Major Business Models of China Cross Border E-commerce
Updated: Oct 11, 2019
Our previous post has introduced China cross border e-commerce including trade models, regulations, customer profiles, product by category, etc. (Click here to view the ‘Introduction of China cross border e-commerce’)
This article will give a more comprehensive outline of cross border e-commerce flowchart, its participants, logistics models and depict an overview of the sales models currently deployed by different marketplace platforms in China.
1. Cross Border E-commerce Flowchart
2. Cross Border E-commerce Participants
3. Logistic Models of Cross Border E-commerce
The considered logistics options of cross border e-commerce are mainly divided into ‘Direct Shipping Mode’ and ‘Bonded Warehouse Mode’.
Direct shipping mode may be further divided into two models:
(1) Distributing from retailers in the Country of Origin (COO), which allows the merchants to send the goods to China through the logistics company right after the consumer places the order;
(2) Distributing from a fulfillment center in the COO, where a certain number of parcels are stored after the consumers place the orders and then send them to China collectively.
The two models of direct shipping are more costly due to the expensive international shipping fee and are less efficient due to long delivery lead-time. Apart from that, they also generate expensive costs for good returns. However, the pros of direct shipping mode are that it reduces the inventory risks and enables a better connection to the customer base.
Bonded warehouse mode allows the merchants to put the top-selling goods in the bonded areas in advance through big data analysis and ship the goods directly from the bonded areas after the customers place the orders.
Goods in the bonded warehouse are strictly monitored in terms of import customs clearance, quality inspection and quarantine, and transparency, which can furtherly guarantee the quality of the goods and protect customers’ interest.
The advantages of bonded warehouse mode are that it saves the logistics cost of the merchant and offers speedy delivery. However, it can bring about high inventory risk.
4. Sales Models of China Cross Border E-commerce Marketplace Platforms
Different cross-border e-commerce marketplace platforms have differentiated innovations in handling inventory and sourcing products according to the needs of consumers and their own advantages. In this part, we will introduce three different types of sales models being run by different marketplace platforms.
1) Direct Supply Model(B2C)
The direct supply model is a typical platform-based B2C model that connects overseas retailers or brands directly with Chinese consumers through a cross-border e-commerce platform.
The platform develops rules and consumption processes suitable for cross-border e-commerce import transactions, creating a good user experience. The main profit of this model is generated from the annual fee and transaction commission fee.
The direct supply model is based on the aggregation of buyers and sellers. For this type of model, the platform has high traffic and service requirements. Therefore, the direct supply model generally requires retail qualifications and authorizations for overseas suppliers and needs to provide corresponding local after-sales services. As to the logistics, the goods are generally delivered to Chinese consumers by means of direct shipping.
This model provides consumers with a wealth of product selection and convenient shopping experience, coupled with platform endorsement, making it more trustworthy for their users, whereas an increased management of the overseas supplier or brands and shortening of the supply chain are the key factors to consider in the development of the direct supply model.
Representative cross border e-commerce platforms of the direct shipping model include Tmall Global, JD Worldwide, Su’Ning Overseas Purchase, Amazon Global Selling, etc.
2. Wholesale-Retail Model(B2B2C)
The wholesale-retail model is mainly based on a self-operated B2C model. The platform directly participates in the organization of the selection of goods, logistics warehousing, and sales process. Since the wholesale-retail model has better control over the product end and the supply chain, the combination of large-scale purchase of goods and the logistics of the bonded warehouse model is generally adopted, which is efficient and provides enhanced user-experience.
The main profit points of this model are generated by selling products and related value-added services, such as marketing. As the user experience continues to improve, membership service fees become another profit point of the wholesale-retail model. The wholesale-retail model requires marketplace platforms to possess more insightful acumen over market consumption demand, which puts higher requirements on marketplace platforms in terms of product selection.
At the same time, a large amount of funds of the marketplace platforms need to be ensured and the sell-through rate must be effectively improved. Therefore, marketplace platforms that utilize this model usually take advantage of limited-time sales or direct mail flash purchases to enrich their categories and ease supply chain pressure.
This model also includes the marketplace platforms such as Little Red Book, which is infused with community attributes. Little Red Book originated from the forum community, mainly based on social C2C and B2C. The community model, User Generated Content (UGC) model, gathers people with similar interests through the overseas shopping experience shared by users.
It provides a comparison between what users purchase and what is worth purchasing, which is based on the analysis of community user behavior data and product information, precise selection, and provides a convenient shopping experience by offering the corresponding channels for the customers to purchase the products that they are reviewing on Little Red Book. Compared with other cross-border e-commerce import models, the customer stickiness of the community model is high, the barriers to competition are significant, and the products are different from the integrated platform. The content is completely based on the users in the community and is demand-driven, which is an innovative model. Its main profit is derived from the sale of goods. The main operating point is to increase the conversion rate of users.
Representative cross border e-commerce platforms of the wholesale-retail model include Tmall Global, VIP.com, Netease koala, Little Red Book, Mia (Mia.com), etc.
3. Global Buyer Model (C2C)
The global buyer model is a typical C2C and B2C based C2C cross border e-commerce platform model by opening a store with overseas buyers to establish a relationship between overseas buyers and Chinese consumers.
The profit of this model generally originates from commission fees and some trans-shipment logistics services.
The global buyer model is mainly based on long-tail non-standard products and owns its individualized products. It covers a wide range of industries and commodities. The advantage of this model is that buyers are more sensitive to overseas markets and they have faster product iterations, higher consumption viscosities, as well as a certain price advantage, which satisfies the individualization and meticulousness in import consumption and diverse needs. The delivery of the commodity is generally personal postal mail. The disadvantage of this mode is that it relies more on buyers and the service experience is uneven. Thus, the legal risk issues such as trust and brand authorization may limit its scale and development.
Global buyer mode developed rapidly in the early stage, but with the further improvement of the customs policy, the compliance problem of this model has become increasingly prominent, and compliance and legality have become the key to the buyer mode innovation.
Representative cross border e-commerce platforms of the global buyer model: Yamtou, Taobao global purchase, etc.
Different marketplace platforms run different sales models, and there are some marketplace platforms such as Tmall Global support two sale models such as B2C and B2B2C at the same time. For brands, it is very important to take several factors into considerations before choosing the right marketplace platforms, such as the purpose of entering into Chinese market (to test the market or to scale the business), the product categories the brand is selling or if the product imported is top-selling in the COO, etc.