I’m often asked by clients interested in the market, what are the top basic concepts of cross-border ecommerce in China. What IS cross-border ecommerce in the context of China? Why DOES China have a parallel universe built up for selling online? Many people by now have heard about the strength of the Chinese online retail landscape but many still have little idea about why that’s the case and how it’s structured. I’d like to write some more posts over the coming weeks on this topic, so I thought I’d start with this basic foundation to provide some background.

China is a huge market for almost every type of product due to the size of the population, however it’s hard to believe that when I first visited in 2008, it’s share of the world e-commerce market was less than 1%. In 2019, China’s ecommerce sales surpassed Europe and the US combined, making up more than 20% of the global e-commerce turnover and the growth has continued since then.

China is the biggest eCommerce market in the world, with annual online sales of $672 billion. Over the last decade, China’s retail sales have expanded rapidly and retained an above-average year-over-year growth rate of 27.3% worldwide.

easyship.com

Chinese consumers are incredibly open for new trends and really love to consume.

But what is cross-border ecommerce? Generally it’s simply selling online from one country into the next. So if you order something from a seller on Etsy or Instagram who is US based, to be delivered to you in Greece or Canada that is cross-border ecommerce. However in the China context, it is a little bit different due to the special regulations which surround this kind of business model.

Why is the Internet Landscape so completely different in China?

China’s entire internet landscape is unique. Local laws and restrictions mean that social media platforms & search engines that dominate in other countries (Facebook, Instagram, Twitter, Google) are not able to operate behind the “great Firewall”, meaning that a kind of parallel world grew up. At first the platforms in China felt rather like copy-cat versions of their US counterparts but they soon evolved to become what they are now: powerhouses that help drive around 40% of the retail economy.

Rivalry JD - Alibaba

The market in China is generally ultra-competitive & often super fragmented, however in the field of ecommerce, whilst there is certainly a “long tail” of smaller platforms, the large players dominate. This may be less of the case in the future however, as the Chinese government has signalled that they are keen to end the dominance of Alibaba, Tencent and Baidu.

3 Ways to Sell Products in China

Very broadly speaking, you have 3 options if you want to enter into the Chinese market:

  1. Traditional import and distribution
    This may give you still the broadest options on the market, however the fact that your products need to be registered and to conform to all the Chinese laws which are relevant makes it extremely complex.
  2. Regular Ecommerce
    This is when you sell products online which you have already imported to China. It of course also means that they have to be registered with the authorities and conform to Chinese regulations.
  3. Cross-Border Ecommerce
    With this model, you sell products online via a company based outside of China. These products can be the ones which you are otherwise selling in your domestic market or other export markets, but they don’t have to comply with the Chinese regulations. This is probably the most popular model for new brands looking to enter into the market as it can be tested without expensive product modifications.

Why is Cross-Border ECommerce attractive to Chinese consumers?

Chinese consumers are attracted to cross-border ecommerce (or CBEC) for several reasons.

Wider range of products

Firstly, for those with money to spend, the business model offers the opportunity to purchase goods which are not available in high street stores. These could be skin care brands for example who stand by their principles on animal testing and so refused to go through the regular import procedure for China. (This regulation is also due to change but until now animal testing was required for regular imports of skin care).

Perceived quality & guarantee of origin

Secondly, there is a perception that you are guaranteed to get a genuine product if you buy cross-border and that this will be higher quality than those items which may be imported. Sadly, even in 2021, there are still some companies out there who produce to different quality standards for different markets. However, on the other hand, often “different” may be perceived as a change in quality. That means that if the law says you need to add more or less of an ingredient/raw material that changes the taste or feel of your product (as is the case in China for imports), then consumers may perceive the item in the home market to be better quality. This isn’t always the case though, as China has extremely strict import regulations.

