Today, the e-commerce company most talked about in the world is neither Alibaba, the Chinese juggernaut nor Jeff Bezos’ Amazon. It is a 6-year-old Chinese firm started in 2015- Pinduoduo (PDD). PDD was initially founded as an online food supplier. The success of PDD can be expressed by stating the fact that it was the fastest-growing internet stock in China in 2020 driving its market value above 200 billion dollars. Last year, it surges by an astounding 330%.
There are two unique things about Pinduoduo that interest people.
First is its unique business model. Pinduoduo gives Chinese people a unique ecommerce experience by allowing them to club together for purchasing nearly all products ranging from groceries to vacuum cleaners. Vice president of strategy, David Liu, says the firm has made use of the rise of smartphone penetration in the country to attain its goals.
The restrictions imposed on the human race by the novel coronavirus pandemic which was originated in China has boosted the popularity of PDD multiplying its growth in thousands of towns and villages. These villages were used by the PDD’s users during the pre-pandemic era to bid for shipments of local farm produce at discounted prices than normal hi-fi markets. While many people call it “community groupbuy”, Mr David Liu prefers to calls it “interactive commerce”. The tech platform has become a sensation and is one of the hottest innovations in the Chinese technology sector.
The second unique factor about PDD is the way it has faced the e-commerce tycoons of China as well as across the globe, shattering the myth of the invincible and cavalier titans of the online shopping world. The Chinese e-commerce market seemed to be a duopoly with Alibaba and jd.com (a rival platform) looking for chances to decapitate the other. However, that is in the past now with many analysts and brokerages expecting PDD’s online retail share to increase more than that of jd.com this year. If it keeps growing in the same trajectory it might as well surpass Jack Ma’s Alibaba’s number of users. Interestingly, PDD is not the only one to target lower-tier villages and towns of China with community group buy and similar schemes. Alibaba, jd.com and Meituan (a Chinese food delivery firm) also follow the same strategy.
There’s one problem with PDD. It shells out huge subsidies to give attractive discounts to its customers from poorer parts of the country. However, there are hopes that the platform may turn profitable in 2021 as it continues to displace the bigger names in the industry strategically by tapping over the market which has been left untouched by the giants.
Even though the pandemic has brought in a new wave of digitization with online sales for almost all the products reaching a record high level, including the online sales of groceries. Despite that, less than 10 per cent of the total farm produce which is valued at 8.1trn yuan or $1.25trn is sold or purchased using digital platforms. As Mr David says, “We are continuing to grow the pie”.
Interestingly, no matter how much importance we give to the existing tech giants, we cannot ignore the fact that the online marketplaces are still a new city to explore. The point is that there is ample opportunity for new start-ups and new businesses to explore and exploit.
Even though the Chinese authorities have been notoriously known for their excessive market Regulation aimed at maintaining orderly competition, a lot of times leading to new investigations and fines on the big corporates, people are still optimistic about new start-ups and innovations coming from the Chinese territory. This is partly because the tech sector has a magnum impact on the Chinese industry and economy and the government would never want to harm its growth. However, more regulations and stricter control might continue over multiple facets such as customer data.
Robin Zhu of Bernstein is of the view that the if there is extra unwanted regulation on the tech platforms, they might have to restrain aggressive sales practices which in tun may lead to a reduction growth, jobs and innovation products. Right now, Alibaba seems to be the biggest target of the Chinese crackdown, but PDD is not very far in the race. Mr Zhu says that Alibaba is flying “closest to the sun”, with a major part of its inference coming from the recent Chinese crackdown on its sister company, Ant Group. However, one thing that cannot be undermined and ignored is that a fifth of China’s retail sales come through this platform.
Therefore, we can say that the ever-increasing competition in the Chinese market along with the all-time fear of Chinese regulations would make sure that the China’s retail market is fully to dominated by one single party.
Tencent owned WeChat makes it possible for several brands to sell their products on its site while providing instant access to digital payments.
The art of online advertising, especially in the case of live streaming, is believed to be mastered by the American juggernaut Amazon. And even though Amazon does not earn much profit from its core retail business, enormous numbers of revenues are generated from its fast-growing cloud and online advertising businesses. These amounts can be used by the company for retail expansion.
One more fascinating fact is that the dynamics of competitions in the commercial markets are ever-changing. The process of digitization speeded up by the pandemic and subsequent lockdowns have brought in more and more acceptance for online shopping facilities. Moreover, smartphones slowly and gradually overtaking personal computers (PCs) in most of the economies around the globe shall boost the popularity of “social commerce”. By social commerce, we mean buying and selling goods or services via social media channels and videos. For Instance, let’s take the example of TikTok. Many brands reach out to popular celebrities or social media influencers for promoting their brand and spreading awareness about the products they offer.
Another threat to these rising tech giants around the world is Tax. Tax authorities of both East and West have their eye on the enormous revenues earned by these digital giants.
Let’s take the example of Amazon here. In the year 2020, Amazon has recorded a huge increase in its tax liability. But the government is still not satisfied with it and is considering imposing higher digital taxes on the largest and most profitable companies in the country.
Therefore, one thing we can conclude from all that stated above is that the digital world is still very novel to us and the regulators and administrators are tyros. Even though we can say with surety that the internet and e-commerce are here to say, we do not know who will be dominating it anytime in the near future.