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Tapping into China

Comparing Chinese ecommerce trends


and opportunities with the West

Author:
Keira McDermott | Payvision BV

PAYVISION
Global Card Processing
Tapping into China

Contents
1. Executive summary 3
2. Introduction 5
3. China – The Next Opportunity 7
4. West versus East 9
4.1 Culture 9
4.2 Ecommerce market 11
4.3 The Customer Journey 13
4.4 Alibaba versus Amazon 17
4.5 Social commerce 18
4.6 Payments 22
4.7 Online Shopping Trends 28
4.8 Logistics 32
4.9 Cross-border ecommerce 36
5. conclusion 44
5.1 WHAT NOW AND WHAT NEXT 44
5.1.1 PROMOTE western brands 45
5.1.2 engage in LOCAL PARTNERSHIPS 45
5.1.3 BE MOBILE 45
5.1.4 BE sensitive to CULTURAL differences 46
6. About the Publishers and Editors 47
6.1 About Payvision 47
6.2 About the Author 47
6.3 About the Editor 48

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Tapping into China

1. Executive summary
China’s cross-border ecommerce landscape is
the next big bang.

CHina

Last year, China surpassed the US in total created perfect conditions for a cross-border
ecommerce sales, giving rise to a new online ecommerce explosion. The Chinese ecommerce
global super-power. Driven by vast levels of industry is running to keep up, exposing large
mobile penetration, it marks the dawn of an gaps in a skilled ecommerce workforce.
exciting era for Asian online business.
China’s boom in online sales comes at a time
But it is only the tip of the iceberg. Other when established ecommerce markets in
factors, both organic and deliberate, have the West are struggling to maintain growth.

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Concerned merchants in Europe and the US Yet an overall lack of knowledge

1 are looking across borders to expand their


footprint. This expansion has been confined to
other established markets, intimidated by doing
about opportunities in China means
lower competition. Western
merchants are still skeptical of
business in Asia. Chinese expansion.

Chinese consumers, in the Those entering the market are not always
wake of a social and mobile sensitive to Chinese cultural nuances.
Merchants are frequently applying aggressive
Internet revolution, are Western business tactics, generating a fear of
shopping online more colonization and creating road blocks to success.
and more frequently.
In short, the international playing field in China
Thanks to the comforting is still wide open.
anonymity of the web, the
bulk of online consumers This paper compares Western and Chinese
cultures, trends and customer journeys.
in China are liberated Harnessing these differences, the latest govern-
female shoppers. An ment opportunities and the organic energy for
inherent cultural need for cross-border ecommerce, paves the way for a
successful and rewarding international venture.
trust, in combination with
concern about counterfeit This is how to tap into China.
domestic products, has
pushed consumers to
look across borders for
trusted Western brands
of baby food, skin care and
cosmetics.

A rise in alternative payments, along with the


desire to shop across borders, has minimized
the cash-economy. This fuelled trust in credit
spending, a disrespected and mistrusted
payment method in the past. Chinese
consumers can now access international
markets more easily, thanks to this inclination.

The Chinese government, in turn, now facil-


itates favorable economic trade conditions
for international merchants. Traditional trade
means complex taxation and customs clearance,
discouraging Western merchants in the past.
But recent government initiatives absolve these
barriers entirely.

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2. Introduction
CHINESE CONSUMER SPENDING WILL TRIPLE BY 2020.
Recently, all eyes have been on the Chinese fuel this trend; cultural similarities, minimal
consumer market. And for very good reason; language and legislative barriers, common
figures indicate that Chinese consumer payment preferences, and an overall greater
spending is projected to rise from USD 2.03 understanding their overseas customer. 3 And
1. trillion in 2010 to USD 6.18 trillion annually in so far this has proven to be profitable for the
Boston Consulting
Group 2020 1. right merchants.

3. But if growth is slowing in both the UK and


Payvision – Key
Business Drivers in Moreover, China’s cross- the US – the greatest channel for cross-border
Cross-border
Ecommerce, 2013
border ecommerce trade ecommerce today – cross-border ecommerce
can only grow so far.
is projected to reach USD
2.
iResearch - China Cross
1.1 trillion by 2016 2 British online merchants are already jostling
Border eCommerce for space in a crowded American market where
Report, 2013 Indeed, online retailers across Asia are consumers have almost everything they need
witnessing phenomenal growth. Driven by on their doorstep. Where does that leave the
increased mobile connectivity, greater use of small and medium businesses with less brand
credit cards online and an active social commu- recognition and status?
nity, China stands to dominate the ecommerce
landscape in years to come.
When the Western
Meanwhile, established markets in the West cross-border ecommerce
such as the US and Western Europe are
witnessing a downturn in growth. With a large
market becomes
percentage of the population already buying saturated, what next?
online, saturation points are gradually being
reached, causing future concern for growth in
their domestic markets.

