Tag: E-Commerce

Cross-border e-commerce in China: Past, Present & Future

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Raj Trikkha, Research Intern, ICS

Image: CBE in China started to grow remarkably from 2013 due to the vast acceptance and usage of smartphones
Source: MarketingFuture

The rise in globalization and internationalization of trade has paved the way for e-commerce to expand from within nations to across the globe. This type of e-commerce is called cross-border e-commerce (CBE), wherein, products or services are sold to buyers overseas through e-commerce websites. The extent of globalization is such that the annual growth rate of CBE, which is 17%, has surpassed the growth rate of overall B2C e-commerce, which stands at 12%. 

Cross-border e-commerce in China began in 1998 with a few foreign trading companies tapping into the latest internet technology to carry out their sale activities. The year 1999 marked the birth of the company which changed the face of Chinese e-commerce. Alibaba.com, established by Jack Ma started out as a B2B portal that facilitated between local factories and overseas companies. In the mid-2000s, as more Chinese people went to foreign nations for work or studies, a new profession emerged, called DaiGou (代购). DaiGou refers to transactions where Chinese nationals who reside abroad sell foreign products to people in China with a little markup. They used various platforms like Taobao.com and WeChat. DaiGous for a long time filled the demand gap and still continue to conduct purchases online.

Since these types of transactions started to gain popularity and demand, companies like YMatou.com entered this market in 2009. CBE in China started to grow remarkably from 2013. This happened due to the vast acceptance and usage of smartphones. This made it easier for companies to reach consumers and for the consumers to avail their services. Between 2014 and 2015, over 5000 CBE startups were established in China involving Kaola.com and Vip.com. Today, the biggest e-commerce market in the world, China, has $34 billion worth of purchases in the CBE market (as of 2020). Though, in comparison with the U.S. (34 percent) and U.K. (45 percent), it consists of a mere 1.53 percent of its total e-commerce sales. This implies that there is still a lot of potential for the CBE market to grow in China. 

Image: Today, the biggest e-commerce market in the world, China, has $34 billion worth of purchases in the CBE market
Source: Practical E-Commerce

Although the market was growing and becoming an essential part of the technology-driven economy, the sustainable development of the industry required the supervision of laws and support of policies. Thus, starting from 2007, various government agencies released policies and recommendations to promote CBE in China. Subsequently, in 2014, China through the General Administration of Customs issued a new set of regulations pertaining to CBE. This was the first time that China officially accepted the CBE model. This opened up many opportunities for foreign firms wanting to sell their goods in China. As a result of increasing online sales by retailers, recent modifications in the CBE regulations were introduced on 1 January, 2019, to make them more robust. 

These schemes eased the process to a huge extent. Among many things, they lowered down the labour and logistics costs, streamlined the product return process, and announced the establishment of 46 additional cross-border e-commerce comprehensive pilot zones. Streamlining the return process enabled companies to ship goods in bulk to Chinese warehouses even before selling them to the customers, while more pilot zones meant that companies will have more areas where favourable tax rates are levied. 

Image: The General Administration of Customs announced the establishment of 46 additional cross-border e-commerce comprehensive pilot zones
Source: China-Briefing

The new policies have had a positive impact on the industry. The first three quarters of 2020, show an increase in CBE retail imports by more than 17 percent year-on-year, according to customs data. Cross-border e-commerce in China is growing at a fast pace. Even during the pandemic era, the CBE sector in China brought 31.1 percent of its foreign trade. CBE has become an essential aspect of China’s foreign trade. In 2020, over 10,000 traditional foreign firms went online for the first time. Many experts believe that CBE will continue to thrust the foreign trade in China as the market is still less-tapped and the policy incentives are yet to be yielded.

China’s e-commerce boom: How do Indian policies compare?

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Raj Trikkha, Research Intern, ICS

Image: China, in spite of gaining access to the internet after India has managed to have a 50.4% share of the global e-commerce market, while India’s share is at 1.29%
Source: Businessworld

China has been dominating the world in e-commerce since 2013, when it overtook the US to become the world’s largest market. Ever since the growth in this sector has been on a double-digit spree. According to a report by eMarketer, the revenue accrued to Chinese companies from their e-commerce sector in 2020 stood at 2296.95 billion dollars, almost triple that of the US. 

