The presented paper is devoted to the in-depth investigation of social commerce and the way it evolves and functions in China. The choice of the issue is stipulated by the high speed of the development of social commerce and its successful transformation from e-commerce firms. The choice of China is impacted by the increasing popularity of various platforms such as Taobao, Pinduoduo, and Xiaohongshu, and the high annual incomes generated by these companies. The main goals of the research are:
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- to define and overview the phenomenon of social commerce
- to analyze all current trends peculiar to this sector, including the major concerns, problems, and how they can be solved
- investigate successful examples of social commerce such as Amazon, eBay, Taobao, Xiaohongshu, and Pinduoduo to improve its understanding
- evaluate the peculiarities of social commerce in China
- outline business models and strategies that are utilized in the sphere
- analyze regulations of the Chinese government that are introduced to regulate the domain and monitor its further development
- to create the basis for the future investigations of this popular phenomenon
Acquired results prove that social commerce remains one of the most fast-growing modes of trade associated with the work of the Internet. It broadly employs such popular networks as Facebook, Twitter, or WeChat to promote socialization and communication between people and impact their buying behavior. In China, the three analyzed platforms, Taobao, Xiaohongshu, and Pinduoduo, have stable positions and continue to grow by attracting new clients and utilizing e-commerce, social commerce, and group buying oriented business models. However, there are some concerns associated with ineffective governmental regulations, problems with private data, frauds, and poor quality of fake goods.
The study also creates the basis for future research that can be devoted to the analysis of possible solutions to the outlined problems.
The prior goal of this research project is to investigate the widespread phenomenon of social commerce, its central features, and the way it functions in China. The central motif for the selection of this very issue for the study is the scope of this practice, the high speed of its evolution, and increasing topicality, especially in the selected area. The further growth of social commerce might transform it into one of the most effective and spread modes of trade.
The fast development of technologies can be taken as an essential prerequisite for the growth of various forms of online interactions between clients and sellers. Accepting multiple advantages associated with the rise of technologies, individuals want to save their time and enjoy the opportunity to go shopping online (Pinvidic, 2019). This factor preconditioned the emergence of such platforms like eBay, Amazon, or Ali-Express. They became able to meet the requirements mentioned above and offer a wide range of goods that can be bought, not leaving homes. The growing level of clients’ satisfaction resulted in stable revenues, and the appearance of companies functioning in similar ways, which became another essential aspect driving change and shifting priorities from tradition to online forms of trade.
There are also modern payment systems that are utilized by various online sellers, and that might guarantee the security of all transactions. They became an important step towards the popularization of multiple platforms and e-commerce across the world. Being sure in the ability to pay online, clients engaged in this sort of cooperation and contributed to its empowerment at the international level (O’Reilly, 2007). Companies acquired an opportunity to generate revenues using new payment systems that became available in almost all regions.
Justification of the Research
The choice of the given topic is preconditioned by the unprecedentedly high speed of the development of social commerce, which managed to evolve from e-commerce and acquire top positions. The given process impacts international trade and introduces several factors that should be considered and evaluated. First of all, regarding the high income and new opportunities associated with it, there is a critical need for government regulations to ensure that the further empowerment of social commerce will also support the rise of the national economy and remain controlled by the existing taxation policies. This task is solved by states in different ways, which means that there is a need for their improved understanding.
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The choice of China as the main reason for the investigation of this model of e-commerce is also justified by several factors. Today, China is taken as one of the most promising regions that offer multiple opportunities for investors, entrepreneurs, and other actors who want to generate income (Eckart, 2013; Rad & Benyoucef, 2011). Additionally, the economic sector of the country continues to grow extremely fast, and it is predicted that the given speed will preserve (Eckart, 2013).
Goals of the Project
The choice of the topic preconditions the formulation of specific research questions and goals that will help to cover the issue and guide our investigation. In such a way, the following objectives are introduced:
- to define and overview the phenomenon of social commerce
- to analyze all current trends peculiar to this sector, including the major concerns, problems, and how they can be solved
- investigate successful examples of social commerce such as Amazon, eBay, Taobao, Xiaohongshu, and Pinduoduo to improve its understanding
- evaluate the peculiarities of social commerce in China
- outline business models and strategies that are utilized in the sphere
- analyze regulations of the Chinese government that are introduced to regulate the domain and monitor its further development
- to create the basis for the future investigations of this popular phenomenon
Social Commerce Overview Definition
The term social commerce that is widely used today was firstly introduced in 2005 on Yahoo! The application Shoposphere with “pick lists” was an attempt to engage people in this sort of interaction by commenting and reviewing product lists (Wang & Zhang, 2012). In general, the term can be defined as a form of commerce that is mediated by social media and working both in online and offline environments (Wang & Zhang, 2012).
It incorporates four big domains that drive the functioning of any entity, which are technology, people, information, and society (Wang & Zhang, 2012). Interaction of these elements contributes to the appearance of an opportunity for the creation of innovative ways to cooperate and provide products and services (Gordon & Michael, 2011; Stephen & Toubia, 2010). That is why being firstly introduced in 2005, the term triggered the appearance of multiple speculations and forecasts associated with its further development and rise (Barnes-Vieyra, & Claycomb, 2001; Lee, 2001). People, or the consumer domain, were ready to accept the new ways of cooperation because of the existence of peer-generated content and multiple sources of information that could be used to discover a particular product and make a decision about its purchase.
Evolution of Social Commerce
Business transformation impacted by the growing power of e-commerce became a distinctive feature of society and global trade. Having realized multiple benefits provided by the Internet and technologies, companies entered the virtual space by overcoming barriers such as difficulties in the interaction between departments, or large firms’ size (Lee, 2001). The new mode and Web technologies provided an opportunity to overcome these obstacles and reach clients in different places. The attraction of a new form of business can be evidenced by the fact that the dollar volume of the whole U.S. e-commerce sector reached about $4,5 trillion by 2005 (Ariguzo, Mallach, & White, 2006). To some degree, it can be associated with the euphoria related to the further spread of the Internet and its impact on international relations.
The term web 2.0 was introduced to describe all factors and elements of a unique environment that was facilitated by the dominance of various forms of social commerce (Constantinides & Fountain, 2008). It was applied to sites, services, and networks that rested on the creation and generation of the content by users, instead of the previously employed forms presupposing the work of editors and specially hired content creators (O’Reilly, 2005). The radical decentralization also became one of the results of the revolution caused by social networks (Newman, Chang, Walters, & Wills, 2016). It introduced a new chapter in the development of interactions between people and social commerce.
Social web 2.0 services created a framework characterized not only by the enhanced interactions between users and their friends, colleagues, or other individuals. Moreover, it enabled people to cooperate with companies, brands, and participate in various events and social groups (Rainie & Wellman, 2012). This opportunity also meant that there was a need for the creation of detailed profiles with the description of preferences and interests to acquire updates, various offerings, and proposals from many entities across the world (Newman et al., 2016).
The social web of this generation empowered clients by providing them with the tool to impact companies, their approach to management, and the pool of products they can offer (Mazurek, 2009). That is why this new approach to the functioning of the Internet should be taken as an important step in the transformation of social commerce and it’s becoming one of the leading forces of the modern business world.
Today, social networks and commerce are inseparable as they merged under the impact of new clients’ demands and methods used by companies to manage sales. More specifically, they became two forces that create new stimuli for the development of each other and future growth. The majority of the online platforms that exist today function in terms of web 2.0 as users demand content that would be interesting for them and provide this very content (Parise & Guinan, 2008). Social web 2.0 ended the era of non-customized and non-personalized offerings that were previously used by companies that operated on the Internet (Newman et al., 2016).
