The business of e-commerce is still mostly a national affair. U.S. consumers order from U.S. retailers like Amazon, Gap and Walmart; Chinese consumers buy from Chinese sites such as TMall, Taobao and JD.com; and Indian consumers flock to Flipkart and SnapDeal.
E-commerce companies, if they do expand internationally, usually open local subsidiaries, such as how Amazon and eBay run separate sites in France, the U.K., Japan, Brazil and other markets.
But, tomorrow is here: The moment for a cross-border e-commerce giant to emerge has finally arrived. And it will likely happen first via mobile.
So, why is right now the magic moment for a cross-border e-commerce giant to emerge?
Advances in logistics, shipping and global smartphone penetration have created a perfect storm where e-commerce companies can thrive internationally. In fact, any e-commerce startup today with multi-billion-dollar ambitions must be cross-border from day one, because local markets are already locked up by entrenched homegrown giants.
Three Reasons Cross-Border E-Commerce Is Here
First, consumer demand for cross-border commerce has arrived. Consumers in the U.S. are discovering they can buy goods directly from China at a steep discount. eBay and Amazon are conduits for Chinese products, with American resellers purchasing apparel, beauty products, accessories, consumer electronics and gadgets in bulk from China and reselling them to U.S. buyers.
China’s largest e-commerce company, Alibaba, launched its first AliExpress website in overseas markets in 2010, allowing American and other international consumers to buy products directly from China.
Second, the logistics infrastructure to support cross-border e-commerce is in place. FedEx, UPS and post offices have vastly improved international shipping services. Chinese manufacturers are also becoming savvy about using low-cost shipping methods; many now send products in bulk to the U.S., storing them in warehouses until final delivery to U.S. buyers. Also, online payments by credit, debit card or PayPal are now fast and reasonably secure.
Third, the smartphone revolution has brought more than 2 billion consumers worldwide onto the Internet. By the end of this decade, there will be 4 billion smartphones in use, with 1 billion of those in China, 600 million in the U.S. and Europe and the rest in India, Southeast Asia, Africa, Latin America and other developing countries.
PC broadband penetration in these emerging markets is low, but smartphone use is exploding. Billions of people will want to buy low-priced goods using their smartphones, and there will be myriad shopping apps with integrated mobile payments for consumers to use.
State of Cross-Border E-Commerce Today: China-to-U.S. First
All the pieces are in place to enable mass-market, cross-border e-commerce, but we’re only in the first innings. Right now, cross-border e-commerce mostly flows from China to the U.S. and Europe. Big U.S. players like Amazon and eBay are enabling China-to-U.S. sales through reseller relationships with large Chinese merchants, but they’re proceeding cautiously in fear of losing control and national sales.
Meanwhile, small players are buying goods on Alibaba and Taobao to resell on eBay and Amazon, or acting as intermediary agents to help U.S. and European buyers purchase goods directly from Alibaba and Taobao. But these piecemeal models don’t scale well. Instead, it will take a new kind of company to take Chinese export e-commerce to the mass market.
The fastest-growing American startup that’s making inroads into cross-border e-commerce is Wish. (Note: I led GGV’s investment in Wish and I sit on the company’s board.) Wish’s smartphone shopping platform offers curated, on-trend, low-cost products shipped directly from Chinese manufacturers and merchants.
Wish has a strong following of U.S. and European mass-market shoppers looking for bargains. By embracing cross-border sales on mobile, Wish has become a new unicorn, offering four of the top 25 mobile shopping apps on Google Play in the US: Wish, Geek, Cute and Mama.
Importing to China — There Is Hope for American Brands
The other direction of cross-border e-commerce — U.S. or Europe-to-China — is also growing. The Chinese consumer market is bifurcating. Young iPhone users with more westernized tastes are eager to buy Japanese, Korean, U.S. and European brands online. However, foreign retailers are inexperienced in selling to Chinese consumers online and have struggled with how to manage shipping, customs clearance and logistics.
Many global brands have successfully set up brick-and-mortar stores in China, including Apple, KFC and Starbucks, but most American brands haven’t learned how to tackle online sales in China. This opens the door for fast-moving startups to capitalize on U.S.-to-China e-commerce.
Late last year, I invested in Little Red Book, a Shanghai-based startup. Its social mobile commerce app RED allows middle-class Chinese women consumers, known locally as baifumei, to discover and buy branded goods from overseas.
RED is the fastest-growing e-commerce app in China, and is considered a true innovator in social commerce, with lots of neatly curated and searchable content listed by product category and country of origin, plus an active, influencers-driven community.
But RED is not alone in importing global brands to China. JD.com, VIPShop, and Alibaba’s TMall International are all facilitating imports into China, with JD.com recently launching JD Worldwide expressly for this purpose.
The Chinese government used to have lots of restrictions on imports, and favored export-led economic growth. Over the last 18 months we have seen a change in policy and attitude. The Chinese government now seems to regard increasing imports as a good way to extend its influence abroad. This is great news for American and European brands looking to sell to Chinese consumers online.
Big Potential, Big Risks
Building a successful e-commerce company is difficult, even within a single national market. Building one across borders — with all the logistical, operational and marketing challenges that entails — is exponentially more challenging.
Other factors outside of a startup’s control, such as global economic risks, recessions and changes in consumer preferences, could also stymie international e-commerce growth. But all these risks can be mitigated if an entrepreneur thinks carefully about all potential market dynamics.
Whether we will see the first “international Alibaba or Amazon” in the next five years remains to be seen, but several mobile commerce startups, such as Wish and Little Red Book, are well on their way to becoming multibillion-dollar companies.