COVID-19: China’s e-commerce

COVID-19: China’s e-commerce

All markets and industries have struggled under the strain of coronavirus and the measures implemented to combat it. Firms and individuals alike have sought out ways of mobilising solutions in response to the challenges COVID-19 presents. The global economy has evidently suffered as a consequence as both supply and demand dimensions have drastically shifted to novel coronavirus norms. China’s e-commerce sector initially overwhelmed, adapted very quickly to the outbreak offering some lessons to companies globally.

Impact on commerce and economy

Within the initial few days of countermeasures being enforced, it was clear that consumer behaviour was going to change considerably over the course of the outbreak. It was quite rightly predicted that demand shifted away from fashion and lifestyle products and towards ‘isolation products’ such as groceries and cleaning equipment. The most apparent shift was to consumers’ dependency on online delivery systems and in turn China’s Alibaba Group Holding Ltd. and Tencent Holdings Ltd., who dominate the domestic e-commerce market with platforms such as Taobao and JD.com Inc.

Online sales of food items witnessed an increase of 26.4% over January and February compared to 20.2% in the same period in 2019. As a result, iiMedia Research claims that China’s online grocery market can expect to grow 62.9% in 2020 to 264 billion RMB compared to a 29.2% growth last year. Observers forecast that Alibaba’s Hema and JD.com’s 7Fresh supermarkets, that offer 24/7 deliveries for online orders, will continue to battle for space within the online grocery market throughout 2020 and beyond.

As an economy overall, signs of recovery are starting to appear across the whole country after nearly two months since the outbreak began. Coal, traditionally seen as a good indicator as to whether an economy’s production infrastructure is working, has risen back to 75% from a low of 43% of 2019’s figures. Supply chain congestion, at the time of writing, has risen from 62% 4 weeks ago to 73% of last year’s levels. This suggests that the movement of China’s migrant workforces and produced goods is returning slowly. Real estate transactions, which had fallen to 1% of 2019’s figures have now rocketed back up to 47%, displaying that confidence in China’s housing market is back on the rise.

China’s adoption of e-commerce infrastructure

China’s e-commerce sector is one of the most mature yet innovative in the world. There is an endless list of companies that operate predominately online in a B2C format, yet there are a few actors that dominate China’s market. Companies such as Tabao, JD.com, MTDP (Meituan Dianping), Pinduoduo and Tmall operate usually through ‘super apps’ and have secured huge popularity over the past decade.

The AI-driven, digital delivery networks these firms have developed over the past decade have been driven by burgeoning demand for an online shopping experience. This demand has come from China’s growing middle class, who because ‘in store’ shopping infrastructure has struggled to develop alongside the rapid urbanisation, are driven online. Improving consumer experience further, integrated e-payment systems such as WeChat pay, Alipay and Octopus (used in Hong Kong) that are used in conjunction with the online giants are well designed, efficient and most importantly fully trusted by consumers.

Another cultural difference worth noting is that for much of China’s population the smartphone is primarily seen as a transactional device enabling you to use social media and consume goods. Due to lack of market access and poor distribution the pre-smartphone period when communication features of phones were the only features didn’t exist in China to the same extent as in the West. Therefore, the adoption of smartphones and the associated integrated technology has happen both quickly and comprehensively.

Coronavirus highlighted that China’s social online norms differ and its propensity to adapt quickly to rely on online delivery systems to survive was much quicker than populations in the West. The SARS outbreak in 2003 is largely accredited with accelerating the adoption of e-commerce throughout China as it was seen as the most efficient way to ensure deliveries of goods whilst reducing the risk of spreading disease. This has consequently led to customers being very comfortable with operating within an online market space where people are less predisposed to revert back to traditional bricks-and-mortar shopping norms.

Innovation in a crisis

With large swathes of China’s population under lockdown, firms were forced to formulate crisis responses. The challenge faced was to meet the surge in demand for specific sets of essential products bought through China’s B2C and B2B e-commerce platforms. Such products included remote meeting services, social media, food and drink, hygiene products and health insurance.

The use of social media has been prevalent amongst retail companies as they try to reach customers online after being forced to close down stores. Cosmetics company Lin Qingxuan was forced to close 40% of stores nationwide yet swiftly redeployed its 100+  beauty advisors from those closed stores to become online influencers. By doing this they were able to leverage digital tools, such as the ‘super app’ WeChat, to drive online sales. In Wuhan, the company had to shut down all its stores but as a result of shifting to this particular strategy, its sales in Wuhan achieved a 200% increase in 2019’s sales.

The increased flexibility of labour forces and labour sharing was another innovation that occurred relatively quickly. To limit the damage inflicted by a sharp loss of revenue companies underwent a reallocation of staff to different departments where they could still add value, such as in post-recovery planning and in designing new content or products. Some even shared labour with other companies.

For example, Alibaba’s ‘new retail’ supermarket chain Hema which was in need to extra staff due to pressured delivery services received workers from businesses that undergone such streamlining, such as hotels and cinema chains. Other companies that follow a similar O2O model, including Eleme, Meituan, and JD’s 7Fresh soon borrowed needed labour from restaurants. This has enabled them to cope far better with the surge of online purchases.

Future outlook

As coronavirus countermeasures of varying severity are to be in place over the next 18 months or so companies will be frantically attempting to implement innovative solutions. Different geographical locations clearly provide unique challenges to a firms supply and demand recovery dynamics but some firms will be keen to observe what lessons there are to be learnt from their Chinese counterparts.

Post-recovery strategising will continue to happen over the coming months as companies  attempt to ensure that the emergency infrastructure for their business activities are in place if a future outbreak were to occur. The disruption in domestic labour markets worldwide and the experience of ‘social distancing’ may encourage governments to support more flexibility in workforces. This would allow people to maintain employment and to work to alleviate economic pressures and demands. Another shift in behaviour that is likely to be accelerated by COVID-19 is the use of AI technology and the trust in its functionality as a part of e-commerce delivery chains.

China’s political leadership and administrative systems certainly have aided businesses in adapting as quickly as they have done. Democratic and other legislative systems will find it difficult to implement such policies as quick as China but the important lessons can still be learnt and applied to companies worldwide. Accordingly, as the global economy starts to recover from the worst of the coronavirus impact and as the social experience of severe countermeasures manifest, companies globally will have to adjust subsequently to the new market realities that have been shaped by this disease.

 

Written by Charles Williams, GlobalRiskInsights

You may also like...