Instead, a new form of interaction resting on the enhanced collaboration between users emerged and triggered radical changes in the traditional method of management (Yadav & Mahara, 2018). The ability to generate stable revenues and monitor the state of markets becomes an essential option that is available to corporations or brands that adhere to the social commerce model (Huang & Benyoucef, 2013). It offers them multiple advantages if compared with the traditional one, such as better customer service, topicality of offerings, flexibility, and topical content (Huang & Benyoucef, 2013). For this reason, social networks remain a powerful driver of the development of the business world and innovative forms of e-commerce that presuppose the broad utilization of web 2.0.
The dominance of new forms
The prevalence of new forms of cooperation also evidences a fundamental alteration in peoples’ behavior. The fact is that the popularity and growth of social media represent a shift in consumers’ thinking from individual to collaborative decisions (Diao, He, & Yuan, 2016). This process triggered multiple responses in the way companies or organizations work. For instance, about 74% of all business organizations in the USA create, support, and utilize social media applications, and 88% of them want to achieve a higher level of spending by integrating the most popular social media into their functioning and core systems (Diao et al., 2016).
Furthermore, Facebook, Amazon, and other traditionally popular and successful companies continue looking for new ways to increase their presence on social media (Diao et al., 2016). These facts evidence the direct correlation between the development of platforms used by individuals for cooperation and e-commerce (Oinas-Kukkonen, Lyytinen, & Yoo, 2010; Rowley & Keegan, 2019). Additionally, more investment in social media advertising is observed as about $8,2 billion are devoted to this sort of activity, and the number continues to grow (Diao et al., 2016). The given numbers prove that marketers start to accept and recognize the power of social commerce and networks that could be used to enhance customer service and engage in better cooperation with them.
The refusal from previous e-commerce forms and the popularity of new ones can also be explained by the fact that it was not able to satisfy all the needs of clients. The existence of a rich choice and multiple offerings turned out to be not an advantage but a confusing factor for individuals (Kim & Srivastava, 2007). There were not able to compare the quality and price of demanded products and had to look for the information about a certain kind of good they needed (Diao et al., 2016). At the same time, the adherence to the product-centered model was ineffective when speaking about diversity peculiar to various customers (Diao et al., 2016).
The level of dissatisfaction grew, especially if expectations connected to a certain product failed. Thus, the lack of trust became a fatal strike to the future development of e-commerce and its ability to fulfill current needs (Lamb, Hair, & McDaniel, 2013). The shift to social networks as the platform for trade became apparent as it provided people with an opportunity to communicate with more experienced users and make a decision about the purchase (Laudon & Traver, 2014). Companies and entrepreneurs also realized the idea that social networks consisting of numerous individuals who generate content and provide limitless access to information are the future of the sphere.
Amazon can be considered one of the most successful companies working in the given domain and generating stable revenue every year. Today, it is recognized as the largest Internet company by revenue in the world (Chaffey, 2018). The key factor of the overwhelming success of the brand is the correct choice of the strategy, monitoring of the market, and the ability to meet existing clients’ demands. Amazon was founded by a single person, Jeff Bezos, on July 5, 1994. The main reason for its foundation served that existing forecasts about the future of the Internet and web commerce with the planned growth of about 2,300% (Shah, 2018).
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Having recognized the power and growing popularity of the given paradigm, Bezos launched an online book store that proposed to customers a wide range of the most popular offerings. Because of the growing popularity of the given model along with the multiple advantages that became available to buyers, the firm turned out to be a success. During the first two months of its existence, Bezos managed to sold books to 50 states and about 45 countries (Feedvisor, 2019).
With the given popularity, Amazon also started to generate about $20,000 per week (Kirubakaran, Keong, Ching, & Joshi, 2016). The positive outcomes peculiar to the first stages of the company’s evolution proved the effectiveness of the selected approach and its popularity among individuals all over the world. The initial investments in the project comprised about $250,000 provided by Bezos’ parents; however, they were soon compensated (Shah, 2018).
The example shows that e-commerce became one of the critical factors for the rapid development of Amazon. In 1999 the company launched its publishing department with the primary idea to work in the sector (Donici, Maha, Ignat, & Maha, 2012). Furthermore, it started to sell other products online, which transformed it into one of the most influential representatives of e-commerce. In the 2010s, the corporation became one of the world’s most powerful companies combining both online and physical presence. Being firstly created as an e-commerce brand that offered a certain kind of goods to its clients, Amazon soon was restructured and reorganized.
One of the critical features of the modern corporation is its adherence to the framework offered by e- and social commerce. For instance, Amazon Prime is a service that promises subscribers multiple advantages and opportunities for socialization, communication, and experience sharing (Investopedia, 2019). Correctly realizing the prevailing and the most dominant tendencies peculiar to the market, the brand’s management guarantees that all clients will enjoy the benefits of web 2.0 by participating in content-making and offering their ideas regarding particular goods.
In such a way, Amazon can be considered one of the most successful examples of how e-commerce can serve as the basis for the development and rise of a small business company. The brand has its platform and site for sales that combine multiple practical solutions for improved cooperation with clients. Considering the current success of the corporation, it is possible to say that it creates modern social commerce by introducing the features that are followed by other companies.
Another company that can be taken as a leading brand employing the basic ideas of e-commerce and benefits from its use is an American multinational corporation eBay. At the moment, it is also taken as a potent player in the market with the high potential for further development and growth. eBay was founded by Pierre Omidyar in 1995 as a part of his site with the primary goal to sell some things that are not needed at the moment (Shah, 2018). Several factors ensured the success of the given startup.
First, as it has already been stated, e-commerce became popular because of the opportunity to buy goods using a platform that is convenient at the moment, and that can offer a product at a reasonable price. eBay, founded as a service to sell various things to other people, met this requirement. Internet users became able to look through multiple offerings and, which is more important, discuss them with sellers to acquire additional information and make a final decision. It became one of the strengths of the startup as the need for information peculiar to all customers was satisfied completely (“How does eBay make money?” n.d.). At the same time, they were provided a significant level of independence as there was no need for buying items from a particular seller.
Another feature was the creation of a user-friendly interface to look for the required services or goods or connect with other individuals. In such a way, eBay managed to introduce a platform for successful cooperation between individuals, which is a key factor in the success of any online company. The further increase in the number of clients preconditioned the need for diversification, and in the 2000s, eBay started to offer almost all saleable items to its users (“How does eBay make money?” n.d.). The given diversity became another factor preconditioning the fast evolution of the brand.
The company also managed to buy PayPal as a payment system that provides people on the Internet with an opportunity to perform safe transactions and enjoy this convenient way of interaction. The given purchase became a strategically important step for the evolution of this e-commerce corporation. It increased the speed of communication between actors using the platform and provided them with additional guarantees of safety, which was critical regarding the growing level of rivalry in the given sector (Shah, 2018). Altogether, eBay was successful in considering current trends on the Internet and the creation of its unique proposal that attracted clients by its convenience, simplicity, and possibility to discuss various items.
Features of Social Commerce
Resting on the information provided above, and on the successful examples offered in the previous sections, it is possible to distinguish several fundamental features and advantages of social commerce that contribute to the rise of its popularity. First of all, alternatively to old forms of online sales, this one offers buyers an opportunity to participate in the process by providing their feedback, recommendations, and creating the content (O’Leary, 2019).
They can decide to purchase an item not using the description, but also by discussing it with their friends or other users. It also shows another critical feature of social commerce, which is the extensive use of social networks as a core component of a new paradigm of relations between companies and customers. The power of this tool, along with the availability of critical information about individuals, their preferences, and choices, helps sellers to acquire a high level of flexibility and offer most topical goods that will be appreciated by the targeted audience.
Another significant feature is the accessibility of online platforms due to the wide use of technologies and the appearance of mobile phones. Users might make an order or consult with other people in one touch, which introduces multiple shifts in the way companies work and cooperate and their clients (Hussey, 2019). Finally, another significant feature or advantage is the existence of many opportunities for further development and empowerment. The technologies will continue to evolve, and new forms of cooperation with clients will emerge. It means that social commerce can be taken as one of the possible modes of global trade that will shape interactions in the next several decades.
