by Franklin Chu
In search of growth amid retail contraction in Western countries, more U.S. and foreign retailers are looking to China’s flourishing retail market. Yet this process entails far more strategic thinking than simply setting up a Chinese website and translating the content.
Franklin Chu, Managing Director Azoya US
Why China? Last year, cross-border e-commerce in China reached $917 billion US, according to iiMedia, and China is poised to be the first country to reach $1 trillion in retail sales by 2020, Forrester reports. McKinsey & Company also found cross-border e-commerce in China earns an annual growth rate of 50%, so the market is booming.
Hot categories: The most popular types of U.S. products in China are cosmetics, bags, clothing and shoes, nutritional supplements, mom and baby products, and consumer technology.
China has the largest middle-class population in the world, accounting for 225 million wealthy citizens with the potential to spend their disposable income on premium products made overseas, according to McKinsey. Cross-border e-commerce facilitates this international shopping boom, as U.S. and foreign retailers avoid the complicated process, costs and risk involved in setting up local businesses in China.
To decide whether your retail company should expand to China using cross-border e-commerce, consider the following seven essential factors to succeed in this thriving market.
1. How should you enter China?
Two ways U.S. and foreign retailers can enter China’s online retail market are online retail marketplaces and retailers’ own independent Chinese retail websites. The decision depends on whether you prefer to build China know-how in-house or outsource your China business to a local service provider. If you create your own Chinese e-commerce website, locate the server for the Chinese web shop in China to ensure reliable performance and prevent cart abandonment due to online session time-outs. Compared to traditional imports, cross-border e-commerce offers less financial risk, and avoids the need to set up local business entities or go through a complex registration process.
2. How robust is your e-commerce strategy?
A strong, existing online shop in the U.S. or other foreign market is a good basis for expanding to China. Consider whether you have sufficient margins to cover cross-border e-commerce expenses by knowing your domestic margin and your margin threshold when selling to China. Talent is another issue, particularly whether you have the necessary IT capability in-house. Make it easy for online shoppers to make purchase decisions by offering product prices and pictures on your website. Chinese consumers’ shopping expectations include a user-friendly, mobile website with easy navigation, full language support, integrated payment and multilingual search.
3. How will you manage orders and fulfillment?
Fulfillment for product orders in China can be tricky, as orders often come in “peaks” following popular campaigns. To meet discerning Chinese shoppers’ expectations, the time lapse between receiving an order to dispatching the parcel to the logistics company must not exceed 2-3 days. Your logistics processes must be efficient, even at peak sales times. Stocking and replenishment are also critical to ensure hot-selling items remain in stock. Consider how many parcels you can pack per day and whether the size of your warehouse can accommodate additional stock.
4. Is your pricing competitive?
Chinese customers are price-sensitive and they research to find the best offer. To determine whether your pricing is competitive, benchmark your prices against your rivals’. If a retailer has U.S. and Chinese websites, Chinese shoppers often compare the prices on both sites; they feel disappointed if the prices on the Chinese site differ significantly from the American prices. Find creative ways to add value to entice Chinese customers, and offer preferred payment methods to make ordering easy and seamless.
5. Do you comply with legal constraints?
Some retailers require permission to sell their products using cross-border e-commerce in China. The Chinese government has issued positive and negative lists (products allowed and forbidden in China), which you can check to see if your products comply with the current legislation. Certain categories, such as beauty and fashion, may require an authorization process to sell your products online in China.
6. Will your marketing resonate among Chinese shoppers?
For optimal marketing impact, know your maximum marketing budget and specify which consumer group you will target. Decide where you will reach Chinese customers, including establishing a social media presence on WeChat and Weibo, and how you will engage and retain loyal shoppers. Calculate the maximum number of free shipping campaigns you can afford per year or, ideally, provide free shipping all year round. To maximize online conversion rates, localize your marketing and assortment to reflect Chinese shoppers’ unique needs.
7. What is your timeline?
Depending on your time horizon, cross-border e-commerce may work for you. An online marketplace makes sense for short- to medium-term strategies. Tmall is a well-established, top-of-mind marketplace brand that accelerates retailers’ market entry so they can focus on selling. Conversely, retailers with their own online shop often have longer time horizons. They focus on reaching Chinese shoppers through direct brand exposure, sales and brand building, while maintaining greater control over their online operations.
Overall, these seven questions can help you determine whether it makes sense for your retail company to expand to China through cross-border e-commerce. To gain further confidence in your decision, consult with a local expert with a proven record of helping U.S. and foreign retailers succeed in China’s large, lucrative market.
Azoya builds and operates e-commerce sites in China for overseas retailers.