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of culture,” we wanted to get the opinions of actual participant/users of e-commerce and
wanted to eliminate the infrastructure problems (payment transfer systems, access to
computers, telecommunication infrastructure, access to Internet Service Providers, etc.)
as much as possible. As such, our study population was not intended to be, and is not,
a representative sample of the general populace in China.


Findings

Study Population Demographics

The study population (252 participants) consisted of 59.92% males and 40.08% females,
88.89% with a Bachelors degree or above (13.49% with graduate level degrees), 62.30%
were between ages 26-35 years, with 75.40% between ages 26-40 years of age. There were
also differences in the professions of the participants. The largest representative
professions were 40.87% management, 29.76% IT (Information Technology), 5.56%
service, and 5.56% consulting. These study population characteristics are very different
than the overall characteristics of China™s general populace and are also significantly
different than other studies conducted to primarily identify the development and
progress of Internet use in China. Among these studies is one semi-annual study,
conducted by the China Internet Network Information Center (CCNIC), using the Internet
to collect information. The demographics of their latest (China Internet Network
Information Center, 2002) survey included 60.9% males, 35.7% between the ages of 25-
40 years (with 53.5% younger than 20 years of age), and only 31.3% with college
education (Bachelors degree or higher). Their study participants also had a much broader
sample of professions and backgrounds, including those who checked categories such
as “military,” “peasants,” “agriculture, forestry, fishery,” real estate,” “wholesale and
retail,” “culture and arts,” and “sports,” etc., professions which were not covered by our
survey. However, since they conduct their surveys using the Internet and participants
are self-selected, their population demographics, other than possibly the professions
and backgrounds, do not necessarily truly represent China™s general population, either.


Internet Usage

The responses to our questions related to Internet access and usage reinforced our
primary premise in selecting this group to be the study participants. Overall, they had


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Technology and Culture 277


complete and easy access to Internet enabling technology (e.g., access to a PC and
telecommunication connection to an ISP) and used the Internet regularly for multiple
purposes/activities (e.g., email, web search, etc.). 37.70% of the respondents accessed
both English and Chinese Internet sites and pages, while the remaining 62.30% used only
Chinese language sites and pages. The three most popular Internet based activities were
email, with 88.49% of respondents, reading news, with 80.95% of respondents, and
search, with 58.33% of respondents. Other activity categories were downloads, chat,
games, etc. The most popular Internet site accessed was sina.com (with 80.56% respon-
dents) followed closely by sohu.com (with 54.76% respondents) and yahoo.com (with
39.29% of respondents). In the type of Internet usage, we found significant differences
between our study participants and the latest CNNIC survey findings. The CNNIC
(official Internet data collector for the Chinese government) survey data shows that
45.5% of their respondents engage in “online chatting” and 18.6% in “online games and
entertainment,” which may be attributable to their much younger (53.5% of them <24 year
old) population with lower education level (42% being of high school and lower) and to
the diversity of the professions (or lack of any profession) of their respondents, all of
which are significantly different than our study group characteristics (China Internet
Network Information Center, 2002).


E-Commerce Activity

The objective of the next set of questions (pervasiveness of e-commerce acceptance,
choice of payment methods for electronic transactions, purchased items, and evaluation
of their experiences by e-commerce participants) was to identify and clarify the culturally
based behavioral patterns of the study participants, especially as they related to their
attitudes towards “transaction trust” and “debt,” which are among the most critical
foundations of e-commerce. Chinese culture does not condemn piracy and copying, and
the legal infrastructure is not sophisticated or organized enough to deal with some illegal
activities, especially fraud. Counterfeiting and distribution of below par products is a
major problem in China, which amplifies the prevailing lack of transactional trust between
parties that do not know each other personally. As a result, Chinese rely on face-to-face
contact more so than other cultures (strong individual relationship and long-term
association between the parties, a concept described as “guanxi,” which refers to a
particular kind of social networking based on trust) and, to provide themselves with the
necessary comfort level that they are making the right purchase and demand to have
physical contact with the purchased good before they pay for it. Furthermore, the current
Chinese banking system is primarily designed to accommodate businesses, especially
SOEs, and banks are primarily owned and used as tools by the Chinese government to
further its economic and social aims, and such a system does not provide an opportunity
for the general public to easily acquire credit cards and use them in making purchases.
Financial institutions have not yet developed, do not encourage or support consumer
lending practices, and continue to reinforce the principle of “buy when you have cash
to pay,” make debt unavailable, unknown and unacceptable, and further perpetuate the
“cash society” characteristics.
The first set of questions in this group were designed to determine the ability (access
to type of medium used for payment) of the respondents to pay (possession of credit