Merchants in the West are now turning to


cross-border ecommerce to drive their business
growth. Indeed, more opportunities are opening
for merchants to sell their products to foreign
customers who are searching the web for
cheaper or different products overseas.

While cross-border ecommerce is now more


frequently pursued by online merchants in the
West, they are mostly seeking growth within the
safety of other established markets. Key drivers

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Tapping into China

China may have now


exceeded the US in
ecommerce sales, but
with only 14 percent
of the population
buying online, China
is exceptional not
only for the value it
has driven today, but
the potential it
holds for tomorrow.

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Tapping into China

3. China – The Next


Opportunity
CHINA BY NUMBERS

CIGARETTES CONSUMED

50,000 PER
CHINA’S RAILWAY
LINES COULD
TOYS
80% MADE BY 2025
CHINA WILL HAVE
LOOP AROUND IN CHINA
SECOND EARTH
BUILT ENOUGH
SKYSCRAPERS TO

TWICE FILL A NEW YORK


SIZED CITY
10
TIMES.

CHINA’S CONSUMER CHINA’S RICHEST ARTIFICIAL CHINA PRODUCED IN


SPENDING WILL HAVE A CHRISTMAS TREES
85% MADE 2 YEARS
TRIPLE BY COMBINED
NET WORTH IN CHINA MORE CEMENT
2020 THAN THE US DID IN
OF
USD 145.1 THE 20TH
CENTURY
BILLION
A VALUE LARGER THAN HUNGARY’S GDP

On the other side of the globe, Chinese consumers are


waking up to ecommerce.

Online sales in China reached USD 296 online, largely driven by increased mobile
billion in 2013, and for the first time connectivity and market transparency.
were higher than in the US. And it
doesn’t stop there; unlike the US, Although in the West more and more Internet
China still has a huge potential for users access the web through their mobile
growth. device, in China, an overwhelming majority
already does.
Young, tech-savvy Chinese consumers are
appreciating the convenience of shopping

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Tapping into China

Of the 618 million Internet users in China, forward-thinking Western merchants in

3 a mobile device is the primary vehicle to the


web for 500 million. That’s over 80 percent of
Internet users.
this region.

4. Government backing
Recent government initiatives such as
China may have now exceeded the US in ecom- the Shanghai Free Trade Zone (FTZ) are
merce sales value, but with only 14 percent of actively seeking foreign ecommerce players
the Chinese population currently buying online, to enter the Chinese market. The pilot cities
China is exceptional not only for the take care of website localization and import
value it has driven today, but the complexities, all with a focus on exceptional
potential it holds for tomorrow. Chinese customer service.

Four key insights indicate that China is an Yet, despite the opportunities, there is still
advantageous choice for cross-border expan- a lack of understanding about cross-border
sion for Western merchants, instead of other ecommerce trade to and from China.
established Western markets.
Merchants in the West are largely unaware of
1. Use of credit cards the business potential opening up in the region.
Credit card today remains the univer- They lack insight on how to tackle the Chinese
sally preferred online payment method, market and best explore these opportunities.
gluing together the Western cross-border Moreover, Chinese businesses lack insight on
markets. Until recently, Chinese consumers how the Western markets differs to their own,
were skeptical of purchasing on credit, and how the businesses in the West perceive
preferring cash or local alternative payment the Eastern ecommerce market.
methods. But with the success of China
UnionPay credit cards, and an emerging
desire to shop cross-border, purchasing on This white paper tackles
credit has become more popular in China. the knowledge gap head
2. Trust in Western products
on, providing side-by-
Chinese online consumers, most of which side comparisons of
are women, are driven towards overseas these diverse consumer
brands due to of mistrust in counterfeit
domestic products. Products in which
markets.
trust is paramount, such as baby formulas
and skin care, are especially popular with
Chinese cross-border online shoppers.

3. Lack of competition
Despite the growth downturn in Western
markets, online merchants are unprepared
to tackle the complexities of the East.
Language and culture is a deterrent, as
well as logistical barriers and perceived
legislative road blocks. With a more open
playing field, there is ample space for the

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4. West versus East


4.1 Culture
Chinese culture is collectivist – vaLue is placed on
cooperation and modesty, unlike western society in
which being individual and self-expressive is respected.
The below chart gives an overview of how
Chinese culture varies from Western culture.

Social
Self Time relationships Friendship
Collectivist: value placed More attention to the Formal, hierarchical. Small number of close,
on group cooperation past and to the lifelong friends. 
Chinese and individual modesty. longer-term future.

culture Individualist: value Less interested in the Informal, egalitarian. Large collection of less
placed on self-reliance. past, eye on near-term intimate friends and
Self-promotion is future. acquaintances. 
accepted. High value
Western placed on freedom from
externally imposed
culture constraints.

