NEW TIDE OF ECOMMERCE

Case from China

June Lu, Chun-Sheng Yu

School of Business Administration, University of Houston-Victoria, 14000 University Blvd., Sugar Land, U.S.A.

Xue-Bin Dong

School of Economics, Zhejiang University, Yuquan Campus Hangzhou, China

Keywords: Electronic commerce, B2B, SMEs, Private sector, e-Readiness, China.

Abstract: Electronic commerce (eCommerce) is expected to play an increasingly important role in the 21st century

global market. This paper describes a case based on interviews with the CEO of an SME implementing EC

business in the East Coastal Area of China. Discussion of the case is based on Molla and Licker’s (2005) six

EC stages of growth and their Perceived E-Readiness Model (PERM) for developing countries. The findings

help to explore the eCommerce status, major contributing factors, and unique values of eCommerce for

China. The findings should also be important for studying eCommerce trends in the emerging markets.

1 INTRODUCTION

While the world economy started heading down

sloop in 2008 and almost hit bottom in 2009,

electronic commerce (

eCommerce) has been getting

more popular on a global scale. The evidence for the

growth is strong in such emerging markets as China.

According to CNNIC’s 2009 report, by the end of

June, the size of the net population (338 million), the

number of broadband users (320 million), and the

number of .cn domain names registered (12.96

million) secured China first place in the world in

web development (CNNIC, 2009). Increasing

number of netizens in China is getting used to web

shopping for its reasonable prices and ease of use.

In such an encouraging digital environment, a

number of eCommerce startups and new e-

businesses are quietly emerging in the private sector

of China’s economy. The private sector was reported

to have contributed 70% to the GDP growth in

China several years ago (BusinessWeek, 2005). The

private sector is also believed an important driving

force in the country’s transition from a traditional

manufacturing economy toward a digital economy.

In 2008, the central government issued a long-term

plan for eCommerce development with a focus on

eCommerce applications in the privately owned

small and medium enterprises (SMEs). In May 2008,

Hangzhou, where the famous alibaba.com and

taobao.com are head-quartered, was recognized the

capital of eCommerce in China (Xu, 2008).

eCommerce is expected to play an increasingly

important role in the 21st century global market as

well as in the emerging markets. Molla and Licker

(2005) argued that in developing countries

successful adoption of eCommerce strategy in an

organization depends on its perceived e-readiness in

e-commerce, managerial, organizational, and

environmental contexts. These four contexts are

covered by two major constructs in their Perceived

E-Readiness Model (PERM), perceived

organizational e-readiness (POER) and perceived

external e-readiness (PEER). Perceived

organizational e-readiness has four components:

awareness (innovation context), commitment

(managerial context), and resources (human,

business, technology contexts) and governance

(organizational context). Perceived environmental e-

readiness refers to an organization’s assessment of

the level of e-commerce support by government and

other support-giving agencies and the readiness of

market forces to conduct e-commerce

(environmental context). They believe that e-

commerce adoption can take various forms. The

importance of e-readiness in a specific context may

vary with each level of eCommerce sophistication:

347

Lu J., Yu C. and Dong X.

NEW TIDE OF ECOMMERCE - Case from China.

DOI: 10.5220/0002810403470352

In Proceedings of the 6th International Conference on Web Information Systems and Technology (WEBIST 2010), page

ISBN: 978-989-674-025-2

initial adoption (email, static website), interactive,

transactive, or integrated status.

In this paper, we will use the case of Fortune

Marketing, a private SME practicing eCommerce

business in the East Coastal Area of China, and

explore their eCommerce status, major contributing

factors, and the unique values for China using Molla

and Licker’s (2005) phases of eCommerce

sophistication and their PERM model.

2 THE CASE OF FORTUNE

MARKETING

China is currently in a stage of rapid growth in the

Internet development. Since 2003, many new

netizens get online each year. High school and

college students are the primary Internet and Web

users in China. According to CNNIC’s report (2008),

web users were mostly young people in the 25 to 35

year-old age span. A web user tended to buy more

often online when his/her educational level is higher.

Of all the netizens in China, those with a college or

higher degree made up 36.2%; of all the eCommerce

users, those with a college or higher degree made up

85% in 2008. Smart university graduates began to

see their opportunities for career development.

The CEO of Fortune Marketing is a farmer’s son

from a mountainous area in the coastal region. In

2000, he set up the first student company with two

of his classmates on a university campus. After three

years’ hard work, this student firm grew to be one of

the top three electronic product retailers in the

province. In November 2004, realizing the huge

potential for web-based marketing, the CEO single-

handedly opened up a different battlefield – Fortune

Marketing and chose web-based advertising as the

primary business line for the company. Through

accurately selecting and combining multi-media

online, the young firm assisted enterprises in

distributing their promotion programs and

advertisements to the target customer segments

online. The great demand for online marketing and

advertising in China offered this young firm a great

opportunity. By 2005, the volume of transactions

exceeded eight million Chinese yuan which helped

to get Fortune Marketing recognized as a most

innovative enterprise of high and new technology

and won the Economic Contribution Award in

Hangzhou City.

