Alibaba founder Jack Ma (center) rings the bell to open trading at the New York Stock Exchange on Sept 19.  [provided to china daily]

Analysts see potential, pitfalls in China's e-commerce market, report Amy He and Paul Welitzkin in New York, and Yang Ziman in Beijing.

China's e-commerce market — specifically Alibaba's online shopping site, Taobao — isn't on Rob Wray's radar right now, but he says it might be in two years.

"China … is a low priority due to our experiences with Chinese banking and business complexity,"said the Baltimore businessman, who owns Mp3Car, a small company selling electronics on Amazon and eBay in the United States. "Our focus is on building in the US, where we're based, and in other rapidly expanding markets that are less complex to enter."

It's not ideal, but Jack Ma may be happy with that.

Ma, the chairman of Alibaba, traveled to New York and Chicago this month, giving speeches and writing newspaper opinion pieces to urge small and medium-sized enterprises in the United States to consider using his e-commerce platforms, Taobao and Tmall, to reach Chinese shoppers.

"Today, China's middle class is almost the same size as the US population. We think that in 10 years more than half a billion Chinese people will be middle class,"Ma told an audience at New York's Economic Club on June 9. "The demand for good products, good service, is so powerful. … We need more American products."

His target is to get 10 million SMEs from around the world using Taobao and Tmall, and China's other major e-commerce players, such as JD.com, Dangdang and Jumei, will have equally ambitious plans.

Although analysts and industry insiders agree there are terrific opportunities here for US businesses, opinions are divided on whether the potential profits outweigh the potential pitfalls.

According to Eguan, a business consultancy in Beijing, online cross-border sales were worth more than 80 billion yuan ($13 billion) in 2013, up 75 percent year-on-year. The company predicts, by 2018, Chinese consumers will spend 1 trillion yuan on purchasing products from overseas.

"The Chinese market is becoming the center of the business world in terms of how consumers are using e-commerce platforms to buy products,"said Oliver Rust, managing director of Nielsen China. "E-commerce has become bigger and broader. It's a significant market."

China now has about 360 million online shoppers and a sales value of 2.8 trillion yuan, he said.

When it comes to separating the major players, e-commerce expert Wang Xiaoxing said Alibaba stands out because it is more of an intermediary. Individuals and companies have used Taobao to sell everything under the sun since it launched in 2003. Tmall, which opened five years later, is more used by companies offering relatively higher quality products.

"Alibaba doesn't own or deliver any product. It's a collection of independent stores,"said Wang, an analyst for Beijing consultancy Analysys International. "Reaching out to SMEs in the US is natural for Alibaba because serving small businesses is built into its genes.

"It's complicated serving so many SMEs, but Alibaba has done it successfully in China. It's no surprise Ma wants to copy the model in the US now it's been listed,"he added, referring to the company's listing on the New York Stock Exchange last year.

Taobao vendors are required to run their own stores: They upload photos and product descriptions, handle packing and shipping, and manage after-sales services. Like eBay, a user's reputation is enhanced — or completely destroyed — by ratings and comments left by customers.

In China, people today even use "taobao"when they mean to say online shopping.

"Alibaba is the unquestionable leader in online shopping in China,"said Teng Bingsheng, an associate professor of strategic management at the Cheung Kong Graduate School of Business. "This is a big advantage when attempting to get US companies to believe they can have a bigger chance of success in the Chinese market than through similar platforms.”

Last year, transactions on Alibaba's e-commerce platforms totaled $161 billion, far more than the $77.6 billion reported by Amazon.

Meanwhile, data released by New York consultants Forrester Research showed Tmall and JD.com are dominating China's e-commerce market. Tmall holds a 57-percent share of the business-to-consumer market, while JD.com holds 21 percent.

Different expectations

There is no denying the lure of China's e-commerce market. China will become the largest market for buying and selling products online across international borders by 2020, according to a report by Alibaba and global consultancy Accenture.

The value of products sold by online retailers to overseas consumers will reach nearly $1 trillion by 2020, with China the driving force for growth, the report said.