Law and
Obligation Work attitude Disagreement regulation Status
Relationships with other Relationship-oriented:  Avoidance of direct More faith in personal Status in society based
people involve mutual Maintaining a confrontation, open relationships and on inherited
obligations. harmonious relationship criticism, and opinions than in written characteristics such as
has priority over controversial topics.   rules and procedures. age, gender, and family.
Avoidance of accomplishing tasks.
interdependent Willing to confront Assumption that written Status is based on own
relationships and Task-oriented: directly, criticize, discuss rules apply to everyone achievements, including
situations that might Relationships are less controversial topics and and produce fair, education obtained, and
entail long-term important than getting press personal opinions reasonable procedures level of success realized
obligations. work done. about what they and decisions. in their line of work.
consider the truth.

Understanding how these basic cultural


subtleties fit into business and consumer
attitudes provides a launch pad to consider
how a Western business can successfully
expand into China.

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Tapping into China

Of the 618 million


Internet users in
China, a mobile
device is the
primary vehicle to
the web for 500
million.

That’s over 80
percent of Internet
users.

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Tapping into China

4.2 Ecommerce market


Total Global ecommerce sales reached USD 1.25 trillion
in 2013.

Across the globe, ecommerce as an industry ecommerce value is expected to reach over
continues to boom. Indeed, by 2017 the global USD 2.3 trillion.

ECOMMERCE SALES WORLDWIDE, 2013 TO 2017


IN USD TRILLIONS

2017

2016

2015

2014

2013

0,0 0,5 1,0 1,5 2,0 2,5

But 2014 is the first year in ecommerce history regional ecommerce market in the world. By
that the Asia Pacific region will drive the largest 2017 is it predicted that Asia Pacific will drive
4. proportion of growth, and become the biggest 40 percent more than North America. 4
eMarketer.com

ECOMMERCE
11 SALES WORLDWIDE BY REGION 2017
IN USD BILLIONS 2015
2013

ASIA PACIFIC

NORTH AMERICA

WESTERN EUROPE

CENTRAL AND EASTERN EUROPE

LATIN AMERICA

MIDDLE EAST AND AFRICA

0 200 400 600 800 1000 1200

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4.2
The American and Chinese ecommerce markets
have finally crossed paths; China has seen
explosive growth where the US has seen a
“ The CBEC and its partners constantly
invest in research and share
information through reports
gradual slow-down. China has now surpassed and educational platforms. This
the US in total ecommerce sales; USD 296 tackles the knowledge gap in the
5. billion and USD 263 billion respectively.5 And market and hopefully lowers the
China Ministry of
Commerce, 2014 the gap is only expected to grow. barriers to boosting global cross-
border ecommerce.” Rolf Visser,
Western merchants with cross-border aspi- Chairman and Co-founder of the CBEC
rations often dismiss the Asia region as a
potential business destination, deeming it too
complex and unwelcoming to foreign players. On top of this, there is still a wider lack of
Merchants prefer to focus on regions with understanding in the West about how to do
cultural similarities and preferences. business in China.

But Chinese authorities have begun to under- Fear of Colonization


stand the potential value of cross-border ecom-
merce. And not just export, historically making Although the Chinese market has now begun
up the lion’s share of all cross-border business, actively welcoming foreign players, there is an
but also cross-border import. China is now underlying fear that the West is attempting to
welcoming foreign players with open arms. The colonize, telling Chinese businesses how they
landscape is getting ready to explode. should be operating.

A skilled workforce deficit Some businesses are entering China with


aggressive sales techniques, a brash business
With the dawn of a new digital era in China, ethos and an impersonal, email-based work
and a boom in ecommerce, a larger problem ethic; not uncommon principals in the West, but
looms. Such fast growth has revealed a a stark contrast to how the Chinese value busi-
worrying lack of overall skill in the workforce. ness operations. In China, doing business takes
time and trust should be earned gradually.
Online retail requires high-skilled
6. labor to be fully successful, and it As a result of the colonization fear, China is
McKinsey & Company
– China’s e-tail is predicted that by 2020 there will already wary of Western businesses entering
revolution: Online be a gap as large as 23 million skilled the market. In some industries there is a risk
shopping as a catalyst
for growth, 2013
workers in this industry.6 that the wide-open doors are already starting
to draw back.
Rolf Visser, Chairman and Co-founder of the
Cross-border Ecommerce Community (CBEC) Businesses with aspirations for expanding to
comments on this imminent issue. China should be sensitive to the cultural differ-
ences. In China, a more personal way of doing

“ Across China, as well as in the


Western world, I hear government
officials, service providers and
business takes precedence.

Engaging a local partnership is the ultimate


merchants say ‘there is a distinct way to enter the market; giving space for local
lack of talented workers in the knowledge and business cultural sensitivity.
ecommerce industry, hampering
cross-border ecommerce.’

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4.3 The Customer Journey


The customer journey for European, American and Asian
consumers starts at the same point – a need or desire
for something.

