April 8, 2020
E-Commerce Ecosystem in China

E-Commerce Ecosystem in China

I work for a company called Sovereign China.
We’ve been present in the china market since 2003. We primarily assist foreign entrants
to the China market, and we do that by helping them understand opportunities, understand
the market dynamics, as well as help them with their corporate structuring and back-office
support. Personally, I’ve been in Chins since 2005 and I’ve worked with well over
200 clients in terms of helping them understand and enter into the market Well, the e-commerce ecosystem is different in China in a couple ways. First, if you just
look at the ecosystem, the consumer has a search. You can say they search for the product
that they’re looking to buy, then they pay for the product, then you have fulfillments,
then you have delivery. Around all of this is basically the operations and back-office
support from the company’s side that the consumer doesn’t see. The key difference,
really, in China is this search area. So, where normally in North America or Canada
you would use Google and say “I want to search for products,” and then the brand
website would come up. Usually, you can purchase it. That’s a typical model in North America.
Now, you do have Amazon and some marketplaces that you can use, but it’s not nearly as
big as the marketplaces in China. So, in China, marketplaces dominate. They have about 80%
of the market, or more, of the transaction volume is going through marketplaces. Alibaba,
I believe, is about 65% now, which has dropped a lit bit. But, it’s still a massive amount
of the transaction volume that runs through Alibaba and other marketplaces. So, why did
that even happen in the first place? Number one, you have hundreds, if not thousands,
of these micro-businesses and it’s very expensive for every individual business or
brand to develop their own website. So, what they did is they came together and they utilized
these marketplaces to help basically piggyback off of this aggregate traffic so they don’t
individually have to go to Baidu or Google to generate traffic. It’s already generated
by this platform. So, Chinese consumers are very used to going to these platforms, searching
for a product they want to buy, the platform or the marketplace indexes the products, or
the stores, and then the person can purchase it. So, how is it really different in this
aspect? First, you don’t have many individual brand websites like you do in the West. Instead,
you have these marketplaces. The payment is very similar to that in the West, it’s not
much different except instead of Paypal, you would use Alipay. Fulfillments and delivery
are relatively the same, except with delivery in North America where you typically wait
3-5 days or you pay for express shipment to get it in 2 days, in China most of the delivery
happens within 1-2 days. If you’re really lucky, even same day, which is very different
from how it is in most developed markets. In terms of the back-office, or the operational
side, you’re mostly interacting with these marketplace platforms and, because of that,
there’s a lost more specialization required. How the platform is going to be different
than, for example, Google’s index. And how you can get free traffic flow, or the most
efficient traffic flow, is going to be different. Usually you will want to have some expertise
in this because you are competing with hundreds of other vendors at times. Perhaps you’re
competing with other storefronts on Tmall that carry your own product, so you have to
actually strategize and develop a way to bring traffic to your store rather than your competitor’s
store on the market because it is highly competitive. There are a couple of different ways they
can approach it, but, before that, it’s probably good to say the best way not to approach
it is just to use your Canadian website and hope that Chinese consumers find you. Typically,
there are two ways to approach it. Number one is via domestic channels, which is having
either a presence in China so that you can setup on one of the local marketplaces, such
as Tmall. Using a partner in China to setup on these platforms for you, such as a distributor
or Tmall partner, that manages your store for you on these platforms. Or, you can approach
it via cross-border e-commerce, which is basically setting up on one of the marketplaces, such
as Tmall Global, that will allow you to access Chinese consumers through that avenue. Potentially there are quite a few, but there are three key challenges that most need to
be addressed when approaching the China market. The first is traffic generation. How are you
generating traffic? Whether or not you’re on your own brand’s website or one of these
marketplace platforms, generating the traffic is the only way you’re going to be successful.
So, how do you do that? Well, typically you would need to work with a very strong partner
or have the internal expertise to work with the indexing of either the marketplace or
the search engine that you’re utilizing. It can be very complicated. There can be a
lot of data points. If you don’t understand these particular points or how the website
indexes, you’re not going to be effective in generating traffic to your particular page.
The second one would be conversion rates. How do you actually convert somebody who is
browsing into a sale? This is typically a challenge in China for a few reasons? One,
unlike in North America where people already have an idea of what they want to buy and
they go to a website and buy it, in China, they have a lot of options and they’re going
to have a lot of questions. It’s usually a good idea to have customer service representatives
who can speak or type Chinese who are there via live chat and can address any questions
that potential consumers have. That’s one way to really increase the conversion rate.
The third issue, and really the most difficult for Canadian companies, would be the logistics.
How do you get your product from Canada to China in the most efficient manner? You can
do a lot of different things. You can setup a warehouse in China yourself or you can work
with a 3PL, a logistics provider that will rent you the warehouse space. Ideally, what
you’re looking at is a company that is setup in one of China’s free-trade zones so that
you can ship products in bulk to that free-trade zone, which is outside the customs border
in China. As consumers purchase individual items, that 3PL, or third-party logistics
provider who’s fulfilling the order, can then send individual parcels that bypass a
lot of the restrictions in customs. Understanding the best way to approach the logistics will really help in terms of delivering
in the timely manner which Chinese are accustomed to, minimizing duties and taxes, and also
help with returns. Well, one of the key pieces of advice is be
committed. Just because it’s e-commerce and it’s relatively simple compared to setting
up a brick and mortar retail chain doesn’t mean you can just be lackadaisical about it.
You really do need to be committed. You need to understand the market, the dynamics, the
ecosystem, and, especially, the potential partners you’re going to use. China, because
it is slight different, because the back operations are somewhat different in terms of the best
ways to generate traffic, the best way to do conversions, you really need to look at
whether or not your company has the internal capabilities to be effective, or if it’s
better to use specialized partners in China to assist you. In that sense, you can certainly
turn to the Canadian Embassy to help you with that or look for other partners to assist.

Leave a Reply

Your email address will not be published. Required fields are marked *