Yet some analysts are skeptical about the ability of US SMEs to use Chinese e-commerce platforms, citing the tough competition and barriers of entry. They suggest that small retailers may also not be equipped to deal with a customer base with differing shopping expectations.

"The smaller companies — and this is not an Alibaba point, it's not a China point — have very limited ability to manage any major undertaking,"said Frank Lavin, founder and CEO of Export Now in Akron, Ohio, which advises businesses accessing China's e-commerce platforms. "If you're only a $5 million company, the entire management team is one or two people. You're asking them to work with a series of somewhat complicated issues on foreign exchange, remittance, and logistics. They just don't have the management team to do that."

Lavin, who served as undersecretary of commerce during the George W. Bush administration, said China is the easiest market for US companies to enter, but they still need capability and capacity, while smaller companies — in the $1 million to $10 million range — will have difficulty.

To get an online store up and running on Alibaba, an overseas company would need to design and build a Chinese-language website, pay a deposit to Alibaba, and pay for trademark registration, which could cost $50,000 to $100,000, he said. To advertise their brands and services, companies may need to spend another $100,000 to $200,000.

"In terms of value, cost-benefit for a company, that's fantastic. But again, if your total sales are $2 million and say it's $100,000 just to get in the game, that's 5 percent of your total sales,"he said.

Alibaba already works with US retailers such as Costco, GNC, Forever 21, Patagonia and Under Armour. However, observers say smaller companies may be hindered by the difference in online shopping culture.

Carl Miller, managing director of San Francisco-based Global Retail Insights Network, a nonprofit organization that helps retailers go global, said Chinese consumers' expectations differ from their American counterparts. Customer service is a big part of the online shopping experience, something US retailers may have difficulty adapting to.

"Most Chinese consumers are going to be utilizing chat — text chat or talking to a customer representative — to talk about the product, to verify the authenticity,"he said. "They'll sometimes want to barter, and one of my main concerns when I heard (about Ma's speech) is: How are all of these smaller companies going to actually have the time and energy to provide, or even outsource, customer service that's going to adequately represent their product?"

A case in point is Xue Chanchan, a public relations worker in Beijing, who said Taobao is her No 1 choice for shopping online because of the after-sales services. "I can see the store and talk to the owner. On other platforms, I can only call customer service instead of the store itself. This way, I feel more assured."

Zia Daniell Wigder, vice-president and research director at Forrester Research, is optimistic about small US retailers on Alibaba, especially those who would be dealing with international customers, shipping, customs, and local currencies for the first time. She said the Chinese company can help streamline these processes because of its market dominance and vast infrastructure network.

"There certainly are differences (between US and China e-commerce), but a lot of them are surmountable issues,"she said. "Cross-border online shopping is growing incredibly quickly. It's not just between the US and China, but between a large number of different countries. Alibaba's opportunities in Brazil and Russia, and other places like that, have grown substantially, so they're looking to penetrate what is the other extremely large e-commerce market in the world, which is the US."

Michael Tudor, CEO of Ripen eCommerce, a consulting company, told Forbes last year that Alibaba's Tmall and Taobao, along with Alipay, its third-party online payment platform similar to PayPal, can help small businesses in the US "who don't have the resources to meet the challenges of the Chinese market".

For a small US retailer to be successful in China's e-commerce marketplace, Kosha Gada, principal at AT Kearney's media, consumer and retail practice, said they will need understand the market demand, build a brand, and have a firm grasp on logistics and operations.

"It's a different market from the US, and companies will need to accurately assess the competitive landscape,"she said, warning that electronic payment is not as developed in China as in the US, raising the risk of fraud, while shipping can be a hassle due to undeveloped infrastructure outside of major cities.

Teng at the Cheung Kong Graduate School of Business offered one more piece of advice for US companies: Watch what Chinese tourists buy in bulk abroad. "Chinese are seeing the world,"he added. "They know what the good products are, they aren't easily swayed by novelties."

Contact the writers through yangziman@chinadaily.com.cn