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Executive Summary

The presented paper is devoted to the in-depth investigation of social commerce and the way it evolves and functions in China. The choice of the issue is stipulated by the high speed of the development of social commerce and its successful transformation from e-commerce firms. The choice of China is impacted by the increasing popularity of various platforms such as Taobao, Pinduoduo, and Xiaohongshu, and the high annual incomes generated by these companies. The main goals of the research are:

to define and overview the phenomenon of social commerce
to analyze all current trends peculiar to this sector, including the major concerns, problems, and how they can be solved
investigate successful examples of social commerce such as Amazon, eBay, Taobao, Xiaohongshu, and Pinduoduo to improve its understanding
evaluate the peculiarities of social commerce in China
outline business models and strategies that are utilized in the sphere
analyze regulations of the Chinese government that are introduced to regulate the domain and monitor its further development
to create the basis for the future investigations of this popular phenomenon

Acquired results prove that social commerce remains one of the most fast-growing modes of trade associated with the work of the Internet. It broadly employs such popular networks as Facebook, Twitter, or WeChat to promote socialization and communication between people and impact their buying behavior. In China, the three analyzed platforms, Taobao, Xiaohongshu, and Pinduoduo, have stable positions and continue to grow by attracting new clients and utilizing e-commerce, social commerce, and group buying oriented business models. However, there are some concerns associated with ineffective governmental regulations, problems with private data, frauds, and poor quality of fake goods.

The study also creates the basis for future research that can be devoted to the analysis of possible solutions to the outlined problems.

Introduction

The prior goal of this research project is to investigate the widespread phenomenon of social commerce, its central features, and the way it functions in China. The central motif for the selection of this very issue for the study is the scope of this practice, the high speed of its evolution, and increasing topicality, especially in the selected area. The further growth of social commerce might transform it into one of the most effective and spread modes of trade.

Background

The fast development of technologies can be taken as an essential prerequisite for the growth of various forms of online interactions between clients and sellers. Accepting multiple advantages associated with the rise of technologies, individuals want to save their time and enjoy the opportunity to go shopping online (Pinvidic, 2019). This factor preconditioned the emergence of such platforms like eBay, Amazon, or Ali-Express. They became able to meet the requirements mentioned above and offer a wide range of goods that can be bought, not leaving homes. The growing level of clients satisfaction resulted in stable revenues, and the appearance of companies functioning in similar ways, which became another essential aspect driving change and shifting priorities from tradition to online forms of trade.

There are also modern payment systems that are utilized by various online sellers, and that might guarantee the security of all transactions. They became an important step towards the popularization of multiple platforms and e-commerce across the world. Being sure in the ability to pay online, clients engaged in this sort of cooperation and contributed to its empowerment at the international level (OReilly, 2007). Companies acquired an opportunity to generate revenues using new payment systems that became available in almost all regions.

Justification of the Research

The choice of the given topic is preconditioned by the unprecedentedly high speed of the development of social commerce, which managed to evolve from e-commerce and acquire top positions. The given process impacts international trade and introduces several factors that should be considered and evaluated. First of all, regarding the high income and new opportunities associated with it, there is a critical need for government regulations to ensure that the further empowerment of social commerce will also support the rise of the national economy and remain controlled by the existing taxation policies. This task is solved by states in different ways, which means that there is a need for their improved understanding.

The choice of China as the main reason for the investigation of this model of e-commerce is also justified by several factors. Today, China is taken as one of the most promising regions that offer multiple opportunities for investors, entrepreneurs, and other actors who want to generate income (Eckart, 2013; Rad & Benyoucef, 2011). Additionally, the economic sector of the country continues to grow extremely fast, and it is predicted that the given speed will preserve (Eckart, 2013).

Goals of the Project

The choice of the topic preconditions the formulation of specific research questions and goals that will help to cover the issue and guide our investigation. In such a way, the following objectives are introduced:

to define and overview the phenomenon of social commerce
to analyze all current trends peculiar to this sector, including the major concerns, problems, and how they can be solved
investigate successful examples of social commerce such as Amazon, eBay, Taobao, Xiaohongshu, and Pinduoduo to improve its understanding
evaluate the peculiarities of social commerce in China
outline business models and strategies that are utilized in the sphere
analyze regulations of the Chinese government that are introduced to regulate the domain and monitor its further development
to create the basis for the future investigations of this popular phenomenon

Social Commerce Overview Definition

The term social commerce that is widely used today was firstly introduced in 2005 on Yahoo! The application Shoposphere with pick lists was an attempt to engage people in this sort of interaction by commenting and reviewing product lists (Wang & Zhang, 2012). In general, the term can be defined as a form of commerce that is mediated by social media and working both in online and offline environments (Wang & Zhang, 2012).

