Minh-Ha Nguyen’s presentation on the challenges and opportunities of doing e-commerce in China highlights: • Trends in China e-commerce, including mobile commerce • Challenges of doing business in China, including the myth of China e-commerce as a low-cost distribution channel and what drives the high cost of China e-commerce • Benefits of e-commerce in China • Opportunities available for China e-commerce companies • Opportunities available for the product manufacturers supplying these e-commerce companies in China

1. China E-commerce:
Challenges & Opportunities
Myths, Realities & Unlocking Potential
Minh-Ha Nguyen
October 26, 2012

2. China E-commerce:
Background & Context

3. China has more than half a BILLION people
online
China Internet Users (In Millions)
538
513
457
384
298
210
2007 2008 2009 2010 2011 Jun-2012
Source: CNNIC -2-

4. China already the world’s largest Internet
population
Internet Users By Country (2010 - 2015E)
(in Millions)
1,000 CAGR=
+9.0%
703 2010
750 2015E
500 457 +3.1%
238277 +1.5%
+2.1%
250 +1.5%
102110
46 51 38 41
0
China USA Japan UK S. Korea
Internet
34% 51% 76% 85% 80% 88% 74% 79% 77% 79%
Penetration
Source: Boston Consulting Group -3-

5. China’s e-commerce market expected to
become world’s largest by 2015
E-commerce Market Size By Country (2010 - 2015E)
($Billions)
400 CAGR=
+34%
+9%
305 2010
300 268 2015E
200 177
+5% +12%
+8%
100 71 64
38 49 37
18 27
0
China USA Japan UK S. Korea
Source: Boston Consulting Group -4-

6. …and China’s e-commerce market still has more
room to grow
eShopper Population By Country (2010 - 2015E)
(in Millions)
+2.3x
400
329
2010
300 2015E
199
200 170
145
100 62 75
29 37 29 32
0
China USA Japan UK S. Korea
eShopper % of
32% 47% 72% 73% 61% 68% 66% 73% 77% 79%
Internet Users
Source: Boston Consulting Group -5-

7. Chinese Internet users very active across a
wide range of online activities
Chinese Online Behavior & Penetration
(Millions
of Users) 388
274
251
210
187
Online Online Social Microblog Mobile Internet
Shoppers Payments Networking Users Users
Users Website Users
Penetration 39.0% 34.8% 46.6% 50.9% 72.2%
Notes: * Data as of June 2012
Source: CNNIC -6-

8. China mobile Internet usage growing
dramatically
China Mobile Internet Users & Penetration
72.2%
69.3%
65.9% 66.2% 65.5%
60.8%
CAGR=
46.0% +52%
388
39.5% 356
28.9% 318
303
277
233
155
118
73
2008.6 2008.12 2009.6 2009.12 2010.6 2010.12 2011.6 2011.12 2012.6
Notes: * Data as of June 2012
Source: CNNIC -7-

9. Internet access via mobile devices surpassed
desktop PC, paving way for M-commerce
China Internet Access By Device Type
73% 71% 72%
69%
Desktop Computer Mobile Phone
Dec-11 Jun-12
Notes: * Data as of June 2012
Source: CNNIC -8-

10. Grocery expected to be fourth largest online
category by 2016
Source: McKinsey -9-

11. Consumer acceptance towards buying Food &
Beverage online varies by geography
Source: Insights China by McKinsey (2010 update) - 10 -

12. Channel shift taking place in retail worldwide
China Retail Market Split, 2010 Online Penetration China Online Market Split, 2016
RMB Billions Percent RMB Billions
100% = 7.847 2010 2016 100% = 2.081
20%
Apparel 20% 30%
31%
Apparel 7 20
Consumer Apparel
13%
Electronics
Consumer
13 34
15% Electronics
Home 28%
Improvement
Home Consumer
8 19 Electronics
Improvement
26%
Grocery 1 5 Home
Grocery 47%
Improvement
Health & Beauty 4 16
Health & 9% Grocery
Beauty Health & Beauty
Toys & Games 5 11
Toys & Games Toys & Games
2% 2%
Baby & Mom 1% Baby & Mom
1%
Other GM 1% 2% 1% Other GM
1% Baby & Mom 4 19
2010 2016
Source: McKinsey - 11 -

13. China E-commerce:
Challenges

14. China e-commerce: Myths vs. Realities
• Promise of China E-commerce:
True o More goods to more people more quickly
MYTH o Low-cost distribution channel
REALITY:
• China e-commerce as low-cost channel
for physical goods is a myth
• However, it’s not all bad news!
E-commerce does offer many benefits
- 13 -
- 13 -

15. China e-commerce faces daunting economics,
driven by 5 key factors:
1. Immature Logistics Infrastructure
2. High Marketing Costs
3. Difficulty Charging Price Premium Online
4. “Spoiled” Chinese Consumers
5. “Gaming” by Chinese Consumers
- 14 -

16. China E-commerce:
Opportunities

17. It’s not all bad news:
E-commerce does offer numerous benefits
• Quickly reach large number of consumers across China
• Brand awareness, brand building
• Instant consumer feedback
− Improve inventory management
− Maximize pricing effectiveness
− Generate new product ideas
• For multi-channel players:
− Complements B&M offering (infinite shelf space)
− Increases overall market share (vs. single channel)
• Plus… undeniable trend:
− Channel shift taking place worldwide
− Shift moving away from Taobao and towards B2C
- 16 -

18. Unlocking Potential:
Opportunities for E-commerce Retailers
• Employ lower cost marketing channels
Proactively
Manage Costs
− Social media
− Word-of-mouth
• Sell unique goods
• Establish reputation for quality + service
Increase • Make your website a “destination”
Topline • Have functionalities that drive sales
• Smart marketing
• Execute well
• Have plan for mobile commerce… now!
Be One Step
Ahead • Be scrappy (think like a start-up)
- 17 -

19. Unlocking Potential:
Opportunities for Manufacturers
• Benefits:
Develop True − Preferential treatment (promo space)
Partnership − Consumer insights
With E-tailers
− Combat counterfeit, food safety issues
− Increase awareness, trial, usage
• Potential ideas:
− Price promotions if it drives volume
− Non-price value-added benefits
− Creative ways to provide unique goods
• Especially categories that are:
Establish Direct
− High-involvement
Consumer
Relationship − Authenticity concerns
• Potential ideas:
− Direct delivery
− Provide related information
− Leverage social media - 18 -

20. Thank you!
Minh-Ha Nguyen
minhha@sinopundit.com
Blog: SinoPundit.com