Better price

The 3rd main reason for Chinese consumers to buy cross-border is the price. In 2013, China (tacitly) acknowledged that a huge amount of goods were being imported unofficially by means of mostly ecommerce, and introduced the first version of the cross-border regulations. These allow for many product groups to be imported without import tariffs and a reduced sales tax rate. That can lead to HUGE price differences when compared to regularly imported goods of the same brand.

China went further

Simply reducing the import costs on cross-border ecommerce products wasn’t enough for the Chinese government. This was part of the process of being able to regulate the tsunami of products which were being smuggled into China and at the same time for the government to start earning at least some taxes on them. The next part of the process was to extend the validity of these tax reductions and to set up a number of tax free zones around China, including SAR Hong Kong, in order to incentivise companies to set up their operations there.

As of 2021, there are 21 free trade zones (FTZs) across China – officially these are still in a Pilot phase (since 2013!)

Map of China showing the new free trade zones
China’s Free Trade Zones: China Daily

Effectively, that means that you as a brand can have a warehouse on Chinese soil, which technically is still “abroad”. This enables you to deliver to consumers within a minimal time and at a significantly lower cost than if you ship each package ready commissioned from Europe.

basic structure of cross-border ecommerce - top basic concepts of cross-border ecommerce in China
Basic structure of CBEC via a FTZ

Which products are typically sold through this channel?

As I mentioned above, skin care and beauty products are extremely popular as many brands are not available in offline retail. Luxury goods (watches, handbags, clothing) – here the demand is driven by price and also the wish to be sure that the item bought is genuine. Maternal and infant products are available cross-border in (even) more variety than is the case as imported products, giving mums a far greater choice. This is especially true for organic products which are extremely complicated and expensive to certify for import. However price and “originality” also play a role here. Nutritional supplements are also very popular.

Cosmetics, clothing and footwear, electronics and infant products are the most popular products (by value) to buy cross-border, although all kinds of food also experienced a surge in 2020.

How can you sell goods cross-border?

As this post is really only covering the top basic concepts of cross-border ecommerce in China, there are several possible variations of business model which I haven’t mentioned here in detail. I am just aiming to provide a grounding on the topic!

1. Your domestic or international webshop

It’s possible to sell goods from your existing webshop directly to consumers in China.

ProsCons
Easy for the brand to manageSlow to load if servers are outside China
Existing structures keep costs to a minimumHow to get traffic?
No access to Chinese advertising channels
Slow logistics
Managing customer service
Own overseas website

Whilst this may seem like an easy option, the disadvantages far outweigh the perceived pros. This doesn’t have any advantages from the customer perspective and if you’re not customer-centric in China, you’re doomed to fail. Websites from outside of China are slow (or impossible) to load and consumers worldwide have zero tolerance for that. Unless you are a mega brand already, you need to find a way to drive traffic to your website, but without any kind of platform or entity in China it’s virtually impossible to access Chinese consumers.

The final point though is that Chinese consumers are the most spoilt in the world and really expect near instant gratification. Consequently, if you don’t offer 24/7 customer service in Mandarin and you need 7-10 days to get the product to the consumer, they might buy once but the repeat business will go elsewhere.

An Outlet (Flagship Store) on a Cross-Border Shopping Mall

There are a number of platforms specially designed for selling products on a cross-border basis. The most famous of these are Tmall Global and JD Worldwide.

ProsCons
Store design can match your international brandingYou generally need an agency to help you navigate the platform & their requirements
Access to consumer traffic via the ecosystemHigh set up fees & commissions
Guidance available as to HOW to market for Chinese consumersHigh marketing and advertising costs
High acceptance with consumers that products are genuineFast decisions required
Brand sells direct to consumer
Own outlets on Platforms

This option, like a flagship store in a prime location in London, Paris or New York, is not the cheapest one out there, so unless your brand already has awareness on the market, it probably isn’t going to be ideal for you as a first entry point. The advertising required (prerequisite to be granted a store) is very high meaning that many stores need at least 3 years to start turning a profit. If you choose this option, it’s essential to make sure the different marketing mechanisms are explained to you in advance so that you’re in a position as a brand to make lightning fast decisions when required. (Having your pricing under control is also key).

