E commerce in China e-commerce e-commerce e-commerce

Industrial Marketing Management 31 (2002) 119 – 124

E-commerce in China
Changing business as we know it
George T. Haley*
Department of Marketing and International Business, School of Business, University of New Haven, 300 Orange Avenue, West Haven, CT 06516, USA
Received 15 August 2000; received in revised form 1 December 2000; accepted 28 February 2001

Abstract
In discussing the future of e-commerce, many experts have assumed that e-commerce in emerging markets will evolve along the same
lines as it has in the US, North America, and to a great extent, in Western Europe. This assumption fails to take into account the
differences that exist between the economic infrastructures of emerging markets and those of the developed markets of the West. This
article considers how China’s economic infrastructure, which like the infrastructures of most emerging markets is much less highly
developed than the industrial West’s, will influence the development of e-commerce in China. By implication, the route of e-commerce
development in China may be a more likely route of development for other emerging markets to follow. D 2001 Elsevier Science Inc. All
rights reserved.
Keywords: E-commerce; China; Emerging markets

1. Introduction
The Internet and other new-economy technologies have
proven to be tremendous sources of economic growth for the

more advanced industrialized economies of North America,
Europe, and Asia. But e-commerce in the West has
developed as it has, and as rapidly as it has, because an
existing distribution, financial, and communications infrastructure conducive to e-commerce already existed. This
infrastructure has been an extremely influential technological externality that has benefited the e-commerce industry
beyond measure. Yet, one assumption made by many academics and practitioners when they discuss e-commerce in
emerging markets is that the technological infrastructure that
exists in the West’s more developed economies either exists,
or will exist everywhere, and will be the technology that
dominates in all markets. In emerging markets such as China
there are considerable difficulties in implementing the standard US model that many people in the West assume will
dominate when they discuss e-commerce or make prognostications about it. However, local markets may determine

* Tel.: +1-203-931-6004; fax: +1-203-208-2468.
E-mail address: gthaley@attglobal.net (G.T. Haley).

that, given local conditions, alternative models may be
preferable, especially when dealing with the more rational
and economically driven business-to-business markets.
In more-developed economies, advanced communication

and computer technologies are pervasive, distribution and
warehousing networks are generally extensive, fast, and
reliable, and though exceptions such as Japan exist, financial/credit networks are readily available and efficient.
These technologies, and the skilled work forces necessary to
employ them, provide the infrastructure needed to make the
new-economy technologies so powerful. Additionally, this
infrastructure has largely preceded in existence the Internet
technologies that have made such powerful use of them.
Unfortunately, these infrastructural elements do not exist in
most emerging economies (see Ref. [22]). Telephone lines
have a low penetration rate in the market and computer
access even lower penetration rates.
The developed economies’ preexisting infrastructures
permitted the Internet and its related Web-based technologies to create the fantastic cost reductions, increases in
productivity, and potential for more of the same that it has
in advanced economies. The established infrastructure also
permits the private sector to take the fullest possible
advantage of the new-economy technologies. In emerging
economies, can the same benefits be generated? From our

0019-8501/02/$ – see front matter D 2001 Elsevier Science Inc. All rights reserved.
PII: S 0 0 1 9 - 8 5 0 1 ( 0 1 ) 0 0 1 8 3 - 3

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G.T. Haley / Industrial Marketing Management 31 (2002) 119–124

perspective, how can the private sector develop the kind
of actual and expected returns in emerging economies
from Internet-based business strategies that it has in
developed economies?
This paper presents evidence that companies can gain
measurable competitive advantages over their competitors
in emerging markets by building their Web-based capabilities. However, the companies cannot simply mimic policies
and strategies employed in advanced economies, they must
adapt their strategies to local conditions. Section 2 explores
local conditions in developing markets that elicit new
strategies from companies. Section 3 sketches some strategies from successful companies in the developing markets.
Conclusions and policy recommendations are offered in
Section 4.

