Taobao, 360buy to dominate e-commerce market

Two of the largest comprehensive e-commerce platforms in China will dominate the market in the near future and it will be hard for smaller competitors to survive, experts said at a forum over the weekend in Beijing.

Logistics capacity-building has become a "must" for every player at the table, because self-built delivery systems are currently the most reliable way in China to ensure quality services and retain customers, Wang Gao, a marketing professor at China Europe International Business School, told the Global Times at the forum Saturday.

Only the venture capital-backed 360buy.com and taobao.com, a subsidiary of Chinese e-commerce giant Alibaba Group, currently have the financial clout to build huge warehouses and shipping centers suitable for comprehensive platforms across the nation, Wang said.

"The Asia No. 1 warehouse built by 360buy.com in Jiading district in Shanghai is eight times the size of the Bird's Nest (Beijing-based National Stadium)," Wang told the forum.

360buy.com plans to build six more such super warehouses this year, boosting its self-owned logistics coverage to 350 cities, portal website qq.com reported Friday, citing the company's vice president Zhang Shouchuan.

Most of the $1.5 billion 360buy.com raised last year from private investors will be invested in logistics capacity-building, while Ma Yun, Alibaba's chairman, has funds of 10 billion yuan ($1.6 billion) to invest in taobao.com, Wang said.

"Building a logistics system will involve huge capital pressure, but not building it will cost the e-commerce sites both market and customers," Lin Guolong, a logistics professor at Shanghai Maritime University, told the Global Times.

Third-party logistics firms generally lack credibility in China, due to insufficient regulation and standards for the sector. And given that service is vital to e-commerce, few companies want to risk outsourcing it to a third party, Lin said.

Meanwhile, smaller online shops are being weighed down by growing shipping and handling costs. VIPshop.com, the first Chinese company to list in the US since August, tumbled by 15 percent on its debut in New York Friday. While the online discount retailer's net revenues increased nearly sevenfold in 2011, its losses widened to 47.1 percent of the revenues in 2011 from 25.7 of the revenues in 2010, according to the company's prospectus.

Wang also said that a serious logistics overcapacity problem is developing.