Sunday, August 22, 2004
China lures Amazon.com, other online e-commerce giants
SHANGHAI, China (AP) - Going store-to-store hunting for bargains holds no appeal for Wang Qin, a busy securities industry employee who says he would rather spend his time and energy on work. Like growing numbers of Chinese consumers, he prefers to buy online.
"Shopping online helps me get cheaper prices with door-to-door delivery,'' Wang said. "It's convenient, cheap and timesaving.'' E-commerce is relatively new in China, a developing country where bargain-hunting, often in outdoor markets, is almost a national sport. But it's catching on fast - and luring foreign companies keen for a piece of the market. E-commerce giant Amazon.com Inc. announced plans this week to pay US$75 million for China's largest online retailer of books, music and videos, 4-year-old Joyo.com Ltd., the latest in a slew of foreign acquisitions of stakes in Chinese Internet companies. Google.com, Yahoo!, E-Bay and others also have announced deals aimed at profiting from China's soaring growth in Internet users - now estimated by the government at more than 80 million, and expected to jump to 110 million by the end of this year. Online sales were initially much slower to catch on in China than in the United States, Japan and some other countries. A backward banking system, limited incomes and the low rate of use of credit cards were crucial obstacles. "There were major issues with people not getting goods in time. A lot of teething problems had to be worked out,'' says Duncan Clark, managing director of the consulting firm BDA China Ltd. But that's changing. The financial mechanics of online transactions have been eased with the use of cash-on-delivery and debit card payments. And companies like Joyo have set up distribution and delivery systems that can get products to customers in two days or less. Privately held Joyo, which also sells toys, software and gifts, reported first-half revenues of 130 million yuan (US$15.7 million; 12.8 million euros), with a 30 percent profit margin, according to Shanghai iResearch Co., an independent Internet research firm. Seattle-based Amazon said it will pay US$72 million in cash and assume employee stock options worth US$3 million for Joyo. It had also reportedly been in negotiations with Joyo rival DangDang.com, which rebuffed Amazon's offer of up to US$1 billion. Compared with other products, such as food and clothing, online purchases of books, music and movies have caught on faster, perhaps due to the limited risk of problems with quality or choice. For many customers, the biggest lure is price. Joyo advertises some books for as little as 1 yuan (12 U.S. cents; 10 euro cents). A DVD of "101 Dalmations,'' was selling for 12 yuan (US$1.45; 1.19 euros). "I pass several book stores every day on my way to work, but I still buy online from time to time to get discounted books,'' says Zhao Heng, a newspaper editor in Shanghai. "You can find the best sellers of the moment on Joyo.'' Internet purchases of other goods and services are also picking up. Market researcher IDC estimates that e-commerce spending by consumers in China reached US$4.8 billion last year and is expected to soar to US$14.6 billion by 2005. Although Chinese consumers tend to be cautious _ justifiably so, given the country's rampant problems with shoddy and counterfeit products _ they're not particularly averse to new ideas. And in many cases, such as travel, there were no convenient or efficient off-line methods to begin with. Online bookings for hotels and airline tickets have soared, luring big international players. Last month, IAC/InterActiveCorp, operator of Expedia.com, announced it would pay US$60 million for eLong, China's No. 2 travel Web site. In June, Rakuten, Inc., a leading Japanese Internet company, agreed to pay US$110 million to become the largest shareholder in Ctrip.com International Ltd., China's biggest provider of hotel and flight booking services. Other areas of online commerce, though slower to take off, are also attracting attention. Early this year, Yahoo! Inc. and leading Chinese Internet portal Sina Corp. agreed to form a nationwide online auction service. EBay Inc., the world's largest online auction purveyor, has an investment in China's biggest online auction site, EachNet. Yahoo! owns Chinese search company 3721, and also recently launched a Chinese-language search portal. Google has acquired a minority stake in Baidu.com Inc., China's biggest Independent Internet search engine. Though sudden regulatory changes and government controls of online content remain concerns, as Internet businesses become increasingly established the huge potential for growth appears to be outweighing those risks. "People don't want to miss the boat,'' Clark says.-AP
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