2. Local conditions requiring adaptation
In China, local variations in business conditions span
both public sector and private sector environments.
2.1. Public sector conditions
China’s economy faces two substantial problems. First, it
does not have sufficient Internet-capable communications’
infrastructure and skilled personnel to implement the same
Internet strategies as the more advanced economies have
done [2,4,14,16]. Second, it does not have the supporting,
service-industry infrastructure to maximize the benefits of
Internet tools [2,4,6,14,16]. For example, China’s Internetbased vendors can only accept credit card payments when
the credit card is issued by a bank located in the same city as
the Internet vendor [14]. Additionally, China’s business
culture does not adapt well to the impersonal characteristics
of the Internet [7].
Developing countries have faced recently the imbalance
in development caused by the fascination investors have had
for Internet-based investments and start-ups. China’s dotcoms, the darlings of the foreign investors, also created
difficulties for the Chinese government’s privatization

efforts by making it impossible for the government to attract
private funds for the acquisition of government-owned
companies in other, more-traditional economic sectors.
Finally, China’s Communist Party is struggling to avoid
any loss of power and/or influence over the nation’s
economic, political, and social environments while still
acquiring the benefits of the Internet and its related technologies for China’s economy [7,14,15]. ChinaOnline [7]
noted that five significant threats exist to a successful Web
in China:
Commercial — the government owns many of the
players and could interfere with private parties’ access.
 Corruption — this increases operating expenses for all
business, Internet-based or brick-and-mortar.



Security concerns — especially dealing with encryption, where government regulators at one time insisted
all encryption codes’ projected uses and copies be
handed over to government regulators.
 Ideology — will content providers have freedom to

operate?
 Enforcement — the lack of an adequate tradition of
rule-of-law.
This list makes it plainly obvious that the government is
a major element, if not the only element, in each of the five
threats to the Internet’s success in China.


2.2. Private sector conditions
Though successful companies have difficulties changing
their operating procedures, many overcome these difficulties
to attain new success in their Internet environments. Though
these companies’ strategic changes include field sales-force
reductions, development of new channels of distribution and
industry-wide e-trading organizations, they have usually
depended on many existing infrastructural systems, such
as their established delivery and financial infrastructure for
their success. In China and other emerging markets, however, the infrastructure that made their success possible in
advanced economies often does not exist, and companies
have to develop entirely new ways of doing things all over

again [14].
China also presents companies with tremendous uncertainty regarding the government’s regulatory posture with
respect to e-commerce [15], the local business culture’s
resistance to adopting Internet-friendly practices [4], and
intellectual property rights [11], and a scarcity of qualified
personnel. Additionally, companies will face many of the
same problems in China that they face elsewhere, such as
the increased competition made possible by the Internet [18]
and the huge amount of information and disinformation that
spreads like wildfire over the Web [23].
Herbert Simon once stated that, ‘‘What information
consumes is rather obvious: it consumes the attention of
its recipients. Hence, a wealth of information creates a
poverty of attention and a need to allocate that attention
efficiently among the overabundance of information sources
that might consume it.’’ When the recipients receive large
quantities of both information and credible-sounding disinformation about a hugely complex and relatively unknown
business environment, like China’s, the demands on the
recipient’s time can be overwhelming. In a provocative
article, Berkman [1] questioned whether the masses of

information and disinformation found on the Web might
eventually destroy information’s value as a critical resource
in decision-making. Given Haley et al.’s [12] discussion on
the importance that overseas Chinese place on the control of
‘‘high quality information,’’ Western business practices may
give way to the traditional Chinese practices they highlighted. The next section explores some strategic solutions
implemented by companies.