You need to have your supply chain under control or you’ll end up with product that you own sitting in a warehouse on the other side of the world, potentially with expiry dates approaching…

Tmall Global presently lists around 30.000 brands from approx. 80 countries.

3. Selling via an online supermarket

Kaola.com logo
Jumei.com logo

Like their offline equivalents, online super or hypermarkets work on a B2B2C model (business to business to consumer). They buy the products from the brand and then sell to the consumer. Examples of this would include Kaola (which belongs to the Alibaba Group) and Jumei.

ProsCons
No need to manage online “storefront”Set up fees can be high
Marketplace takes care of storage and logisticsMarketplace earns their money from a retail margin
Marketplace brings in the trafficBrand still needs to finance advertising & marketing
Marketplace also takes care of customer service
Online Hypermarkets

This option may reduce your risk in terms of stock/logistics but the store will probably insist on being able to return anything they don’t sell so the real advantage is relatively small.

4. Niche Vertical Platforms

This kind of platform focuses on a specific product type or consumer target audience. They have often grown from social sharing platforms of one kind or another, who now offer sales of the products in their speciality. Usually, the purchasing model is similar to that of the online hypermarkets, as they will buy the products from the brand owners and sell on to their customers. Examples of this would be Babytree.com or beibei.com in the maternal and infant space. Other examples would be Xiaohongshu (RED, Little Red Book) or Meilishou in the beauty space.

ProsCons
Highly targeted audiencesHigh initial set up costs and commission
Product reviews and detailed information High costs for advertising and marketing
Low total traffic
Specialised verticals

One of the main advantages of such verticals is the huge quantity of detailed product knowledge which is available. The Chinese consumer likes to read reviews prior to even deciding that they need this kind of product. Consequently these platforms play an important part in the sales process for the products presented there, even if the sales volume via this channel is lower than some of the other options.

5. Social Media Selling

WeChat logo

These days many people outside of China have heard of the super APP WeChat. It’s the most widely used social channel in China, but is also so much more, as you can run practically your whole life within their ecosystem. WeChat is famous for offering so called mini-programs which are like lightweight versions of an APP but within the WeChat ecosystem and needing less data to run than a full blown APP. Brands can use a mini-programm to run a store and link this to their official WeChat account for marketing and CRM purposes.

ProsCons
Relatively cheap to set up and runWeChat is a so-called semi-closed system so harder to gain traffic than other methods
CRM integration enables communication with consumersSlow to grow followers
Social Media (WeChat)

There are also other social media channels that can be used for cross-border e-commerce such as Douyin (TikTok) or Bilibili. Mid-May 2021, Kuaishou also announced that they will be starting with cross border e-commerce.

6. Flash Sale Platforms

vip.com logo

As the name would imply, these platforms sell fixed quantities of new or surplus products for a short time at a highly discounted price. (Something like the branded products that Aldi or Lidl offer in their offline supermarkets in Europe.)

ProsCons
can be great for testing new productsconsumers may be unwilling to buy products at regular prices afterwards
Could bring some brand recognition very quicklyset up fees & commission can be high
possibility of large quantities of trafficadvertising and marketing are expensive
large potential customer poolbrands don’t often make a profit
consumers could be lost moving to other platforms after the initial quantities are sold
Flash sale platforms such as VIP.com

The main one of these flash platforms is VIP.com. This method isn’t really viable as a stand alone solution to build sales in China though.

7. Hybrid Models

These can be the best option for a new brand entering the market. eg. B2B2C via Tmall Global. In that case, a brand would sell their products to a distributor or hypermarket brand (eg. Cosco) who have a flagship store. In this way, the brand can leverage the advantages of the Tmall Global platform without needing to shoulder the high market entry costs entirely by themselves.