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278 Efendioglu & Yip


Table 2. Sample population (n=252) vs. e-commerce participants (n=166)

Education Have Credit Purchase Purchase
Male Age <36 years (BS-GRAD) Card in 12-mo in 6-Mo
59.92% 79.37% 88.89% 86.51% 64.29% 65.88%
All Respondents (%)
E-Commerce
55.42% 88.55% 88.55% 86.75% 97.59% 100.00%
Participants (%)



cards) for e-commerce and whether or not they had purchased any goods/services, using
e-commerce, within the previous 12-month period. The 166 respondents that indicated
having purchased goods/services were further asked about the frequency of their
transactions during the previous 12 and 6-month periods, the products/services they
purchased, highest total value of their single purchase, and their payment method (credit
cards and other commonly used methods of payment in China) for these purchases. They
were also asked to list their primary reasons for utilizing e-commerce and rate their overall
satisfaction with the activity, and to provide unstructured comments on what they
considered to be impediments to the development of e-commerce in China and Chinese
attitudes towards use technology as a means for commerce.
Of our 252 respondents, 65.88% had participated in e-commerce transactions. The ability
to pay (access to credit cards) was not an impediment to e-commerce (86.51% of our study
participants had credit cards, with 69.84% having two or more credit cards), and we do
not consider this finding to be representative of China and attribute it to the deliberate
composition of our study population. However, what was surprising was the percent of
respondents participating in e-commerce, 53.01%, that had made more than six purchases
during the previous 12 months and the 55.42% of respondents that had purchased goods/
services more than three times during the previous six months. These percentages are
far greater than the findings of a recent Business Software Alliance survey, reporting
around 38% of U.S. Internet users that say they purchase products fairly or very often
using the Internet (Business Software Association, 2002). It was also quite surprising to
find that our study respondents who possessed credit cards participated in e-commerce
activity (86.75% of the credit card holders purchased goods/services via e-commerce)
in rates similar to U.S. Internet users (with 93% of Internet users who have bought online).
Furthermore, our study results show that younger age customers have a greater
propensity to use e-commerce (88.55% of the e-commerce participants were 35 years or
younger in age as compared to 79.35% of the study population). If we consider that the
earning power increases with age, this finding is also somewhat surprising for China and
might signal pervasiveness of technology acceptance among younger age groups that
one normally finds in other societies. Based on consumer behaviors in the U.S., if we
assume a positive correlation between ownership of increased number of credit cards and
frequency of purchase patterns, our findings did not support this general rule. In our
study, the respondents with four or more credit cards constituted 21.03% of total
respondents and 21.69% of e-commerce participants, with other credit card ownership
ranges having similar equal distributions between the study participants vs. e-commerce
participants. We could not find comparable age, availability of credit cards, or frequency
of purchases data in the CNNIC semi-annual survey that conducts studies of broader
Chinese Internet user populations. However, the latest CNNIC survey showed that 68.8%



