C2M revolution in China (Part 2)

This post is Part 2 of a two-part series that examines the C2M trend in China. Part 1 looked at the state of C2M in China, including the driving forces, key players, and benefits of C2M. In Part 2, I will share some key takeaways on the challenges and future of C2M in China.

1. E-commerce giants are invested in C2M to tap into the wallets of consumers from lower-tier cities.

China is not a homogeneous market. There are generally four different tiers of cities, each with unique economic profiles and spending patterns. Tier 1 and 2 are referred to as “higher-tier” while Tier 3 and below as “lower-tier” or “下沉市场” in Chinese.

Figure 1 — Breakdown of China’s e-commerce retail GMV. Source: DBS Research
Figure 2 — Customized robot vacuum by Jiaweishi under Pinduoduo’s “New Brand Initiative.” Source: Jiemian.

2. C2M will continue to gain prominence in China against the backdrop of the government’s push for industrial internet and dual circulation.

Operationalizing C2M requires factories to have smart manufacturing capabilities, for instance, rapid prototyping based on 3D printing and digital design platforms to reduce the design process and offer customized designs. These technologies make up the base infrastructure layer. On top of that, factories need to maintain supply chain visibility to facilitate process tracking, seamless connection with e-commerce platforms and consumers, quick responses to the market, and risk management.

Figure 3 — Industrial internet refers to interconnected sensors, instruments, and devices networked together with computers’ industrial applications, including manufacturing. Source: Rocknetworks.
Figure 4 — China’s two-pronged “Dual Circulation” development strategy to boost domestic demand (“internal circulation”) and cater to export markets (“international circulation”). Source: Scotiabank Economics.

3. There are existing challenges with supply chain and quality control in C2M, and China is still far from broad-based customization.

The “C” in C2M represents demand discovery and analysis, while the “M” represents agile manufacturing to meet the tailored demands. The latter requires factories to upgrade supply chain capabilities and effectively integrate supply chain resources to preempt or respond rapidly to changes in demand. However, two critical challenges exist.

4. Not all industries are suitable for C2M. To reap the most gains from C2M, manufacturers need to balance the cost competitiveness with quality control.

C2M can lower inventory costs for manufacturers and compress the price margins by eliminating intermediaries. However, manufacturers also need to reconfigure their supply chains to support C2M. They may also need to pay service fees to the e-commerce platforms. Manufacturers need to weigh the overall cost competitiveness of C2M before embarking on it.

Figure 5 — Examples of active and passive safety features in a car. Source: Engineering Insider.

5. C2M, at its core, is about a more precise and efficient matching of demand and supply.

In traditional e-commerce, intelligent algorithms ramp up consumer traffic to create demand for ready-made goods. In C2M, e-commerce platforms generate consumer insights into demand and production orders. On the supply end, design and production according to actual consumption optimize resource allocation.

Curious about how new trends and business models impact the world. All views are my own.