As it embarks on an ambitious global expansion plan, Shopify has begun building a team in China, hiring an executive to build partnerships in the world’s largest e-commerce market.
The Ottawa-based company is looking for a head of business development for the country, one of three positions currently open in Shenzhen. “Shopify’s China team is starting out,” the job postings say. It has already recruited five employees in the southeastern city over the past year, LinkedIn data shows.
In April, CEO Tobi Lütke said the company was looking to sign Chinese exporters up to the platform. “There (are) a lot of Chinese brands now out there which are trying to go global, and do so directly,” he said. “We have worked with them (and) they are seeing significant success using the Shopify platform.” In June, the firm announced merchants would be able to use its platform in traditional and simplified Chinese.
Some analysts believe there’s also an opportunity for Shopify to focus on merchants selling to Chinese shoppers.
“When you think about the China opportunity, there’s a massive commerce market there, (a) huge number of eyeballs that they can they can potentially reach out to,” said Guggenheim Partners director Ken Wong, who covers the company’s stock.
He noted that some multinational brands that use the company’s Shopify Plus service — which gives larger merchants access to dedicated engineering and support resources — are already selling to Chinese customers through the platform.
The firm’s sales are heavily focused in North America; 77 per cent of its 2018 revenue came from merchants in the U.S. and Canada, and another 11 per cent from the U.K. and Australia. (The company does not break out the remaining 12 per cent of revenue by country.)
Shopify declined The Logic’s request for comment, but the company said in April it had made international growth one of its investment priorities for 2019.
Its core markets are “not tapped, but they’re definitely a little more saturated,” said Wong. The company added fewer new merchants in 2018 than the previous year, he noted. It ended 2018 with about 820,000 merchants on the platform, compared to approximately 609,000 in 2017 and more than 377,500 in 2016.
R. “Ray” Wang, founder of Silicon Valley-headquartered Constellation Research, also sees a domestic opportunity for Shopify. “We’ve seen a lot of interest for cross-border commerce … coming from merchants who want to sell in China,” he said.
China’s shoppers continue to spend, despite the tariffs on U.S. goods born of the countries’ ongoing trade dispute. The country’s consumer market will become the world’s largest in 2021, according to a July report from eMarketer, a research agency. It predicted e-commerce sales would reach US$1.9 trillion this year, more than half the global total.
But Shopify could also build a Chinese merchant base by signing up firms that want to export. Ross MacMillan, vice-president at T. Rowe Price, said some Chinese manufacturers whose products are listed on online marketplaces or sold by dropshippers — merchants who take orders but do not handle production or shipping — are interested in cutting out those middlemen and selling “directly to the U.S. consumer.” It’s the direct-to-consumer model favoured by many of Shopify’s biggest clients. “Even if it’s a fraction of the Chinese market that wants a branded presence, it’s still a big opportunity,” he said.
According to the job posting, the new head of business development will be tasked with developing “strategic relationships for Shopify with leading players in e-commerce.” They will join a head of enterprise business for the country, hired in April. The company is also hiring someone to sign up new partners — the firm’s term for the developers who build third-party apps for its platform — as well as a person to oversee the “translation and localization of Shopify’s product content” into simplified Chinese.
MacMillan noted that Shopify’s playbook for international expansion over the last two years has included investing in localization, like translating the platform into local languages, offering regionally specific payment methods and letting merchants list products in multiple currencies. The company also hires in the target country — particularly business development staff — and works with domestic companies that can build products for its app marketplace.
The company’s moves to date in China appear to fit this pattern.
China’s e-commerce market is already crowded with major domestic players. Baozun, an e-commerce platform that Wong called China’s Shopify equivalent, had net revenues of over US$748 million in 2018, compared to the Canadian firm’s US$1.07 billion that year. Chinese tech giant Alibaba’s Tmall marketplace also allows brands to set up online storefronts to sell to consumers. “You already have large marketplaces that … keep Shopify from being able to penetrate in quickly, which is what they did here,” said Wong.
Shopify could also face challenges integrating with local social media platforms, e-commerce websites and payment processors — a key part of its strategy in North America. For example, merchants can sell through their Facebook pages and buy ads on Snapchat through their Shopify accounts. They can also list products on eBay and Amazon.
Wong said it’s not clear that Chinese tech companies will offer the same kinds of integrations. “My external perception is that it’s a little more walled garden in China than it is here,” he said, noting that WeChat, the country’s biggest messaging app, already has its own store functionality.
Shopify has already been courting the big Chinese marketplaces, according to MacMillan. “Alibaba, for example, has organized conferences and events here in the U.S., and you’ll often find that Shopify is a sponsor,” he noted, adding that he’s “a little surprised” that it has yet to announce such a partnership.
Wang said Shopify could seek a relationship with JD.com, a Chinese online marketplace with a large network of warehouses, trucks and bikers to deliver orders across the country. “Anybody who wants to get commerce into China basically uses JD the way we would use a FedEx or UPS,” he said. Shopify is partnering with local logistics and technology companies to build a fulfillment service guided by artificial intelligence in the U.S.
However, all three analysts cautioned that Shopify is still just starting out in China. “They have a very nascent position there,” said MacMillan. “The product’s not really available.”