China’s affluent middle class presents a huge opportunity for international brands, but using ecommerce channels to get product into this market requires diligent research and strong on-the-ground partnerships, say a group of Dutch consultants based in Shanghai.
China is the world’s biggest ecommerce market and by 2020 that market will be worth more than US$1 trillion.
The figures around ecommerce in China don’t stop there. There are 668 million internet users across the country and 413 million online shoppers. That’s expected to hit 750 million by 2020.
These big numbers are drawing the attention of international brands – wooed by the opportunities but impeded by a lack of understanding of local market nuances.
“People come to China and they see the opportunities, then they speak to three lawyers and a logistics partner and they go home crying,” says Siebe Gerbranda, agency director Shanghai, The George.
Gerbranda’s marketing agency is one of eight European companies that have come together to form DigiDutch. These non-competing businesses, which together cover legal, branding, logistics, online marketing and services, help each other to generate leads and assist foreign companies with their ecommerce strategies for China.
The initiative was launched by the Dutch prime minister in March 2015 and has the support of the Dutch consulate in Shanghai.
It’s a clever move, allowing the group of SMEs to take on bigger agencies in their offerings to foreign brands.
One of the most common questions the DigiDutch team is asked is: “How do I get my stuff into China?”
Here is a start.
1. How do I get my stuff into China?
Begin by asking a lot of questions.
At the start of the ecommerce journey, companies will be asking: What platform should I use? Should I have my own shop? What logistics should I use?
A common strategy is to start on an ecommerce pureplay such as JD.com, Tmall or VIP.com. These are China’s big ecommerce players – and even Amazon has a store here. However, international brands should also look at niche ecommerce or blogging sites where there may be less traffic, but more relevant consumer engagement.
Depending on the model, marketing, brand awareness, warehousing and logistics may be taken care of, but new businesses to China need to be very clear about how these ad-ons work. In most cases, additional resources / budget will need to go into these, and will most likely involve third parties.
Cross-border channels can also be a great way to test product in the Chinese market and conduct market research, without the burden of setting up a physical presence in China.
WeChat, the mobile app with more than 700 million users in China, now allows brands to set up ecommerce stores on its platform. This is in its infancy, but is expected to be a booming trend by 2017.
Having a stand-alone ecommerce site can be used as a part of a wider strategy, but for a market like China, no Chinese consumer will visit you if they don’t already know your brand.
Which leads to the next important question…
2. How is my product going to be marketed and distributed in China?
A distributor in China may contact a foreign brand for a large container order beyond an SME’s wildest dreams. But without the marketing behind it, no one in China is going to know the brand.
One mistake some foreign companies make is thinking that because the brand is well known in western markets, it will be a success in China. This is an arrogant attitude to have in China and results in failure.
Regardless of the strategy or ecommerce model, all brands new to the Chinese market will need to invest resources into marketing and brand awareness of the product, and a third-party, on-the-ground agency, or consultant is best placed to advise or implement this.
How will the product be distributed? Are there opportunities for distribution beyond tier-one cities like Shanghai and Beijing? These are important questions to establish with your China partners.
*Screenshot from JD.com. How is your brand going to stand out in China’s cluttered marketplaces?
3. Do I actually need to set up a company?
This is an important question and not one just anyone in the ecommerce ecosystem should be answering. Ensure you have had relevant, trustworthy legal advice before advancing down this track.
4. No agency / consultant can do everything, and anyone claiming to do so is lying
No one can claim to be an expert on legal, marketing and logistics, especially in China when everything changes very quickly, and all the time, says Siebe.
He says a lot of agencies and consultants in the market will say they can do everything, but smart clients get weary and suspicious of this.
“I don’t know everything and being able to admit that builds trust with your client,” he says.
This of course is where an organization like DigiDutch has its advantages. Clients can be redirected to other members in the group who are experts in the relevant fields.
“We are focused on what we are good at, and then it’s really easy to pass on business to others in the group,” says Jacco Bouw, chief executive officer of Webpower, a marketing automation business in the DigiDutch group.
5. Be local
A common mistake international brands make is having an ecommerce manager who is not in China or has never been to China, says Simon de Raadt, general manager, Mains International and chairman, DigiDutch.
China is a unique and complex market – someone with China expertise, who is familiar with the business environment here, is essential.
Build a concept / strategy just for China, says de Raadt. What works in other markets will not apply in China.
Also consider localizing within China. There are many new markets within China that go beyond the saturated tier-one cities of Shanghai, Beijing and Guangzhou.
Finally, come regularly to visit China yourself. This is a continuously evolving digital ecosystem with some of the world’s most innovative applications around social commerce, ecommerce and O2O marketing.
The digital landscape changes often and quickly. One need only look at the evolution of WeChat over the past four years – into an ecommerce juggernaut – to understand the speed with which Chinese online purchasing behavior can change.
6. On the ground partners are essential
China’s business environment is constantly changing and new regulatory and legal frameworks can come into effect without warning.
An example of this is China’s burgeoning cross-border e-commerce sector. The channel had allowed goods passing through China’s free trade zones to enjoy minimal tax and to bypass regulatory, labeling and licensing rules. Cross-border offerings from ecommerce giants including Alibaba’s Tmall Global and JD.com’s JD Worldwide also helped to fuel it into an industry worth US$1 trillion.
That changed on April 8, when the Chinese government announced sweeping reform to the sector. Goods entering China via online cross-border channels are now subject to import tariffs, VAT and consumption tax. However the new regulation is still evolving and remains a work in progress.
For this reason, it is important to have good connections and representation on the ground in China to ensure a business is complying with Chinese law, and then be in a position to implement necessary changes on the spot.
Having a local partner can even extend to simple challenges such as wording in online content – a brand might suddenly find its website contains forbidden text, says Bouw.
A partner on the ground in China can adapt and make those changes quickly.
“You cannot promise that what is happening today in China will happen tomorrow,” adds Siebe.
“Legal, trademarking, customs, customer service, these are all organic in China, and don’t follow the same form year on year. Therefore, everything in China needs to be adaptive.”
7. Keep asking a lot of questions
It’s important to keep digging to find out what is working and what is not, says de Raadt. “Are you reaching the right customers? Do you have the right pricing? Who is your target audience?”
If your product is not selling – why not? Is it because your social strategy needs to be tweaked? In some cases, a business may do all the best preparation and still fail. Then, perhaps it comes down to the product itself – is it right for the Chinese market, or does it need to be localised?
A China strategy is a work in progress, and should be looked at as such.
8. Don’t think short term
Finally, in China, don’t think short term. That means budgeting accordingly.
It comes as a surprise to foreign companies how much investment is required for a market like China, says de Raadt.
“Foreign brands come here thinking they will be able to spend 10,000 euros. The reality is ten times that and it’s going to take three times longer,” he says.
Operating in China on a small budget or limited investment is possible, but the returns will reflect that.
China is like standing in shifting sand, says de Raadt.
“In Europe we use historical data from a stable economy looking at the past three years. In China, We need to work with what we have today and be ready to adapt for tomorrow,” he says.
Therefore, have trusted partners on the ground in China who are ready to adapt your strategy in line with China’s challenging, but bountiful opportunities.
Learn more about developing a strategy for China’s sophisticated ecommerce landscape at ClickZ Live Shanghai on September 19, 20 & 21.
*Featured image: JD.com