Since 2006, online advertising spending has

taken an increasing part in many firms’ annual

budgets, which resulted in a rapid business growth to

online advertising and marketing providers. As

declared by iResearch, China’s number one

electronic marketing research firm, in 2006 the

market share of China’s online advertising and

marketing is beyond 6 billion Chinese yuan, 44%

higher than in 2005. The volume of China’s online

marketing and advertising in 2008 was estimated to

have broken the record of 13 billion. This estimated

volume will probably reach 23 billion by the year

2010 (http://www.iresearch.cn). In less than four

years, Fortune Marketing has grown at the neck-

breaking speed of 250%. The firm was

recommended as a cooperative education field to the

twenty-seven colleges and universities in the

southeast region of China.

After recognizing its strength in providing

accurate direct marketing analysis service, Fortune

Marketing has positioned itself as an online

marketing service provider by offering enterprises

complete web-based marketing solutions. Fortune

Marketing, through its hard work, has won a number

of important clients. Nowadays, the well known

search engine businesses such as Baidu, Google, and

yahoo, the famous B2B platforms such as Alibaba,

MadeinChina, and the important portals such as Sina,

Sohu, 163, and TOM all use Fortune Marketing for

their online advertising and marketing services. In

2008, the number of employees at Fortune

Marketing reached 1500. Two subordinate offices

were set up in two other cities to prepare for

expanding the business to the entire nation. In March

2008, Fortune Marketing was recognized as one of

the ten best innovative young enterprises in

Hangzhou City.

As the company was fast expanding, effective

management became a critical issue. In November

2007, a management project team was established to

analyze the processes, activities, and communication

needs of each division to smooth out and improve

the work flow. The strategy was to use information

systems to enhance general management. By the

first quarter of 2008, the company implemented an

“integrated business management platform” for trial

operation. This management platform provided for

most of the supporting activities on the firm value

chain comprising accounting, HRM, financial

planning, administration, supervising and training,

and many important front office functions covering

marketing, Call Center management, and channel

and product presentation. The firm has set up a room

big enough to house 400 servers to ensure data

security and reliability. Most Web SMEs in China

are not able to afford such technological

transformation currently. They achieved a 95%

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348

paperless office at Fortune Marketing. The CEO is

now able to see all the important data concerning

important back office and front office processes

from his office computer. He openly expressed his

joy to have achieved the initial stage of using

information systems to enable remote and real-time

management of the entire company. This has greatly

enabled the small administrative team to handle the

fast-growing managerial tasks and aligned the rapid

firm expansion with the needed level of management.

Through the years, Fortune Marketing has hired

quite a few strong technical professionals who

developed in-house more than ten effective software

application products, including Fortune Marketing

web-based marketing suite, Fortune Marketing web-

based marketing campaign analysis system, Fortune

Marketing web-based multi-media advertising

system. Those software solutions won Fortune

Marketing several copyrights, national patents, and

software product certificates. This evident advantage

in IS product development has helped to lay a solid

foundation for offering accurate online marketing

services. Currently, by integrating the disparate in-

house programs such as Enterprise Information

Presentation Platform, Web-based Alliance (a

vertical product promotion portal), Internet

Promotion Effectiveness Evaluation System (a direct

advertising software), Expert in Distributing Short

Messages (a wireless direct advertising program),

and Fortune Marketing email marketing program,

the company is able to offer a complete set of online

services covering search engine marketing, web-

based marketing campaign evaluation, web

development, domain name application, spectrum

use, and instant messaging. The technology center

has recently completed the platform transfer from

Windows to Linux to ensure safe and secured

services to the clients. Currently Fortune Marketing

is still making improvements to its web advertising

service platform. Online payment is restricted only

to a few trusted members.

Nowadays, the company has begun to pay more

attention to diversify its technical knowledge assets.

In terms of technical expertise composition, Fortune

Marketing is moving away from a uni-faceted

technical structure toward a cross-discipline multi-

faceted team of multimedia professionals, junior

programmers, technical marketing planners, senior

system designers, system analysts, project managers,

and web security engineers.

The CEO said frankly that although online

marketing came into being in the 1990s in the

United States, it is still a new concept to many SMEs

in China. They need time to understand and accept

web-based marketing strategy. Fortunately, the

number of China’s netizens has been growing fast

and is recognized now as the largest in the world.