G.T. Haley / Industrial Marketing Management 31 (2002) 119–124

3. Strategic solutions
Many reports on companies’ investments in China speak
about the need to accept difficult times and early losses in
order to invest in China. The difficulty with this piece of
accepted dogma is that losses do not generate strong
support at headquarters or among important corporate
stakeholders. To be successful, investments must be pursued with intense commitment, and intense managerial
commitment is developed through generating profits [24].
Thus, a key strategic element for foreign direct investment
into China’s rapidly evolving economy is to generate shortterm profits in order to build the critical mass of benefits

that will generate management commitment to their Chinese investments [24]. To generate short-term profits,
companies must employ all their best technologies, such
as Internet-based marketing and research technologies, but
they must also remember the basic tenets of appropriate
technology. The best technology for an emerging market is
not always the same as the best technology in a developed
economy [10]. Indeed, older technology may often prove
more appropriate for emerging economies than the latest,
cutting-edge technologies. Managements should consider
these possibilities when developing their strategic responses
to the Chinese business environment’s specific conditions,
which include a dearth of skilled personnel, insufficient
service-industry infrastructure, WAPs, and the five threats
to success.
3.1. Scarcity of skilled personnel
Managers in the Chinese business environment often
confront a lack of Internet-savvy or trained personnel and
have to develop them through certification programs. People
can receive certification of e-commerce capability either
through training or through examination [8]. Additionally,

Schmit [20] reported of raiding practices undertaken to
recruit Internet-capable employees; and Haley and Low
[13] discussed Singapore’s effort to acquire immigrants in
strategically important technologies. This scarcity of trained
personnel will continue to affect China’s Internet-based
commercial activities for years, and likely decades, to come.
3.2. Insufficient service industry infrastructure
Insufficient service-industry infrastructure includes poor
transportation and credit facilities, and possible solutions.
3.2.1. Transportation
Until recently, the operations of courier services such as
Federal Express ended once they got their packages across
the Chinese border. Federal Express can now provide
service within China, but its penetration of the Chinese
market remains limited. No other courier service has yet
obtained permission to transport packages within China.

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Internet vendors usually depend on the Chinese postal

service to distribute their products. Though reliable by
emerging markets’ standards, China’s postal service is slow
and costly, and represents one of the major complaints that
customers have about e-commerce in China.
Though consumer e-marketers have to live with this slow
and expensive distribution system, ingenious business-tobusiness marketers have overcome it. For example, one
caterer that services commercial sites takes orders over the
Internet and contracts with taxis to deliver his food, hot and
fresh, to his customers [14]. Similarly, a bottled water company operating in several major cities uses the Internet to
receive orders from its clients at its headquarters where it
maintains centralized order-processing and inventory records.
The company then e-mails orders to regional warehouses in
the various markets it serves: bicycle and human carters
subsequently deliver bottled water. In both the above examples, a little ingenuity and technological compromise enabled
companies to maximize efficiency provided by Internet-based
communications, inventory control, and order processing.
3.2.2. Credit facilities
Payment constitutes the greatest e-commerce problem in
China. Internet growth is doubling every 6 months [19] but
credit cards are only useable in the city where the issuing
bank is located. For Internet vendors to accept credit card
payments they must have offices located in the same cities as
the banks that issued the credit cards; no nationally accepted
credit cards exist in China. Consequently, Internet vendors
cannot take advantage of many of the benefits of the Internet,
especially in B-to-C businesses. The results of a survey taken
by the Cheskin Research and Chinadotcom are presented in
Fig. 1; not having a credit card and difficulties with payment
were two of the most important reasons for not purchasing
online. One adaptation for this condition, as mentioned
earlier, includes Internet portals and Internet vendors maintaining offices in all of China’s major cities to process orders
through their offices in each market. When this solution
becomes financially practical, vendors can build market share
today rather than waiting until conditions are ideal.
The Chinese preference for face-to-face negotiations and
personal relationships extends to the Internet and affects
not only payment, but also negotiation of deals. Cheskin
Research [4], among countless others, reported that even
businesses purchasing Internet services insist on personally
meeting with the service providers’ representatives for
negotiation and signing of contracts. China’s most successful Internet auction site holds its position primarily because
it provides a user-friendly site where vendors and potential
bidders can locate one another; and comfortable, centrally
located physical sites for the buyers and sellers to meet and
negotiate price, payment, and the physical transfer of the
good being sold [14]. These services appear crucial in a
country where credit cards are only good within the city in
which they were issued, transportation is a major issue
with Internet transactions, and the business culture prefers

