EAP-507

Medusa
7/18/15

Strategies for Chinas e-commerce SMEs

A Review of the Literature
Abstract

This article reviews the previous research and explores internal

factors that would influence e-commerce competitions of Chinas
SMEs, which have been classified into 5 parts: customer service,
inventory management, price making, website design, and trust
system. Although numerous researches have been done, none of
them synthesizes the existing strategies systemically. Thus, the
purpose is to propose corresponding strategies to each issue based
on learning experience from America and combining with my
personal experience.

[Link]
The development of American e-commerce gained a perfect
achievement in recent years; it has advanced infrastructure with
professional management and high-quality services. And, the
enthusiasm of clients who are willing to purchase online also
becomes one of the factors that would lead to the potential
development of e-marketing. In contrast, China still has a tough
challenge in this field due to economic slowdown, inefficient
management and other reasons. According to the report from SECA
(Shanghai E-commerce Association, 2014.10.5) SEMs (small and
medium-sized enterprises), as a vital component of the socialist
market economy that occupy more than 98% of total number of
firms, 66% market shares, and 56% of government taxation, which
have offered jobs for 80% of people. (Jinzi, X., 2011).
General variables that may influence Chinas ecommerce have
been shown in the previous research. For instance, Weiwei Guo
(2011) classified five barriers in SMEs, including leaders, technology,
strategies, website performance and customers. Joseph and Dong
(2005) made research about online shopping and service among
Chinese consumers and pointed out that nothing is different with
the United States in terms of those factors, but Chinese consumers
perceived more risk than US counterparts, they concerned about

post-service and retailer-related information due to immature

infrastructure. (Huafei, L. et al, 2008)
However, they are facing more serious problems than big
companies because of the lack of solid economic foundation,
resources, basic knowledge, reasonable management and planning,
such these factors caused the obstacle to their success.
Though, none of them synthesize the existing strategies
systemically about the specific internal factors that would directly
have impacts on Chinese SMEs competitions or proposed available
strategies for a better solution.
Thus, my purpose is to help SMEs to acquaint with the market
conditions by categorizing internal factors. Also, proposing feasible
strategies that can improve their competitiveness based on learning
rich experience from America and combining with my personal
experience, maximizing their profits by guiding them put theory into
practice.

[Link] e-commerce platforms in the U.S. and

China

I choose two platforms in this research: TaoBao, and eBay. There

are a few reasons that why I chose them. 1) TaoBao and eBay are
both popular and as the pioneers in the e-commerce platform. It is
visual to compare the difference between China and America from
their management models. 2) Recently, more than ten thousand
SMEs on TaoBao lodged strong protests about the unfair rules and
regulations. It is reported that thousands managers have attacked
the headquarters of TaoBao for several times.

[Link] factors that influence competitiveness

(including policy analysis)
I summarize four internal factors that I find in the prior research
and by experience, each of these issues would be given the
corresponding strategy in the following part.

3.1 Marketing

3.1.1 Customer service

Customer service consists of three phases: before, during, and
after a purchase. Web-based information technologies (ITs) can
stimulate online buyers interactions to enhance the shopping
experience within those three stages. Digital word-of-mouth-based
services, providing a platform for shoppers where they can share
feedbacks about the products through review and rating system on
retailers websites.
(Bhavik, P., et al., 2010) indicated that most shoppers purchasing
intention are affected by the quality of customer service. An
advanced recommendation system can recommend products match
with customers preferences, it also can provide value-added
services to customers also have a positive stimulation on sale and
price making. With the rapid expanding of e-commerce market,
personalize recommendation system has become a utility tool that
can meet various demands of consumers. However, the traditional
recommendation system that based on consumers behaviors or