It incorporates four big domains that drive the functioning of any entity, which are technology, people, information, and society (Wang & Zhang, 2012). Interaction of these elements contributes to the appearance of an opportunity for the creation of innovative ways to cooperate and provide products and services (Gordon & Michael, 2011; Stephen & Toubia, 2010). That is why being firstly introduced in 2005, the term triggered the appearance of multiple speculations and forecasts associated with its further development and rise (Barnes-Vieyra, & Claycomb, 2001; Lee, 2001). People, or the consumer domain, were ready to accept the new ways of cooperation because of the existence of peer-generated content and multiple sources of information that could be used to discover a particular product and make a decision about its purchase.

Evolution of Social Commerce

Business transformation impacted by the growing power of e-commerce became a distinctive feature of society and global trade. Having realized multiple benefits provided by the Internet and technologies, companies entered the virtual space by overcoming barriers such as difficulties in the interaction between departments, or large firms size (Lee, 2001). The new mode and Web technologies provided an opportunity to overcome these obstacles and reach clients in different places. The attraction of a new form of business can be evidenced by the fact that the dollar volume of the whole U.S. e-commerce sector reached about $4,5 trillion by 2005 (Ariguzo, Mallach, & White, 2006). To some degree, it can be associated with the euphoria related to the further spread of the Internet and its impact on international relations.

Web 2.0

The term web 2.0 was introduced to describe all factors and elements of a unique environment that was facilitated by the dominance of various forms of social commerce (Constantinides & Fountain, 2008). It was applied to sites, services, and networks that rested on the creation and generation of the content by users, instead of the previously employed forms presupposing the work of editors and specially hired content creators (OReilly, 2005). The radical decentralization also became one of the results of the revolution caused by social networks (Newman, Chang, Walters, & Wills, 2016). It introduced a new chapter in the development of interactions between people and social commerce.

Social web 2.0 services created a framework characterized not only by the enhanced interactions between users and their friends, colleagues, or other individuals. Moreover, it enabled people to cooperate with companies, brands, and participate in various events and social groups (Rainie & Wellman, 2012). This opportunity also meant that there was a need for the creation of detailed profiles with the description of preferences and interests to acquire updates, various offerings, and proposals from many entities across the world (Newman et al., 2016).

The social web of this generation empowered clients by providing them with the tool to impact companies, their approach to management, and the pool of products they can offer (Mazurek, 2009). That is why this new approach to the functioning of the Internet should be taken as an important step in the transformation of social commerce and its becoming one of the leading forces of the modern business world.

Today, social networks and commerce are inseparable as they merged under the impact of new clients demands and methods used by companies to manage sales. More specifically, they became two forces that create new stimuli for the development of each other and future growth. The majority of the online platforms that exist today function in terms of web 2.0 as users demand content that would be interesting for them and provide this very content (Parise & Guinan, 2008). Social web 2.0 ended the era of non-customized and non-personalized offerings that were previously used by companies that operated on the Internet (Newman et al., 2016).

Instead, a new form of interaction resting on the enhanced collaboration between users emerged and triggered radical changes in the traditional method of management (Yadav & Mahara, 2018). The ability to generate stable revenues and monitor the state of markets becomes an essential option that is available to corporations or brands that adhere to the social commerce model (Huang & Benyoucef, 2013). It offers them multiple advantages if compared with the traditional one, such as better customer service, topicality of offerings, flexibility, and topical content (Huang & Benyoucef, 2013). For this reason, social networks remain a powerful driver of the development of the business world and innovative forms of e-commerce that presuppose the broad utilization of web 2.0.

The dominance of new forms

The prevalence of new forms of cooperation also evidences a fundamental alteration in peoples behavior. The fact is that the popularity and growth of social media represent a shift in consumers thinking from individual to collaborative decisions (Diao, He, & Yuan, 2016). This process triggered multiple responses in the way companies or organizations work. For instance, about 74% of all business organizations in the USA create, support, and utilize social media applications, and 88% of them want to achieve a higher level of spending by integrating the most popular social media into their functioning and core systems (Diao et al., 2016).