Concerns of Social Commerce
The first and the most important concern associated with the further empowerment of social commerce are multiple security issues that arise when using various social networks. Following surveys conducted among broad populations, it remains the primary barrier to adoption of this mode as 71% of respondents have fears about leaks of information, and 65% do not want any interference in their privacy (Hussey, 2019). Non-users of social commerce are sure that the so-called Big Data is a serious threat to their security as multiple agencies, companies, or other entrepreneurs acquire an opportunity to collect information that will be later used to create new offerings (Hussey, 2019). It remains a significant problem slowing down the evolution of the sphere and demanding serious attention.
Second, even though social commerce is on the rise, and Amazon, eBay, Taobao, and other similar services generate stable incomes, the target audience is still slow to adopt this new mode of interaction (Hussey, 2019). Networks are continuously designing applications and introduce new features to reconsider this situation and make all processes easier; however, in 2018, 82% of individuals have not used such options as the buy button to have a product directly from a site (Diao et al., 2016). These aspects are taken as the fundamental problems of social commerce that should be solved to guarantee its further evolution.
The possible resolutions for these problems include the introduction of clear, understandable, and comprehensive security privacy policies for customers to understand them. It will help to manage their fears and minimize the level of distrust peculiar to some groups. Additionally, there is an essential need for the protection of individuals’ purchases which can be ensured by devoting more resources to the consideration of their claims, and monitoring of every order (Diao et al., 2016). In general, concerns associated with data and its privacy are not new, and they remain topical for the modern digitalized world characterized by the availability of information.
Regarding the fact that social commerce steps aside from traditional ways of generation of value and cooperation with clients, the business models utilized in the sphere are also different. Thus, the given term is used to determine how any firm creates value and delivers it to clients, and how their payments are converted into resources that are used to stimulate the further evolution of the company and its ability to make money and compete with the closest rivals (Diao et al., 2016). The traditional approaches presupposed complex supply chains and direct cooperation with the target audience to ensure that products will be sold.
However, the increased topicality of social networks and the shift to e-, m-, and social commerce preconditioned the appearance of new ones. Their improved understanding can be achieved by using a specific framework that includes its basic components such as value proposition, revenue source, capability, and sustainability (Diao et al., 2015).
As one can see from Table 1, as against previous forms used in e-commerce, in social ones, there are four new forms of value creation and proposing that are part of business models utilized by various platforms. First, there is a focus on the improvement of services for existing customers and interaction with clients to affect them more effectively. The ability to communicate in real-time eliminates such factors as distance and helps to achieve new levels of effectiveness (Hajli, 2014).
Second, there are socially oriented models that create value by the promotion of commercial activities by the interest communities. It becomes possible because of the integration of business elements with the existing social networks as clients can share shopping experiences in communities or groups established and managed by brands that want to enhance brand loyalty (Diao et al., 2016). Participation in these very groups can guaranty various advantages, such as lower costs for products or new proposals. Third, social network-oriented models use online friend ties to assist buyers in their decision-making and eliminating trust issues that might arise in the process of shopping (Diao et al., 2016).
It helps to attract new users and guarantee their interest in various products. Finally, the fourth mode is the group buying commerce that offers multiple benefits for traders, groups, and customers. The first cohort acquires an opportunity to promote better consumption and increase revenue; for the second group, it ensures that new clients will be attracted and become active users; for customers, there is an opportunity to discuss existing options and select the most appropriate one.
As for the revenue source, the offered business models of social commerce remain similar, and there are no critical differences among existing types. E-commerce oriented model presupposes the existence of capturing commissions that are paid on a certain volume of the transaction from a website (Zhou, Zhang, & Zimmerman, 2013). The given approach remains the most popular option for the majority of existing platforms as it combines simplicity and effectiveness. Another form is a subscription model presupposing that clients pay a fixed price for the participation or use of an offered service (Diao et al., 2016).
It guarantees specific support and availability of information that can be used to increase sales. The given model is also used by various networks that are focused on the provision of unique offerings to its clients. As for the third model, social commerce brands suggest an opportunity for other organizations to use their platforms for advertising and promotion of their products, such as Facebook, Google, Yahoo! (Diao et al., 2016).
This model is the most popular today as it guarantees stable advertisement fees that help to continue further evolution. Finally, a sales model is meaning that some groups of websites might split revenues with partners to guarantee that new clients will be acquired (Diao et al., 2016). It also contributes to the development of more effective collaboration tools and the further evolution of social trade.
As for the sustainability and options for future development, social commerce business models differ because of various goals and approaches. For instance, e-commerce oriented platforms should be ready to cultivate a specific climate on the Internet to ensure that the desired constructs will evolve and provide opportunities for expansion and the increase in sales (Diao et al., 2016). The introduction of social components helps to support clients and provide them with new opportunities. Group buying social commerce forms mainly focus on the use of various applications to create user groups that will discuss proposals and enjoy the existing benefits of participation (Diao et al., 2016). As for the interest-oriented modes, they provide clients with an opportunity to buy something resting on collective intelligence and social activities (Diao et al., 2016).
Individuals become a part of the global discourse that attracts them and provides them with goods that might be attractive to them (Diao et al., 2016). In such a way, the given models differ because of the goals and approaches used as the basis for the evolution, but they all contribute to improved sustainability.
Generally, resting on these business models and their core components, it is possible to outline four broad categories of social commerce that are relevant today:e-commerce oriented social commerce
- social network-oriented social commerce
- group buying-oriented social commerce
- interest-oriented social commerce
The first one, e-commerce oriented social commerce, such as Amazon, or Taobao, focuses on direct sales from web sites with the integration of social components such as the discussion with clients and the creation of a specific community to increase clients’ loyalty and acquire the stable source of revenue.
Interest-oriented modes are specially created platforms that employ the topic community formed around specific demands, attractions, common views, and requirements (Diao et al., 2016). The main characteristic of these very sites is that potential clients can read recommendations provided by other users, share their experiences, find the desired information, discuss it, and make informed decisions about the purchase of a particular item (Diao et al., 2016). These platforms also guarantee a connection with e-commerce sellers and suppliers to acquire benefits from the promotion of clients and their readiness to cooperate with a particular brand.
As it is seen from the name, the given platforms broadly utilize the growing power of social networks to attract clients and make them cooperate. They mainly explore Facebook and Twitter in the European region and Wechat in China. Multiple advantages come from this sort of interaction, as systems continue to grow and attract new and new users. Moreover, real and online friends might encourage individuals to make particular products or make a certain purchasing decision. There are always multiple options for clients to consult with the social community and ask for a piece of advice to satisfy their needs (Diao et al., 2016). The given method is becoming more and more popular because of the tendency towards the increased participation of users in the online sector.
Finally, the last mode of social commerce is the group-oriented one. It presupposes that people organize various group activities in a few days to shape their buying behavior. A specific Internet community is offered a certain type of product regarding the focus and their current preferences. Every successful purchase involves a minimum number of buyers that should be affected to guarantee the further development of those and the generation of stable income. Due to the increased power of social networks and technologies that provide new chances to both clients and businesses, the given mode promotes more deals and provides additional information about available orders. All these categories are successful enough in the modern environment to be employed by various companies to generate income and improve their cooperation with clients.
Social Commerce in China
The second part of the paper is devoted to the in-depth investigation of the trend in China. The selection of the region is preconditioned by the extremely high speed of e-commerce and social commerce in the country. The market size of this very sector is expected to reach about 2,7 trillion yuan ($302 billion) in 2018, and continue its growth increasing by 63,2% year-year because the utilization of mobile technologies and access to social media via the Internet is becoming more and more popular in China (Feifei, 2019a).
The given numbers evidence that this form of cooperation becomes a potent factor for the development of the Chinese economy that should be considered during its analysis (Crampton, 2011). Additionally, the recent reports state that sales revenue from various social commerce platforms that become more topical in the region accounts for 20% of the whole online retail market of the state (Feifei, 2019b). By the end of 2020, specialists forecast that this number will achieve 30%, which becomes a serious tendency of the region.
