Chinese E-Commerce Outlets Will Soon Destroy Their Western Competition
Sometime ago, I wrote about how the decline of traditional retail outlets in Western countries, especially USA, started in the 1990s. While that timeline might seem too early to many readers, that post contains some examples of how many physical retail outlets (especially large and medium sized chains) were already destroying themselves. In other words, the rapid rise of E-commerce in past two decades was due to it filling a slowly developing vacuum rather than actively replacing physical retail. If you still find this hard to believe, East-Asian countries such as China, Japan, South Korea etc have a very robust E-commerce sector coexisting with thriving physical retail outlets. The same is true in some West- and East-European countries. Though there are many proximate causes for the decline of physical retail in some Western countries (USA, UK, Canada etc.), they all arise from financialization of the economy.
While I could repeat the many ways this financialization mindset which has doomed physical retail and manufacturing in some Western countries, let us instead focus on the next trend- namely, the slow destruction of Western E-Commerce outlets such as Amazon because of this financialization mindset and through relentlessly increasing competition with Chinese e-commerce outlets such as Temu, AliExpress, Shein, Wish etc. At this point, some readers might counter by saying that Chinese E-commerce outlets such as Temu, Shien, Wish etc are infamous for selling cheap and shoddily made products- usually clothes, jewelry, appliances etc. They are also associated in the mind of some with the somewhat sketchy practice of drop-shipping. As things stand right now, both major critiques of Chinese E-commerce sites in West are true- but the future is already showing signs of being rather different.
To understand what I getting at, we have to go over two related topics which are seldom discussed by western “experts” on China. Firstly, the E-commerce sector in China is already larger and far more developed than its equivalent in USA. In other words, Chinese companies are perfectly capable of manufacturing and delivering goods of reasonably good quality at low prices through E-commerce outlets. They do not need to learn anything new to wipe the floor with Amazon, WalMart etc. Then there is the well known trend of how east-Asian countries and their corporations often start at the bottom of the rung in Western markets and steadily work towards the top. This first occurred with Japan, next Taiwan, then South Korea and so on. The belief that Chinese E-commerce sites will never go beyond selling cheap clothes, plastic knick-knacks and other inexpensive stuff is as laughable as believing that China would be never progress beyond being a western sweat-shop in the late 1990s.
And we haven’t even touched on the largest and most significant advantage of Chinese E-commerce sites. To understand what I am talking about, just look at the location of manufacture for vast majority of stuff purchased on Amazon or at Walmart. Yes.. most of the stuff you buy on American e-commerce sites is made in China, often in the same factories and on same assembly lines at the stuff sold on Temu, Shien etc. In fact, over the past 2-3 years, it is becoming increasingly hard to ignore that a lot of products advertised and sold on Amazon are identical to those on Temu, but significantly more expensive than on the later. Hence the first big perceived advantage of Amazon (better quality, lower price) no longer holds for many classes of products and this situation is only going to get worse for Amazon etc as sites such as Temu will start going after product categories higher up the value chain.
Which brings us to the second major advantage of western sites such as Amazon- their warehouse, logistics and delivery network in USA. At first sight, building a competing network of similar facilities and capabilities, especially in USA, might seem dauting. However anybody with a basic level of intelligence will quickly figure out that there are multiple competing delivery services in USA, such as the USPS, UPS, FedEx and an army of gig contractors (who are often employed by Amazon). As long as they are getting paid properly, these competitors for Amazon delivery services will be as happy to deliver a package from a Chinese E-commerce site as they will from an American site. To put it another way, scaling delivery of their products is not a problem for any large Chinese or foreign E-commerce sites. Now let us talk about local warehousing and logistics- to compete even harder with Amazon.
Before we tackle this issue, let us be honest about something else- successful Chinese corporations are actively nurtured, supported and helped by their government to levels almost never seen in USA. Consequently, when Chinese E-commerce sites do decide to compete with Amazon, they would have no problems getting the money to build large warehouses etc in USA- even if that is done via a western front company. In my opinion, this transformation of the E-commerce sector in USA and other anglophone countries is merely a matter of ‘when’ rather than ‘if’. Some readers might discount my prediction by saying that American legislators will step in and stop this shift from occurring. While that outcome is theoretically possible, everything we know about the mindset and behavior of western legislators, bureaucrats and corporations strongly suggest they will gladly suck donkey-dick if they get enough donations, kick-backs and sinecures. China will gladly pay them enough to do just that.
What do you think? Comments?