Whether inspired through conversations Engine Advertising (SEA) high up


with friends, something whimsical, practical in their marketing strategy for
or impulsive, the beginning of the customer exposure to potential buyers.
journey is the same across Western and
Eastern cultures; ultimately the idea to buy. A number of Western online merchants make
use of shopping cart platforms and content
In Europe or the US, the next steps for the management systems for a ready-to-go ecom-
consumer may include booting up their merce presence in the market. This is particu-
computer or reaching for their mobile device. larly useful for Small and Medium Enterprises
They will probably open Google and search (SMEs) for whom setting up a shopping cart
broadly for the item in question, looking for function can be complex.
various retailers, merchants or suppliers of their
desired product or service, in order to compare, The largest of such platforms are Shopify, with
read reviews and make a purchasing decision. some 100,000 merchants largely in the US,
and Magento with over 150,000 merchants
In light of this, most Western mostly in Europe.
merchants place Search Engine
Optimization (SEO), A/B page There are also a number of cost-free, open
conversion testing and Search source options in the market. VirtueMart and

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4.3
Zen Cart, as well as Prestashop, osCommerce Unlike their Western counterparts, Chinese
and OpenCart all offer a free, low-risk ecom- consumers will not turn to Google. Google is
merce solutions for online merchants. The blocked in China under the Chinese govern-
existence of these accessible platforms creates a ment’s Internet censorship policy. They will not
varied, and more open ecommerce playing field even turn to Baidu, the most popular Chinese
in the Western markets. search engine.

In China, however, the customer journey takes a But why?


different path.
China is an ecommerce market dominated
Unlike previous years, Chinese consumers will by the Alibaba group, a collection of ecom-
probably reach for their mobile device or turn merce businesses and shopping cart platforms,
on their computer when they have an idea to including Taobao, Tmall, AliExpress, as well
buy something. as an online payment service – Alipay. The
company’s websites account for 80 percent of
7. all online commerce in China.7
businessinsider.com

MAJOR ONLINE RETAILERS IN CHINA


UNIQUE VISITORS PER MONTH

ALIBABA

JD.COM

51BUY.COM

AMAZON

YIHAODIAN.COM

DANGDANG.COM

SUNING.COM

VIP.COM

JUMEI.COM

0 50 100 150 200 250

13
Taobao is often the first port of call for Chinese In Europe and the US, shopping
shoppers. In fact, the Taobao mobile app is carts such as Magento or
the most popular commerce app in China by Shopify are an ‘invisible
downloads, downloaded over six times more partner’. They give little away
frequently than that of rival JD.com. to the consumer about the
merchant’s cart process. The
The shopping cart platforms in China operate cart platforms are purely
differently to in the West. Unlike China, the technical, functional and
shopping cart landscape in the West is varied, integrated within the
and offers multiple cost levels and degrees of merchants brand identity, they
customization for merchants. are not consumer facing.

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4.3
In China, however, the shopping cart – whether Other platforms exist in the Chinese market.
it is TaoBao, Tmall, or AliExpress – is the JD.com, also known as Jindong Mall, is one
umbrella ecommerce brand and fully exposed to such player managing to compete with the
consumers. In fact, consumers in China choose Alibaba giant.
their shopping cart platform, then browse the
online merchants within that platform. The cart With a successful IPO of USD 1.8 billion in May
– quite literally – comes before the horse. of 2014, JD.com has nearly 40,000 registered
suppliers and vendors on the site, including
Alibaba, as part of their nearly 30,000 merchants that sell on Paipai,
strategy, has not allowed the JD.com marketplace platform.

Baidu to index their In 2013 JD.com reported profitability, after 9


ecommerce platforms since years of losses since first going live in 2004.
2008. Chinese consumers
Until now, JD.com has been focused purely
cannot, therefore, search on domestic sales, but plans to expand to
for their desired product neighboring Asian countries where there are
on Baidu, they are forced Chinese residents. JD.com does not yet plan to
enter Europe or the US, but will ship to those
to go straight to their areas if there is demand from Chinese expat
chosen shopping cart communities.
to begin their search,
LightInTheBox.com, on the other hand, is an
eliminating retailer,
ecommerce platform in China that focuses
merchant and supplier purely on the ecommerce export market.
side-by-side comparisons Fuelled by the West’s interest in purchasing
at a search engine level. cheaper goods from China, LightInTheBox.com
provides direct access to Chinese merchants in
Only within the Alibaba portal may they begin a ‘Westernized’ look and feel, and worldwide
their comparisons. delivery options. Read more about LightIn-
TheBox.com in the cross-border ecommerce
Over 50 percent of visitors to Tmall, the section 4.9.
premium B2C platform of Alibaba, come via
Taobao. These numbers reinforce the mutual
relationship between the two most visited
8. ecommerce sites in China.8
Forbes.com

The Alibaba Group went public in September


2014, resulting in the world’s largest ever stock
flotation. Read more about Alibaba’s IPO in the
Alibaba v Amazon section 4.4.