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G.T. Haley / Industrial Marketing Management 31 (2002) 119–124

Fig. 1. Barriers to e-commerce in greater China.

face-to-face negotiation: the services have been the site’s
key to success.
3.3. The Wireless Application Protocol (WAP)
The WAP may offset China’s poor infrastructure and
limited penetration of PC-based Internet services. Though
very few private PC connections exist, cellular phones
have become ubiquitous in China and no longer appear as
conspicuous consumption [4]. Chinese cellular phone
subscriptions are presently growing by 1,000,000 new
subscribers a month; their growth is projected to be
37%, compounded annually, through 2006 [21]. Chinese
consumers have not responded well to the WAP due to its
limitations [5]; but in China, where infrastructure hinders
economic growth and development, the WAP’s usefulness
to businesses should overcome its limitations until its
technology matches its potential. Most PCs owned by
businesses in China have multiple users. In a survey, 70%
of Chinese cellular phone users considered their phones
primarily or exclusively business tools [5]. Consequently,
the WAP’s unpopularity among consumers should have
limited affect on the development of wireless e-commerce
in business-to-business markets. B2B e-commerce is
forecast to be 10 times greater than B2C e-commerce in
Asia [17]. The Chinese business culture also favors the
development of B2B e-commerce. Chinese businesses
tend to form long-term relationships and use established
channels of distribution for their products. These factors
tend to diminish the importance of face-to-face meetings
once the relationship is established. Additionally, because
B2B exchanges tend to use established credit lines, many
of the payment problems associated with B2C e-commerce do not seem relevant.
3.4. The five threats to success
The five threats to success in China include issues
dominated by the government: commercial factors, enforcement, corruption, ideology, and security concerns. Three of

these threats, commercial factors, corruption, and enforcement, are already under withering attack by a government
that seems seriously divided on the desirability of the
Internet, free markets, and private business.
The commercial factor, governmental participation in
Chinese industry, was and is so tremendous, that though
privatization proceeds, the Chinese government will have
a significant presence in industry for the foreseeable
future. This holds true for all business segments —
manufacturing, agriculture, services, and distribution. Outside of the postal service, the military provides the sole
transportation and distribution of resources that can reach
all areas within China. The military also remains the
largest industrial concern in China, including within its
dominion companies that produce consumer goods. Consequently, companies that wish to serve some of China’s
more remote or less populated regions frequently find
themselves competing against the military, their only
option for transporting their goods.
The controversy over protection of intellectual property rights provides an excellent base to consider the
problems China has with respect to enforcement. The
Chinese government is making strides in improving the
protection of intellectual property rights [11]. Indeed,
Chinese intellectual property rights laws appear on the
books as stringent enough to satisfy any MNC’s management. However, Beijing has not yet been able to
impose its will over local governments when it comes to
enforcing these laws [11]. Provincial governments in
recent years have asserted their authority by ignoring
Beijing’s edicts in many commercial arenas. For this
reason, at least in the short to medium terms, companies
must protect their own interests by developing relationships with, not only the central government, but also
with the provincial and municipal governments. Companies must also decide which technologies they can
afford to risk; and which technology have such strategic
importance and centrality to their competitive positions
that they cannot risk exposure in China [11]. China
exhibits strong economic growth and, historically,

