery through a company called Baidu Waimai.
Consumers can buy and pick up restaurant orders via their smartphone and get delivered at their doorstep. There was already a fleet of couriers doing delivery but consumers were not able to reach them. These couriers, using electric bicycles, are also more efficient using O2O platforms as these platforms come with big data to optimize the delivery (making sure they have enough battery for the trip, etc.).
Another example of O2O is the healthcare industry. There is a lack of medical infrastructure in China as there are not enough doctors in hospitals. People normally have to queue for long hours before seeing a doctor and they are not even sure about the results as the doctors see up to 4 patients at the same time. There are now platforms, like for example Guahao, connecting doctors to patients remotely, where doctors are able to give better advice and patient’s information is saved in the platform.
China is also much more advanced in mobile payments which are able to connect the online and the offline world. Alipay, the online payment systems created by Alibaba, now controls over 50% of digital payments. This system is now more efficient than the offline one created by banks.
IEV: India has also seen a real boom in e-commerce last year. What are the differences between the Indian and Chinese markets?
Marco: When Indians look at the Chinese market, they see how their market will be like in 4 or 5 years. They are both mobile-driven markets, producers of affordable mobile phones and quite powerful in terms of data they can process. The Indian mobile penetration is much faster than in China and e-commerce is developing much faster.
But China is way ahead in terms of infrastructures while India is still catching up. Even though they are similar, the Indian e-commerce model will still have its own shape. What I learned is that you can’t just cut and paste business models. They can’t take everything from the Chinese model. They will have to adapt it and it will eventually become a different model.
IEV: Which lessons can e-commerce players in Europe learn from China and India?
In Europe, people haven’t grasped the potential of what is happening in Asia yet. When I published my book’s first edition for Kindle in 2015, very few people in the West believed that China had developed such a strong model.
E-commerce players in Europe should try to understand what is happening in Asia, what are the new business models that are working there and whether these models could work in foreign markets as well. The wrong way to think about it is to believe that one model should prevail on the other. In my opinion, the secret lies in finding a way to combine both.
Let’s look for example at Alipay, Alibaba’s online payment system, it is extremely advanced. It basically has become a bank on its own. It provides mobile payments and other financial services. Alipay gives us a glimpse of what the future will look like. In the West, we are far behind in terms of mobile payments. These models are tested here on a big scale – 340 million people in china, so we can trust them and assume that it works.
Thank you Marco for this inspiring overview of the e-commerce scene in China. You can learn more about the Chinese e-commerce landscape by reading Marco’s book “East Commerce : A Journey Through China E-commerce and the Internet of Things”.