Cash is literally flowing all over the planet. In 2016, worldwide retail e-commerce sales reached $1.915 trillion. Double-digit growth is expected to continue through at least 2020, when sales will top $4 trillion. This growth is largely being driven by emerging markets. These are all staggering numbers, especially when you consider that—just 20 years ago—online retailers such as Amazon.com had barely started doing business and was only selling books, music, and movies.
According to the WTO, e-commerce is the sale or purchase of goods or services conducted over computer networks by methods specifically designed for the purpose of receiving or placing of orders. Even though goods or services are ordered electronically, the payment and the ultimate delivery of the goods or services do not have to be conducted online.
An e-commerce transaction can be between enterprises, households, individuals, governments, and other public or private organizations. Included in these electronic transactions are orders made over the web, extranet, or electronic data interchange. The type of transaction made is defined by the method of placing the order. Normally excluded are orders made by telephone calls, fax, or manually typed e-mails.
Let’s take a look at the retail industry by the numbers.
United States
The U.S. e-commerce market is estimated to be $500 billion, or one quarter of global sales. The Department of Commerce announced in August 2017 that total retail sales for the second quarter of 2017 were estimated at $1.26 trillion, an increase of 0.5 percent from the first quarter. Their report estimated that U.S. retail e-commerce sales for the second quarter increased by 4.8 percent from the first quarter to $111.5 billion.
If you are an Amazon Prime member, you know the distribution model: order today and (maybe) get it in 2 days via UPS or the U.S. Post. It’s a model that’s worked, but with the speed that e-commerce has now reached, it’s a bit clunky. Also, as a result of the Trade Facilitation and Trade Enforcement Act of 2015, these transactions are now eligible for free duties and taxes up to $800 of imported purchases.
EMEA
Europe’s e-commerce sales have been rising 15 percent annually for 4 years, and gains are projected to run at a similar pace in the short term. The 2015 digital sales were $633 billion, with the United Kingdom, Germany, and France making up Europe’s three largest markets. In 2014, these three countries jointly accounted for just over 60 percent of all digital sales in the region. The United Kingdom alone claimed 30.0 percent of digital sales, with Russia emerging as the fastest-growing European market with annual e-commerce sales of $25.2 billion.
This distribution model is similar to that of North America. Orders are placed online, transmitted to a warehouse where order fulfillment is accomplished, and fed to either the local post office or small parcel carrier.
Meanwhile, Asia-Pacific has leapfrogged the West to become the world’s largest regional e-commerce market.
China
While examining China’s e-commerce market, it is important to note that over 100 of its cities have more than 1 million residents. By way of comparison, there are only 13 cities in the United States that can boast this statistic. China’s online shopping sales reached $589 billion in 2015, accounting for 10 percent of total Chinese consumer retail sales. This oldest country on the planet is estimated to have 731 million Internet users accessing the web and shopping from their phones. China is a mobile-driven consumer economy that is led by three giants: Baidu (search engine), Alibaba (the largest e-commerce company in the world), and Tencent (owner of WeChat, a social media outlet boasting 900 million accounts). Together, these tech companies have captured China’s Internet and are spending billions to capture the future growth in this market.
While Western companies have chased the legendary 1.3 billion Chinese, many have failed to learn that China is not one market, but rather many small ones. In addition, local and national politics (with their accompanying regulatory oversight) have worked against these companies’ abilities to enter this complex marketplace.
GAC 26 Rule (China’s General Administration of Customs) with its accompanying “White List” states that rules are defined by eight-digit Harmonized Commodity Description and Coding System (HS code) for what goods can be imported into China via courier or postal service. They largely centered on consumer goods for the domestic market, including food and beverage, garments, household appliances, cosmetics, diapers, children’s toys, and baby formula.
So, while the cash is flowing freely, restrictions and barriers limit the abilities of outsiders to participate in this bounty of riches. This list greatly reduces the opportunity for breaking into that 1.3 billion Chinese marketplace.