Another aspect that should be considered when researching the environment that promotes the fast rise of social commerce mentioned above is the gradual increase in the number of people who are engaged in the sector or affected by it. In 2019, 48.01 million individuals can be associated with various forms of e-commerce in China (Fan & Backaler, 2019). It means that every year, the duplication of adherers of this mode can be noted (58.3% per year) (Feifei, 2019).
The given speed will preserve during the following several years because of the proliferation of mobile technologies and tablets that replace computers and provide new opportunities to engage in online shopping activities (Fan & Backaler, 2019). Due to the combination of all these factors, social commerce becomes the most popular mode of e-commerce that is used by people in every region of China (Qu, 2019). Gradually it becomes an integral part of the digital retailing industry that helps to sell goods and generate stable income (Loven, 2019). In this regard, the growing interest in the framework, along with the creation of beneficial conditions and a powerful economy, creates conditions favorable for the future transformation of the sector and the involvement of new players and mass populations in Chinese social commerce.
Taobao can be considered one of the examples of the popularity of social commerce in China and its growth. It is the most successful and famous platform for online shopping launched in the country in 2003. In two years, it became the leader of the sector because of the combination of a set of effective strategies and wise use of existing rends. It is often taken as the Chinese equivalent of Amazon because of the size of the firm, its impact on the market, and opportunities for further rise (Nitkoski, 2019).
One of the critical factors preconditioning the fast growth of the service was the absence of the local analog of this sort of trade and the complexity to enter a distribution channel in China for foreign brands (E-commerce China, 2018). In such a way, Taobao became a potent option to work in China and improve its physical presence by distributing items via an online store.
The business model employed by the firm proves its effectiveness as 54 million new users appear every year (“Traffic overview,” n.d.). In 2013, about 620 million internet users in China had the experience of working with Taobao and buying some goods here. The main goal of this online store is the provision of the opportunity to bypass traditional barriers of pints of sale and create the platform for the cooperation of millions of Chinese buyers, sellers, and shops communicating within the consumer-to-consumer model (Liu & Jitphrasong, 2016). The system allows various purchases between individuals, firms, and other actors. Brands might open their shops using the website if they meet the current requirements and act within the existing legal field. This factor guarantees that the system will work productively and provide clients with all they need.
Taobao also managed to achieve success due to a perfect positioning that provided it with an opportunity to compete with other brands and attract a wide target population. This, as against other shopping websites focused on white-collar workers who have a high level of income, which is not typical for the majority of people in China, Taobao started to work with fashionable younger females as the most loyal clients (Liu & Jitphrasong, 2016).
It turned to be a great success because of the appearance of multiple opportunities for further development. First, this niche was not previously occupied by similar brands that considered high income a guaranty of strong buying power and stable income (Liu & Jitphrasong, 2016). On the contrary, the research conducted by Taobao revealed that a bigger part of this platform’s users and buyers have lower than 5000-yuan annual income, which is taken as low in the country (Liu & Jitphrasong, 2016). For this reason, target positioning in the low-income stage created the basis for the successful entrance and the chance to further rise.
It shows that because of wise management and the correct understanding of current brands, Taobao managed to avoid competition with such giants as eBay or Amazon. Today, the Internet becomes available to wide populations, including communities with middle or low income. It means that they should be taken as potential customers. For this reason, the platform occupied a market share of 90% of eBay and demonstrated 800% of annual growth (Liu & Jitphrasong, 2016).
Furthermore, it accounted for an 80% share of the customer-to-customer market and pushed out other European giants from the Chinese market. The positioning chosen by Taobao became more suitable for the state with its unique characteristics of the population. People are attracted by new proposals and reasonable prices that can help them to economize and engage in various e-commerce activities that presuppose communication, experience sharing, and the ability to select among a wide variety of products. Taobao transformed itself into a brand with outstanding perspectives for future evolution and multiple options for the rise.
Another factor preconditioning the overall success of the brand was the establishment of cooperation with banks. On October 27, 2003, Taobao and the Zhejiang department of the Industrial and Commercial Bank of China (ICBC) engaged in a partnership by signing the agreement needed to protect all users from frauds and other maleficent actions (Lixia & Xun, 2009). It became a significant step towards the improvement of customer service as clients acquired guarantees that they would be protected, and all their transactions will be secured. Bank became that intermediary in the given scheme and served as the guarantor for the national credit guarantee cooperation (Lixia & Xun, 2009). It increased the confidence of users and attracted them to the site.
The investigation of the main features of the target audience also revealed two fundamental characteristics of buyers in China. The idea is that they first see goods and then cut the price as they are not sure about the online payment system (“Analysis of Taobao’s business strategies,” 2008). In such a way, Taobao created its two vital services which are Taobao WangWang and Alipay (Richards & Li., 2018). The first one provided all clients with a platform to communicate and discuss the price, quality, and desired features of a particular item (Richards & Li., 2018). Moreover, all individuals can take part in high-quality activities that impact all members (Richards & Li., 2018).
Using Wangwang, all clients can create the discussion topic or enter into a dispute related to the price of goods, their qualities, and the level of trust peculiar to a certain seller. It contributes to the significant growth of confidence between all parties engaged in the work of Taobao and their decision-making.
For Chinese people, the ability to collaborate and communicate is the critical factor that preconditions their choices and the desire to buy a particular thing. Investigations show that due to the strong bonds between people, internet users also prefer to use services that are recommended by their friends (Lixia & Xun, 2009). For this reason, the introduction of Wangwang and its further development add elements of social commerce that are fundamental for the future evolution of e-commerce in China, and it’s becoming more attractive to all users. Because of the combination of this tool and effective strategies, Taobao manages to hold its leading positions in the segment.
As for Alipay, its main idea is to ensure the security of all transactions and eliminate customers’ distrust and fears associated with this activity (CIW Team, 2019). It became possible due to the cooperation with ICBC, Agriculture Bank of China, and China Construction Bank (Richards & Li., 2018). As it has already been stated, the safety of money is a core component that is demanded to attract new clients and make them use a certain platform. Considering the unique positioning of Taobao, middle and low-income individuals are more concerned about the ability of the used site to protect their transactions and guarantee that the requested goods will be delivered to them.
In such a way, the creation and introduction of Alipay became a critical factor fostering the further evolution of e-commerce in the region and the improvement of its image among potential customers (Lixia & Xun, 2009). The given pattern proved its effectiveness as, since the implementation of Alipay in the work of Taobao, the number of clients has grown significantly, and the problems with transactions have reduced considerably. Because of the utilization of this scheme, Taobao becomes a credit intermediary that saves money before the final confirmation:
The given pattern guarantees the success of all operations and attracts clients by its simplicity and effectiveness.
Finally, there is another fundamental aspect of any e-commerce platform that will serve as the main attraction to clients. The fact is that the majority of users want to get their goods as soon as it is possible. For this reason, the construction of a standardized logistics system that can help to solve the problem with delivery is a core component of any social commerce brand in China. At the moment, there is a lack of a complete and independent distribution system that can be used by various platforms (Lixia & Xun, 2009).
It also means that the quality of logistics can hardly be controlled, and the probability of fraud increases dramatically. As for Taobao, it also experienced similar problems that became a bottleneck for its further development. However, to ensure that the level of clients’ satisfaction will continue to grow, the platform tries to create a high credibility, independent, and powerful logistics union that incorporates several brands and meet the requirements to the quality of delivery.
The integration of multiple logistics resources can also help to control the market and work more effectively, which is critical in terms of fierce rivalry and competition. Taobao is now focused on cooperation with Yuantong Express, ZhaiJisong, and other logistics companies that work together, attempting the creation of an effective system that will help to avoid the problems mentioned above (Lixia & Xun, 2009). Additionally, the given approach might help minimize the number of frauds or corruption of various goods during their delivery to clients.