Furthermore, Facebook, Amazon, and other traditionally popular and successful companies continue looking for new ways to increase their presence on social media (Diao et al., 2016). These facts evidence the direct correlation between the development of platforms used by individuals for cooperation and e-commerce (Oinas-Kukkonen, Lyytinen, & Yoo, 2010; Rowley & Keegan, 2019). Additionally, more investment in social media advertising is observed as about $8,2 billion are devoted to this sort of activity, and the number continues to grow (Diao et al., 2016). The given numbers prove that marketers start to accept and recognize the power of social commerce and networks that could be used to enhance customer service and engage in better cooperation with them.

The refusal from previous e-commerce forms and the popularity of new ones can also be explained by the fact that it was not able to satisfy all the needs of clients. The existence of a rich choice and multiple offerings turned out to be not an advantage but a confusing factor for individuals (Kim & Srivastava, 2007). There were not able to compare the quality and price of demanded products and had to look for the information about a certain kind of good they needed (Diao et al., 2016). At the same time, the adherence to the product-centered model was ineffective when speaking about diversity peculiar to various customers (Diao et al., 2016).

The level of dissatisfaction grew, especially if expectations connected to a certain product failed. Thus, the lack of trust became a fatal strike to the future development of e-commerce and its ability to fulfill current needs (Lamb, Hair, & McDaniel, 2013). The shift to social networks as the platform for trade became apparent as it provided people with an opportunity to communicate with more experienced users and make a decision about the purchase (Laudon & Traver, 2014). Companies and entrepreneurs also realized the idea that social networks consisting of numerous individuals who generate content and provide limitless access to information are the future of the sphere.

Amazon

Amazon can be considered one of the most successful companies working in the given domain and generating stable revenue every year. Today, it is recognized as the largest Internet company by revenue in the world (Chaffey, 2018). The key factor of the overwhelming success of the brand is the correct choice of the strategy, monitoring of the market, and the ability to meet existing clients demands. Amazon was founded by a single person, Jeff Bezos, on July 5, 1994. The main reason for its foundation served that existing forecasts about the future of the Internet and web commerce with the planned growth of about 2,300% (Shah, 2018).

Having recognized the power and growing popularity of the given paradigm, Bezos launched an online book store that proposed to customers a wide range of the most popular offerings. Because of the growing popularity of the given model along with the multiple advantages that became available to buyers, the firm turned out to be a success. During the first two months of its existence, Bezos managed to sold books to 50 states and about 45 countries (Feedvisor, 2019).

With the given popularity, Amazon also started to generate about $20,000 per week (Kirubakaran, Keong, Ching, & Joshi, 2016). The positive outcomes peculiar to the first stages of the companys evolution proved the effectiveness of the selected approach and its popularity among individuals all over the world. The initial investments in the project comprised about $250,000 provided by Bezos parents; however, they were soon compensated (Shah, 2018).

The example shows that e-commerce became one of the critical factors for the rapid development of Amazon. In 1999 the company launched its publishing department with the primary idea to work in the sector (Donici, Maha, Ignat, & Maha, 2012). Furthermore, it started to sell other products online, which transformed it into one of the most influential representatives of e-commerce. In the 2010s, the corporation became one of the worlds most powerful companies combining both online and physical presence. Being firstly created as an e-commerce brand that offered a certain kind of goods to its clients, Amazon soon was restructured and reorganized.

One of the critical features of the modern corporation is its adherence to the framework offered by e- and social commerce. For instance, Amazon Prime is a service that promises subscribers multiple advantages and opportunities for socialization, communication, and experience sharing (Investopedia, 2019). Correctly realizing the prevailing and the most dominant tendencies peculiar to the market, the brands management guarantees that all clients will enjoy the benefits of web 2.0 by participating in content-making and offering their ideas regarding particular goods.

In such a way, Amazon can be considered one of the most successful examples of how e-commerce can serve as the basis for the development and rise of a small business company. The brand has its platform and site for sales that combine multiple practical solutions for improved cooperation with clients. Considering the current success of the corporation, it is possible to say that it creates modern social commerce by introducing the features that are followed by other companies.

eBay

Another company that can be taken as a leading brand employing the basic ideas of e-commerce and benefits from its use is an American multinational corporation eBay. At the moment, it is also taken as a potent player in the market with the high potential for further development and growth. eBay was founded by Pierre Omidyar in 1995 as a part of his site with the primary goal to sell some things that are not needed at the moment (Shah, 2018). Several factors ensured the success of the given startup.

