Selling online to China Figuring it all out!
China. The online sellers dream market. The unprecedented compound annual growth rate of 116% over the last five years, combined with its unrivalled consumer base, puts China on the radar of any e-Merchant worth their salt. The burgeoning middle class and their rapid evolution into online consumers, provides an opportunity that no international expansion strategy should overlook. This opportunity however, has often been referred to as ‘The elusive dream’, always on the horizon, never to be attained. After all, the above only tells half the story. Insufferable bureaucracy and red tape, ruthless competition from domestic sellers, and logistical and cultural barriers by the score. Yet it would be short-sighted to consider these obstacles either unsurmountable or permanent features of the E-Commerce landscape in China. Let us look at some of the key points and recent developments worth considering when looking to enter what will soon be, the E-commerce capital of the world.
For the vast majority of SME’s, selling through a third party platform within China remains the best route. This is down to a number of factors, most notably the fact that it removes many of the operational, logistical and bureaucratic problems that come with entering the Chinese market. Selling on a China-based online marketplace, will allow you to sell your products at a low cost, take advantage of that particular platform’s existing traffic and avoid the excruciating process of acquiring a local company registration or ICP license. Furthermore, you will be selling on a platform trusted by the Chinese, who will have the ability to make fast online payments and receive their purchased items quickly. Naturally when considering your international expansion strategy, you should always factor in what solution provides the most advantages not just for you, but also your potential customers. E-commerce is all about convenience, and in China, this really means the third party platforms based there are your best option.
This is not to say that third party platforms based outside of China are to be instantly discounted. While traditionally platforms such as Amazon and eBay have struggled to make the impression they desired, there is reason to believe that as the Chinese market opens up (and regulations loosen up!), its consumers will increasingly wish to connect with established sellers elsewhere. Enter Jeff Bezos. With online sales of around $296 billion and over 200 million online shoppers, rest assured that Amazon will look to aggressively increase its 2% market share of this E-Commerce goldmine. Bezos, with his ingrained ‘your margin is my opportunity’ mantra has stated that he is prepared to run losses in China in order to secure a larger market share. To help achieve this, Amazon has recently ramped up its business operations in China, opening up a logistics warehouse in Shanghai’s new trade free zone, and investing heavily in an Asian marketing strategy. In short, getting your products listed on amazon.cn is certainly something not to be overlooked as the E-Commerce giant looks to lure more and more Chinese buyers off the domestic platforms and on to its own.
So what are the major third party platforms in China? E-Commerce in China is of course synonymous with Alibaba, the online giant and brainchild of its charismatic founder Jack Ma. Aliababa runs two main E-commerce platforms Taobao and Tmall. Taobao, created in 2003, is Alibaba’s consumer to consumer platform (China’s equivalent to eBay really!) Taobao does not charge commission fees on transactions and is hugely popular in China, holding an 80% share in China’s C2C market. Tmall, formed in 2008 is a business to consumer platform similar to Amazon. By 2012 it accounted for just over half of China’s B2C online sales. It offers a unique mall experience facilitating retailers to set up their own websites within Tmall, allowing them to effectively occupy a virtual store on the site. Tmall sellers must pay a deposit, as well as a commission on each transaction made. Along with the significant traffic volume, Tmall would provide the foreign seller, with a virtual store. Together, these two stores now account for around 80% of China’s e-Retail market. Despite Alibaba’s evident dominance in China, several competitors have succeeded in achieving a relatively strong foothold in this vast market. Jingdong Mall/JD.com (formerly 360buy.com) has since acquired a 15% share of the B2C market and is focussed primarily on electronic items.
Clearly, obstacles remain for the international online seller in China. Nonetheless, significant progress has been made in recent years to open up the online retail sector and include western sellers and their much desired product offering. British E-tailers would do well to remember that while China still has a long way to go before it can claim the level of online retail sophistication that the West enjoys, it has made significant strides. With online sales expected to reach the $410 billion in 2016, ‘The elusive dream’ as it is often referred to, is increasingly within grasp!