The market potential is obviously huge. He strongly

believed that the key element for Fortune

Marketing’s growth and success is to provide

extensive and quality education and training on web-

based marketing. The strategy at Fortune Marketing

is to work with the local governments with the goal

of “sharing, cooperating, and achieving a win-win

situation.” They’ve started making use of various

governmental platforms and forums to provide

training programs to the SMEs in the coastal area on

digitizing the information flows in production,

management and marketing processes, and web-

based marketing awareness. The plan is to apply the

experience gained from the city to the entire

province and get ready to radiate it to the entire

country.

When asked about the impacts of the global

economic recession, the CEO replied that the online

advertising business in China is still growing. This

has helped maintain their business growth in the face

of adversity. The slowness of the global economy

has not affected their strategic moves; on the

contrary, it presented an opportunity for his

company to show its strength. As a result, many

enterprises come to Fortune Marketing for weapons

to respond to the challenges and threats. The CEO

sees the global economic down slope more of a

chance for his company in recruiting high-end

managerial personnel as well. Some high rank

business executives lost their jobs because of the

economic recession. The cost of hiring high quality

business executives thus becomes obviously lower.

Currently there are three VPs in the firm. One is still

in the process of negotiation. Some of them used to

be managers in fortune 500 organizations around the

world. Their expertise and experiences will no doubt

strengthen the management capability at Fortune

Marketing.

Despite the global economic recession, the

number of visits at Fortune Marketing.net is still

growing roughly at 600 per month. The total revenue

has achieved a growth of 56% as compared to the

same time last year. Their revenue is expected to

double by the end of 2009. Such excellent business

performances will surely make Fortune Marketing

another model eCommerce enterprise in the region.

The CEO admitted that Fortune Marketing had a

number of important tasks in the near future, such as

to enhance the business core with highly innovative

technology and creative technical professionals, to

improve quality of customer services, and to

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349

cooperate with the local governments in providing

web-based marketing training programs. Fortune

Marketing is prepared to play the leading role in

China’s web-based advertising business. When

asked about the determinants of their success, the

CEO stated firmly that the most critical are the

vision and commitment of the top management.

During his business career, he has gone through

numerous ups and downs. Not every decision he

sincerely believed correct at the beginning worked

out in the end. “Risks are everywhere. Sometimes

you would have to accept failures bravely. If you

have a good vision and be persistent enough with

your commitment, you will have the time to claim

your success.”

3 DISCUSSION

Using Mollar and Licker’s eCommerce adoption

perspective, we found Fortune Marketing has moved

into the integrated status of eCommerce adoption.

Fortune Marketing is almost comparable with any e-

business in the United States, being able to manage

internal operations, decision-making, supply chain,

and relationships online. Among numerous

eCommerce start-ups in China, eCommerce

implementation at Fortune Marketing is much more

sophisticated and rarely seen. This is one of the few

who can proudly claim their revenues and profits to

the public. From this case, we can see that

eCommerce is providing self-employment

opportunities for numerous college and university

graduates. The success of Fortune Marketing is a

good example of university graduates not relying on

government policy but going independent by starting

their own web businesses. Fortune Marketing has

now become an excellent role model for college

graduates looking for opportunities to become

successful in China.

From the interviews we learned that business

size did not appear to influence future eCommerce

implementation plans. Fortune Marketing has 600

full-time employees. Many other Web SMEs are

much smaller in size. Their current levels of

implementation of eCommerce technologies, their

business functions and maturity status, and their

planned uptake may vary. However, they show as

much commitment to eCommerce as Fortune

Marketing.

From the interviews we also learned that

extranets, online supply chain management, and EDI

networks are still limited in China. E-procurement is

mostly not yet adopted in the private sector. This

indicates that eCommerce use is not permeating all

established value chains. Even Fortune Marketing’s

integrated system remains mostly outside

international value chains. It is partly because its

current business partners and clients are mostly

within China. It may also reflect the current status of

the eCommerce system integration level as noticed

by Pares (2002) and Humphrey et al. (2003) in their

analyses of developing countries’ B2B eCommerce

activities.

Another weakness we noticed through the

interviews is that the credit card system and online

payment mechanism are still lagging behind western

systems. Currently, the most well-known third-party

payment platform is AliPay, similar to PayPal in

America. Many business clients prefer the online

banking services of the China Commercial Bank.

Online banking is still a new phenomenon in China.

To have better financial protection, traditional

electronic funds transfer is still preferred. Even

Fortune Marketing prefers to limit the use of online

payment to a few trusted partners.

We then examined the eCommerce determinants

in Fortune Marketing using the POER perspective.

Different from Molla and Licker’s (2005) finding on

commitment, top management commitment has been

extremely important in Fortune Marketing, no matter

whether it was for initial EC adoption or for EC

implementation sophistication. Though Fortune

Marketing is still considered one of the SMEs,

vision and commitment usually are more influential

in the private sector. The CEO at Fortune Marketing

does not have any IT background. However, he is by

all means a visionary and risk-taking entrepreneur.