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Online retail
requires high-
skilled labor to be
fully successful,
and it is predicted
that by 2020 there
will be a gap as
large as 23 million
skilled workers in
this industry.

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4.4 Alibaba versus Amazon


WHERE THE CUSTOMER JOURNEYs DIVERGE, it is worth
looking more closely at the two biggest ecommerce
players; Amazon and Alibaba.
Founded in 1999 by former English Teacher In 2013, the combined total volume of
Jack Ma, Alibaba is often dubbed the ‘Amazon merchandise handled by Taobao – the Alibaba
of China’. market place platform – and Tmall – the
platform for premium brands and retailers –
While both companies are certainly ecommerce surpassed USD 160 billion, according to Alibaba.
giants, dominating the online retail scene in That figure was larger than Amazon’s USD 86
9. their respective countries, to directly compare billion and eBay’s USD 67.8 billion combined.9
The Wall Street Journal
the two is ultimately misleading.

ALIBABA VERSUS AMAZON AND EBAY


VOLUME OF MERCHANDISE [IN USD BILLIONS]

ALIBABA

AMAZON

EBAY

0 50 100 150 200

Alibaba made its Initial Public Offering (IPO) at does not store or ship products. It serves purely
USD 21.8 billion on September 19th of this year, as a platform for buyers to connect to sellers.
resulting in the world’s largest ever stock flota- The result of which is lower revenue, but far
tion. Alibaba shares reached USD 99 per share, higher profit margins.
up more than 45 percent from its IPO price.
Although share prices have slipped back after Alibaba, as previously discussed, operates in the
the initial offering, the market still believes the most part as a search engine. By disallowing
company is more valuable than Facebook, or search engine indexing, Alibaba has eclipsed
Amazon 14and eBay combined, as it stands today. Baidu from an ecommerce perspective. While
Baidu does not perform an ecommerce function
Amazon, founded in 1994 by Jeff Bezo in like search engines in the West, it is a respected
Washington, went public in 1997 at a valuation repository for data and information, comparable
of USD 438 million. In 2013 Amazon earned to Wikipedia.
USD 74.45 billion in revenue, more than 10
10. times than of Alibaba.10 As the online customer journey takes a different
The Wall Street Journal,
2013 course in China, Alibaba could arguably be
Unlike Amazon who owns distribution centers, seen as not only the ‘Amazon of China’, but the
sells products directly, and even manufacturers ‘Google of China’ too.
its own brands of consumer electronics, Alibaba

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4.4
To be successful in China, a Western merchant
should put aside what they know about SEO,
A/B testing and SEA as the primary methods of
“ On top of this, although social
channels like WeChat are not sales
channels, they generate
consumer exposure. A competitive presence on communication around your
the appropriate Alibaba platforms is paramount. brand, driving trust.” Kevin Zhang,
Director of Technology and Operation,
This is corroborated by Kevin Zhang at Beijing Beijing Bay Line Ecommerce Co.
Bay Line Ecommerce Co.

“ In China, having your own branded


website will simply not convert
sales. It is essential to plug in
Indeed, social commerce – and the popular
social network WeChat in particular – is the next
consideration for merchants looking for brand
to the marketplace platforms to exposure in the Chinese market.
reach customers and make sales.

4.5 Social commerce


Social commerce is a subset of ecommerce that involves
using social media – online media that supports social
interaction – and user contributions to assist in the
11.
digitalintelligencetoday. online buying and selling of products and services.11
com

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Tapping into China

4.5
Social media plays a fundamental role in online sharing app – in 2012 for USD 1 billion. More
communication, both in the West and in China. recently, it has been announced that Facebook
is in the process of incorporating a mobile
Social platforms in the Western world, however, payments system into their messenger app, in
generally focus on a single functionality – an attempt to pull together the full social and
micro-blogging, photo sharing, group chatting – mobile commerce ecosystem.
whereas Chinese social mediums overlap. They
integrate multiple formats and functions. Twitter is another popular social network in
the West, a microblogging site created in 2006
Moreover, the impact social media has on with almost 200 million monthly users. But
ecommerce is quite remarkable in China, as many as 40% of the users are passive, and
compared to the Western nations. visit purely to digest content from authorities,
celebrities and news sites.
Facebook, founded by Harvard student Mark
Zuckerberg in 2004, is by far the biggest social According to Shopify, Facebook drove the
network in North America and Europe, with highest volume of visits to ecommerce sites, but
12. 1.23 billion users. generated a lower average order value.12
eMarketer.com

Perhaps to mirror the multifaceted approach Polyvore, a social network dedicated to


of Chinese social media, Facebook has recently styling and retail, drove the highest value. Orig-
completed the USD 22 billion acquisition of inating in the US in 2007, by 2009 Polyvore
WhatsApp, a popular mobile messaging app. had reached four million unique visitors and
Facebook also purchased Instagram – a photo 150 million pageviews a month.