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Technology and Culture 279


of the respondents had never made any online purchases, which is much higher than our
findings that showed only a 34.12% non-participation rate (China Internet Network
Information Center, 2002).
The value of single purchases ranged from less than RMB50 ($6.00) to over RMB1000
($80.00), with the majority of the purchases (83.73%) ranging in value from RMB50 to
RMB500 ($6.00-$60). The respondents paid for these purchases in four major ways: cash/
check (travel-related purchases were paid at the time of use, e.g., hotel stay), C.O.D.,
credit card, and bank transfer. In our study group, contrary to purchases made in the U.S.,
a credit card was not the most common payment method. Chinese mentality and their
traditions (reinforced by the prevailing operational characteristics of the financial
institutions and the legal system) still adhere to a way of thinking that says debt is not
good. Furthermore, the estimated RMB410billion (USD50billion) stashed away in sav-
ings and for future purchases provide some evidence that the credit system is not as
popular and that China still is a cash society. Our findings also support this cultural
characteristic. Even though 86.51% of our study group (218 respondents) had credit
cards, only 19.28% of the e-commerce participants (32 out of 166 respondents) paid for
their purchases using a credit card. Both authors, during their extensive travels in China,
rarely encountered credit cards being used for any daily purchases, including some very
expensive entertainment events hosted by high-level managers and individuals that
have significant economic means, and, without any doubt, have multiple credit cards.
U.S. e-commerce vendors would require credit card information before accepting any
requests for online purchases and have set up infrastructure (secure servers to collect
credit card information) to accommodate and enable this payment methodology. How-
ever, lack of such infrastructure and a lack of broad availability of personal credit cards
in China have created transaction payment systems that also utilize other payment
methods, such as C.O.D, cash, and postal order (money order). This lack of infrastructure
(payment systems), coupled with not-so-generous return policies of Chinese busi-
nesses, and the prevailing societal characteristics have made the Chinese cynical
consumers and reinforced commerce systems where the customer must see and check the
product and the seller must get paid in cash, without any ambiguities or collection
problems that may accompany credit-based payment systems. When one looks at the
findings of our study, it is easy to see that these attitudes are still prevalent and will
continue to act as a major impediment to large-scale diffusion of e-commerce in China.
Our 166 e-commerce participants used C.O.D. (39.16%) as their primary payment method,
closely followed by Cash/Check (33.13%), with a Credit Card having the distinction of
being the third highest (19.28%) further followed by the Bank Transfer (8.43%) method.
The latest CNNIC survey shows the top three payment methods as cash and carry
(33.1%), online payment (30.7 %), and post office transfer (30.0%) (China Internet
Network Information Center, 2002). Both our findings (approximately 73% of e-com-
merce participants paid in cash) and the findings of CNNIC (approximately 63% paid in
cash) clearly demonstrate and support our observation and classification of China as a
“cash based society.”
Even though some of our findings confirmed the cultural characteristics we had identified
as the prevailing characteristics of the society, the responses to the questions related
to the types of purchases presented findings contrary to some of the other characteristics



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280 Efendioglu & Yip


associated by the Chinese consumers. When we asked what was bought online, the
responses we received were in categories that were similar to purchases made by U.S.
online customers and the findings of the latest CNNIC survey. Our respondents (166 e-
commerce participants) indicated a total of 379 transactions over the previous 12-month
period, with books as the most popular item (34.83% of respondents stated purchasing
books), followed by video-CDs (26.39%), and travel (15.57%). In comparison, in the U.S.,
books and videos are the most common online purchases, followed by music CDs,
clothing or accessories, and computer software or hardware. The top five online
purchases in the CNNIC survey were books and magazines (37.0%), computer appliances
(27.6%) and communication/AV equipment /electrical appliances, each ranging around
19.5%. The high preferences for online purchases of books and video-CDs were
surprising findings in a country where normal, as well as pirated, books and video-CDs
are sold in local markets for very low prices. Unfortunately, we did not have an
opportunity to focus more on this preference by our respondents to determine possible
reasons and explanations for this behavior seemingly contradictory to general and
popular beliefs.
We also asked questions to determine the level of satisfaction e-commerce users
experienced while making online purchases. Our scale used categories “very unsatisfac-
tory,” “unsatisfactory,” “average,” “satisfactory,” and “very satisfactory” to solicit
responses, without assigning any number value to each category. One of the most
important attributes of the Chinese culture is for Chinese to act humbly and take the
middle of the road and understate their ideas, as compared to taking a position that is
clearly identifiable. Unfortunately, most of our respondents exhibited this cultural trait
and selected “average” (“Yi Ban” in Chinese) as their response, reinforcing the fact that
a complicated set of conditions are required to conduct any type of field research in
China. Nevertheless, we had some responses that presented clear “satisfaction” or
“dissatisfaction” with their online purchase experience.
Our findings show that frequent users of e-commerce were satisfied or very satisfied with
their experience in larger numbers as compared to the least frequent users. Overall, the
“unsatisfied” and “very unsatisfied” responses were selected in very low frequencies.
We attribute this finding to the affinity of the user with technology and more experience
with the online transaction process through increased usage. Except for the least
frequent users, the transactional experiences during the most recent six months were
more satisfying than the previous six-month period. Even though the vendors might have
made changes in their presence and processes, this improvement most likely was the