preference has a low efficiency and lack of accuracy as individual

behavior is independent and scattered and its changeable. Second,
the same behavior may result from different motives, which cant
represent customers inherent characteristics either. (Yu, P., et al.,
2014)
3.1.2 Inventory management
E-commerce retailing requires a timely renewal and replacement,
not only in technology areas, but also products. Particularly
industries such as apparel retailing, they need to change the feature
of clothing design according to the seasons and the latest fashion
trend. Usually, Retailers can impress the thoughts upon consumers
subconscious about their products every time when they keep
active on Platform, and updating products is the main way to do
that. While, Difficulty in capital turnover would affect on updating
products once the inventory cant be managed well. Insufficient
storage restricts the quantity of sale; it would bring a financial
burden for companies if it were excessive.
3.1.3 Price making
The study of Hao and Yong (2003), and Bhavik (2010) mentioned
that both recommendation system and inventory management have
impact on price strategy. Nevertheless, the previous research
showed that purchasing management can rarely make contribution
to SEMs profitability (Necmi,K., & Martin,L., 2004). While, actually, I
would argue that there is another factor that point. In China,
purchase management matters. E-commerce retailers usually
cooperate with manufactures or wholesalers, unlike big companies,
it is impossible for SMEs who have weak ordering to get quantity
discount. Thus, the cost of goods has increased inevitably in this
way. Thats the one of reasons that why customers find price
fluctuation even though products are the same. Besides, consumers
also perceived price discrimination, they prone to have reneging
behavior while the price is variable. (Janghua, W. et al., 2013)
3.1.4 Website design
Sejin and Leslie (2011) find that website content and atmospheric
quality have significant impact on satisfaction contributing to eshopping intention. The first impression of online stores affect
peoples cognition a lot. Its an idea way to promote products.
Basically, those websites that have been designed and decorated
are more attractive for consumers. Web design can play the role of
brand identity, making consumers feel that this enterprise is
creditable, since, the pictures and descriptions is the only way for
online shoppers to know a product. A nice shopping environment
also can stimulate their purchasing desire. While, the usability of
website content has been largely neglected by most companies.
(Huafei, L. et al., 2009)
3.1.5 Trust system
Trust fraud is companies who promoting their trust scores and
reputations artificially by themselves or using machines, the biggest
issue on TaoBao. For preferably manage the relationship between

retailers and buyers, it adopts the same trust system as eBay. That
is, clients give feedback after receiving the product. But the forms of
rating are slightly different: eBay uses stars as the scores to give
feedback, while the credit has been classified into four levels on
TaoBao, which are heart, diamond, crown and gold crown.
(Yu, Z. et al., 2013) credibility ranking system can decide the order
of a product; the retailers who have a higher credit level would be
given the priority to be shown on the first page of searching
interface. Then, what is the fast way to get a decent reputation? Yu
(2013) also claimed that most of managers tend to commit trust
fraud by brush credit for time-saving and effort-saving. In general,
Brush credit, describes the phenomenon of trust fraud vividly,
means new companies with low trust levels or transactions then
surprisingly turn to high level overnight, just like a magician use
magic brush to create something untruthful. Consumers have
realized this situation and do not trust the system any longer, which
in return reduced the trade on TaoBao. The phenomenon causes the
loss of potential customers.

4. Strategies

I proposed corresponding strategies of each potential barrier in

this section, combining the finding from previous research and my
personal experience.
4.1.1 online lifestyle tagging (OLT)
OLT is a personalized method that based on consumers online
lifestyles and users behavior tags to identify online lifestyle varies
with time. Unlike traditional recommendation system, OLT classifies
market products based on consumers dominant behaviors because
different products have different characteristics, and, the key words
that they use to search represent their dominant characteristics
while their recessive characteristics can be identified from the
keywords through supervised classification in machine learning, it
can help us to see clients current demand, and the extent of
keywords help us to see the long-term needs. SMEs should establish
their own database incorporating both consumer and product data,
analyzing and processing online consumers behavior data for a
better standing about the relationship between purchase intention
and online lifestyle. Furthermore, brokers, as the intermediary who
can offer web providers and advertisers platform, SMEs should also
cooperate with them preferably to earn higher profit. (Yu, P. et al.,
2014)
4.1.2 zero-inventory and positive-inventory
Zero-inventory is that a product can be sold even it doesnt have
stock, customers decision and product delivery are two separate
procedures and independent. In another word, consumers just make
a reservation through the pure-play retailer and receive the item
from wholesalers or manufactures directly. It prefers under a
moderately positive relationship between reservation price and
impatience for delivery. Compared with positive-inventory, which
prefers those two variables are independent of each other, is more