SOCIAL COMMERCE AVERAGE ORDER VALUE


IN USD

POLYVORE

INSTAGRAM

PINTEREST

FACEBOOK

REDDIT

VIMEO

TWITTER

LINKEDIN

GOOGLE+

YOUTUBE

0 10 20 30 40 50 60 70 80

15
Social commerce in the West, while it certainly This lag stems from a key difference in the
exists, lags behind the Chinese market, particu- culture of social media use in both regions;
larly from an organic point of view. Chinese Internet users are content creators,
unlike their Western counterparts who are
largely content consumers.

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Alibaba could arguably


be seen as not only
the ‘Amazon of China’,
but the ‘Google of
China’ too.

To be successful in
China, a Western
merchant should put
aside what they know
about SEO, A/B testing
and SEA as the primary
methods of consumer
exposure. A
competitive presence
on the appropriate
Alibaba platforms is
paramount.

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4.5
In the West, of every 100 people, one In China, the government has blocked a number
person creates genuine content, nine of the Western social sites including Facebook
people retweet, comment, and curate and Twitter. In response, China has generated
the content, and 90 people are just its own social ecosystem, under careful govern-
spectators. In China, 30 people are ment control and censorship.
genuine content creators, 50 people
are curators, and only 20 people are Weibo, launched in 2009, was long considered
13. passive spectators.13 the social network of China. A microblogging
Razor Fish
site similar to Twitter; Weibo had over 300
Unlike Western users, Chinese social media million users at the start of 2013, but over the
users prefer anonymity, often hiding behind course of the following 12 months, 28 million
avatars and pseudonyms. Social networks in people left the platform. This is because the
China are less about keeping up with friends government asked Weibo users to register with
and sharing photos of their pets or children, real names, removing their anonymity.
and more about sharing practical information
and discussing their views. Although Weibo made revenues of USD 188.3
million in 2013, they were lacking profit –
14. Moreover, over 70 percent of Chinese Internet recording a USD 38.1 million net loss.14
TechCrunch.com
users post online ratings and reviews for the
benefit of their peers; less than 20 percent do WeChat, however, is China’s answer to
so in the US. WhatsApp and is the product of Tencent, the
largest Chinese Internet Service Provider (ISP).
Chinese brands are tuned into the value of While WeChat has nearly 440 million monthly
15. this user-generated content, and are actively active users15, compared to Whatsapp’s 500
statista.com
encouraging social interaction. Every product million, WeChat is most noteworthy for its
detail page on JD.com has a forum where growth.
people can ask questions, raise discussion topics
and even post pictures of the product they WeChat doubled its user base in under a year.
bought. In just three years since Tencent debuted the
service, it has become one of the largest social
Moreover, excellent customer care is vital in a networks in China, occupying over 80 percent
16. landscape where opinions and experiences are market share.16
Percolate – Beyond 1.3
Billion: Understanding valued and readily shared. To ensure trust in
China and Social Media, your brand, and sales conversion, merchants
2014
must invest in this channel.

“ In China we consider the customer


service team a key part of the sales
conversion activities, while in
Western ecommerce it seems
like an administrative cost to
be minimized. If your customer
services do not respond immediately
here, the consumer is lost. You
could say consumers are a bit
spoiled here, in that way.” Shanshan
Li, CEO Wiseline Corporation Limited

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Tapping into China

4.5 WECHAT MONTHLY ACTIVE USERS


IN USD MILLIONS

2014

2013

2012

2011

0 100 200 300 400 500

WeChat and Weibo are similar in that they both other by jiggling their cellphones, or to identify
allow users to group friends and share infor- and listen to a song playing in a bar or shop.
mation and stories. But the scope of WeChat
is different; as a mobile app it takes advantage International merchants entering China should
of unique functionality and mobile payment be fully in tune to the importance of social
opportunities. commerce, and the value of genuine, user-gen-
16 erated content.
Not only allowing users to take advantage of
mobile messaging, WeChat also offers mobile Furthermore, managing online reputation is of
gaming, video and photo posting, taxi hailing even greater importance than in the Western
services and online payments. WeChat even world, far more consumers write reviews and
helps users meet new people; a ‘shake’ function describe experiences to peers.
allows users within a certain radius to find each

4.6 Payments
In a global digital age, there is a sharp rise in alternative
payment solutions such as eWallets, mobile and cloud-
based payments.
Despite this, in North America and Europe, were polled on their experience of cross-border
credit cards dominate the landscape, facilitating ecommerce. 64.5% of survey respondents
the seamless flow of cross-border ecommerce confirmed this existing credit card trend.
in Western markets.