Additionally, Taobao tries to create a specific logistics system and software that provides clients with an opportunity to trace their orders and remain confident in delivery companies. The given information system should also destroy barriers between various departments and problematic relations between brands belonging to the same platform. In such a way, Taobao’s efforts contribute to the increase of clients’ level of satisfaction and improvement of the image of e-commerce in the state, which is essential for the further evolution of this mode of trade (Lixia & Xun, 2009). Due to the all factors mentioned above, Taobao managed to evolve fast and became a potent actor in the e-commerce market.
Xiaohongshu, or Little Red Book, or simply RED, is another brand that is on the rise in China now. Following its description, the service is a lifestyle-sharing platform founded in 2013 by Mao Wenchao and Qu Fang in 2013 (Qu, 2019). The success of the project is evidenced by the fact that in 2019, there are 200 million registered users who are presented by the mostly young generation (Qu, 2019). The original idea of the platform was to provide individuals an opportunity to share their experiences, videos, photos, thoughts about fashion, beauty, travels, and discuss many issues (Sentance, 2018a). In such a way, it can be considered a social network that affects broad populations. At the moment, it is one of the fastest-growing mobile platforms, which doubles the number of its users every year (Sentance, 2018b).
It also has its unique demographics as the majority of individuals registered in Xiaohongshu are females from the first and second-tier cities of China-born after 1995 (70%) (Sentance, 2018a). The given composition introduces specific peculiarities of the platform’s functioning.
The fact is that the bigger part of requests associated with traveling was also related to shopping activities, which is considered one of the main goals of any journey. The application was also used by people to ask for shopping recommendations even if they stayed at home. It provided the brand with the opportunity to introduce new online shopping features and enter the Chinese e-commerce market. This decision turned out to be a success as in 2016, RED managed to generate $200 million in annual sales, which created the basis for its further rise (Sentance, 2018b). It also means that Xiaohongshu transformed into a social commerce firm providing multiple opportunities both to buyers and sellers.
At the moment, it can be considered a combination of Instagram and Pinterest, which are taken as popular and successful platforms attracting millions of users globally and providing multiple opportunities for cooperation. People using RED can also save posts, images they like, photos of goods, create their messages to share their ideas, and interact with their friends or members of the community. This element of social interaction becomes a vital factor that attracts users to the site and provides them with multiple benefits. First of all, 90% of all buyers prefer to find and select goods resting on their reputation and feedback (Wong, Hallanan, & Li, 2018).
It means that RED becomes a critically important platform that offers its users an opportunity to engage in the discussion, which is vital for decision making and other processes. Instead of using search engines to read about the desired good and look through various sites, clients can open their mobile applications and look for the demanded product. This ability to save time and convenience is highly appreciated by clients who contribute to the evolution of the platform.
In such a way, the success of this platform is often associated with its content-driven nature. In other words, when a person hears about an exciting brand, product, or service, he/she might simply check it out using RED. This feature becomes essential for the ability to survive and compete in terms of severe rivalry. As it has been previously stated, instead of using Google or its alternative and spending much time, individuals read reviews on the platform and decide on its purchase (Wong et al., 2018). Its availability impacts their readiness to pay using the shopping application and the desire to share information about the interesting item (Wong et al., 2018). The content-driven nature of the Little Red Book facilitates the gradual increase of its popularity and improvement of its image among potential clients, which is critical for any e-commerce platform.
The critical factor of success is the existence of so-called shopping notes that help clients to share their positive feelings and discuss their plans regarding new items. These messages provide details about every aspect of a product’s experience, its qualities, and main characteristics, instead of focusing on the purchase and delivery, which is typical for other e-commerce sites (Wong et al., 2018). This model became especially popular among clients as they acquired an opportunity to find information about any good they want and look for the options convenient for them using the same site. The existence of an engaged community and trustworthy, detailed reviews for various products became vital factors for the rise of the application.
Additionally, the offered application is non-commercial, which increases clients’ loyalty to it. There are no official brands’ accounts, annoying advertising, or commercial posts of other firms (Liu, 2018). That is why all Xiaohongshu’s users can trust recommendations provided by other people in their notes as they are not interested in selling a particular good (Liu, 2018). Statistics show that 8% of people order a certain item using the app after reading these very notes (Liu, 2018). Moreover, the link to the good can be created only if a company, or seller, has a shop on RED with no external links allowed. It guarantees that users will continue using the service in the future.
Xiaohongshu also succeeded in the promotion of the application by attracting celebrities and famous people. It turned out to be a potent strategy as the majority of users follow notes or pages of their idols and adhere to their recommendations. In such a way, the introduction of media stars’ opinions in the work of the service contributed to the gradual rise of its popularity and the increased level of people’s trust in it. The potency of this solution is also evidenced by the fact that the majority of goods that are mentioned by celebrities in their notes are sold out (Qu, 2019). For this reason, RED manages to combine elements of social communication and the ability to engage in discussion with a person who can be trusted, which is fundamental for Chinese consumers, and ensure that they will preserve the high level of interest in the site.
Another strength of RED that attracts brands is the existence of promising options for entering the Chinese market and the empowerment of various firms’ positions. At the moment, foreign companies can improve their cooperation with clients in China by engaging in communication with them using this very social platform (Sentance, 2018a). It helps to answer the majority of problems that might appear during the collaboration and provide potential buyers with the information they need. Additionally, RED can be utilized as a cross-border e-commerce marketplace that offers limitless opportunities for corporations to sell their products and generate revenue (Sentance, 2018a).
Because China is a fast-growing region with a robust economy, the majority of brands utilize this chance and start to use Xiaohongshu to empower their online presence and offer new goods to individuals. Due to the existence of this offering, the platform remains attractive for new brands that start to cooperate with it and contribute to its further growth.
Finally, Xiaohongshu monitors the market and the work of its rivals to be ready to introduce appropriate changes that will be able to attract new clients and guarantee that they will continue using its services. In June 2019, RED has launched its live-streaming feature that is designed to improve cooperation between clients and assist them in sharing their feelings and emotions related to a particular event, action, or produced (Qu, 2019). The given service lays the ground for the creation of a complex and multi-layered shopping experience that can be characterized as a mixture of Facebook Live, Periscope, Instagram, or YouTube tutorials and guides (Qu, 2019).
It is expected that with the help of a live-streaming service, more clients will make purchases on the platform because of its convenience. Individuals become able to ask questions in a live broadcast and get their answers immediately, which has a positive impact on their decision-making and buying preferences. The employment of the given service also contributes to the transformation of RED from an e-commerce to social commerce brand that focuses on the enhanced communication at all levels.
In such a way, being a customer-centric model, Little Red Book can be taken as an example of the successful social network’s transformation into social commerce brand with multiple perspectives for further evolution. A combination of the active business model, the increased level of clients’ loyalty, and trust create the ground for new opportunities. Moreover, the application always changes to meet new dominant requirements, and its flexibility helps to grow and provide individuals with new offerings that might be interesting to them. The content-driven nature of the service helps to create an environment that is appreciated by customers as they acquire an opportunity to save time and find the information they need in one click. That is why there are multiple opportunities for further growth of RED and its empowerment.
Another influential player in the Chinese e-commerce market is Pinduoduo that shows a high speed of its development and an increase in popularity. The firm was founded in 2015 by Colin Huang in Shanghai (Fung Business Intelligence, 2018). The primary idea of the platform is to offer low price group buying products for various categories of clients who might be interested in them. It can also be considered a third-party buying platform that offers a wide range of products to users, including apparel, bags, clothes, food, electronic appliances, devices, furniture, cosmetics, and items for personal care (Fung Business Intelligence, 2018).