costly than the former due to fixed costs (e.g. building warehouse)
and variable costs (e.g. holding costs of stocking products in the
inventory), the first method especially suitable for SMEs who just
start up business, inventory-holding cost can be reduced to some
extent. Even though Zero-inventory has the disadvantages (e.g.
only can attract price-sensitive consumers if the market becomes
mature or consumers have rich experience, or brings a negative
impact on consumer satisfactions because its poor shipping
service), it is still an ideal option when the market rapidly expands
since there are more new and inexperienced customers can be
targeted. (Hao, Z., 2003)
4.1.3 flat price strategy and randomized price strategy
Flat price strategy means the price almost doesnt change.
Randomized price strategy, that is, promotion strategy. (Jianghua, L.
et al., 2013) proved that randomized price strategy always increase
the profit that can up to 33.3% while selling continuous products.
Consumers behavior also was took consider into price-making.
Managers should retain the promotional price in one period then
return to a regular price, raise the price and reduce the frequency of
promotion when the low-type customers are more patient; when the
discount factor is higher, managers should reduce the frequency of
promotion at high price, increasing the low price simultaneously,
persuading high-type clients to buy it at high price. This strategy is
appropriate for companies to solve the price discrimination issue
and raise profit. Whereas, there are some limitations 1) Its applies
for monologist better. Consumers may redirect by the current
market situation in terms of price. 2) Other specific elements (e.g.
customer loyalty, searching cost) didnt conclude in their study.
4.1.4 web content usability
Website design is a process of conceptualizing, planning, and
building a collection of electronic files that determine the layout,
colors, text styles, structure, graphics, images, and use of
interactive features that deliver pages to the site visitors
(Wikipedia). (Huafei, L., 2009) indicates that Chinese online
shoppers are more field-dependent and perceive more risks than
American people. They concern about the information about the
companies or products due to the immature Internet infrastructure
and unreliable credibility system. Companies should focus on how to
convey information of both companies and products effectively
through the website. Post-sale such as no-risk return should be
promised before the retailing, giving the priority to the product
detail. I would also suggest that add specialized logo on the
pictures, which can show how professional this company is and also
make it recognizable for customers.
4.1.5 Group purchase
Trust fraud, the core reason that this issue happens all because
companies want higher scores in reputation. Expensive promotion
expenses is one of the core reason that why SMEs cant always use
this strategy. Advertisement would help customers to pick the one

that they need, but some of them even are disgusted with it.
Selecting one cost-effective product that processes unique
characteristics and organizing a timed activity that requires a
certain number of buyers to get a discount. Its better to prepare for
a period of time before starting it: cooperating with online fashion
editors who could introduce the basic information of the product to
let more people know this activity in advance. Group purchase
reduces the costs of products because retailers can get a discount
from manufactures due to the wholesale number. Moreover, its a
fast way to get reputation reasonably instead of brush credit and
helps SMEs to explore potential customers, which benefits long-term
interest.

5. Conclusion and suggestion

5.1.1

The purpose of this article is to synthesis the existing findings and

combines personal experience, thus pointing out some common
barriers for SMEs and giving corresponding strategy to each case.
Besides, I would suggest that companies should focus on clients,
also pay attention on how to improve customers satisfactions
should be taken into consideration and they can use it as a tool to
guide managers to make a strategy.

5.2.2

Policy consideration
Unfair policy support is an external issue, which has been gradually
caused the dissatisfaction of SMEs and retailers. For leaders of
SMEs, having good products is not the key advantage that can
compete with big companies who already have regular customers
and high credibility level. Fraud trust cant be solved from the root if
the rank system still exists. I would suggest that policy makers
should rethink their policy system in order to eliminate the injustice
between big companies and SMEs thereby create a level playing
field.

Reference
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