Table 3. E-commerce transaction frequency & satisfaction (n=166)

Frequency of Purchase (times)
Satisfied/Very Satisfied <=3 4-6 7-9 9< Study Group
24.32% 34.15% 50.00% 61.29% 36.75%
Purchases During Last 6months
24.32% 29.27% 18.18% 54.55% 36.75%
Purchase During Last 12months

Very Unsatisfied/Unsatisfied <=3 4-6 7-9 9< Study Group
1.20% 1.80% 0.00% 1.20% 4.22%
Purchases During Last 6months
1.20% 0.60% 0.60% 1.81% 4.22%
Purchase During Last 12months




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Technology and Culture 281


result of learning that came with repetition. Similarly, Shenzhen Economics Daily
reported that the portion of Internet users who made online purchases rose to 31.67%
while the overall dissatisfaction of online experience decreased from 52.8% to 21.04%
(Shenzhen Economics Daily, 2002). Shenzhen population has characteristics similar to
our study population, as it is one of the most prosperous cities in China (has the highest
per capita income) and has the youngest average age population. Once again, these
characteristics are significantly different than most of the other regions in China. No data
was provided by the CNNIC survey (which has a wider geographic coverage) related to
satisfaction with online transaction process/activity.
Convenience was identified as the most selected reason for conducting an online
transaction, with price, delivery, and speed as being next three reasons with almost equal
frequencies. Given that our study participants were all working adults, it is somewhat
understandable to find “convenience” as the overwhelming choice within the study
group, and this finding reflects similar findings in the U.S., where a large number of e-
commerce participants work. However, it might seem as a surprising finding to see the
fairly similar frequencies of choice among “price,” “delivery,” and “speed.” We can
explain this as another specific finding based on the composition of our sample group,
working adults, with relatively good earnings, and in valued professions. Given our
study group characteristics, it is no surprise that “delivery” and “speed” are as important
(different types of convenience preferred by busy professionals) as “price” (high income
level). Even a delivery charge of 10% for purchases up to RMB800 (USD100) for
deliveries, with no charges for anything above this amount, did not seem to be a major
concern for our participants, especially for C.O.D. payments. Even if for orders less than
RMB100, the most common delivery charge of RMB5 (barely enough to buy a can of Coca
Cola in the store) is easily affordable by most city residents of China. Given the Chinese
consumers™ culturally based behaviors (especially the need to physically evaluate the
purchased product) that govern their purchases, we think the acceptance of this system
and associated costs (delivery charge) are not unique to our study group and a similar
acceptance will prevail among the general populace.
We also included a section for unstructured comments on the questionnaire and
conducted brief interviews to identify perceptions on positive and negative aspects of
e-commerce as it currently exits and its future in China, and any other issues that we might
have neglected to categorize and include in our questionnaire. These comments, in some
cases, provided additional information, and in others, reinforced the previous responses
and strengthened the data we collected through other questions.
As we had assumed and previously identified as unique to our study group, the lack of
credit cards or the deficiencies in payment mechanisms was not an issue for our
respondents (even though they indicated that this is a major problem for the general
public). Neither did the lack of brand name products or the quality of the products. The

Table 4. Reasons (multiple responses accepted) for using e-commerce & satisfaction

Convenience Price Delivery Speed Selection Privacy
128 96 75 65 18 9
Stated as Main Reason
39.06% 40.63% 33.33% 44.62% 33.33% 22.22%
Satisfied/Very Satisfied
2.34% 2.08% 4.00% 1.54% 11.11% 1.11%
Very Unsatisfied/Unsatisfied