A distinctive feature of this service is that individual merchants, entrepreneurs, and suppliers can provide their products to Pinduoduo to find new ways to offer them to people and sell them (Peng et al., 2019). The company is also focused on selling off-season products of various brands, new popular offerings, and unbranded items that might be attractive to clients (Fung Business Intelligence, 2018). The given approach becomes one of the factors preconditioning the overall success of the platform and opportunities for its rise.
Utilizing a group-buying business model, Pinduoduo managed to attract clients from lower-tier cities and rural markets, which became an essential element of success (Deagon, 2019b). As against RED, which is focused on the high-tier towns of China, this service occupies a niche that was previously uncovered by similar brands. Customers can find products with low or cheaper price on the site, which meets their expectations and contribute to the further rise of the firm (Fung Business Intelligence, 2018). It becomes possible mainly due to the team purchase model that allows clients to form groups and buy demanded goods.
An individual can start a new process by placing an order with the initial payment and share information about it using WeChat (Tung & Zhang, 2018). The deal will be made if the desired number of buyers will show their interest and agree to share the price. The scheme also provides an opportunity to get a product for free if there are many friends in the pool of buyers (Chadha, 2019). In general, the following model is used in Pinduoduo:
The given pattern provides clients with new opportunities for cooperation and evidence that the site becomes a powerful representative of the social commerce sphere that rests on the discussion between potential buyers and their active participation in debates and decision-making. Additionally, Pinduoduo broadly employs WeChat as the application critical for its functioning. The bigger part of all traffic associated with the work of the company comes from this platform that provides users with an opportunity to engage in cooperation and communication activities (Graziani, 2018). For this reason, there is a critical need for further improvement of the elements of socialization to achieve new levels of performance.
It should also be stated that Pinduoduo is characterized by radically different preferences of its users if compare with Taobao or RED. By the statistics, 93,1% of all these platforms’ users find interesting or demanded items through keyword search, which remains one of the most convenient modes for them (Graziani, 2018). At the same time, individuals who employ PDD as the platform for buying goods online are more interested in searching for special deals and offerings that are available every day (Graziani, 2018). It helps them to economize money and acquire multiple benefits from the use of the given service.
The company correctly realizes this difference in behaviors and mentalities and introduces a specific approach to the promotion of products. The AI managing the work of the platform pushes the desired and right products to the right users resting on the popularity, and purchase history (Graziani, 2018). The given method becomes an effective strategy that helps to create interest groups and engage in communication or other activities to decrease the price and buy a product.
Due to the adherence to this scheme, a specific meritocratic system for products is created. Excellent and high-quality products that are demanded by clients and that are given much attention are usually on the top of various lists and rankings, even if they do not belong to multiple brands or stores (Graziani, 2018). On the contrary, extremely fashionable items that are associated with well-known companies might remain unnoticed because of the absence of qualities that will be appreciated by users (Graziani, 2018).
The observation of this pattern is a core component of PDD’s functioning as it ensures that clients will be offered items that are appreciated by other group members and will make a purchase. At the same time, it empowers the social element as per this model, individuals form content and lists of the most popular goods by themselves, instead of looking through compilation of items that are useless but have strong support from companies or advertising agencies. The majority of people in this segment appreciate the given approach and report their satisfaction with the strategy utilized by PDD.
PDD also correctly realizes the need for the promotion of the service and elimination of safety concerns that might be related to e-commerce and its evolution in terms of fierce rivalry. Thus, responding to a wave of accusations in fraud and distribution of fake, or low-quality goods, Pinduoduo conducted its investigation to discover firms that might not observe the existing rules. As a result, about 36 businesses were reported because of the infringement of copyright rules, and about 4,3 million listings were removed to protect clients (Fung Business Intelligence, 2018).
This step becomes a vital strategic solution demonstrating that the brand takes care of its clients and tries to create a safe and protected environment that would encourage people to engage in various forms of online cooperation. PDD also emphasized its intention to keep monitoring all existing offerings with the pivotal aim to minimize the number of threats and challenges that might deteriorate the image of the company or be stressful for its customers.
The tendency towards the appearance of numerous attempts to use the platform for some illegal activities proves the growing popularity of the platform and, at the same time, demonstrates the existence of a serious concern peculiar to the whole sector in China. PDD tries to reconsider its work with the primary goal to preserve the high level of clients’ loyalty as their satisfaction remains in the direct correlation with safety guarantees the company can provide to its clients.
PDD also recognizes the need for the promotion of the service and its further development. For this reason, it introduces a set of activities designed especially for clients with the primary goal to increase their satisfaction levels and guarantee that they will have positive associations related to the brand. For instance, it uses cash red envelopes to encourage users who invite friends and make them use the service (Graziani, 2018). The reward might vary and count for 5-20 yuan, which might be a pleasant gift. Additionally, PDD creates its leaderboard with the list of users who earned the biggest sum by inviting new people (Graziani, 2018).
At the moment, the most successful person managed to acquire 2,940 yuan, sharing invitations with 290 friends (Graziani, 2018). Because the majority of mobile phone users in China have thousands of friends in WeChat, they become attracted by the promise to earn significant sums of money by simply inviting all people to their contact list. The given strategy becomes extremely useful in promoting PDD and the fast increase in the number of its users, which also contributes to the popularization of the platform and its empowerment. Moreover, because group purchases are taken as the main activity, this method becomes even more practical as it helps to form new communities that will try to decrease the price for a particular item and contribute to the future growth of PDD.
PDD also tries to remain in touch with clients through the use of Customer Service Messages. These are flexible and customizable messages that are usually sent 48 hours after an individual interacted with a particular account or followed it (Graziani, 2018). Different from other similar services, Pinduodue works more effectively as it uses these services to present new offerings to a user and contribute to the further rise of the service.
They are customized and designed regarding the current preferences of a person and can become a really helpful source of information that shows the existing discounts, group purchases, and opportunities for economizing. That is why the employment of Customer Service Messages becomes another potent tool that helps the platform to occupy its niche and remain popular among clients belonging to a certain target population.
PDD’s revenues reached about 1,7 billion yuan in 2017, which helped the company to become the third-largest representative of the e-commerce segment in China (Deagon, 2019a). Additionally, it engaged in cooperation with other companies to increase flexibility and suggest new possibilities for users. For instance, Tencent offers PDD-specific access points on the interface of its WeChat Pay to integrate effective payment solutions and protect the majority of transactions performed by clients (Fung Business Intelligence, 2018). The given agreement stimulates the further evolution of the brand and supports its growing popularity in China.
Altogether, combining the elements of social and e-commerce, the platform manages to evolve and generate stable revenues by attracting new clients every year and introducing new functions that will be appreciated by the target audience and individuals who look for group buying and lower prices.
Social Commerce Platforms
As it becomes clear from the examples provided above, the three most fast-growing brands Taobao, RED, and PDD employ social elements in their functioning with the primary goal to achieve higher levels of cooperation with clients and provide them with an opportunity to discuss various goods, share experiences, and emotions. To a greater degree, it became possible due to the rise of mobile platforms for social commerce that provide limitless opportunities for collaboration and development (Jahanshahi, Mirzaie, & Asadollahi, 2011). The importance and popularity of social trade in China can be explained by several factors.
First, as it has already been stated, the given segment is on the rise in the country. The proliferation of mobile phone use reaches its record showings as 788 million people are now considered mobile users (McCarthy, 2018). It means that there is an extremely wide population group that can be affected by companies that shift their priorities to e-commerce activities.
Moreover, 57,5% of citizens are active Internet users who have constant access to various sites and platforms (McCarthy, 2018). For such individuals, mobile phones become a tool that enables them with an opportunity to remain informed about the majority of events and fresh offerings. These numbers also evidence the high effectiveness of the establishment of network coverage in China, where mobile technology has managed to turn into an indispensable facet of the economic and everyday life of people and the state (McCarthy, 2018). Statistics also prove that smartphones and Internet users actively use applications for sharing bikes, booking tickets, food delivery, taxi, and trade (Ngai & Gunasekaran, 2007).
