Introduction to China eCommerce
For the past couple of years, China has been experiencing a boom in the online shopping, attaining the label of the world’s largest online market. And there are no signs of stopping. According to Goldman Sachs estimates, the market will grow to $1.7 trillion by 2020, as opposed to $750 billion in 2016. The number of online consumers in the country will increase by 200 million in the next three years, adding to 460 million shoppers from last year. Total online retail sales in 2020 are expected to account for 15 percent of overall sales.
Rapid growth and increasing competition are forming new partnerships and strategies. Tmall Global, Alibaba’s business-to-consumer shopping platform, has attracted major foreign retailers, such as US-based Costco and South Korea’s Lotte Mart. JD.com, China’s second-largest online retailer behind Alibaba, opened JD Worldwide to attract foreign brands such as Wal-Mart to enter the local china ecommerce market.
Image source :TMO Group
So, the opportunity is certainly there but how to get in on it? This post will try to answer that question in a clear and concise way.
1. Initial investment
In order to succeed, a business simply has to make an investment to get started, usually a five-figures one. You can open a storefront on the selling platform without a domestic partner (a previous requirement to do business), which makes things much easier for small businesses. You sell directly to customers but the background process is a bit different than selling on Amazon, eBay, and other major online retailers.
Cross-border channel’s like Tmall and JD.com operate through a network of bonded warehouses situated within China’s free-trade zones, thus eliminating import taxes while minimizing logistics costs and delivery times. That means that you can send and store your inventory there ahead of time so that your products can reach Chinese consumers quickly and efficiently. This ultimately makes China e-commerce more suitable for established small businesses with good volumes of sales and investment capabilities.
2. Type of store
There are specific rules regarding the format of your store. Usually, you’ll find three prevailing types:
- Brand trademark store - only for the brands with a trademark. The owner of the store must be a formal representative of the brand or hold exclusive authorization documents for setting up the store as issued from the formal representative of the brand.
- Merchants store - merchants with distribution rights to sell brand products without geographical restrictions in mainland China.
- Monopolized merchant store - for merchants with two or more brands within one product category. A merchant can have only one “monopolized” store in one product category.
Market share percentage of Chinese B2C companies
Image Source: Gentlemen’s Marketing Agency
3. Know what is selling
Even though it’s a huge market saturated with domestic products, there are a few in-demand overseas industries. According to Alibaba Group team in charge of customer data, beauty products and baby and maternity goods like infant formula and milk powder are among the best selling items, likely because of a number of food safety scandals due to the quality of ingredients and materials used.
Following the same principle, there is an increased demand for agricultural products, food, and beverages made outside of mainland China, particularly the ones that were previously unavailable. Of course, clothing and accessories are inevitable parts of the equation with a wide range of international brands opening their storefronts.
4. Brand and product requirement
For a business looking to set up its China eCommerce, there are certain requirements to fulfill. Regarding a brand, a business needs to:
- Be a registered corporate entity outside of mainland China;
- Possess proper “papers” - retail and trade qualifications overseas;
- Have a good credit standing and an overseas operating performance.
Depending on the location and the type of business, the Chinese government can also request for a minimum capital.
Product-wise, these requirements must be met:
- Products originally produced or sold overseas need to pass a vetting process of the platform you are selling at, as well as go through Chinese international customs;
- Chinese descriptions must be used for product labeling, along with the Chinese language customer support;
- International units of measurement;
- Logistics services must start delivery no longer than 72 hours of the time the orders has been placed. A business can either deliver directly or deliver to a bonded warehouse first and then to customers;
- You need to provide tracking with shipping;
- Post-sale services must include locations for handling returns on the Chinese mainland.
5. Payment and logistics
To make things easier, the majority of Chinese online retailers provide the necessary infrastructure to allow financial transactions. There is a number of options, from the popular wire transfer to credit card and money processing services like Alipay (Tmall) and PayPal (JD.com). A common phrase found on the FAQ pages regarding payment method is that the retailer is “working towards accepting more payment methods in the future”, which hopefully means adding more third-party services.
As for logistics, the situation is largely the same. Both Alibaba and JD.com provide their own in-house logistics services that facilitate both domestic and cross-border movement of your goods. They act as a Chinese version of Amazon’s FBA, meaning getting your product to the Chinese consumer should be worry-free. In addition, international logistics companies such as DHL are also supported.
As the market is still in the development phases, Chinese consumers are becoming increasingly open to forming new relationships with overseas worldwide brands. It’s a huge opportunity for a small business to cash in on the Chinese affinity for shopping and brand consuming and create long-lasting relationships.
However, obvious differences in business culture, along with the language barrier, the Chinese market can seem scary at first to newcomers. To effectively exploit it, it is vital to have as much information as possible. Hopefully, this post provided you with just that - crucial research, particularly regarding meeting requirements to start in the first place and what sells. You will need to pony up a sizeable amount of money to establish your business on Chinese soil and meeting all the requirements of the demanding Chinese e-commerce may be a laborious work, but in the end - it will definitely pay off with the right business strategy. If you don’t believe us, check out the numbers once more. They don’t lie.
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