When Peggy Yu, 34, and Li Guoqing,
37, co-founders of Dangdang.com, decided upon the name
of their company, they chose a bit of Chinese onomatopoeia
that encapsulates the entire point of electronic commerce
on the Internet.
"Dangdang comes from the Chinese adjective
xiangdangdang [resounding or worthy]," explains Yu.
"We also wanted a name that would be easy to pronounce
for Chinese-speaking people living here and overseas."
Among the 70 million ethnic Chinese living abroad--an
important asset for Chinese-language Internet growth--the
Mainland's pinyin phonetic system is not widely accepted,
so Yu and Li sought a name that would be easy for expatriate
Chinese to remember and pronounce, avoiding spellings,
for instance, that began with Zh or Q. "It's also,"
Yu says, smiling, as she enthusiastically makes a fist
and pretends to be pulling a lever, "the sound of a
cash register opening and closing: dang-dang!"
Peggy Yu met her husband and future partner Li Guoqing
in the summer of 1996. Li's Science and Culture Books
was already a successful publisher of professional titles,
while Yu had been working for five years as a mergers
and acquisitions consultant after earning an MBA from
New York University. In some ways, the match would foreshadow
the mix of financial savvy and entrepreneurial chutzpah
that is currently driving China's billion-dollar piece
of the Digital Economy and redefining the rules of something
lovingly remembered as "socialism with Chinese characteristics."
Within three months of meeting, the couple married,
and soon hatched the idea that would lead to what is
arguably China's most successful ecommerce venture.
"Guoqing impressed upon me that in
the book business," recalls Yu, "the most valuable asset
is the degree of linkage between publisher and reader."
When Yu described to Li what a new,
relatively unknown company called Amazon.com was up
to, Li was intrigued. "So we began to take Amazon apart
and see what made them tick," she says.
Yu and Li quickly recognized that
in addition to its online storefront and market positioning,
Amazon's greatest asset was its huge searchable database
"I made some calls," says the indefatigably studious
Yu, "and discovered that Amazon originally licensed
their database from Baker & Taylor, a book wholesaler.
So we saw that Amazon started out with an outsourcing
model. They relied on Baker & Taylor for their supply
of information and physical supply of books, then just
put everything together and started selling online."
But when Yu and Li looked at China's
book marketplace, they quickly realized that a similar
business model based on outsourcing core aspects of
the business simply wasn't possible. China didn't have
a nationwide database of title information. So Li and
Yu set about producing their own database, China Books
in Print (CNBIP) in Beijing. The biblio-entrepreneurs
learned how to construct a book database by studying
similar products in England and America, and soon developed
a proprietary database that would both enhance their
eventual online bookstore while also providing the business
a viable escape hatch.
"We had a very carefully crafted
strategy. In 1996, there were only a few hundred thousand
Internet-users in China," Yu says. "We decided that
if the Internet ever took off in China, the CNBIP would
be online so people could browse for information on
titles. If the Internet didn't take off, then we'd just
be a professional database company."
200,000 Titles and Counting
Yu and Li's strategy set 3 million Chinese Internet
users as the benchmark for going live online. China's
net population passed the 3 million mark sometime in
1999. Dangdang went online in November of that year,
and with minimal advertising--few in offline society
have even heard of the company--Yu expects Dangdang.com
to turn a profit in 2002.
With 200,000 titles available via
its website, Dangdang.com is the biggest bookstore--online
or offline--in China, and is filling a vital need for
book-starved readers in a vast country with no chain
bookstores, large cataloguers, or other means of distributing
a booming supply of titles.
"We looked at the number of books
in print in China and the inventory of typical bookstores,
and realized that, due to barriers of location and store
size, a great percentage of books simply can't reach
their potential readers via the traditional retail model.
It's still very difficult for people to get good books
in China, which have a much shorter shelf-life than
they do in the West," Yu says.
Unlike Amazon.com, Dangdang doesn't
need to attract customers with discounts. For a growing
number of Dangdang's users, the biggest obstacle to
buying books isn't price, but availability. For a veterinarian
in Gansu province, the ability to have access to recently
translated Western textbooks in translation or a hard-to-find
book on Taiwan's 1997 hoof-and-mouth epidemic marks
a quantum leap far more radical in social impact than
Amazon's consolidation of the essentially already efficient
book business in the United States.
In addition to the sheer number of
titles available online, Dangdang's most attractive
added-value is their proprietary database which allows
one to browse or search by subject, title, author, or
International Standard Book Number (ISBN).