Other hybrid models include New Retail with it’s combination of online and offline retail, or distribution companies selling to online hypermarket platforms.

Challenges for Newcomers

Whichever business model (or combination thereof) that you choose, you have to solve two main issues in order to be successful:
1) how to gain brand awareness in such an incredibly competitive environment
2) generating enough traffic on whichever platform you choose in order to start actually selling

Neither of these are easy, although each step of the processes is simple in itself, meaning that working together with specialists is essential here. However you choose to enter the Chinese market is always relatively complex due to the uniqueness of many of the systems which are in place, however it obviously can offer huge rewards if done correctly. Compared to regular import, doing cross-border e-commerce offers a simplified entry procedure. The complexity mostly arises in the marketing which is then needed to drive awareness of your product, rather than the HOW of the supply chain.

Choice of Partner

There are an incredible number of companies out there who may claim to be able to do a great job of building your business in China for you. It’s therefore essential that you take the time to thoroughly understand which models they plan to use. Make sure that the channels which your new partner uses are suitable for both the way that your company is able to work and also how your consumers choose to buy your kinds of products. This may mean you adjusting your sales processes in order to fit to the Chinese market, but make sure you don’t choose a model that you can’t adjust to fulfill.

“Time is the hard part in international expansion. It could take you months or years to get all the relationships you need. Finding a way to circumvent the time gets you selling stuff faster and gets you making more money more quickly. So, find the right partner is the best choice, because going and doing it from scratch is lengthy and maybe impossible.”

Todd Ablowitz, president Double Diamond Group

It sounds obvious, but many companies start with China entry without thoroughly understanding the top basic concepts of cross-border ecommerce. This for sure will lead to difficulties at a future date when making decisions about how to proceed, as you may end up blindly agreeing to the suggestions of your partner, without understanding the implications.

Overwhelming range of marketing options

It may seem that way at first, so again, make sure your partner thoroughly explains to you so that you understand in basic terms how the “mosaic” fits together. Be clear on WHY actions have to be taken and what is the aim of that activity. Yes, for sure you have to participate in for example Singles Day, but what is the main aim of each part of the strategy? What results can you expect? Some categories that could be considered include:
– prerequisite for the platform to allow you to join
– showing the platform that you are serious about your China business (so they will give you more advertising and traffic opportunities)
– to drive traffic to a hero product
– to raise awareness of your new product or store
These are just a few examples that often can be forgotten in the hectic of the moment. As a small newcomer brand to the market you need to look at what is possible and decide for you what is best for your brand, taking the opinion of your specialist partners into account.

chaos in brain
Image from Pixabay

Top Basic Concepts of Cross-Border Ecommerce in China

To round up a bit, the top basic concepts of cross-border ecommerce in China could be summed up as follows:

  • simplified market entry process, formalised in law. (This often feels like a contradiction in terms as imported goods are subject to rather different laws)
  • whether shipping directly from Europe (or elsewhere in the world) or from a FTZ in China, for most products you can sell the same goods as you are also selling in other markets. There is a negative list of products which are forbidden (eg. fresh meat) to be sold cross-border.
  • the main challenges will be:
    • how to gain the attention of your consumers
    • getting traffic to whichever shop or platform you are using
  • don’t underestimate the costs involved in selling goods on a platform (certainly comparable to listing and selling via modern trade)
  • marketing and advertising budgets need to be high and well invested
  • get specialised help
  • as always, make sure you prepare a strategy with clear goals. At the same time, you need to be prepared to try something differently and to rapidly adapt if the situation makes it necessary.

I hope that this could give you an impression as to what the basic concepts of cross-border ecommerce in China are, and that this can be a foundation of knowledge for some more specific or detailed posts in the future. If you’d like further reading on this topic, I’d recommend Ashley Dudarenok’s short guide (affiliate link):

If you are also interested in ecommerce in Southeast Asia, you might enjoy my post on the top companies to work with.

