How to go direct to china’s vast market of e-shoppers
The appeal of a market with 1.4 billion consumers is obvious, but less obvious is the route to reaching this vast audience for international brands — particularly smaller brands that lack the resources to open stores in China, or to find a local partner to do it for them.
The challenges of operating in China are significant. There’s not just a different language and cultural mores to get to grips with. There are also tight customs regulations, and a retail and digital ecosystem that’s unlike any other in the world.
But there are, increasingly, ways for small brands to succeed in this big market. And it’s simpler than you might think.
Nearly US$2 trillion US dollars spent each year on e-commerce around the country and US$144 billion US dollars cross-border e-commerce sales in 2019.
A big nut to crack
Make no mistake, consumers in China are spending a lot of money online. In fact, nearly US$2 trillion is spent each year on e-commerce around the country. That makes the Chinese e-commerce market worth more than twice that of the US, UK, German and Japanese e-commerce markets combined.
But that’s only part of the picture. The number of people shopping online is growing all the time. Close to half the population is still yet to get connected to the internet, and those
who are already shopping online are spending more money — in more categories — each year. There remains huge untapped potential.
As more consumers have more money available to spend, they’re also broadening their horizons when it comes to what they buy and from where. Increasingly, they’re looking internationally for new products and brands.
This surge in demand has caused headaches for Chinese authorities, who have battled against mugglers seeking to fill the gaps that local retailers and e-commerce platforms have been unable to fill. That’s why in 2014, Beijing’s response was to encourage a legitimate “Cross-Border E-commerce” trade to flourish — one that could be regulated and, crucially, taxed. It set up a series of free-trade zones where products in prescribed categories could be legally imported for sale online, with educed rates of sales tax applied. The move chimed with a national strategy to have the economy evolve way from a reliance on “Made in China” towards being fuelled by “Bought in China”. Cross-border e-commerce now accounts for between 15 and 20 percent of total online sales in China. In turn, online sales are around 25 to 30 percent of all retail sales. To put a dollar figure on that, cross-border e-commerce sales in 2019 were worth around $144 billion and are forecast to rise to $164 billion in 2020.
They want it all,
and they want it now
China is home to some of the most extensive and dynamic online shopping platforms in the world; Alibaba has a whole suite of business and consumer-facing platforms, then there’s JD.com, group buying site Pinduoduo, recommendation site Xiaohongshu (Little Red Book), and buying options through the one-stop does-everything app WeChat. Between them, these digital giants have loyal users in the hundreds of millions.
These platforms offer seemingly endless listings, and use cutting-edge technology to make sharply personalized recommendations. So, you might reasonably wonder what else consumers there could possibly want, especially from a fairly small foreign brand.
But Chinese consumers are increasingly looking for exactly that: small and foreign, according to Sam Deacon, Chief commercial Officer at Samarkand, a WPP business helping international brands reach Chinese audiences.
He says that as disposable incomes rise, so too do aspirations and the ability to pursue them. There’s still badge value in wearing or carrying an item from a universally known luxury brand, but being “in the know” about a more niche brand increasingly carries cachet, particularly if you can be the first to share it with friends on social media.
Deacon explains that “hero” products from global brands — things like a Burberry coat or Louis Vuitton handbag — are always going to be desirable, but the strongest growth is coming from an appetite for brands that tell a rich and meaningful story, often one linked to a place or time that just can’t be replicated in China. Think of century-old French brands, or brands associated with 1960s London.
There are also key product categories in which people are willing to pay a premium and wait longer for delivery, because they believe foreign brands offer superior quality and more dependable standards of product safety. This is important to consumers who have seen several product safety scandals, including one in 2008 involving tainted infant milk formula that led to the deaths of six babies and the hospitalization of thousands.
Mother and baby items, food and drink, personal care, health, luxury and skincare products from international brands are therefore all highly prized. Deacon says this can even apply to brands whose products are manufactured in China.
The brakes are coming off
Growth in cross-border e-commerce is being supercharged by changes to the regulations around it, making it easier for customers to buy and international brands to sell into China.
The number of Cross Border E-Commerce zones is rising; the first was launched in Shanghai in 2014, and they now number over 30 around the country.
In 2019, Beijing lowered some key barriers to entry for international brands. While before, products sold via e-commerce had to comply with all Chinese consumer regulations — which in the case of cosmetics included testing on animals — this no longer applies. Products simply have to comply with the consumer safety regulations in force in their country of origin.
The government has also provided a catalyst for growth in demand for international goods, by raising the annual spending limit for individual consumers via cross-border e-commerce. The previous limit was RMB2,000 (about US$280), and in 2019 was raised to RMB5,000 ($700), providing higher-end brands with a greater opportunity to sell in China.
The cross-border e-commerce market is tipped to approach the $200 billion a year mark by 2022. This a world away from the way international brands used to have to approach the Chinese market, which were complex, expensive and potentially risky, given that they required a partnership with a Chinese service provider whose priorities might not always have been aligned with their own.
‘There’s a perception that international brands will hold manufacturers to a higher standard; that they’ve been made to comply with international regulations, and that’s reassuring’
Chief Commercial Officer at Samarkand
Pop it in the post?