A survey was circulated in August 2014 for


the white paper Key Business Drivers and
Opportunities in Cross-border Ecommerce by
Payvision and CardNotPresent.com. Merchants

PAYVISION 22
Tapping into China

4.6
WHILE ALTERNATIVE PAYMENTS HAVE BECOME POPULAR, CREDIT the US and the UK, thanks to their mutual
CARDS PREVAIL AS THE DOMINANT PAYMENT METHOD WORLDWIDE
FOR SELLING CROSS-BORDER comfort with credit cards, as well as common
language.
10.9%
N/A
In the West, payment processing – the proce-
15% 64.5% dure by which merchants in Europe and the US
NEUTRAL
YES
can accept their customer’s online payments
– is based on the Payment Service Provider
(PSP) and Independent Sales Organization
9.6% (ISO) model. These independent payment
NO companies have connections to acquiring
banks and payment networks, often in multiple
countries. They offer merchants the ability to
Credit cards have been in accept multiple payment options without the
the Western consumer complexity of dealing directly with the financial
institutions.
domain since the 1920s,
originating in the US. The There are multiple businesses in the West
first universal credit card offering solely this service to online merchants,
allowing online businesses access to multiple
to be accepted at a variety markets.
of establishments was
introduced by the Diners’ More in depth information about the PSP
landscape can be found in our white paper,
Club Inc. in 1950. How to Reduce the Complexity Payment Service
Later in the 50s the bank credit system Providers Face in a Global Ecommerce Market.
came into effect. The first national plan was
BankAmericard, beginning on a statewide basis In China, AliPay dominates the payment land-
by the Bank of America in California in 1958, scape, holding almost 50 percent share of the
licensed in other states in 1966, and renamed market. Other service providers in China include
VISA in 1976–77. This soon spread to other AsiaPay, BPH, PayEase and ChinaPay.
parts of the world, as major banks became
issuers of personal credit cards. Similarly to China’s multifaceted approach to
social media, payment platforms in China are
In the US and Western Europe, therefore, often part of an end-to-end service. Unlike the
purchasing on credit has been ingrained into West, they are rarely independent businesses
society for generations. When consumer trends offering solely a payments service. Payment
shifted from face-to-face retail to online, the processing is simply a commodity for businesses
Western world preferred their trusted credit operating in the entire ecommerce chain.
cards.
China’s payment was historically cash-based.
As online merchants seek to do more business Still today, it is not uncommon for large, face-
internationally, targeting markets with comfort- to-face purchases to be made in cash; cars,
able use of credit cards has frequently been down payments on property and flights.
a key driver to success. The greatest flow of
cross-border ecommerce today occurs between

PAYVISION 23
Tapping into China

In the West, of every 100


people, one person
creates genuine content,
nine people curate the
content, and 90 people
spectate. In China,
30 people are creators,
50 people are curators,
and only 20 people are
passive spectators.

In China, over 70 percent


of Internet users post
reviews for the benefit
of their peers; less than
20 percent do in the US.

PAYVISION 24
Tapping into China

4.6
Wary of purchasing on credit, Chinese But the times are changing. Increased Internet
consumers have an inherent cultural need for connectivity and cross-border spending,
trust and for conforming to society. A distinct driven largely by mobile, has pushed Chinese
lack of trust in the credit system, both between consumers into a less cash-based society.
banks and consumers, is prevalent. If you lose Recent figures from the People’s Bank of China
your credit card in China, and someone else indicate that non-cash payments are witnessing
uses it, the bank will hold you responsible for a sharp increase, now accounting for 56% of
those charges. consumer payments.

NON-CASH PAYMENTS
AS % OF CONSUMER PAYMENTS

US

GERMANY

SOUTH KOREA

CHINA

ITALY

THAILAND

INDIA

0 10 20 30 40 50 60 70 80

There18 are an overwhelming 4.2 billion cards in DOMESTIC CARD SCHEMES IN CHINA

circulation in China. Credit card issuing rose by


19 percent in 2013, and Euromonitor predicts 3.2%
credit card usage in China will grow faster than OTHER

17. that of other cards over the next five years.17 17.7% 54.1%
Financial Times, 2014 MASTERCARD
Cash on delivery accounts for 10 percent of CHINA UNIONPAY

all online payments, whereas credit and debit


18. cards are now almost 30 percent.18
www.
datamonitorfinancial. 25%
com This is a trend led by the affluent and tech- VISA

savvy. A recent survey found 71 percent of


shoppers in China’s top tier cities prefer bank With over 3.5 billion cards issued, China
cards over cash, compared to an average of 50 UnionPay is now one of the world’s leading
19. percent in other countries surveyed.19 Moreover, payment card brands. Founded in March 2002,
Nielsen
51 percent of credit cards in China are issued UnionPay provides a payment method called
20. by China UnionPay.20 UnionPay
19 Online Payments (UPOP) to use when
China UnionPay, 2014
making online purchases.