Thinking that working with a consultant would accelerate your international expansion?

If you’d like to learn more about working with me for support on your internationalisation projects or personal export knowledge, you can book a 30 minute international clarity call here.

If you haven’t already signed up for my free e-book about how to select which international market to enter next, you can do so here, or using the form below.

If you enjoyed this content please share it on social media or recommend it to your network.

Pin this post for later!

If you are interested in selling in China, you might also find these posts interesting:

Marketing in China:

Other relevant posts: 

Follow my blog with Bloglovin

Kathryn

28 Comments

  1. […] own entity, some also offer CBEC options. I’ve talked regularly about the advantages of doing Crossborder Ecommerce in China, however for many smaller companies, southeastern Asia might prove a less daunting option whether […]

  2. […] Top Basic Concepts of Cross Border E-Commerce in China […]

  3. […] Top Basic Concepts of Cross Border E-Commerce in China […]

  4. […] Top Basic Concepts of Cross Border E-Commerce in China […]

  5. […] Top Basic Concepts of Cross Border E-Commerce in China […]

  6. […] Top Basic Concepts of Cross Border E-Commerce in China […]

  7. […] Top Basic Concepts of Cross Border E-Commerce in China […]

  8. […] Top Basic Concepts of Cross Border E-Commerce in China […]

  9. […] Top Basic Concepts of Cross Border E-Commerce in China […]

  10. […] Top Basic Concepts of Cross Border E-Commerce in China […]

  11. […] Top Basic Concepts of Cross Border E-Commerce in China […]

  12. […] Top Basic Concepts of Cross Border E-Commerce in China […]

  13. […] Top Basic Concepts of Cross Border E-Commerce in China […]

  14. […] Top Basic Concepts of Cross Border E-Commerce in China […]

  15. […] Top Basic Concepts of Cross Border E-Commerce in China […]

  16. […] Top Basic Concepts of Cross Border E-Commerce in China […]

  17. […] Top Basic Concepts of Cross Border E-Commerce in China […]

  18. […] Top Basic Concepts of Cross Border E-Commerce in China […]

  19. […] will you enter the market? With which business model? Eg Cross Border E-Commerce, Distribution, direct […]

  20. […] a similar way to China, Korea also has a flourishing cross-border e-commerce environment, however the regulations are […]

  21. […] flexibility when conditions changed […]

  22. […] What are the Top Basic Concepts of Cross-Border Ecommerce in China?I’m often asked by clients interested in the market, what are the top basic concepts of cross-border […]

  23. […] in the public domain, but takes place in the so-called “private traffic” environment of WeChat groups or mini-programs. Brands as well as KOLs/KOCs engage with consumers in their own WeChat groups and […]

  24. […] but that should be partly the Chinese perception of what constitutes “European”. Your sales and marketing methods certainly need to be localised depending on the practices in your […]

  25. […] for the year ahead and build on their results. This can be a key success factor if you are doing cross-border ecommerce, representing up to 40 or 50% of your annual […]

  26. […] Global media means that you can contact people in countries even on the opposite side of the world, organise online meetings, build relationships and keep abreast of international events. The internet is a great leveller meaning you can compete on more equal terms. It also brings opportunities such as cross-border ecommerce, which I’ll go into more detail about in a later post. […]

  27. […] fastest growing part of the economy is still ecommerce, making cross-border e-commerce an attractive proposition for market entry for smaller […]

  28. […] are now mostly aware of the enormous power of Chinese e-commerce giants, but have no idea of how to use their platforms for successful sales. It’s very difficult for companies who are entering into the market for the first time to know […]

Leave a Reply

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

You Might Also Like...

Chinese supermarket shelves
China marketing calendar in the year of the dragon
11.11.2023
Chocolate shavings
China speed
Leaping red paper cut tiger