Page 66 - How China Is Winning the Tech Race

YuYu tried to promote the concept by offering them a 2 percent discount on
online orders, but she admits that, “It really didn’t work.”
Instead, Dangdang resorted to the old-fashioned but popular Chinese
system of money orders purchased at a post office. Dangdang later added a
cash-on-delivery service. In return for cash, bicycle couriers came to its distri-
bution centers to pick up parcels and delivered the goods. That system is still
in place, and Dangdang also offers online payment through billing systems
such as PayPal.
As the Internet era crashed and burned in 2000, dot-coms were failing by
the dozen in China and the United States. Even the world’s largest e-tailer,
Amazon.com, seemed on the verge of collapse. In early 2001, Amazon
reported a fiscal loss of $1.4 billion, though it squeaked out a profit by the
end of the year by laying off workers, streamlining distribution centers, and
cutting unprofitable items.

Biggest takeaways
In China, Dangdang emerged as one of the few survivors. Dangdang did not
get trapped by the need to ship bulky or heavy goods that ate into its profit
margins. It avoided several bad investments that Amazon.com made in dot-
com land: the online pet supply store Pets.com, video and snack delivery
service Kozmo.com, and an online furnishing store, Living.com. “We had the
benefit of a latecomer’s advantage,” says YuYu as drivers beep their horns
loudly on the Beijing streets below. “By the sheer fact we are a couple of years
behind our peers in the West, we really could cherry-pick from a lot of things
being tested in an elaborate and expensive way and decide what to do and
what not to do.”
Another valuable lesson was to limit the number of distribution centers.
Amazon built as many as 10 but later found it had to streamline its large
logistics operation to reduce costs. Dangdang, by contrast, kept overhead
costs low by relying on only one distribution center in Beijing and renting
storage space from a bookstore retailer in Shanghai and Guangdong. It also
has deals with nearly 50 delivery companies to get distribution in some 170
cities in China.
Most important, Dangdang learned not to get swallowed up by a large
American firm, especially one called Amazon.com. In early 2004, it must have

40 SILICON DRAGON