9 September 2015

10 things you need to know about cross-border e-commerce in China

From dominating the Silk Route to ruling the Electronic Highway. In this final part of our tetralogy on cross-border e-commerce (read our blogs on cross-border e-commerce in general, in the EU and in the USA) we would like to take you to the Far East. To The People’s Republic of China, to be exact.

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1. China’s isolationism

Around the time that our era began, China was one of the most prolific trading countries in the old world due to the Silk Route. Then – after centuries of being highly successful – around the 15th century, China became increasingly isolated under the Ming Dynasty. They didn’t start trading with the outside world again until the beginning of the 19th century. But why did China shut itself off from the rest of the world? Some possible explanations for the isolationism:

  • China was (and is) a huge country and was self-sufficient; everything they needed was right there.
  • The Confucian system discouraged mercantilism.
  • The imperial system considered itself the centre of the world and the focus of the heavens. When foreigners came, they gave tribute and fealty to the Emperor; the outside world came to them, there was no need to go out.
  • It was a reaction to a quite extravagant and costly period in China’s history, which was a major blow to their finances.

Luckily, now China is open for business again and they are taking the world by storm.

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2. China is the biggest retail e-commerce market in the world

Due to the Western markets saturating, China has now outperformed the US in total e-commerce sales; $296 billion and $263 billion respectively. Because of the explosive growth rate at which China is adopting cross-border shopping and trading, China’s cross-border e-commerce trade is projected to reach $1.1 trillion by 2016*. The Pet Shop Boys would probably disagree, but “Go East”!

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3. Alibaba & Taobao

The Alibaba Group is a group of investors that owns a huge number of e-commerce web sites like Aliexpress.com and Alibaba.com. Their biggest web site however, is Taobao.com. For foreign merchants looking to expand their business to China, joining Taobao is a great first move to test the waters, because Taobao delivers on its promise: “There are no items buyers can’t find, there are no items sellers can’t sell.” And with over 7 million merchants, 334 million shoppers and $79,3 billion in gross merchandise volume in 2014’s Q4, Taobao is not only Alibaba’s most successful marketplace, it’s the biggest online marketplace in the world! (Which we at eMerchantPay find rather surprising for a company whose online content is exclusively in Mandarin. Foreign shoppers and merchants needn’t worry though; numerous web sites are dedicated to how to shop on Taobao in English and some savvy Chinese entrepreneurs have jumped in the gap and act as “agents” between Taobao and non-Chinese speaking shoppers.)

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4. How may I help you?

When Westerners send an email to a merchant’s customer service, they would be quite happy to get a reply within a couple of days or so. Not in China though. There, customer service representatives are trained to respond immediately. This quote from a veteran e-commerce CEO in China summarises it well: “In China we consider the customer service team a key part of the sales conversion activities, while in Western e-commerce it seems like an administrative cost to be minimised. Here, if your customer services do not respond immediately, the consumer will take their business elsewhere. You could say consumers are a bit spoiled here that way.” Shanshan Li, CEO Wiseline Corporation Limited.

So, when your customer service caters to the Chinese market, make sure it’s on point!

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5. Payment preferences

Traditional card payments are wildly unpopular in China; only 1% of shoppers shop with international credit cards. Most consumers use Unionpay Cards, Alipay, Tenpay and Chinapay1. Foreign merchants wishing to offer their goods and services in China are wise to offer these local payment methods to ensure trade.

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6. Made in China

Did you know 85% of the world’s artificial Christmas trees and 80% of toys are made in China*? That’s why they are called the world’s factory; they produce most of the mundane, everyday stuff that everybody around the world uses, from cement to clothing and from electronics to Christmas trees, apparently. The enormous amount of available labourers, the low wages and the somewhat looser attitude towards complying to strict rules and regulations, give China the competitive edge to offer the lowest prices and keeps companies worldwide coming back for more. But, let us not forget that China is not just the world’s factory; it’s a super powerful consuming power in its own right as well. You don’t become the world’s number 1 retail market (see #2) without your residents spending a good amount on shopping…

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7. E-commerce legislation in China

Since China’s booming e-commerce trade only became booming a couple of years ago, it took the government quite some time to implement rules and regulations pertaining to online trading. One example of the “new” (we say “new”, because in the Western online society these rules have been around for years) rules and regulations is obligating the merchants to provide their resellers and customers with contact information, which makes it easier to contact suspected counterfeiters – a common problem in China. Another rule is that customers are now able to return goods within seven days without reason, as long as the purchases are in good condition, with exceptions for customised products, perishables, etc. Even though these rules and regulations might seem obvious to Westerners, China laughs last. Not only are the returns significantly lower than in the rest of the world at only 8%, regulating the online trade will only make China a more formidable opponent than it already is.

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8. The People’s Republic of Mobile

“Go mobile!” is hardly something Sun Tzu would have cried out on a battlefield, but for the modern day battlefield that is online trading, it will prove sound advice to those who seek to improve their conversions. According to eMarketer’s recent estimates of retail sales around the world, China’s retail sales through mobile devices will reach $333.99 billion this year. That is a hefty 85.1% more than last year. Equally impressive, the mobile sales account for 49.7% of all retail commerce. Go mobile, get rich!

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9. Most popular cross-border purchases

It’s interesting to see that preferences shift together with geographical locations. We have seen that in the EU and in the USA physical goods like watches and media products are preferred over non-physical goods, like music. In China, the consumers also have a preference for physical goods from well-known Western brands, but the products the Chinese prefer are slightly different from the products that Westerners order online*:

  • Baby milk formula
  • Skin care products
  • Handbags
  • Women’s clothes
  • Baby food

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10. The international playing field in China is still wide open

Western merchants with cross-border aspirations often dismiss the Asian region as a potential business destination, deeming it too complex and unwelcoming to foreign players. Merchants prefer to focus on regions with cultural similarities and preferences*. Moreover, due to foreign merchants not understanding the cultural nuances that exist within China, many have failed to penetrate this huge market. Aggressive Western marketing campaigns are actually counterproductive since the Chinese consumer responds best to a different type of marketing tailored to their culture, language and lifestyle. The merchant that dares to venture into China and honours Chinese customs and traditions will rise like a Phoenix out of the ashes of his predecessors.

1. The Global E-Commerce Payments Guide, p. 1, p. 4, Ayden, 2015.
* Tapping into China – Comparing Chinese e-commerce trends and opportunities with the West, p. 5, p. 7, p. 12 & p. 40, Payvision, October 2014.