First, as it has already been stated, e-commerce became popular because of the opportunity to buy goods using a platform that is convenient at the moment, and that can offer a product at a reasonable price. eBay, founded as a service to sell various things to other people, met this requirement. Internet users became able to look through multiple offerings and, which is more important, discuss them with sellers to acquire additional information and make a final decision. It became one of the strengths of the startup as the need for information peculiar to all customers was satisfied completely (How does eBay make money? n.d.). At the same time, they were provided a significant level of independence as there was no need for buying items from a particular seller.

Another feature was the creation of a user-friendly interface to look for the required services or goods or connect with other individuals. In such a way, eBay managed to introduce a platform for successful cooperation between individuals, which is a key factor in the success of any online company. The further increase in the number of clients preconditioned the need for diversification, and in the 2000s, eBay started to offer almost all saleable items to its users (How does eBay make money? n.d.). The given diversity became another factor preconditioning the fast evolution of the brand.

The company also managed to buy PayPal as a payment system that provides people on the Internet with an opportunity to perform safe transactions and enjoy this convenient way of interaction. The given purchase became a strategically important step for the evolution of this e-commerce corporation. It increased the speed of communication between actors using the platform and provided them with additional guarantees of safety, which was critical regarding the growing level of rivalry in the given sector (Shah, 2018). Altogether, eBay was successful in considering current trends on the Internet and the creation of its unique proposal that attracted clients by its convenience, simplicity, and possibility to discuss various items.

Features of Social Commerce

Resting on the information provided above, and on the successful examples offered in the previous sections, it is possible to distinguish several fundamental features and advantages of social commerce that contribute to the rise of its popularity. First of all, alternatively to old forms of online sales, this one offers buyers an opportunity to participate in the process by providing their feedback, recommendations, and creating the content (OLeary, 2019).

They can decide to purchase an item not using the description, but also by discussing it with their friends or other users. It also shows another critical feature of social commerce, which is the extensive use of social networks as a core component of a new paradigm of relations between companies and customers. The power of this tool, along with the availability of critical information about individuals, their preferences, and choices, helps sellers to acquire a high level of flexibility and offer most topical goods that will be appreciated by the targeted audience.

Another significant feature is the accessibility of online platforms due to the wide use of technologies and the appearance of mobile phones. Users might make an order or consult with other people in one touch, which introduces multiple shifts in the way companies work and cooperate and their clients (Hussey, 2019). Finally, another significant feature or advantage is the existence of many opportunities for further development and empowerment. The technologies will continue to evolve, and new forms of cooperation with clients will emerge. It means that social commerce can be taken as one of the possible modes of global trade that will shape interactions in the next several decades.

Concerns of Social Commerce

The first and the most important concern associated with the further empowerment of social commerce are multiple security issues that arise when using various social networks. Following surveys conducted among broad populations, it remains the primary barrier to adoption of this mode as 71% of respondents have fears about leaks of information, and 65% do not want any interference in their privacy (Hussey, 2019). Non-users of social commerce are sure that the so-called Big Data is a serious threat to their security as multiple agencies, companies, or other entrepreneurs acquire an opportunity to collect information that will be later used to create new offerings (Hussey, 2019). It remains a significant problem slowing down the evolution of the sphere and demanding serious attention.

Second, even though social commerce is on the rise, and Amazon, eBay, Taobao, and other similar services generate stable incomes, the target audience is still slow to adopt this new mode of interaction (Hussey, 2019). Networks are continuously designing applications and introduce new features to reconsider this situation and make all processes easier; however, in 2018, 82% of individuals have not used such options as the buy button to have a product directly from a site (Diao et al., 2016). These aspects are taken as the fundamental problems of social commerce that should be solved to guarantee its further evolution.

The possible resolutions for these problems include the introduction of clear, understandable, and comprehensive security privacy policies for customers to understand them. It will help to manage their fears and minimize the level of distrust peculiar to some groups. Additionally, there is an essential need for the protection of individuals purchases which can be ensured by devoting more resources to the consideration of their claims, and monitoring of every order (Diao et al., 2016). In general, concerns associated with data and its privacy are not new, and they remain topical for the modern digitalized world characterized by the availability of information.

Business Models

Regarding the fact that social commerce steps aside from traditional ways of generation of value and cooperation with clients, the business models utilized in the sphere are also different. Thus, the given term is used to determine how any firm creates value and delivers it to clients, and how their payments are converted into resources that are used to stimulate the further evolution of the company and its ability to make money and compete with the closest rivals (Diao et al., 2016). The traditional approaches presupposed complex supply chains and direct cooperation with the target audience to ensure that products will be sold.

