E-marketing strategy: An exploratory investigation into Chinese business use of the Internet

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1 E-marketing strategy: An exploratory investigation into Chinese business use of the Internet Melissa Johnson Morgan, University of Southern Queensland, Australia Meredith Lawley and Wendy Spinks, University of the Sunshine Coast, Australia Abstract This paper outlines the results of an exploratory survey on the business use of the Internet in China in four areas, including; strategic goals, marketing communications, marketing logistics, and relationship management.. The results of this study are then compared to a similar study conducted by Adam, Mulye, Deans and Palihawadana (2002) which described the business use of the Internet in the UK, Australia and New Zealand. The findings of the Chinese study do vary from the earlier Western study but rather than showing any particular advance in emarketing strategy in the past four years, they highlight a utilitarian approach to the Internet by Chinese businesses who are generally less experienced in brand building and customer relationship management than their Western counterparts. Theoretically this suggest that the use of the Internet by businesses is not solely dependent on technical infrastructure and sophistication but also the diffusion of Internet business strategies and tactics. Introduction The post dot-com reality of emarketing is probably best expressed by Porter (2001) who revamped his competitive advantage theory to accommodate the revolutionary impact of the Internet, but in the end concluded that its ubiquity negated its impact as a source of competitive advantage for any organization. However, the diffusion of Internet based business models and consumer readiness for Internet based solutions certainly seems to impact on the use of the Internet and web-based technologies in different industries and different countries. The fact that the Internet is potentially a global medium doesn t mean that all industries and consumers are equally prepared or willing to utilize its strategic potential. Adam et. al s (2002) study to compare the business use of the Internet in Australia, the UK and New Zealand was an interesting post dot-com snap shot of Western Internet business culture outside the saturated research realm of Northern American ebusiness strategy. A decade on from the introduction of the Internet, this paper pauses to review Adam et. al s (2002) findings and considers the diffusion of business use of the Internet in China, one of the most powerful and dynamic emerging economies in the world. China s Internet infrastructure is characterized by disparities among geographic areas, demographics and firm size with large enterprises much better equipped and trained to utilize the Internet than small and medium sized enterprises (Tan and Ouyang 2002). China may be an emerging global player in world trade but a lack of Internet business research and experience, and a general unpreparedness for emarketing by government, business and consumers, means that there is still much to be learnt about emarketing strategy in China. Background The greatest threat from the Internet to any established organization is the failure to strategically use Internet based technologies in their own business strategy (Porter 2001). Therefore any research into emarketing should investigate the strategies used by firms in the

2 operationalisation of their traditional marketing activities (Adam et al. 2001; McGrath and Helens 2003). Operationalisation of emarketing strategy differs to that of the more generic e-business strategy and while it should include strategic goals, there are several emarketing models that are logical, functional and integrative (McCole and Ramsey 2004). This research uses the model and three major functions of emarketing proposed by Adam et al. (2002); marketing communication, marketing logistics and relationship management, as these operationalise the functions suggested in other models (McCole and Ramsey 2004). The implementation of emarketing strategies increases in complexity with increased internationalization of organizations (Sheth and Sharma 2005). While there are commonalities across international markets, a countries infrastructure will also impact on emarketing strategies and thus firms need to develop unique emarketing strategies based on the countries in which they operate (Adam et al. 2002; McCole and Ramsey 2004; Sheth and Sharma 2005). Many studies have considered emarketing by organizations in Europe, America and Australia, but relatively few similar studies have been conducted in China, one of the world s largest markets. Approximately one fifth of the world s population reside in China, with 25 percent of the Chinese population expected to be using the Internet by 2010 (CNNIC 2006). China s large market size, together with sustained high economic growth of approximately 10 percent per annum for 30 years, is creating a large opportunity for information technology. Chinese Internet users and hosts increased at a rate of 18.1 percent to 111million million and 19.0 percent to 49.5 million respectively in 2005 (The China Internet Network Information Center (CNNIC) 2006). China now has the second largest number of Internet users in the world, behind the United States at 204 million. Infrastructure and demand changes in the Chinese market provide both challenges and opportunities for e-marketing strategies. The Chinese online market is, like Australia, concentrated in non-rural areas, with 16.9 percent penetration in urban areas and only 2.6 percent in rural areas (CNNIC 2006). While the Chinese government has promoted Internet access within the country, the Chinese government, has unlike any other e-marketing environments, been able to place strict control over content and have ensured that the country s Internet service providers have focused more on market information than any free and uncontrolled circulation of information available in other countries (McLaughlin 2005). Methodology To understand how the Internet is being used by businesses in China a self-administered survey was developed which asked respondents questions about four business areas; strategic goals, marketing communication functions, marketing logistics, and relationship management functions. Items in each of the four areas were based on those identified by Adams et al. (2002 see this paper for full item details). These items were measured on five point scales to identify degree of use of the Internet, with 1 equalling not at all and 5 equalling to a large extent. Following pre-testing, the survey was administered to a convenience sample of 110 part-time Chinese MBA students studying through two different western MBA programs (one American and one Australian) offered in Shanghai. Respondents were all middle to senior level from a variety of functional areas. Forty percent of respondents worked in manufacturing industries, 28 percent worked for joint venture firms and 63 percent worked in companies with more than 100 employees in China.