This distribution model is unlike anything I had ever experienced. You can order by 11:00 and get product in 6 hours. Warehouses outside of the metropolitan area feed a network of vans, tricycles, and motorbikes that make precise deliveries. One person commented to me that they hadn’t been to the market in 5 years—everything is done electronically.
The Emerging Markets: Vietnam
In addition to the United States, Europe, and China, emerging markets are also joining this global phenomenon. A great example is Vietnam, a country with over 90 million people, 41 percent of whom are Internet users.
In 2015, e-commerce in this emerging economy was estimated to be $4.9 billion, which represented only 1 percent of the retail market opportunity. Vietnam has a growing middle class whose theme is “you came for the workers, you’ll stay for the shoppers.” The markets are driven by demand for fashion, technology and electronics, appliances, travel, books, music, DVDs, and personal services. Like China, the hyper growth in Vietnam is driven by high Internet and smartphone usage.
A couple of cautionary notes: While the e-commerce market is currently wide open in Vietnam, with the largest company only having a 10 percent market share, it will take at least 5 years to be able to scale up the infrastructure to take full advantage of this opportunity. Another point to be remembered is that Vietnam is largely a cash-on-delivery (COD) economy. Electronic payment platforms will enable the growth patterns seen in the West and in China.
This distribution model rivals that of China. Order today and product is delivered the next day by motorbike (which is an interesting observation in safety practices).
Here is a quick view of the global marketplace:
The Market
•B2B—Business to Business
•B2C—Business to Customer
•BBC—Business to Business to Customer
•C2C—Customer to Customer.
Business Structure
•Sales through global website/direct ship to customer
•Sales through a global website/shipment through a bonded zone or foreign trade zone
•Sales through a local website/imported by resident entity.
Payment Processes
•Credit cards—traditional Western behavior—charge it on Visa, MasterCard, AMEX
•Electronic—the launch of the China International Payment System (CIPS) will remove one of the biggest hurdles to internationalizing the yuan and should greatly increase global usage of the Chinese currency by cutting transaction costs and processing times. Currently, cross-border yuan clearing has to be done either through one of the offshore clearing banks in Hong Kong, Singapore, and London or with the help of a correspondent bank in mainland China
•Tencent’s WeChat has 900 million active users, with 600 million users of their electronic payment services. This is a digital wallet that allows its users to perform mobile payments and send money between contacts. Credit cards can be linked to pay vendors but cannot be used to top up a WeChat balance. WeChat Pay can be used for digital payments, as well as for payments from participating vendors. The government has actively supported the development of this e-commerce model in China
•Taobao is Alibaba’s consumer-to-consumer online shopping platform—the largest in China. It offers a variety of products for retail sale and is the second most visited website in China. Taobao’s growth is attributed to offering free registration and commission-free transactions using a free third-party payment platform
•Alipay is a third-party online payment platform with no transaction fees. It has the biggest market share in China, with 300 million users and control of just under half of China’s online payments
•China UnionPay is also known as UnionPay. It is a Chinese financial services corporation that provides bank card services in mainland China. It is also the only interbank network in China that links all the ATMs of all banks throughout the country. It is the largest card payment organization in the world and also offers mobile and online payments
•COD—emerging markets still require cash on delivery.
Conclusion
Technology has made it possible to place an order online in seconds, with delivery 6 hours later, but the fulfillment process is still dependent upon proper execution. Understanding the statistics that are supporting the digital market is important but does not replace the basic fundamentals that have always driven a business’s overall success. Having a proper strategy, a well-organized structure, and communicating with your people is always the essential foundation of every business, whether sales are driven from a computer screen or by traffic into a brick-and-mortar building.
Around the world, companies are creating unique e-commerce platforms while dealing with the challenging issues of payment and distribution. Despite the temptation to develop new theories to adjust this fast-changing world, it is still the basics of business structure, a thoughtful and adaptive strategy, and time-tested fundamentals that will deliver success.
People, Process, and Tools continue to be the foundation for every successful business model.