In such a way, the bigger part of the population is ready to use their mobile devices for various transactions or other activities presupposing purchases of goods or services. Mobile telephony provides a platform for the penetration of the Internet and various services that offer an opportunity to make a transaction with a particular monetary value and acquire the desired good (Barnes, 2002). Due to the combination of such aspects as effectiveness, convenience, and simplicity, this mode of interaction stipulated a significant growth in Chinese e-commerce and became another important step in the development of social forms of communication.
For instance, such an application as WeChat is nowadays one of the critical aspects of any significant e-commerce company in China. It is developed for smartphone users to communicate using access to the Internet and sent messages to each other (Liao, 2019). This social component is widely used by Taobao, PPD, or RED in their work as clients might form their interest groups or engage in cooperation via this very app.
The special extension of this very program called Shopping List provides users with an opportunity to manage orders and shopping charts, which is also essential for social commerce (Lo & Tong, 2018; Pan, 2019). Furthermore, a new interactive module helps to recommend various items and socialize to discuss them. For this reason, WeChat becomes a fundamental platform for the rise of online forms of trade in China.
Finally, at the moment, China is known as one of the leading manufacturers of mobile devices with Xiaomi holding the 6th position in the list of the world’s largest smartphone companies (Pan, 2019). This factor also contributes to the appearance of different models of social commerce as due to mass production, devices become available and affordable to broad populations who use them to access the Internet, communicate, and make purchases.
In such a way, China experiences a rise of mobile platforms that can be employed by multiple brands to increase their online presence and offer their products to various groups of clients. This distinctive feature shapes the further evolution of e-commerce and the way it will work in the long and short-term perspective.
Concerns with Social Commerce in China
As in any sphere of business, social commerce also has critical concerns associated with its evolution and rise. For instance, fierce, aggressive rivalry can be taken as one of the problems that occur when analyzing the issue. In China, competition is extremely complex because of the high speed of its economy’s growth and multiple opportunities related to it. For this reason, every month, new firms that follow successful models emerge and try to attract clients. There is also a threat of unfair competition or a critical decrease in the quality of offered goods or services because of the lack of experience or the desire to generate profit in the short term (Melton, 2019).
For instance, PDD reports that during its investigation about 50 clones of the company were found and issued because of multiple frauds, cheating, use of private information, or inability to satisfy clients’ needs (Soo, 2018). It might become a factor limiting social commerce in China because of the corrupted image of brands or decreased loyalty of clients. Unfair competition might also include fake news or fake negative comments about the work of the service to distract clients and make them use other companies available at the moment.
Another significant concern is the creation of hyper-social, viral, interactive, and extremely addictive shopping experiences by using mini-programs available in existing applications (Suen, 2018). One of the distinctive features of Chinese buyers is that they will buy items recommended by their friends and that they want to be entertained during their shopping activities (Du & Tang, 2014; Soo, 2018). Employing these characteristics, developers create mini-applications or programs characterized by viral-friendly features to ensure that users will have positive associations between this software and pleasant feelings emerging during shopping (Vongsraluang & Bhatiasevi, 2017).
In this regard, there are several concerns about the increased additivity of platforms such as Taobao, PPD, or RED and their negative impact on some buyers who are not able to stop and spend all their money on items that are not needed for them but are recommended by their friends (Verot, n.d.). The given feature is one of the significant problems of this sector in China as socialization is considered essential for smartphone users, and they have little chance to resist pleasant shopping experiences (Vongsraluang & Bhatiasevi, 2017). That is why a serious part of the population demonstrate their concerns with the growing popularity of social commerce and companies’ desire to earn money regardless of clients’ interest and their states.
Finally, there are many problems associated with the safety of transactions, poor quality of goods, fake items, or the inability of the government to regulate all aspects of the sector. The speed of its growth is too high, and the existing legislation is not flexible enough to consider all problems. For this reason, the problem with fake goods and cheating also becomes one of the significant concerns related to social commerce in China that should be solved.
The most popular sites such as Pinduoduo, Taobao, and RED report that every month, there are multiple attempts to sell fake goods or provide services of inappropriate qualities to clients who use their platforms. The given factor results in the growth of customers’ dissatisfaction and their desire to stop using sites that might be dangerous to them. In general, it also damages the whole e-commerce sector because of the deterioration of its image.
At the same time, the high speed of the market’s growth also means that malefactors will acquire new opportunities for interference with the work of credible services and their use to generate income using illegal schemes or providing products of extremely poor quality (Soo, 2018). This tendency transforms into a serious threat to all leading companies working in the Chinese social commerce segment as they are interested in its further promotion and attraction of new clients.
At the moment, there is a united effort to create an online environment free from the threat of unfair competition, poor quality, or fraud. Such companies as RED, PDD, or Taobao ensure their clients that they engage in monitoring of the market and activities that are focused on the protection of transactions and delivery of appropriate goods to all individuals using their sites. However, there is also the need for governmental regulation as one of the most powerful actors that might guarantee the stability of the segment and create the conditions under which law-breakers will face multiple challenges and barriers.
There is also a tendency towards the improvement of the cooperation between the companies mentioned above and the Chinese government aimed at the monitoring of social commerce and e-commerce platforms and the discovery of companies that act not by the existing regulations. The given collaboration is expected to improve the situation and guarantee protection to all users.
Another serious concern of social commerce in the state is the problematic delivery of goods that are ordered by clients. As it has already been stated in the section devoted to the analysis of Taobao’s strategy, the creation of a developed and effective logistic system is a core component of the popularization and promotion of online trade in the country. However, the fast speed of the sector’s growth and the appearance of thousands of new clients with their orders introduce a serious challenge to logistics companies, which have no available resources to meet all requirements and guarantee fast and safe delivery of the purchased goods (Amadeo, 2019).
In other words, at the moment, no unified and powerful logistics company in China would be able to support the existing speed of social commerce’s rise. For this reason, multiple e-commerce platforms have to cooperate with smaller agencies to deliver items to various regions. It might result in the prolongation of waiting time, deterioration of the quality of goods, their loss, and a decrease in the level of clients’ satisfaction. The complexity of the problem increases every year because of the growth of the field and the constant appearance of new actors.
Finally, another problem that might threaten the further evolution of e-commerce in the state is the dominance of WeChat as the only effective application for socialization and communication. The majority of transactions of leading e-commerce companies are completed with the help of this very service. The absence of the alternatives might harm the whole market as WeChat transformations into a monopolist that drives the further development of the sector.
From the previous sections, one can see that PDD, RED, and Pinduoduo critically depend on the functioning of the given service and its ability to meet clients’ requirements. In other words, any failure in the work of WeChat might slow down the further growth of the field because of the over-reliance on this application (Amadeo, 2019). It also means that there is a need for the development of similar platforms that would be considered alternatives to WeChat and attract clients by their simplicity, effectiveness, and multiple opportunities for socialization.
Altogether, the given factors should be considered as the major concerns limiting the evolution of social commerce in China. Because the existing environment is beneficial for the popularization of this form of trade, the elimination of these aspects will provide new opportunities for companies. Additionally, the rising popularity of various online platforms resulted in serious shifts in censorship that have traditionally been considered severe in the state.
The government correctly realizes multiple positive aspects associated with e-commerce and its positive impact on the economy. For this reason, there is a sign of the improvement and reconsideration of some strict rules that prevented people from engaging in social activities or buying online (Amadeo, 2019). This tendency creates the basis for further progress in the sector and market development.
Chinese Government’s Regulations
The rise of e- and social commerce mentioned above becomes an important feature of the Chinese economy that should be considered by the government to be able to monitor and control its segment. For this reason, there are multiple attempts to create the legal framework for the further rise of these forms of trade and protect people from fraud or maleficent actions that might pose a threat to their financial stability.
