Discovering e-Commerce in China
A total transaction value of 4.56 trillion CNY. The Chinese e-commerce sector is booming, and it will continue growing quickly in the coming years. The growth is largely driven by young consumers from the growing middle class in first and second-tier cities. Large e-commerce providers, for instance Alibaba (Taobao) or Jindong (JD.com), are continuously exploring new opportunities and expanding their reach. Are you thinking about entering or exploring the Chinese e-commerce market? These are your opportunities and challenges.
China is in many aspects ahead in the field of e-commerce. Whether it is e-payments, fast deliveries or customer service; Chinese e-commerce giants like Alibaba and Jindong have a global impact. Also, the marketing strategy of Chinese e-commerce players proves to be innovative. A good example of this is the ‘invention’ of shopping days, such as ‘Singles Day’. The eleventh of November (11-11) has become one of the biggest retail events in China with a record one-day turnover in 2017. The potential reach through Chinese e-commerce channels is unparalleled.
National e-commerce sector
It’s important to realize that there are two main categories of e-commerce to be defined in China: regular national e-commerce and cross-border e-commerce. Regular e-commerce is based on companies within China, doing business from local warehouses or stores. The basic concept is very similar to Dutch e-commerce: companies sell goods to consumers more directly, using online channels to replace or enhance their physical stores. However, there are several factors which make the Chinese e-commerce sector so special.
- Market size: Though obvious, it is important to realize that the reach of e-commerce in China. Especially the younger generation with higher education levels has discovered e-commerce. For instance, last year on Singles Day alone customers spent over 25 billion dollars on Taobao within 24 hours.
- Low entry threshold: It is very easy in China to start a local e-commerce shop. For instance, even local farmers open Wechat shops to sell their organic vegetables throughout the area.
- Technology: Chinese e-commerce platforms are continuously investing in new technology. Artificial intelligence to optimize sales, virtual reality showrooms and drone deliveries: it’s closer than you think.
However, for international businesses cross-border e-commerce is even more interesting. This allows companies to serve the Chinese market directly, without actually being present in China. It’s clear that both companies and shoppers are discovering the opportunities in this field: the cross-border e-commerce value is growing quickly, expecting to reach a total of 292 million consumers by 2020.
- Market entry: While actual presence in China often requires joint ventures or partnerships with local companies, cross-border e-commerce allows foreign companies to sell directly to Chinese consumers.
- Trustworthiness: Chinese consumers are hesitant to buy products on foreign websites. Selling goods through online Chinese websites such as Taobao or JD.com takes away this hesitance.
Of course, even though there are many opportunities non-Chinese companies should not take venturing into the Chinese world of e-commerce lightly.
- Costs: Alibaba’s ‘Tmall Global’ and Jindongs ‘JD Worldwide’ allow for foreign businesses to directly sell to Chinese consumers. However, this does require a significant investment. From deposits to mandatory trading partner fees, businesses should consider the actual amount of costs involved in starting their Chinese e-commerce business.
- Supply Chain Management: For Chinese consumers, the expectations regarding delivery times are high. A ‘same day delivery’ option is old news, ‘delivery within the hour’ is more like it. This requires very efficient operations, and puts a heavy strain on companies’ supply chain. And let’s not forget import licenses and product registrations.
- Taxes & Legal: In the past, Chinese legislation offered a loophole for ‘personal packages’ which allowed foreign companies to ship packages to China without paying taxes. Recent legislation has introduced many new taxes and closed the loopholes, which makes foreign products more expensive. Also, popular items such as food imports are now to be subjected to health inspections. Regulations are updated continuously and should be monitored closely.
More information on e-commerce in China
Are you thinking of entering the Chinese e-commerce market? In the Guidebook China Cross-Border E-Commerce you can read more detailed information on this topic. Of course, you can also contact the local economic network representation for advice.