7 Tips for Doing Online Business in China
Updated: Sep 30, 2019
According to a survey by iResearch, last year China’s cross-border e-commerce market reached $917 billion. Reports from Forrester show that China is expected to be the first country to reach a value in online retail sales of over $2 trillion by 2020.
McKinsey & Company's research also found that China's cross-border e-commerce annual growth rate is around 50% - this market is erupting. According to McKinsey's report in 2019, a largely middle-class population with strong buying power is burgeoning in China. There are an estimated 225 million wealthy residents with the potential to purchase premium goods from overseas.
The emergence of cross-border e-commerce has undoubtedly contributed to this international shopping boom. It has allowed overseas retailers to dodge the complicated processes, high costs of building brick and mortar stores in China and has reduced operational business risk overall.
However, for UK retailers, there are seven key factors to consider before deciding whether or not to enter the Chinese market through cross-border e-commerce.
1. How to enter the Chinese market?
There are generally two paths for overseas organizations to enter the online retail market in China; working with a third-party e-commerce platform or building an independent Chinese website.
Working with e-commerce platforms can inexpensively test the Chinese market, eliminating the huge expense of expanding overseas and network marketing in China. By utilizing an e-commerce platform, in most cases the organization needs only to undertake the task of logistics for delivery to effectively reach target consumers in China, enhance exposure of your brand and increase the conversion rate.
For organizations whose brand recognition is not distinct in China, choosing to open a store on a third-party e-commerce platform may be a quick and efficient strategy. For example, a platform like Tmall is a ready-made channel for merchants since it has well equipped with the required infrastructure, and you will only need to be responsible for sales, which can speed up your entry into the Chinese market. Apart from that, it makes millions of visitors available to you owing to the large traffic brought by those giant e-commerce platforms, which also engenders the consequence that you will be involved in a highly fierce competition since thousands of sellers are also visible to the consumers.
If you choose to build your own Chinese e-commerce website, it serves as a good way to differentiate yourself, while you have to try hard to ramp up traffic and drive sales. In the long run, it is undoubtedly conducive to building brand awareness especially when it comes to localization. To run your own Chinese e-commerce website, using web hosting services that are located in China is highly recommended to ensure fast and responsive connection to the website and prevent consumers from abandoning the shopping cart due to continuing cross border network issues which regularly cause problems due to China’s heavy controlled and limited access to websites outside its borders. However, web hosting in China requires an organization to apply for and complete Internet Content Provider (ICP) registration, which is only applicable to an organization whose business entity is registered in Mainland China. This can be a frustratingly slow and complicated registration procedure. Thus, compared with the traditional import method, cross-border e-commerce provides a more economical path for overseas organizations by easily bypassing the cumbersome registration processes.
2. Do you have a thoughtful e-commerce strategy?
If you do already have an e-commerce business entity based in the UK market, this will be very helpful for your business expansion into the Chinese market. You need to determine whether there is enough of a profit margin to cover the costs associated with cross-border e-commerce.
No matter which path you choose to operate business in China, either via a cross border e-commerce platform or by building your own Chinese website, you should bear in mind that providing products of premium quality, utilizing high end and well-designed product packaging and implementing promotion campaigns on the website will definitely add value when it comes to attracting a higher number of Chinese consumers. Chinese consumers' online shopping expectations are intimately linked with many other aspects such as user experience, easy use of mobile terminals, smooth language, convenient payment methods, delivery time and so on.
3. How do you manage orders and logistics?
Logistics and distribution are unique in the Chinese market. In addition to requiring speedy delivery, organizations often face some challenges during the peak period, such as the upcoming Single’s Day.
In order to meet the high expectations of Chinese consumers, the lead-time between when a consumer places orders and receives the product is controlled within 7-14 days. Some of the e-commerce platforms such as Tmall Global offer a direct retailing model, which makes it possible to store the products in the bonded warehouse and thus enables lower shipping time. All in all, your logistics management system must be very efficient.
In addition, adequate stock and timely replenishment are also key to ensuring an adequate inventory of top-seller items. You must be clear about how many packages your company can pack each day, and whether the capacity of the warehouse can cope with the temporary increase in inventory during the promotion period.
4. Does your price have an advantage?
Most of Chinese consumers are very price-sensitive and they tend to compare the prices of similar products through various different channels. Therefore, in order to set a competitive price, you need to be comparable with local competitors inside China.
If a UK retailer has both a UK website and a Chinese website, then Chinese consumers will usually compare the price of the items on both websites. If the price of goods on Chinese websites is higher than the price of UK websites, they will be very disappointed. Therefore, you need to find creative value-added methods to attract Chinese consumers and provide them with a more accustomed payment method.
A competitive pricing strategy is very crucial for a new business, and setting a competitive price does good to market penetration and drives sales volume. For some brands, it is suggested to adopt other pricing strategies such as value pricing or premium pricing when the brand value or unique selling point has been strongly delivered to the consumers or the brand itself is positioned as high value.
5. Do you know enough about local laws and regulations in China?
To do business in China through cross-border e-commerce, you also need to obtain approval from relevant authorities and departments.
Additionally, in terms of cross-border e-commerce related legal regulations, the Chinese government has set strict guidelines and limitations on imports, that is, which products are allowed to enter and which are not. You need to check the published lists to see if your products meet the requirements for import and what procedures are required.
6. Do your marketing approaches match the tastes of Chinese consumers?
In order to achieve optimum market performance, you need to plan and set aside an overall marketing budget to effectively reach your target audience. For example, to reach Chinese consumers, you may need to interact with potential customers on various social media platforms such as WeChat, The Little Red Book or Weibo in a timely manner.
To give back to loyal customers, you might need to offer promotion marketing or special discounts, thus you need to estimate budgeting for the whole year. In order to communicate more effectively with customers, you must also localize your marketing campaigns and customer service.
7. Is your China entry plan well-scheduled?
To avoid wasting your time and energy a strategic plan is a must for organizations especially when it comes to entering a new market, without which failure in the new market is a strong possibility.
To begin with, you’d better conduct market research, benchmark analysis and customer insights to get a comprehensive view of the whole industry, evaluate the competition landscape, identify the target markets as well local consumers’ preferences, etc. After identifying the key segments and brand positioning, you should materialize the market entry plan based on the correlated findings and formulate a feasible 1-3 years road map, which covers step-by-step scale-up strategy, revenue generation models, key marketing actions, etc.
As China's market entry plan is also a long adaptation process of cross-culture, hiring or working with a team of experts who have grasped reliable market knowledge and understood the regulatory environment in China would help you save trouble and support you to adapt to the Chinese market in a most cost-effective way.