Chinese and Russian E-commerce Ties Growing

While we’ve covered the comparative attractiveness of the Chinese and Russian e-commerce markets before, there are good arguments for the two countries cooperating economically. China is still the world’s main source of lower-end manufactured goods whereas Russia is one of the world’s most attractive growth consumer markets. Moreover, since the two countries share quite a large border it should make economic sense to bypass third countries and increase direct trade flows, subject to sufficient transport links.

The countries are already intertwined in the e-commerce realm, with a growing range of Chinese companies entering the Russian e-commerce sector while a select few Russian companies are focused on sourcing products from China.

Chinese entrepreneurs are very experienced international operators and the competitive impact on Russia is far greater than for Russian companies’ potential impact on China. Jingdong Mall is already operating a Russian-language site. Niche online players such as Unitedstyles.com and MyCouture.ru are already operating in the garment sector. Fancl, a well established online fashion brand, and offline Chinese brand Li-Ning Sports are also close to launching Russian-language e-commerce operations.

As for Russian-based companies focused on China, an interesting case study is Rutaobao.com.

Rutaobao.com provides a Russian interface to Taobao.com through the “Taobao Open Platform”. Taobao is China’s leading online C2C marketplace (similar in business model to eBay) and is owned by the publicly-listed Alibaba Group.

This is not a unique idea — 9channel.com, for example, is among many providers who offer English speakers access to Taobao. And from the Russian language side, Rutaobao is to Taobao as Bay.ru is to eBay.

Rutaobao’s warehouse is in China and operates as a cross-border seller to Russia

An interesting niche

While I was somewhat negative on the prospects of Bay.ru, Rutaobao benefits from the fact that Taobao has enormous growth opportunities within its home market. It’s hard to fathom that entering Russia is high on their strategic priority list.

Still, Taobao began accepting Visa and Mastercard in 2011 and it’s not hard to foresee them offering the site in English in the not-too-distant future. While these two developments have rather less influence on Rutaobao’s business prospects given Russia’s disparate online payment marketplace and general insularity, it does foreshadow a finite shelf life to such cross-border arbitrage business models, where the economic value added lies purely in language and payment frictions.

A summary of Rutaobao’s service offering

Payments: Russian consumers can pay in Rubles with a number of local methods, which are aggregated by Russian payment provider RBK Money. Given that 80% of sales for Russian e-commerce companies such as Ozon.ru are conducted via cash-on-delivery, this implies a fairly narrow range of goods which Russian consumers would be purchasing through Rutaobao.

Customer service: Russian-language toll-free telephone and email support is offered, in Russian. Telephone support is offered only during Moscow business hours.

Logistics and shipping: Warehouse is located in China, and goods ship to Russian customers directly via China Post or EMS. No “private” couriers like DHL or FedEx are offered, presumably for cost reasons. This adds significantly to waiting periods for Russian consumers.

Returns: Process is not specified on the site.

Case study: Ozon vs. Rutaobao

In a subsequent post, we’ll go through a case study with a specific product and compare pricing and delivery time/cost to Moscow between Rutaobao and domestic Russian e-commerce players. We might even throw in competition from US-based Amazon, if time permits. Stay tuned!

 

About Leighton Peter Prabhu

I am a partner in Interstice Consulting LLP and head of the Russian office. My practice focuses on e-commerce business and marketing consulting, especially for foreign e-commerce brands entering the Russian market. I also serve as a consultant to some of the largest international portfolio investors in Russian equities (both public and private). You can find out more about my background and business interests on LinkedIn. You can also connect with me on Twitter and on Google+.

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