SHANGHAI, China — Search for “haitao” on China’s equivalent of Google and you’ll be shown over 2.6 million queries from concerned consumers. Haitao, which refers to cross border e-commerce, isn’t perplexing to Chinese consumers in and of itself (foreign goods are still seen as paragons of quality regardless of the growing capabilities of domestic manufacturers). Rather, the online queries illustrate the savviness of China’s online shoppers as they navigate the complexity of the haitao economy.
“Is JD.com or Tmall better for overseas orders from Europe?” asks one user on Baidu Zhidao, the question-based searchable community powered by Chinese search engine Baidu. “Has anyone received fake Korean face masks from the Taobao vendor called so-and-so?” asks another. Or, “what’s the ranking of the top 10 Japanese haitao apps?”
Clearly, research is necessary when the country’s growing middle class is spoilt for choice. Avoiding counterfeiters and sourcing authentic product from trusted overseas vendors is one of the main drivers of the haitao boom, but another is the need to drive a hard bargain. Lost in much of the discussion around Chinese fashion consumers is that many are actually very price-sensitive — even if they purchase luxury goods.
“Shoppers [like me] are really good at sifting through the sites according to the products they want,” says Liyan, a 22-year-old Shanghai native whose most recent purchases include Common Projects sneakers from Net-a-Porter and a sizeable K-beauty haul from Global Lotte, the e-commerce marketplace powered by South Korea’s Lotte Group. The latter order bore an extra customs charge, but Liyan was willing to pay it.
“You hear a lot about fake beauty products being sold online, so I’d rather buy it straight from the source. They also make it really easy for you to pay online,” she adds, explaining that the Korean site offers the usual credit and debit payment methods as well as AliPay, WeChat Pay and UnionPay to appeal to its Chinese audience.
According to a report by Chinese consultancy group iResearch released this month, China’s cross-border e-commerce market for imported retail goods achieved year-on-year growth of 49.6 percent in 2017. In another report, consulting firm Frost & Sullivan forecasts that China’s 500 million online shoppers will spend over $1 trillion online this year, with cross-border e-commerce expenditure set to reach $125 billion.
With stakes this high, China’s retail juggernauts are doing the most so that shoppers need do the least. And haitao is the key.
"You hear a lot about fake beauty products being sold online, so I’d rather buy it straight from the source."
Alibaba has recently touted Tmall Global as prime virtual real estate for overseas merchants, from Spanish beauty brands to Kyoto-based artisanal crafts and Canadian SMEs during the Vancouver stop of the group’s North American roadshow earlier this month. On May 8, the group also announced its acquisition of Rocket Internet's South Asian e-commerce platform Daraz — which caters to Pakistan, Bangladesh, Sri Lanka, Myanmar and Nepal — in a bid to bolster its presence on the continent with Singapore-based Lazada in Southeast Asia.
The push to expand Alibaba’s hitherto China-centric trading network across Asia is providing cross-border support for the group’s other platforms (like Tmall Global) by localising marketing and operations intelligence and fine-tuning returns and customer service.
Take Web2Asia, a certified Tmall Global trading partner, for example. On its website, the firm boasts of its prowess to overseas merchants by encouraging them to “[sell] to the largest e-commerce marketplace in the world, without the time, money and legal regulations that were previously holding you back.” Meanwhile, JD.com’s global platform, JD Worldwide, prefers to talk up its logistical perks such as partnerships with DHL, a proprietary logistics network, and shipping and warehousing solutions.
Alongside cross-border ties to Farfetch, Walmart and the British Fashion Council, JD.com has announced a partnership with US tech firm Nvidia in 2017 to deploy one million logistics drones in China by 2022. The partnership will harness AI to delivery drones using Nvidia's Jetson platform in order to lower delivery costs to rural areas of China. Cracking last mile delivery in a colossal market like China is one of the holy grails of the haitao trade.
Such is the attraction for global merchants looking to break into the Chinese market that many are opting for ‘springboard’ marketplaces like JD.com partner VIPshop, NetEase’s Kaola, and XiaoHongShu (also known as “Little Red Book”) without establishing a physical presence in the country. As opposed to appealing to department stores and multi-brand stores or allowing their goods to reach Chinese shoppers via overseas personal shoppers through the system known as “daigou,” such marketplaces are an alluring alternative for some fashion and beauty merchants.
But with so many competing cross-border platforms already on the market and more emerging all the time, how do brands navigate the growing options?
"It’s up to the brands to understand the different nuances that come with each platform."
“Every e-commerce marketplace in the world comes with a set of pros and cons, but [in my opinion] Tmall Global’s pros far outweigh any cons,” claims Joe Nora, marketing director at Export Now, a US-based provider of Chinese e-commerce solutions that helped launch the Tmall Global store for UK-based makeup brush brand Real Techniques. “The sheer volume of traffic on Tmall is far greater than other channels and brands can launch in 2 to 3 months, whereas registration and testing for traditional trade can take over a year.”
Nora notes that many marketplaces offer in-channel personalised marketing tools: Tmall’s covers KOL activity, livestreaming features and incorporates Alibaba’s data-powered ad suite. There are also filters like a “no animal testing” area for the growing number of cruelty-free cosmetics brands looking to sell to Chinese beauty lovers. (While animal testing remains mandatory for brands physically sold in China, online-only retailers can bypass this.)
However, such perks may come at a cost. In April, The Associated Press reported that a “well-known American brand” saw its sales drop 10 to 20 percent after its Tmall storefront was removed from the site’s advertising hotspots after the company refused to enter into an exclusive agreement with the retailer, and instead appeared in a promotion by Alibaba rival JD.com. According to the report, five major brands were subject to a “manipulation of site traffic,” allegations that the Alibaba Group deemed “completely false.”
The duopoly enjoyed by China’s two giants remains incontestable, but young upstarts and alternative solutions are beginning to catch up.
“Four out of five Chinese consumers love the ‘same day delivered by a drone’ efficiency that big platforms offer, but the one [out of five] customer [that] cares more about authenticity and getting the same pricing, promotions and unboxing experience [is] the customer we’re targeting,” says Jeff Unze, president of mobile sales channel app Beyond.
The platform was launched by three former Google software engineers in 2014 when they founded BorderX Lab in the heart of Silicon Valley. The firm has gone from being an underdog among China’s giant-dominated e-commerce landscape to becoming a leading platform for Chinese consumers eyeing overseas brands such as Saks Fifth Avenue and Everlane.
BorderX Lab, which announced this month that it had raised $20 million in a Series B funding round led by venture capital firm Kleiner Perkins, offers an AI-based technology infrastructure for merchants to automate the end-to-end shopping experience, from customer acquisition and enlisting influencers for marketing campaigns, to processing orders and shipping optimisation.
Three million downloads later, their app Beyond provides an alternative for brands wary of entering the Chinese market through the crowded marketplace route. “The big platforms are great as they attract many eyeballs, but at the end of the day those aren’t your eyeballs, those are the platform’s eyeballs,” says Unze.
Ultimately, brands need to be more aware of the range of options available to them. In an interview with Jing Daily, managing director of China e-commerce solutions provider Azoya, Franklin Chu warned brands against jumping on the marketplace bandwagon: “They see other recognised brands doing it, so they feel like they should do it.” Furthermore, legacy marketplaces and newer launch pads arm merchants with different tools to connect with Chinese consumers, but this doesn’t entail a ‘hands-off’ approach.
“It’s up to the brands to understand the different nuances that come with each platform and to work closely with the channel,” Nora cautions.