3 Results and Discussion Table 1 summarises the percentage frequencies, means and standard deviations of responses to questions regarding the degree of use of the Internet for business purposes. Within each of the four identified areas uses are listed from the most used to least used function. Table 1 Uses of the Internet in emarketing in China M StD Not at all Large extent Strategic Goals Frequency % Increase cost effectiveness Enhance corporate image Gather marketing intelligence Gain competitive advantage Marketing communication function: Provide product info to customers Build brand identity Gather customer information Marketing logistics function Online ordering Direct sales Real time order processing Relationship management function Supply customers with online communication facilities Maintain relationships with customers Promptly handle customer queries Enable online customer communities Provide after sales service Offer online customer service In relation to strategic goals Adam et al. (2002) found corporate image consistently had the highest use across the UK, Australia and New Zealand but then differences in the use of the remaining three items occurred with the UK reporting a high usage of the Internet for competitive advantage and cost effectiveness and a very low use of marketing intelligence, while Australia and New Zealand showed a large decrease in usage from corporate image to marketing intelligence and cost effectiveness with competitive advantage lower again. As shown in Table 1 Chinese respondents differed from the previous study in that they rated cost effectiveness rather than corporate image as having the highest use image with competitive advantage the least used. This finding seems reasonable given that China has little experience with brand building and brand identity while the mostly manufacturing based economy has given rise to firms whose main interest is in channel management and supply chain effectiveness. Cost reduction is key to most organizations in China as it is the basis of not only local competitive advantage but their profile in the global market. In relation to the marketing communication function, Adam et al. (2002) found that UK respondents used the provision of product information most frequently followed by building brand identity and customer information purposes, while Australian and New Zealand respondents used customer information purposes most frequently. Our Chinese results match

4 those for the UK with providing product information rated the greatest use of the Internet for marketing communication. Again these findings are to be expected given the dominance of technical and industrial based companies in China. The marketing communication function in this case is probably also market-driven rather than strategic on the part of the firm. The consumer readiness factor is likely at work here with the Internet offering a cost effective method of communicating product specifications. Chinese firms typically have very limited experience or formulated strategy when it comes to customer database development and management and there is an inherent distrust of this type of information gathering and storage by Chinese customers and business partners raised in the shadow of a communist regulated market. Brand marketing is in its infancy in the strategies of Chinese companies and the experiences of Chinese consumers. It is therefore not surprising to see that building brand identity via the Internet is less prevelant that the more utilitarian functions of product information provision. In relation to the marketing logistics function, Adam et al. (2002) found that respondents from all countries used the Internet significantly less for logistics functions compared to strategic goals and marketing communication as was also the case with China. The similarity of results in the area of marketing logistics functions for China, the UK, Australia and New Zealand probably represent an experience curve issue for China who in are recording similar functions as those reported by their Western counterparts four years ago. It is probable that the UK, Australia and New Zealand may have advanced their marketing strategy in the area of marketing logistics functions and similarly Chinese companies and consumers may undergo a gradual adoption of Internet strategies in this area as the infrastructure and legislation surrounding the Internet in China improves and their general experience with emarketing strategy matures. Finally in relation to the relationship management function, Adam et al. (2002) report a strong pattern of similarity between Australia and New Zealand with the UK slightly different. Specifically, UK respondents used the Internet most for promptly handling customer queries while Australian and New Zealand respondents rated this third and fourth in terms of use. China more closely matches Australia and New Zealand, with supplying customers with online communication faciltites used most. Again these findings are more likely related to Chinese firms general evolution in marketing strategy rather than any specific emarketing infrastructure or strategy issue. Chinese firms are rapidly trying to educate themselves about customer relationship management and Chinese consumes are being equally rapidly socialized into Western-style marketing relationships with firms and brands. While online communication functions currently dominate the business strategy of Chinese firms it is highly likely that more sophisticated relationship management functions such as provision for online community development and management will evolve as customers mature and markets open up to the aggressive tactics of savvy American and European emarketing organizations. Conclusions This exploratory study investigated how Chinese organizations are currently using the Internet in business. The four specific dimensions of emarketing strategy included; strategic