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282 Efendioglu & Yip


primary obstacles (which support our “early adopters” classification of our sample size),
in the order of importance, were “Internet security,” “lack of feel-and-touch associated
with online purchases,” “problems in returning products,” and “selection” (product
breadth). In comparison, CNNIC survey identified the top five obstacles to be “Internet
security,” “inconvenient payment method,” “quality of products and trustworthiness of
merchant,” “late delivery,” and “unattractive price” (China Internet Network Informa-
tion Center, 2002). As can be seen, there are some overlaps and some contradictions
between our findings and the CNNIC™s findings, which can be explained by the different
study demographics.
Our study participants also identified some infrastructure and social issues that will
impede and be obstacles to full development of e-commerce in China in the near future.
Among the most identified and repeatedly mentioned issues were lack of credit cards
(availability of them for the general public in China) and convenient payment means, poor
distribution logistics, lack of specialized, trust-worthy online merchants of reasonable
size (too many small players facing many bottlenecks and without necessary resources
to set up e-commerce systems), an imperfect legal system, and the lack of large scale
telecommunication transmission capability (broadband). Overall, however, the respon-
dents were reasonably positive about the availability of hardware/software, government
and industry support for IT in China.
Even though it was identified as a major infrastructure impediment, over the recent years
access to technology in China dramatically increased and it is projected that 10.3 million
PCs will be sold during 2002, making China the third largest market after the U.S. and
Japan. About 30% of China™s 1.3 billion people are currently wealthy enough to afford
PCs, roughly corresponding to a market size equal to the population of the U.S.
Furthermore, according to Nielsen/NetRatings (as reported by BBC News, 2002), China
is now second only to the United States in the number of home Internet users with nearly
57 million people with web access at home, and Internet subscriptions are growing by
5-6% every month. In just three or four years, 25% of the population could have Internet
access, translating to over 250 million people. Physical distribution was also identified
as one of the impediments. Currently, multiple private courier companies, that already
have operations in major cities, are providing physical distribution, with China™s postal
service that has contracts with dozens of merchants for regular or express delivery.
Manpower for physical distribution is abundant and relatively cheap, and there are many
inexpensive modes of transportation, including bicycles, motor scooters, and small
trucks, that can be effectively used as alternates to large scale distribution in close
geographical areas. As more efficiency (grouped deliveries, efficient modes of transpor-
tation, efficient routing systems, etc.) is incorporated into the system, this impediment
will cease to be a major problem. Unfortunately, the problems associated with financial
infrastructure (credit cards and credit-based transaction systems) require major action
by the government and the financial institutions. To overcome this e-commerce con-
straint, Chinese government has to accelerate the banking reforms and the banks should
reorient themselves to provide more services (credit cards and credit card payment
clearing systems) to the general public and the average consumer. In their report titled
Consumer E-Commerce in China, BDA-China argues that China has over 150 million
bankcards, providing some evidence that support positive changes in this direction
(Consumer E-Commerce in China, 2000). However, these cards are in the hands of very



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Technology and Culture 283


few consumers (in our study, 70.12% had two or more credit cards) and, as such, the
existing card owners may not be large enough to sustain broad-based e-commerce in
China, one that is available to large segments of the general populace.
Our study group was overwhelmingly less positive when asked if the Chinese culture
“supports” the propagation of IT and e-commerce. The group thought the Chinese
consumer society was not quite ready (lack of confidence in technology and off-site
transactions, online culture, and overall sophistication of the general public) and the
conditions were not “ripe” for e-commerce. Off-site transaction systems (like e-com-
merce, catalog sales, mail order systems) which require a trusting relationship (transac-
tion trust) between the unseen vendor and the consumer requires a sophisticated
consumer society, specific legal (consumer protection laws) and financial (consumer
credit systems and social acceptance of credit cards as a payment mechanism) practices.
Continuing lack of consumer protection laws and the prevalent business practices of the
financial institutions contribute to and enhance the negative connotations associated
with debt and reinforce cash-based transaction systems. Absence of these practices,
coupled with inherent social and political characteristics of the Chinese society, have
made Chinese cynical consumers and reinforced commerce systems where customer can
see and check the product and the seller can get paid in cash, without any ambiguities
or collection problems that may accompany credit-based payment systems. Furthermore,
Chinese consumers see commerce as a social activity and value time-developed personal
relationships with vendors that are local and have a physical presence. This is an attitude
that is very contrary to e-commerce process/practices and, as a result, the cultural
acceptance of online transactions (business foundations of e-commerce) will take much
longer and will require major transformations in Chinese society. Similar transformations
have taken place in other societies over extended time periods, by first becoming a true
consumer society (a transition that took over four decades in the U.S.) and then
eventually accepting e-commerce (a transition that has been taking place in the U.S. for
the past decade). Even after years of being a consumer society and developing

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