Now, the first question that pops in our head is, ‘Is it because of the huge population of China?’. If it were so, then India, which has a population almost equal to China’s, should also be topping the list or at least be close to topping the list, which it is not. Hence the more important question arises, ‘What holds back India from leading the world in the e-commerce sector?’. 

Several factors, like demographics and consumer trust, might be taken into consideration while answering the question. To narrow down our focus, we will only look into the government policies and regulations of the two countries and compare their effectiveness. The policies will pertain to two domains, namely, internet development and domestic e-commerce. 

China embraced the internet in 1994, and quickly realizing its importance, began developing the internet sector at an incredible speed. While only 6000 computers and 40,000 users were connected to the internet in 1995, by mid-2001, 10.2 million computers and 26.5 million users were online. The credit for this achievement goes to the initiative taken by China’s government in the promotion of the internet. They launched 13 “Golden Projects” in order to build the information infrastructure of the country and developed their internet in three phases – Asteroids (1996-2003), Bees (2004-2010), Coliseums (2010-present). Along with this, the Chinese also focused on growing their technological infrastructure which led to an expansion of telephone networks, PC manufacturing, and internet awareness. 

While the internet came to India in 1986, much before China, it could not climb the stairs of development as quickly. Its first action towards internet development, the IT Action Plan 1998, was several years after the introduction of the internet. It also eventually laid down new laws, the IT Act 2000, to deal with cybercrime and e-commerce. While India was still formulating policies and laws, China worked on building infrastructure for e-commerce under the Golden Projects. The strategy followed by India was thought to be better in the long run, while China’s strategy paid off instantly. It is 2021, and the anticipated success from India’s long-term strategy is yet to be gained, as China enjoys an internet penetration of 70.4%, while India is only at 45%. 

The vast differences in their approaches to regulating the market affected the market and its players to a large extent and thus, became an essential factor in determining the growth of the market. 

Image: While India remains far behind China in e-commerce sales, it is growing at a rate faster than any other country on this chart
Source: eMarketer

For instance, China’s e-commerce policies aim at strengthening the construction of an e-commerce credit system that includes the credit information of all stakeholders. The government monitors companies with poor credit ratings, which helps avoid counterfeiting and other malpractices. Along with this, the government ensures that all e-commerce enterprises operate in accordance with information security protection regulations and technical standards. To increase security, the government has promoted the use of digital certificates and their verification among electronic certification authorities. Of course, it might be argued that such progress has occurred at the cost of citizens’ privacy. 

China has promoted tax and financial incentive programs for high-tech SMEs by replacing business tax with a value-added tax and nurturing a multi-channel financing mechanism to support e-commerce companies. The government also motivates banks and other financial bodies to launch security over intangible assets, real estate pledges, and other financing services for e-commerce SMEs. This makes it easier for SMEs to raise finance, as Intangible Asset–Based Lending leverages a portfolio of Intellectual Property or other intangible assets to secure a loan. It also guides investment funds to strengthen support for E-commerce startups.

The Indian government, on the other hand, is working towards integrating traditionally offline markets, like vegetable markets, into digital e-commerce platforms. The government has also launched flagship initiatives like Digital India, Make in India, Start-up India, and Skill India, which are responsible for the growth of the sector. 

Although India is making considerable efforts in developing its e-commerce market, there are many areas with scope for improvement. Integration of stakeholders is a key shortcoming. Government stakeholders like policymakers, taxation authorities, and the Registrar of Companies should be woven into a single system to increase efficiency and transparency for the players in the Indian e-commerce market. The absence of a centralized mechanism to provide rating or accreditation to the numerous e-commerce sites adds up to the inefficiency. This makes it difficult for people to trust such websites. If a standardized procedure for the same is developed, it will positively impact the quality of online services.

On comparing the policy approaches of the two countries, it is evident why China holds 53.64% (as of 2020) of the global e-commerce market, and India is at 1.29%. It is also clear that a large population by itself cannot translate into a thriving e-commerce market in the absence of supportive policy. Hence a more careful dissection of China’s experience can be instrumental in realizing the full potential of the Indian e-commerce market.