5 goals, marketing communications, marketing logistics, and customer relationship management. It would seem that despite the huge progress that has been made in the infrastructure supporting the Internet and web-based technologies in China, there is still very slow diffusion of Internet based strategy tools such as online ordering, direct sales or real time order processing. No distinction has been made in this exploratory study between B2B and B2C organizations. However, other research has shown that online purchases still remain unpopular in China with three quarters of all Internet users never having bought anything online (Guo 2005). There are still major obstacles to be overcome in the Chinese market including; a lack of trust and security of Internet based business functions (Tan and Ouyang 2002; Guo 2005), and a communication barrier with many support sites and network relationships being English language based. Adam et al s findings in 2002 probably reflected some natural progression and diffusion rate differences between the UK and Australia and New Zealand, and also reflected organization s general lack of strategic knowledge about sound emarketing strategy at the time. This meant that UK, Australian and New Zealand firms showed some fragmentation in their reported use of the Internet and we were left to consider whether the limited purchasing behaviour of Australians and New Zealanders was a consequence of a failure by business to strategically use the Internet to its full potential. Or whether the businesses viewed low online purchasing levels as a reason not to invest in the Internet beyond its obvious communication economies (Adam et al 2002)? Similarly, this study now leaves us with the question of whether Chinese business and individual consumers are inhibiting the diffusion of emarketing strategy? Or whether Chinese businesses are failing in the implementation of sound emarketing strategy which is in turn limiting consumers use of the Internet as anything more than a static information service. Unlike their Western counterparts however, Chinese consumers and businesses are faced with an environment that provides many serious and inhibiting issues. These include: stringent government control and censorship of Chinese Internet sites; control and censorship of Internet usage and communications by Chinese citizens; enduring language barriers; a general distrust of online commerce and supporting services such as credit cards, banks and delivery services; a vastly different geographic infrastructure and demographic profile where access and wealth are concentrated in few locations of a massive population; a consumer base still coming to terms with concepts such as branding and customer relationship management and who were not exposed to the Amazon and Yahoo Internet socialization of the late 1990 s as Western consumers were; and a virtual bypassing of computer based applications in favour of mobile technologies and instant rather than asynchronous solutions. The potential market size in China will ensure that it stays a hot topic for business research in general and business use of the Internet in Chinese commerce will be no exception. Future studies in this area should try to isolate the issues that underlie the chicken-and-egg-like analogy of why emarketing strategy and business use of the Internet in China is not more advanced. Are cultural issues and Chinese consumer attitudes and behaviours inhibiting the use of the Internet as a business tool? Or are Chinese businesses lacking the skills and ability to integrate Internet solutions into marketing strategy and thereby inhibiting Chinese Internet diffusion? Perhaps even more interesting would be to do a thorough investigation of what impact cultural context and political and economic history have had on the rate of diffusion of Internet business solutions in China. This could involve some cross-cultural comparisons and would be equally interesting if they involved not only Western country comparisons but also some exploration of other huge emerging countries such as India.

6 References Adam, S., Mulye, R, Deans, K., Palihawadana, D., E-marketing in perspective: a three country comparison of business use of the internet. Marketing Intelligence and Planning 20 (4), China Internet Network Information Center (CNNIC), th Statistical Survey Report on the Internet Development in China (Jan 2006). Ministry of Information Industry (MII) Available from accessed 16 June Guo, L., Surveying Internet Usage and Impact in Five Chinese Cities. Research Center for Social Development, Chinese Academy of Social Sciences, November. Available from accessed 20 June McCole, P., Ramsey, E., Internet enabled technology in knowledge-intensive business services. Marketing Intelligence and Planning 22 (7), McGrath, L., Helens, R., Beware the Internet panacea: how tried and true strategy got sidelined. Journal of Business Strategy 24 (6), McLaughlin, K., China s model for a censored Internet. The Christian Science Monitor September 22. Porter, M., Strategy and the Internet. Harvard Business Review 79 (3), Tan, Z., and Ouyang Global and National Factors Affecting E-commerce Diffusion in China. Center for Research on Information Technology and Organizations (CRITO). Globalization of IT, Paper 293. August 1. Available from Accessed 4 February 2006 Sheth, J., and Sharma, A., International e-marketing: opportunities and issues. International Marketing Review. 22 (6),