HONG KONG: International brands have been advised to rethink their growth strategies in China, after a new report found that lower-tier cities and rural villages have narrowly overtaken large cities in e-commerce sales.
McKinsey, the global management consultancy, polled more than 2,600 consumers aged over 13 in January to examine the extent of e-commerce penetration across five regions in mainland China.
According to the report, China's tier III and tier IV cities, as well as its villages, accounted for just over half (50.1%) of the total value of goods sold on e-commerce platforms in the country last year – or about US$315bn out of US$630bn.
Alan Lau, a senior partner at McKinsey in Hong Kong and co-author of the report, told the South China Morning Post that the findings were a "huge revelation for foreign brands, which need to rethink their strategy in that segment of the market".
"The lower-tier cities and rural areas are now home to 257 million online shoppers, compared with 183 million in the higher-tier cities," he said.
As well as outnumbering online shoppers in tier I and tier II cities, residents of lower-tier cities and villages are also driving higher rates of e-commerce growth.
Although overall e-commerce penetration is currently lower in these areas (62% versus 89% in larger cities), the report found higher growth rates in smaller cities and rural areas (61% versus 43%).
"Brands that have historically focused on high-tier cities may benefit from revisiting their geographic strategies and making adjustments to take advantage of opportunities in low-tier cities, where physical retail needs time to mature," the report stated.
This is certainly an approach being taken by Alibaba, China's largest e-commerce player, which has said it has built more than 10,000 village-level service centres in more than 20 provinces.
"In 2016, we are going to ramp up our efforts to bring quality goods to rural buyers, and deliver local produce to urban customers," Daniel Zhang, Alibaba's CEO, announced earlier this year.
Zhang added that this strategy aims to achieve this objective: "[That] the rural market can be connected to the whole country and even the whole world".
Data sourced from South China Morning Post, Alizila; additional content by Warc staff