However, the increased topicality of social networks and the shift to e-, m-, and social commerce preconditioned the appearance of new ones. Their improved understanding can be achieved by using a specific framework that includes its basic components such as value proposition, revenue source, capability, and sustainability (Diao et al., 2015).

*Figure 1. Key components of the social commerce business model (Diao et al., 2015).*

As one can see from Table 1, as against previous forms used in e-commerce, in social ones, there are four new forms of value creation and proposing that are part of business models utilized by various platforms. First, there is a focus on the improvement of services for existing customers and interaction with clients to affect them more effectively. The ability to communicate in real-time eliminates such factors as distance and helps to achieve new levels of effectiveness (Hajli, 2014).

Second, there are socially oriented models that create value by the promotion of commercial activities by the interest communities. It becomes possible because of the integration of business elements with the existing social networks as clients can share shopping experiences in communities or groups established and managed by brands that want to enhance brand loyalty (Diao et al., 2016). Participation in these very groups can guaranty various advantages, such as lower costs for products or new proposals. Third, social network-oriented models use online friend ties to assist buyers in their decision-making and eliminating trust issues that might arise in the process of shopping (Diao et al., 2016).

It helps to attract new users and guarantee their interest in various products. Finally, the fourth mode is the group buying commerce that offers multiple benefits for traders, groups, and customers. The first cohort acquires an opportunity to promote better consumption and increase revenue; for the second group, it ensures that new clients will be attracted and become active users; for customers, there is an opportunity to discuss existing options and select the most appropriate one.

As for the revenue source, the offered business models of social commerce remain similar, and there are no critical differences among existing types. E-commerce oriented model presupposes the existence of capturing commissions that are paid on a certain volume of the transaction from a website (Zhou, Zhang, & Zimmerman, 2013). The given approach remains the most popular option for the majority of existing platforms as it combines simplicity and effectiveness. Another form is a subscription model presupposing that clients pay a fixed price for the participation or use of an offered service (Diao et al., 2016).

It guarantees specific support and availability of information that can be used to increase sales. The given model is also used by various networks that are focused on the provision of unique offerings to its clients. As for the third model, social commerce brands suggest an opportunity for other organizations to use their platforms for advertising and promotion of their products, such as Facebook, Google, Yahoo! (Diao et al., 2016).

This model is the most popular today as it guarantees stable advertisement fees that help to continue further evolution. Finally, a sales model is meaning that some groups of websites might split revenues with partners to guarantee that new clients will be acquired (Diao et al., 2016). It also contributes to the development of more effective collaboration tools and the further evolution of social trade.

As for the sustainability and options for future development, social commerce business models differ because of various goals and approaches. For instance, e-commerce oriented platforms should be ready to cultivate a specific climate on the Internet to ensure that the desired constructs will evolve and provide opportunities for expansion and the increase in sales (Diao et al., 2016). The introduction of social components helps to support clients and provide them with new opportunities. Group buying social commerce forms mainly focus on the use of various applications to create user groups that will discuss proposals and enjoy the existing benefits of participation (Diao et al., 2016). As for the interest-oriented modes, they provide clients with an opportunity to buy something resting on collective intelligence and social activities (Diao et al., 2016).

Individuals become a part of the global discourse that attracts them and provides them with goods that might be attractive to them (Diao et al., 2016). In such a way, the given models differ because of the goals and approaches used as the basis for the evolution, but they all contribute to improved sustainability.

Generally, resting on these business models and their core components, it is possible to outline four broad categories of social commerce that are relevant today:e-commerce oriented social commerce

social network-oriented social commerce
group buying-oriented social commerce
interest-oriented social commerce

The first one, e-commerce oriented social commerce, such as Amazon, or Taobao, focuses on direct sales from web sites with the integration of social components such as the discussion with clients and the creation of a specific community to increase clients loyalty and acquire the stable source of revenue.

Interest-oriented modes are specially created platforms that employ the topic community formed around specific demands, attractions, common views, and requirements (Diao et al., 2016). The main characteristic of these very sites is that potential clients can read recommendations provided by other users, share their experiences, find the desired information, discuss it, and make informed decisions about the purchase of a particular item (Diao et al., 2016). These platforms also guarantee a connection with e-commerce sellers and suppliers to acquire benefits from the promotion of clients and their readiness to cooperate with a particular brand.

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