"In traditional bookstores, it can
be very difficult to find the title you want. Chinese
bookstores use the academic-oriented China Library Subject
Heading System, an index system used by library science
experts. Hence,a book on how to find a good husband,
for instance, is put in the same place with sociology
"So we studied how books were indexed
in the West and came up with the Science and Culture
Subject Heading System, which divides book subjects
into 49 large categories and 2000 small categories.
If you go to our children's section, you'll see about
20,000 titles, which are then divided into 0-3, 4-7,
reading workbooks with pictures, etc. It's very user
friendly," Yu states.
Today's Technology, Yesterday's
Although Dangdang.com's success has come at Internet-speed--boasting
over ´1 million in sales in the first two months of
online operation--the company is a model of Old Economy
business-planning, hard work and strategic decision-making.
"For three years we knocked on the
door of every single publisher in China, and established
a good working relationship with these publishers, so
we could maintain accurate and updated information on
what books are in or out of print. Also being a publisher
for many years before going online gives us a lot of
credibility in the industry. Booksellers, wholesalers
and retailers know Science and Culture Books as a solid
company, so we're able to get very good trade terms
on accounts payable, and supply and discounts," Yu comments.
They also have good investors.
Dangdang's investment partners are
the Boston-based International Data Group, an IT research
and investment firm that is not only one of the earliest
and most profitable investors in Chinese publishing,
but also currently on a billion-dollar search to provide
funding to the most promising online startups in China.
Dangdang's other investment partner, Luxembourg Cambridge
Holding Group, specializes in professional publishing
as well as books-in-print databases in post-socialist
LIGHT-SPEED SALES TO A HORSECART-DRIVEN
As with all electronic commerce business in China, the
immediate obstacles to Dangdang's success are not other
competitors or a lack of potential customers, but rather
a mixed bag of low-tech inefficiencies in shipping and
logistics, regulatory inertia and the widespread lack
of liquidity due to a nascent credit system.
"Technological development is easy.
It's the low-tech barriers that make ecommerce difficult
to conduct here. I see a lot of low-tech barriers I
wish could make go away. I'd like to see an affordable
Chinese version of Fedex or UPS, and I'd liked to see
banks make more of an effort to make online transactions
a more pleasant experience for customers," says Yu.
Since credit card use is still negligible
in China, and many consumers are still concerned with
security issues, a large percentage of online book purchases
involve a hike to the local post office or bank to pre-pay
by postal order or bank transfer. (Dangdang.com's Beijing
book-buyers currently have the option of COD payments.)
But, as with the millions of mainland cellphone users
who trek religiously to the bank or telecom office to
pay monthly phone bills, it's a real-world inconvenience
most Chinese consumers accept.
Although several banks, notably China
Merchants Bank and China Construction Bank, are taking
steps to make online commerce easier, "their problem
is that the front-end is online--they have a website
with a window where you can ask for this and that--but
the back-end operation is still manual! That's what
holds up a lot of the transactions," Yu says with visible
"But it's an interactive process.
I'm not going to sit here and complain about banks.
Unless the banks see a lot of online companies like
Dangdang.com utilizing online banking services, it's
not going to be worthwhile for them to innovate."
Commerce in China: An Overview
Electronic commerce is, by all accounts,
the most exciting development on the Internet since
the World Wide Web. And ecommerce in China is doubly
exciting because it is taking place on the still uncertain
shoulders of the social revolution begun just two decades
ago by Deng Xiaoping.
Companies like Dangdang.com are at
the forefront of China's ecommerce revolution--a revolution
that's going to change both how business gets conducted,
and by extension how people lead their lives in China.
According to netrepreneurs like Dangdang.com
founder Peggy Yu, it's going to change the way Chinese
people think as well. "It's teaching people the value
of intellectual property and intellectual capital. It
is also demonstrating the value of risk-taking," Yu
It is also empowering the average
Chinese consumer with a flood of free information in
a way that no one could have foreseen.
"The Internet is a very democratic
place. Consumers have direct access to the producer
of goods or services. So what they want will have a
bigger say in determining the corporation's behavior,"
So far, the largest part of the ecommerce
story is being told in a jumble of familiar sounding
statistics and marketing buzzwords, punctuated by the
monthly grumblings of an understandably cautious government
seeking to both control and benefit from the fastest
growing sphere of human commercial activity since the
invention of trading itself.