For this reason, there are numerous achievements related to e-commerce legal construction that are considered positive steps and appropriate regulations (Wu, 2016). However, there is also a problem that those policies, coordination, and offered environment for the collaboration are not comprehensive enough as a regulatory vacuum appears (“China’s new e-commerce law,” 2019). There is a need for further improvement of the existing legal system to consider all tendencies and models that are designed to work more effectively and eliminate barriers limiting opportunities of companies.
The basis for the promotion and acceptance of e-commerce as the phenomenon was the formulation of a set of regulations and rules firstly introduced in 1999. Contract Law accepted the validity of data messages and provided an opportunity to share them; in 2000, the People’s Republic of China Telecommunications Regulations also introduced regulations of the market order and enhanced the supervision and management of the Internet content and services (Wu, 2016). However, the fast speed of the sector’s growth preconditioned the creation of the Network behavior of commodity trading and related services Interim Measures in 2010 that became the fundament for all e-commerce operations and similar forms of trade (Wu, 2016). In 2011, the Ministry of Commerce offered another specification of the third-party e-commerce trading platform that outlines the paradigm for legal cooperation and collaboration between actors.
At the same time, these measures are not sufficient enough to cover all aspects of the fast-growing e-commerce segment in China. Legislation related to the sphere still has to be improved as there is no basic law, only some special laws, and regulations exist (Wu, 2016). There are still many gaps as the number of fake goods, consumer complaints, and problems increase every year and prove the need for some urgent regulations that might help to reconsider the existing approach to social commerce. Transactions should also be secured as there are still multiple problems with their protection and the creation of an appropriate environment.
One of the current steps made by the Chinese government to regulate the work of the sphere is the introduction of a new approach by the Standing Committee of the National People’s Congress. It would require the majority of vendors to be approved before offering various goods on Taobao, WeChat, Weibo (Hollingsworth, 2017). It might help to ensure that the quality of products will be at the appropriate level, and all transactions will be secured. Additionally, a specific tax should be imposed to contribute to the further rise of the sphere. However, there are multiple debates about this approach as it might distract brands from the sector and slow down its progress. Regardless of this fact, there is still a need for the Basic Law that would be able to implement e-commerce security guidelines to formulate a paradigm for the modern operation and protect all users.
The existing governmental regulations also lack the protection of customers and basic principles for cooperation and e-commerce development. As far as social forms of trade presuppose sharing personal information and its provision to third parties, all clients’ data should be secured to avoid frauds or leaks (Hollingsworth, 2017). At the moment, privacy laws in China fail to meet this requirement and create a protected framework for cooperation. That is why further improvements are demanded to achieve success and stimulate the future rise of e-commerce.
Business Models for Social Commerce in China
Applying the description of different types of business models used for social commerce, it is also possible to characterize the Chinese e-commerce sector. Taobao, as one of the largest companies popular in the country, adheres to the e-commerce oriented model. It uses the standard platform and creates a specific community with multiple active users and loyal clients who might discuss various goods and make their choice resting on the experience of other users. Taobao fosters socialization and communication by adding social components and interactive with customers to attract them and guarantee a high level of their interest in the provided goods (Chiu et al., 2012). The effectiveness of the given model is evidenced by stable and high income that helps the brand to continue its evolution.
As for Xiaohongshu, it adheres to the social network-oriented model that rests on the use of its mobile application. All customers consult communities or friends looking for advice or recommending a certain good or item. Real relations and friendship between individuals also serve as the ground for desired buying behaviors as they help to promote particular products. At the same time, the employment of ties between people helps to share information in more effective ways and contributes to better promotion. It means that RED becomes able to enjoy multiple benefits of this model because of the popularity of the application. The popularity of this model preconditions the appearance of other adherers such as WeChat, which uses social collaboration between clients as a potent tool to recommend different products and generate income.
The group-buying business model is the third extremely popular framework in China. Its relevance is preconditioned by the fact that the population is characterized by strong bonds and the desire for cooperation to acquire benefits (Wu, 2016). At the same time, group participation in purchase might help to lower the price and ensure that a good is worth consideration as it meets all requirements to qualify. For this reason, Pinduoduo employs the given model as one of the possible ways to affect citizens living in rural areas and guarantee that they will be interested in offered proposals. It becomes a key success factor for many companies working in the sphere of e-commerce in China.
Finally, speaking about business models for social commerce in China, one should consider the fact that they all rest on the peculiarities of the local market and the mentalities of people who belong to the target audience.
In other words, the most effective approaches to working with online users and their attraction presuppose their involvement in a lively discourse that is critical for decision-making and their desire to buy a particular product. That is why the further appearance and evolution of e-commerce platforms in China are mainly associated with the fostering of socialization elements and their integration with business models (Amadeo, 2019). The practice of group participation in various processes proves its effectiveness and can be utilized by many companies to generate income and increase clients’ loyalty.
Business Strategies for Social Commerce in China
One of the important features of social commerce is the existence of various business strategies that can be utilized by companies with the primary goal to generate stable income and attract new clients. First of all, the majority of brands provide a continually increasing diversity of goods that can be offered to clients to satisfy their needs. It becomes one of the critical elements of the majority of e- and social commerce companies in China. The fact is that the core of their approaches is the existence of an extremely wide choice, reasonable prices, and convenience. These factors are taken as the main attractions for clients who use the Internet and mobile applications when looking for various goods and trying to choose among the existing offerings. This business strategy helps to attract new individuals every year.
Another vital business strategy that is currently employed by companies in China is the provision of clients with an opportunity to reduce prices for existing goods by participating in group purchases (TECH, 2017). In other words, clients become attracted by the chance to enjoy multiple benefits of e-commerce and save money. Following surveys, it becomes one of the factors that impact users’ decision-making and their preferences regarding the use of websites of platforms such as PDD, Taobao, or Red (Barnes-Vieyra & Claycomb, 2001). That is why all brands that work in the sphere of e-commerce in China are focused on the introduction of low prices as a part of their business strategy that might help to generate a competitive advantage and overcome extremely strong rivalry.
Additionally, companies try to attract clients by offering them a chance to earn money by inviting friends or sharing special links with them. Because a common WeChat user has hundreds of people in his/her contacts, this strategy becomes potent to attract new clients and guarantee that old one will remain active and contribute to the future growth of the platform. Regarding the main features of customers in China, this approach is welcomed by all population groups and remains one of the main positive aspects of various companies.
Finally, social platforms offering multiple services to their clients try to remain flexible and adapting as these are the critical elements of their strategies. The modern market changes extremely fast, and customers acquire new requirements and features. Additionally, technologies also evolve and provide new opportunities for cooperation and trade. For this reason, the most influential brands such as Taobao, PDD, or RED try to introduce new options for their users with the primary goal to support their interest and guarantee that they will remain satisfied with the offered services.
Altogether, as it comes from the information presented above, social commerce is one of the most fast-growing modes of trade today. It provides multiple opportunities for companies to engage in more effective cooperation with clients, monitor their demands, promote goods via such platforms, and generate stable revenues. The success of such corporations as Amazon, eBay, and Taobao evidences the existence of multiple opportunities for firms to continue their evolution and improve their online presence by developing new applications and offering them to users. People’s demands for diversity, convenience, communication, and discussion contribute to the increasing popularity of various media and create the ground for the emergence of new business models that can be employed to sell various goods.
In China, social commerce is one of the distinctive features of its economic environment. The rise of Taobao, Little Red Book, and Pinduoduo proves the existence of beneficial conditions for the development of this market segment. The given platforms effectively employ the characteristics of buyers who want to enjoy the diversity of products and reasonable prices. Using WeChat and other social networks, they provide an opportunity to discuss goods and share experiences associated with them. Due to the combination of these aspects, e-commerce becomes a power that should be considered by the government to ensure that this mode of trade will continue to evolve and to protect all customers from possible frauds or low-quality products. In the future, it is expected that the tendency will preserve, and social commerce will become a significant part of the Chinese economic landscape with high annual revenues and opportunities for the future rise.
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