Chinese companies look to ride a new cross-border e-commerce wave driven by the coronavirus

Some Chinese companies are tapping a new growth opportunity in online shopping amid trade tensions and the coronavirus pandemic.

While e-commerce has become a part of modern life around the world through giants such as Amazon and Alibaba, online shopping remains a fraction of overall retail sales. Even in China, where delivery has become integrated into urban life, online sales of physical goods still only account for about a quarter of overall retail sales, according to official data.

That portion is generally expected to increase, in China and worldwide. More businesses are also tapping e-commerce platforms to sell directly to consumers, rather than going through traditional store distribution systems.

“There is a trend towards more direct shipping out of China through digital cross-border shopping channels, which helps alleviate some of the downtrend in Chinese exports driven by the trade wars and increasing political tensions between China and other countries,” Suresh Dalai, senior director at consulting firm Alvarez & Marsal focusing on retail operations in Asia, said in an email.

“Evidence of this cross-border trend comes from the rise of cross-border shopping sites such as AliExpress, Alibaba.com, and Globalsources.com, and particularly in (Southeast) Asia,” he said.

In Southeast Asia alone, the internet economy for the region of 570 million people off the southeastern coast of China is expected to more than triple to $300 billion in gross merchandise value by 2025, according to an “e-Conomy SEA 2019” report from Google, Temasek and Bain. 

That estimate came before the coronavirus pandemic, which has since accelerated demand for online shopping due to widespread stay-home orders.

Cross-border financial payments platform Payoneer saw volumes in May and June triple from a year ago, said general manager Eyal Moldovan.

“The phenomena of ecommerce and selling directly … (is) going to stay,” he said. “Chinese are becoming now the winners of it all, the Chinese sellers who were fast to adopt and continue to deliver the necessary goods and are adapting to the choice of the consumers that want to shop.”

For example, Chinese household and consumer goods chain Miniso said it’s kept to a plan to release 100 new products every seven days even as it has shifted much of its business online in the wake of the coronavirus pandemic. Even with the economic shock of the virus, American consumers are buying. What used to be typically $12 spend per customer at a physical store is now $60 to $70 in an online order, said Vincent Huang, vice president of Miniso’s international business department. That’s according to a CNBC translation of his Mandarin-language remarks.

“After the virus, we plan to expand, including offline,” he said, adding that the company has plans for a 20% to 30% retail price cut through improving supply chain efficiencies.

Most of Miniso’s suppliers are in China. The company said that at the end of 2019, it had more than 3,900 stores and a presence in over 70 countries and regions worldwide.

Chinese factories are also exploring “business-to-consumer” (B2C) sales on e-commerce platforms that bypass wholesale distributors to sell directly to individuals. Buyers can purchase a customized version of an item, while a factory can produce inventory as needed.

In addition, persistent uncertainty around U.S.-China trade tensions is pushing Chinese businesses to look at different markets – and different platforms.

Guangdong-based coffee machine company HiBrew started selling through AliExpress in July 2019, partly in an effort to reach the European market, according to HiBrew general manager Zeng Qiuping, based on a CNBC translation of his Mandarin-language remarks. Before that, he said the company’s primary market was the U.S., but tariffs made costs prohibitive.  

The international trade environment is making “business-to-business” (B2B) wholesale selling more difficult, while better logistics networks let sellers reach more customers, he said. The majority of factories still need to rely on traditional wholesale supply chains to survive, Zeng said. “But B2C, a new consumption model, will continue to grow. It hasn’t reached the ceiling yet.”

The direct selling model is already growing within China. 

Alibaba’s Taobao e-commerce platform launched a “Special Edition” in March focused on factories, many of whose commercial orders have been delayed or canceled as a result of the virus’ spread globally, according to Alibaba’s logistics arm Cainiao. An initial call for export-oriented businesses attracted 300,000 Chinese factories and 110 million orders, the company said. As of this month, at least 1.2 million factories have joined the platform, with sales rising sixfold between June and July, according to Cainiao.

Increased online shopping is spurring demand for delivery services:

• Cainiao’s logistics services accounted for 4% of overall revenue in the first three months of the year, but was one of the fastest growing units at 28% growth year on year.
• Germany’s DHL said operating profit rose 16% in the second quarter from a year ago to about 890 million euros. “Since end of March the company has recorded a positive development of shipment volumes driven by e-commerce, both internationally and in the German parcel business,” according to a July 7 release.
• Chinese courier company SF Express disclosed an 84.22% growth in operation volume from June 2019 to June 2020, from 374 million tickets to 689 million tickets.

“China’s logistics scale is the greatest,” Charles Guowen Wang, director at think tank China Development Institute, said in an interview last month, according to a CNBC translation of his Mandarin-language remarks. “If this pace can be maintained, the gap with international players will narrow.”

Several Chinese start-ups are looking to take advantage of these trends.

The virus has caused orders to fluctuate more and forced the digitalization of the logistics industry in order to improve efficiency, Mingming Huang, founding partner at Future Capital Discovery Fund, said in a statement, according to a CNBC translation.

“Future Capital believes that in the future, the best logistics company will definitely be a technology company,” Huang said.

The firm’s investments include Duckbill, which uses artificial intelligence to make truck dispatches more efficient, third-party logistics platform in Southeast Asia Inteluck, and Syrius Robotics, which sells services for warehousing and logistics automation.