The most recent Internet survey by
the China Internet Network Information Center estimates
China's Internet population at about 8.9 million, with
50,000 domain names bearing the .cn suffix. New ecommerce
businesses are coming online at the rate of more than
two per day--rendering the notion of a biannual survey
ludicrous. Ecommerce turnover is expected to grow from
US$40 million last year to US$3.8 billion by 2003.
Still, it is important to keep in
mind that ecommerce in China is only in its embryonic
stages. For starters, there are only 16 computers per
million connected to the Internet in China, versus 97,500
per million in the United States, according to the latest
World Bank World Development report. But what China
has is potential.
Last year's billion-dollar China.com
IPO linked Wall Street, Zhongguancun, AOL, Xinhua and
the Cayman Islands in a manner that once and for all
clarified the nuances of the phrase "with Chinese characteristics."
And despite the fact that Sina, Netease, and Sohu--China's
top Internet portals, whose mission is to "guide" one
through the confusing miasma of information on the Web--still
can't produce advertising that anyone can understand,
there are nevertheless small armies of Silicon Valley
venture capitalists scouring the country for worthwhile
startups to join the inevitable flood of public offerings
of China's Internet goldrush.
When investing in Chinese ecommerce firms, it's essential
to be aware of the shortcomings of selling online in
China. First, very few buy-and-sell transactions are
actually handled over the Net. Because credit cards
are not widely used in China, most Internet purchases
consist of placing an order online
and then paying for the goods upon delivery. The items
are usually bought with cash.
Second, the delivery of goods purchased
online is hampered by China's inefficient transportation
system. The nation's infrastructure is underdeveloped
and the postal system is slow and unreliable.
Also, online access rates are slow.
Most Internet service providers (ISPs) offer connections
at 33.6 kilobytes per second. Thus, logging onto any
sites with even the most simple graphics can involve
a lengthy, tedious wait.
The Good News
But most ecommerce observers are betting that these
problems will only be temporary. Credit card use is
spreading in China, albeit slowly, and Chinese Internet
sites are working to increase the security of their
China's distribution system is improving.
Beijing is spending billions of yuan to improve the
nation's telecommunications infrastructure. Internet
firms are also finding ways to get around transportation
problems. MyWeb, for example, is working with a taxi
company in Beijing to ensure prompt and reliable delivery
of its online products.
Foreign companies will also be allowed
to get into the local distribution business three years
after China enters the World Trade Organization. This
added competition should improve efficiency. Online
access rates are also improving. The nation's backbone
telecom infrastructure is being converted to fiber optic
and ISDN, DSL and ADSL connections are gaining popularity
in major cities.
As the number of ecommerce companies in China continues
to grow, those looking to invest now may feel overwhelmed
by the surfeit of choices. Investment gurus recommend
Legend Holdings is by far the most Internet-savvy of
the online companies in China, according to Credit Lyonnais
Securities Asia (CLSA).
Not only was Legend the first large
firm in China to roll out an ecommerce strategy (last
year it linked 300 of its distributors to a company
ecommerce system), but it has stayed ahead of the curve
Its most recent online venture was
the launching of a TV set-top box online stock trading
product, bringing ecommerce into the home via a cheap,
easy-to-use format (you don't even need a computer).
SG Securities likes Legend because
the company expects to sell up to 350,000 high-margin
Conet Internet PCs in 2000. It will also benefit from
expected lower import tariffs on components.
Merrill Lynch and ABN AMRO have been
recommending Legend shares since last summer.
TCL International, a major TV manufacturer, benefits
from running "one of China's most extensive sales and
distribution networks," notes a CSLA research report.
BNP Equities believes TCL has potential
because it's gradually transforming itself from a pure
TV maker to an IT giant. The company is beginning to
manufacture Microsoft Venus computers, set-top boxes
and network equipment.
Indosuez W.I. Carr Securities recommends
TCL because its products have practically captured China's
rural color TV market. TCL, which also makes refrigerators
and washing machines, is using e-commerce to upgrade
operations and accelerate market expansion.
Another favorite is Founder. A company whose core business
is electronic publishing, last September, the Founder
Group signed a Memorandum of Understanding (MOU) with
Yahoo to launch http://www.yahoo.com.cn.
CLSA believes the company is a good
bet because the former vice president of Hewlett Packard
China was appointed to help guide future development.
Indosuez W.I. Carr Securities writes
that "its Internet focus could bring new momentum to
profit growth, by capitalizing on extensive media clientele,
including newspaper and TV stations."
Merrill Lynch notes that Founder
possesses superior technical expertise, an early-start
advantage, "and the local knowledge to succeed in this
Virtual China contributed to this