For American based companies looking to explore the vast potential of the Chinese retail market, there might be more obstacles than just providing a superior product. While there are traditional culture differences that occur when companies enter a foreign market, Chinese retail landscape is in some ways different than its American counterpart.
For one, the Chinese e-commerce is growing faster than any countries in the world. According to an article published by Economist.com, Chinese online sales hit a total of $366 billion last year, which is more than the total online sales from US and UK combined. Euromonitor also forecast that the Chinese online sales will grow to 24% of total retail sales by 2020. What makes this trend more interesting is the fact that 70% of the online retail market is owed by Alibaba. This allowed Alibaba to have tremendous power over its suppliers. To further complicate the matter, credit cards are still extremely rare for consumers in China. Chinese consumers pay for products and services online using payment services offered by Alibaba. This makes Alibaba almost a monopoly in the industry.
For American companies, this growing Chinese retail trend mean that they will more than likely increase their reliance on Alibaba to distribute their products in the future. It is a disaster trend for American retailers like Walmart. They are stuck in a difficult situation as the lack of credit cards in China will make the push for online retailing in China more difficult than they have been in the US. It will take a lot of resources to create a payment services that can rival that of Alibaba, not to mention the political hurdles a company has to go through with the Chinese government.
The Chinese retail industry is attractive to many foreign companies, however it will take a lot of strategic planning to successfully enter the market. The Chinese e-commerce industry can also serve as a template for what retail could look like in the future for the American market.