Guest author Mike Michelini talks about Getting Into Chinese E-commerce Utilizing Cross-Border Tactics
Are you like the many small and medium sized businesses around the world raring to get into the Chinese e-commerce market? Feeling overwhelmed with where to go and how to start?
To do it 100% correct, we should setup a Chinese entity. Yet to build up a e-commerce distribution network is a big task, there are ways to do it without those larger upfront investments. One of those ways is via cross-border e-commerce.
What Is Cross-Border E-Commerce?
For those hearing the term cross-border e-commerce for the first time, and not sure what it is? It’s the act of keeping your goods in a free trade zone in or near Mainland China and shipping into the Mainland Chinese market on a B2C (business to consumer) level.
It is the act of avoiding shipping all your goods into China first, and paying import duties and warehousing in China. This is a popular tactic if you are just getting started. If you don’t know how much taxes your product will cost, or you want to test the market before investing a lot in inventory, customs, and Chinese warehousing.
Listing on Chinese Marketplaces
Many of the major e-commerce marketplaces, such as Tmall and Jing Dong (JD) allow non-Chinese companies to sell on their platform. One of the more common ways companies do it is with a Hong Kong entity. They then collect the sales in China on your behalf and remit to you on a batch basis outside of China, in your local preferred currency.
When you boil it down, marketplaces are all about trust. Chinese consumers, as well as anyone buying online, has to trust that the marketplace. It is where they put their credit card (or any payment details) is safe, and that the product they buy is quality and authentic.
So prepare yourself to prove to these marketplaces you are up to “snuff”. That your product is good quality, you and your business is authentic, and that you will stand behind your product. If there is a quality problem or authenticity problem.
How do these Chinese marketplaces solve that problem for cross-border businesses (companies outside of Mainland China)?
The most common way is with security deposits of approximately 30,000 Chinese Yuan (around $5,000 USD). This is not a fee, but instead a guarantee that the marketplace can show consumers that this vendor will stand behind the quality of the products.
While this may seem like a steep ask for you as a small business, it is a way to “buy trust” in the Chinese market.
Setting Up Your Logistics
Logistics is the critical part of any e-commerce business. For selling into China via cross-border, the timing and simplicity is especially important.
It boils down to 3 ways:
Option 1: Using a Chinese Free Trade Zone- At Global From Asia, we have had business trips to these FTZs, as well as had many discussions on it. The idea is it is “inside China” physically, but still in a special zone that doesn’t force the importer to “import” the goods. You do it once you sell the goods and need to ship it outside of the zone into the “real” Mainland China.
Option 2: Using Hong Kong. Many would say Hong Kong was the original FTZ of Mainland China, and these newly established zones are replacing the HK differentiation, but there are still reasons to use HK. You may have a HK company, and prefer to have your relationships and business all done in Hong Kong. You can easily get your goods shipped into Mainland China – but the buyer (B2C consumer) would then need to worry about paying the import taxes, which can vary.
Option 3: Shipping from your home country. You can ship direct from USA or wherever your product originates, by post or express. While there is still a large percentage of people doing this, it puts the pressure on the Chinese end consumer to wonder when the shipment will arrive and how much the import taxes will be.
When making a decision on which logistics solution to use, keep in mind that the delivery of your products is also connected to the brand. If you goods take longer than expected to arrive, or cost high import duties – it will have a negative affect your brand long term.
Attend Our Cross Border Business Trip in Hong Kong
Want to talk with logistics companies and Chinese e-commerce marketplaces face to face? See how others in the industry are handling their marketing and distribution? Then learn first hand at Global From Asia’s Cross Border Business trips.
Our next one is coming on Friday November 18, 2016. We will visit logistics companies in the morning, lunch together, and then afternoon workshops followed by a networking session in the evening. So don’t miss out – check out the agenda and tickets at www.globalfromasia.com/hktrip.
Taking an active role in learning how to leverage Chinese e-commerce with a Hong Kong limited is something readers here should especially enjoy!
To all our cross-border business success!