Asia a Tough Market for Internet Commerce

With the industrialized countries of Asia leading the world in terms of Internet penetration rates, the myth of billions of eager Asian online consumers is still proving about as elusive to the west’s big Web retailers as it has to generations of more conventional businesses, according to two exhaustive reports by the New York Internet marketing firm eMarketer on electronic business-to-consumer sales in China, Japan and Korea.

Of course the growth of the Internet everywhere has been stunning.. More than 70 percent of South Korea’s population uses the Internet, with Japan and Australia following closely behind, according to “Worldwide Internet Users: 2005-2011,” which the marketing company published this week.

The report forecasts that by the end of the decade China is likely to overtake the US as the largest Internet market in the world. eMarketer expects there will be nearly 250 million Internet users in China by 2011, 40 million more than the US by that time. Nonetheless, that represents only 18.1 percent of China’s population, an indication that there is huge room for growth. By 2010 some 70 percent of the US will be online.

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The two studies have significant implications for a wide variety of Asian businesses and industries. In terms of advertising and marketing migration to the Web, marketing specialists say Asia is about three years behind the United States. If advertising and other forms of commerce migrate to the Internet as fast as they did in the US, newspapers and television face having to change and adapt or begin to lose both readers and advertisers.

Despite governmental and cultural obstacles, so-called B2C sales are taking off in the three countries and expected to rise from US$51 billion in 2005 to US$115 billion by 2010. But only a tiny percentage of US Internet retailers generate a majority of their foreign sales from the region, hampered as they are “by unfamiliar business practices, restrictive government regulations and fierce competition,” according to the second report, “Asia-Pacific B2C e-Commerce: China, Japan and South Korea.”

For US Internet retailers, Canada generated 50 percent of online foreign sales, followed by Europe at 30.6 percent. South Korea and Japan make up only 3.8 percent of US retailers’ sales, India 2.3 percent

The competition facing western firms comes not only from domestic rivals but from growing regional powers like South Korea’s online retailer and auctioneer Gmarket, which went public last year and plans to enter the Japan and China markets soon.

In Japan, for instance, according to the report, western Internet retailers are thwarted by the fact that local competitors have been known to lock out foreign rivals by forming exclusive pacts with local suppliers. Web sites can’t be simply translated into Japanese, as they are in other regions. They must be designed from scratch.

Also, unlike in the west, where online retailers ship products from regional mailing centers, security-conscious Japanese consumers prefer to order online but pickup their goods and pay for them in cash, either at a nearby convenience store, or COD.

In South Korea, according to eMarketer, mall owners have created cyber-malls in which they host online retailers and help them by offering transaction, logistical and customer service support. Although eBay, the wildly successful US-based auction site, first dominated the Korean market, Gmarket has pulled even by exploiting quickly developing consumer trends that eBay doesn’t react as quickly to.

China, the report says, is not surprisingly the biggest prize of all. But it is the hardest market to break into, partly because international companies have failed to adjust quickly enough to consumer demand and challenges from local rivals and because they face difficulty maintaining good relations with regulators in Beijing. Also, although the situation is just starting to change, there is no real tradition of credit card ownership in China, making it difficult for online sellers to collect for their products.

Certainly, eMarketer points out, “Japan, South Korea and Australia have the digital infrastructure in place to support robust e-commerce economies. South Korea’s 73.5 percent broadband penetration is the highest in the world. Some 94.7 percent of all Korean houses are expected to be wired by 2010, followed by Japan, with just fractionally fewer wired households at 94.2 percent. Hong Kong, Singapore and Australia will have nearly 80 percent of their households wired.

Whether because of China’s one-child policy and a cultural preference for males, the studies found, the Chinese online population is beginning to skew heavily towards males, with implications for advertisers and marketers. As of June 2006, 58.8 percent of Chinese internet users were males, 41.2 percent females. Those between the ages of 18 and 24 are nearly four times as likely to be Internet users as the general population. Although males largely dominate Internet usage in emerging Internet markets, China appears to be a special case.

The reports are not as encouraging about India as they are China. A serious lack of telecommunications infrastructure in India continues to plague the availability of home Internet access, the reports indicate. eMarketer estimates that there were only about 20 million Internet users in 2005 compared with more than four times as many in China. That will increase markedly by 2011, but there will still only be an estimated 71 million people on line out of a population of more than 1 billion – less than a third of China’s total users.