He is keen at taking stock of the changes in the

environment as a result of e-commerce,

comprehending the meaning of opportunities, threats,

and potentials for his business, and projecting how

the changes would affect his business in the short to

long run. Fortune Marketing as discussed is run by a

3G entrepreneur who is willing and capable of

making critical decisions to enable important

business transitions and model changes. 3G

entrepreneurs in China are made up of well-educated

young-to-middle-aged innovators. Those business

people are intelligent and confident with a global

vision. They dream of doing global businesses and

becoming famous.

The CEO at Fortune Marketing has been actively

promoting organizational learning and

innovativeness as a core value in his own company

culture. Under his personal influence, employees

were actively involved in following the new trends

in eCommerce and the moves of their competitors in

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eCommerce implementation, and were ready to

adapt to the new changes in the Web market. This

supports the finding in Molla and Licker’s (2005)

study that awareness is critical in eCommerce

implementation.

As Molla and Licker (2005) pointed out that the

human, business, and technology resource

dimensions of organizational e-readiness all had a

major effect on initial e-commerce adoption at

Fortune Marketing. This young firm has been able to

attract young IT and IS professionals. Soon after

Fortune Marketing adopted eCommerce strategy, it

began to pay attention to combining different

technical assets for running a full-blown e-business.

Its success in selling IT products also helped to

accumulate certain financial resources and gathered

some experience of attracting external financial

resources.

“Governance” refers to the strategic, tactical, and

operational model that defines the way organizations

structure to establish objectives, allocate resources,

and make decisions (Willcocks and Griffiths, 1997).

In terms of internal governance, Fortune Marketing

seemed strong in aligning objectives, resource

allocation, and decision-making to give top priority

to eCommerce implementation. Fortune Marketing

is ahead of many others in strengthening the

management capability and improving organization

structure to sustain a steady eCommerce

sophistication.

PEER factors such as market forces e-readiness

and supporting industries e-readiness seem to serve

as key drivers for eCommerce adoption at Fortune

Marketing. Market forces e-readiness refers to the

application and use of e-Commerce by a firm’s

competitors, customers, suppliers, and other

business partners. Fortune Marketing is under

obvious pressures from the major search portals and

B2B businesses in China to upgrade and integrate its

business systems with theirs. Being slow in

embarking on more sophisticated e-commerce

implementation creates the danger of losing business

clients and opportunities and fear of competitive

disadvantage for Fortune Marketing. Such pressures

tend to be less likely for many other businesses in

China. Generally speaking, the implementation level

of eCommerce is higher in foreign-trade related

enterprises, since they feel more pressure to align

their business functions and practices with those in

other countries. Fortune Marketing’s close tie with

the IT industry in China provides advantages in

getting updated hardware and software products and

support. Being originally a successful student firm

on a university campus, Fortune Marketing has some

preferential access to the young technical elites as

well.

The role of government is an important

determinant that may have affected the progress of

eCommerce sophistication at Fortune Marketing.

The readiness of government to promote e-

commerce defines the institutional environment

within which businesses operate and influences their

confidence and level of e-commerce aspirations

(Dutta, Lanvin, and Paua, 2004; Oxley and Yeung,

2001). The governments at different levels in China

control technology development and thus can

influence e-commerce implementation decisions

(Montealegre, 1999). Currently government shows a

clear commitment to eCommerce implementation in

China in its policy measures, as well as financial

support for technical projects establishing and

expanding broadband network infrastructure, and

financial support for selling home electronic

products and computers to farmers at lower prices

(China B2B Research Center, 2009). This will, in

turn, stimulate eCommerce utilization in China.

The most important factor contributing to the

boom of business at Fortune Marketing is the

enormous need for timely and cost-saving services

to users scattered all over the huge span of China

and beyond. In a down economy, the most affected

are those more or less related to foreign trading

businesses. Many of them are now adjusting their

focus to meet the internal business opportunities. As

more SMEs begin to see the benefits of eCommerce

practices, e-business firms like Fortune Marketing

will see a better future. The case of Fortune

Marketing also shows the importance and

applicability of perceived benefit (usefulness) that

forms the core of most adoption theories and

empirical studies (Davis, 1989).

4 CONCLUSIONS

This paper shows a typical case of online business in

today’s China. The case, to a certain extent, helps to

show most current trends of eCommerce in China, a

strategic switch from its long-time sole focus on

traditional manufacturing businesses to more

services to numerous SMEs and individual

consumers within the country. One delimitation to

be aware of is that Fortune Marketing is based in

Hanghzou, the capital of eCommerce in China. Our

current study, however, can be compared with

eCommerce developments in other countries.

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