G.T. Haley / Industrial Marketing Management 31 (2002) 119–124

enforcement of intellectual property rights has followed
economic development. But China has not enjoyed
uniform economic development: income in urban centers
averages three times the income in rural areas [4]; and in
some rural regions and regions dominated by the old
government-owned heavy industries, average per capita
income levels have fallen over the last decade. Hence,
unless Beijing can reassert its authority over the provincial governments, significant difficulties will continue
regarding enforcement of the laws in the books.
The government is also tackling corruption, but as with
the previously discussed problems, no victory appears in
sight. The potential misuses of the fight against corruption
add to the difficulties in rooting it out. Many feel that political
motivations and tensions between China’s economic reformers and its Old Guard drive some charges of corruption.
However, legitimate anticorruption efforts are also underway.
As the government continues its efforts to harness corruption,
companies’ profitability should be enhanced.
Finally, ideology and security concerns will continue to
be problems so long as the Communist party insists on
maintaining social and political control of China. Though
many authors continue to differentiate between China’s
reform and antireform-oriented leaders, management must
remember that all Chinese leaders are first and always loyal
communists. Whatever their economic perspective, Chinese
governmental leaders support policies that they believe will
most likely maintain the Communist Party’s power in China.
The Communist leadership’s economic ideology may vary,
but its ideology of power and its maintenance adheres to
those espoused in this party for almost half a century.
Security concerns appear preeminently on the mind of
China’s leaders and bureaucrats. For example, many members of the government seem convinced that Microsoft’s
programs, and all other computer programs produced by US
companies, come equipped with backdoors accessible by
the US government [4] — this is what China’s government
would like to do. To try and combat this danger, China’s
government demanded that companies deposit copies of all
encryption programs with governmental regulators who
could track encrypted communications. The Chinese governments’ distrust of commerce and foreign powers has
existed for centuries and has been felt most strongly by their
own businesses [12]. This distrust forms an integral part of
communism, and also of Confucianism, so it is likely to
continue. Business interests must be prepared to fight for
their interests, through any available legal, political, and
social channels, whenever ideological and security issues
arise. Businesses should: (1) Keep scrupulous records and
data to prove the basic honesty and straightforwardness of
their intentions in any and all business dealings; (2) Develop
the strongest relationships possible with both central and
provincial governments, and with private business interests,
to argue their case if necessary; and (3) Remember that
China remains a public law system of justice rather than a
rights-based system. In public law systems, an individual’s

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rights originate entirely from the governing authority’s
willingness to recognize and to grant those rights to the
individual, and not on an inherent possession of rights
guaranteed by law [3,11]. The next section offers some
implications and policy recommendations.

4. Conclusions
The future for e-commerce appears very bright in China,
but that future can suffer catastrophically at the hands of a
divided and suspicious government. Present growth rates of
e-commerce-related activities can continue unabated for
many years to come if the government controls the five
threats. This growth potential exists whether one considers
technologies with relatively low market penetration, such as
the PC-based Western-style Internet; or those with relatively
high market penetration, such as in cellular phones. Investing in China’s communications and other e-commercerelated businesses appears as a necessity for companies that
hope to achieve globally competitive positions, but it entails
substantial risk. Motorola, currently (February 2001) the
largest single investor in China [9,21], has demonstrated
that its strategy carries substantial risk and uncertainty.
China’s markets possess many problems, but managers
can surmount these if they adapt to the infrastructural,
business, and political situations that they will face. To
enter China successfully, a company must commit to China
for the long-term; but high risks and uncertainty call for
high liquidity and rapid returns. Commitment includes
several variables, and a willingness to stick with an investment for the long-term forms only one. Another equally
important element includes the strength of one’s commitment. As Yan [24] has pointed out, companies cannot
maintain strong commitments without showing profits for
the effort. As regards profit expectations, managers should
approach China, despite its potential, with the reservations
and cautions of any other developing market.

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George T. Haley, PhD (University of Texas at Austin), Associate
Professor/Director of Marketing and International Business Programs at
the University of New Haven, has also taught on the faculties of the
Instituto Tecnologico y de Estudios Superiores de Monterrey, the
National University of Singapore, the Queensland University of Technology, Thammasat University, Harvard University Summer Programs.
An award-winning author, George has coauthored the international bestselling author of New Asian Emperors: The Overseas Chinese, their
Strategies and Competitive Advantages (the top-selling book on Asian
business strategies worldwide in 1999) and is completing two forthcoming books — the first is, Strategic Marketing Management for Asia and
Beyond: Marketing for the New Millennium (World Scientific Press),
while the second is Asia’s Tao of Business: The Logic of Chinese
Business Strategy (Wiley Publishing). Please contact him at gthaley@
asia-pacific.com.