Not so fast
While aspects of cross-border trade into China have become simpler and more appealing, there remain some significant challenges, not least in relation to actually getting parcels into the country.
Sending parcels into China has always been something of a hit-and-miss affair; plenty seemed to go astray, and, anecdotally, it seemed that about 1 percent were held up in Customs for checks.
In 2019, under a new national e-commerce law, it has become more complicated to get parcels into the country. This arose due to government concerns that so many products were being imported without the relevant taxes being paid, and that counterfeit goods were too easily slipping in.
Now, every parcel needs to be labelled with three key pieces of data: details of the e-commerce platform on which goods have been purchased; details of the payment platform being used, such as Alipay; and details of the logistics partner that will be handling local delivery. These need to be presented in a standard format that is integrated with the IT systems of the local Customs department at the point of entry.
The result is that when parcels haven’t had these procedures lined up in advance, they are far more likely to be
stopped and checked — and therefore delayed — than before. Around 10 percent are now being intercepted, prompting some international brands to simply stop allowing buyers in China to make a purchase on their websites.
Is it all too hard?
Even before the entry regulations for international parcels changed, doing business in China already seemed like hard work to many brands outside the country.
A survey by Frost & Sullivan in 2019 found that despite the evident scale of the opportunity, many international brands have been hesitant to attempt to sell in China, fearing they will struggle to be profitable and may lose control of their brand.
Around 30 percent of businesses surveyed said they were deterred by the apparent complexity of regulations they faced, and 21 percent said the level of investment required to get started was prohibitively high.
There’s also an entirely different commerce, communications and payment infrastructure to understand. So, while it’s relatively easy for a brand to expand from the UK to Europe, or from Europe to the US and vice versa, China is a whole different ball game.
It’s not simply a matter of switching from Google, Amazon, Facebook and Instagram to the local Chinese equivalents — because there are no equivalents.
And it’s not just that people shop online from different sites, it’s that customer acquisition is completely different, too. Key Opinion Leaders (online influencers), hold huge sway here, and it’s not uncommon for shoppers to buy direct via a video livestream. Social networking and shopping are far more closely linked than they are in the West.
New silk road? An easier route to Chinese customers
Navigating the lucrative but challenging China e-commerce market — and getting parcels to the people expecting them — is a complex business. But there are ways in which the process can be simplified.
Samarkand is a business established to give international brands a simple way of tapping into Chinese consumer demand, without having to take big risks or recruit staff with local market knowledge.
The business, named after the Uzbek city that was a major trading post along the ancient Silk Road linking Europe and China, serves as a gateway between Western brands and Chinese e-commerce.
Its Nomad technology enables brands to list on any or all of the major Chinese e-commerce platforms, to
promote themselves in ways they can see are working, and to make logistics hassle-free.
Partner brands ship to a Samarkand fulfilment center in the UK with plans to open more in continental Europe and the US – and parcels are re-labeled with Chinese Customs requirements and customers’ addresses. Parcels are usually in the hands of their Chinese buyers in between five and eight days — usually seven.
Shipping can be by the pallet to a B2B seller such as JD.com, or individual units can be sent direct to individual Chinese consumers.
Sellers see a sales dashboard of the style they’re familiar with, a little like Google Analytics, enabling them to see where emend is and, crucially, what kind of activity triggers sales, from a price adjustment to promotional online video or WeChat article.
Samarkand CEO David Hampstead says the system gives international brands the transparency and control over their China operations that many have felt is lacking if they simply ship inventory to a Chinese partner who then promotes and sells as they wish.
This way, they can use real-time data to inform their communications strategy and new product development.
He says that even though consumers are growing used to same-day delivery from local selling platforms, when they are buying from overseas brands, they feel it’s worth the extra wait. And, if demand proves to be strong and consistent, brands can ship bigger volumes to warehouses in a free-trade zone, so delivery times are reduced by several days.
Samarkand became part of the WPP family in 2019, when retail solutions provider Smollan became an investor in the business. It has offices in London, Hong Kong and Shanghai, and handles over 10,000 parcels a month destined for China.
Clients include Zita West, BarryM, Probio7, Tateossian, Shay & Blue and Temple Spa.
For brands that aren’t yet ready for the full Nomad service, starting in Q1 2020 it will be possible to add a “checkout for China” function to an existing brand.com, so that if a shopper logs on from China, Chinese payment and logistics solutions are automatically offered. The checkout plugin will be integrated with all major website platforms including Shopify, Magento and WooCommerce.
Theory in Action
Case study 1
A premium skincare brand that in 2018 was selling only via its own website and the Harrods store in central London is now also a hit in China. The brand started out in early 2019 selling via specialty skincare retailers on Taobao, one of Alibaba’s platforms, and has since expanded into channels led by KOLs (key opinion leaders) such as BuyBuyBuy. There are plans to develop four direct-to-consumer stores for the China market. Sales have gone from £3,000 in 2018 to over £250,000 in 2019.
Case study 2
A natural and organic retailer specializing in food and wellbeing products has successfully made the leap from its London
base, where it has several shops, into China, where it served over 34,000 customers in 2019. In the two years since it launched in China, starting on the e-commerce platform OMall and managed by Samarkand, sales revenue has soared from £3,000 in the first year to around £550,000 in 2019.