Article based on research by Frank Wiengarten

Businesses that expand into e-commerce offerings increase their value by an average of one million Chinese Yen within a three-day window of the initiative’s announcement, according to research carried out by Esade associate professor Frank Wiengarten.

The study of 310 Chinese e-commerce initiatives also revealed that stock market reactions are more positive for firms with previously poor operating performance, but negative when the e-commerce platform is an in-house offering rather than an established third-party provider. Companies that integrated or complemented online sales with an offline sales channel achieved more positive stock market reactions.

The findings provide new insight into the value e-commerce can create for higher value firms from an operation and supply-chain process perspective.

Customer buying products
Companies that integrate or complement online sales with an offline sales channel achieve more positive stock market reactions (Photo: Cofotoisme/Getty Images)

Cost implications of adopting e-commerce

Stakeholders and investors are paying increasing attention to the burgeoning e-commerce market. In China, the relatively recent adoption and development of e-commerce has created a boom in the stock exchanges: multinational technology company Alibaba made history when it raised a record US$21.8 billion during its initial public offering on the New York Stock Exchange in 2014.

However, while the benefits of e-commerce initiatives are recognised from a revenue perspective, the cost implications are less clear. Increased channel conflict and intensified price competition can have a negative impact on cash flow, suggesting that the overall performance picture isn’t transparent.

The study, which Wiengarten carried out with Hugo K.S. Lam from the University of Liverpool’s management school, and Di Fan from the Research School of Management at The Australian National University, investigated how e-commerce initiatives affect share prices – an overall value that takes sales and other performance implications into account.

Adopting an e-commerce model may increase consumer demand, but the changes required to supply-chain structures and operations processes need fundamental organisational change.

The study reveals the importance of investing in third-party platforms and offline channels to take full advantage of the benefits of e-commerce

The study of 310 e-commerce initiatives announced by Chinese firms between 2010 and 2017 highlights the important roles that operating performances, supply-chain distribution platforms, and the integration of sales channels play in affecting the value-creation potential of e-commerce initiatives. 

The study also reveals the importance of investing in third-party platforms and offline channels to take full advantage of the benefits of e-commerce.

Enhancing operations

China has seen consistent growth in logistics, production and innovation in recent years. And, while Chinese companies in particular are responding to internal and external stakeholder pressure to implement e-commerce, it’s unclear how they can generate high levels of value in e-commerce from an operational and supply-chain perspective. 

In particular, some underperformers in traditional sales channels are exposed to the intensified competition in online markets and the resulting competitive disadvantage they may face when adopting e-commerce. The new research suggests that, in contradiction to this perception, firms with record of poor operational performance benefit much more from the adoption of e-commerce.

The research suggests that firms with record of poor operational performance benefit much more from the adoption of e-commerce

More specifically, firms with longer operating cycles can gain higher returns from e-commerce thanks to its capability to increase sales, reduce costs and lead times, and better match supply and demand. When the e-commerce element is introduced to complement or replace traditional channels, increased success naturally follows.

These performance gains are even more pronounced when taking into account the considerable geographical spread of China and the relatively limited geographical coverage of underperforming businesses. It’s an encouraging result for Chinese firms with low operating performance: taking advantage of the capabilities of e-commerce turns their disadvantages into advantages.

In the Western context, it’s common for businesses to develop their own e-commerce platforms that are integrated within their website. But the study by Wiengarten’s team revealed that Chinese firms benefit less when deploying their own platforms. Those who implemented third-party platforms – seen as more secure and reliable – were favoured by consumers. It’s an important finding for Chinese businesses: making use of established platforms is more beneficial than developing in-house technology.

Online to offline

Implementing e-commerce doesn’t just increase online sales: the study shows that online to offline revenue is significantly increased as a result.

Multiple industry examples of successful online to offline business models provide anecdotal evidence on its potential added value. The results of the new research confirm this empirically: stock market reactions to e-commerce initiative announcements are more positive when firms integrate online with offline sales channels.

Digital strategy e-commerce
Related content: Keys to creating a winning digital strategy

Developing process capabilities to integrate offline with the newly added online sales channel is an important consideration for Chinese business managers. A strategy that combines online and offline sales channels enables them to offer more products and services - capabilities valued by shareholders.

Although online to offline e-commerce marketplaces require high levels of process coordination and integration, outsourcing the distribution sales function to a third-party platform is an appropriate approach for companies to focus on the complexity of the product itself.

While the study provides the first empirical evidence of the benefits of e-commerce and implementing third party platforms, it comes with a warning for SMEs. Stock market reactions don’t necessarily translate to small and medium sized private business sales, which account for more than 50 percent of total e-commerce sales in China. The sample also excludes foreign firms that provide products and services to Chinese customers via e-commerce.

It’s an important caveat – the increasing number of international firms that want to enter the Chinese market will face a different set of operational limitations. But what is clear, for China at least, is that investors favour firms that take e-commerce seriously.


Original research paper: Wiengarten F, Hugo KS & Fan Di. Value creation through expanding the online distribution channel. Industrial Management & Data Systems, 120(4), 714-29 (2020)

All written content is licensed under a Creative Commons Attribution 4.0 International license.