PAYVISION 25
Tapping into China

Mobile Payments
4.6
The sharp rise of alternative payments in China,
however, has had an impact on the traditional

“ Today there are over 200 alternative


payment methods in domestic
markets. But by 2020, the entire
banking institutions. Now in direct competition
with the alternative online solutions, banks
must compete for customers, as well as funds.
alternative payment landscape Some banks are responding by creating their
will evaporate, and almost all own alternative solution.
payments will be mobile.

“ Credit cards will still exist in the


payments sphere, particularly for
“ There is a huge clash of culture—
banks are risk-averse, conservative
and slow. A digital firm or an Internet
cross-border spending but firm is just the opposite. It’s very
mobile payments and m-commerce difficult to ask a banker to act and
are absolutely the future.” think like someone in an Internet
Rudolf Booker, CEO at Payvision firm, but if you want to compete
in that space with those Internet
firms, you’ve got to understand
Chinese online consumers are keen on alterna- that culture.” Zhang Yue, Project
22. tive payments, in particular mobile payments, Leader at Boston Consulting Group 22

CKGSB Knowledge,
2014 largely due to the high level of mobile Internet
penetration. The top three online payment
providers are Alipay, Tenpay and Unionpay by Users of mobile payments make up a far larger
total mobile transactions, together representing number in the Asia Pacific than Europe or North
21. over 80 percent of the total market.21 America, 120.8 million versus 44.6 and 60.9
China Internet Watch
million respectively.23
23. The broad appeal and accessibility of these
Statista - Number of
mobile payment users alternative payment products have tapped into
from 2009 to 2016, a broader market in China, and in turn have
2014
generated new business opportunities for tech-
nology companies.

Joseph Chan, CEO at AsiaPay explains the


developing trend in mobile payments, and how
the future looks in China.

“ There will be more shopping


experience than now, and following
the development of technology,
payments will be more convenient.
Mobile payment will become more
popular. To ensure information
security, more government
regulation will be released.”
Joseph Chan, CEO at AsiaPay

PAYVISION 26
Tapping into China

NUMBER OF MOBILE PAYMENT USERS FROM 2010 TO 2014


4.6 BY REGION (IN MILLIONS) 2014
2012
2010

EUROPE

NORTH AMERICA

ASIA PACIFIC

MIDDLE EAST

AFRICA

LATIN AMERICA

0 30 60 90 120 150

11
In China, the leading alternative solution is PREFERRED THIRD PARTY PAYMENT COMPANIES IN CHINA

AliPay, a third-party online payment platform


with no transaction fees, launched by the 2.7%
3.2% HUANXUN IPS
Alibaba Group in 2004. YEEPAY
5.3% 2%
Tenpay is an integrated payment platform CHINA PNR OTHERS

launched by Tencent, the founders of WeChat, 6.8%


which allows merchants to accept customers’ 99BILL
48.8%
money via Tenpay. 11.4% ALIPAY

UNION PAY

Alipay and Tenpay have mobile payment market


shares of 48.8% and 19.8%, respectively. They 19.8%
dominate by leveraging the large user bases TENPAY

and strong online retail businesses of their


parent companies Alibaba and Tencent. China
21 is becoming an increasingly penetrable
ecommerce market, thanks to the rise of credit
spending and mobile payment technology.

The cash-based society of yesterday


is giving way to an affluent, tech-led
landscape, posing opportunities for
merchant with cross-border
aspirations.

PAYVISION 27
Tapping into China

4.7 Online Shopping Trends


Despite sky-rocketing ecommerce and an emerging
preference for Western products, the fundamentals of
Chinese culture remains the same.

NEW

In a society where individualism does not exist trusted, safe and secure, explaining the long-
in the same way as in Western culture, Chinese held suspicion of buying on credit.
consumers are driven by a conflicting sense of
fitting in and standing out, by being successful On top, a successful product positioning in
but within the confines of the ‘system’. China addresses the cultural societal conflicts;
standing out while fitting in. Consumers want
For consumers in particular, there is a tension both elegance and acceptance, opting for more
between self-protection within society and conventionally hip brands such as Converse, or
displaying status. Self-expression is generally conservative premium cars such as Audi, over
frowned upon, and reassurance from peers – the overtly flashy or ostentatious.
thus being accepted by society – is important for
a sense of success. The she-economy
A need for reassurance has tipped into the In the Western world there is a minimal gender
digital world. Unlike Western consumers gap in ecommerce habits – both men and
who are happy to be different and take risks, women make purchases online with women
Chinese consumers like the comfort of knowing purchasing marginally more frequently, but men
that processes, transactions and products are spending slightly more.

PAYVISION 28
Tapping into China

4.7
In China, however, the ecommerce boom is The Western holiday season, namely the start
largely attributed to women, particularly over- of November through to Christmas at the end
seas shopping for Western products. Known as of December, is known for high levels of online
China’s ‘she-economy’, women are responsible shopping and gift buying.
for more than 60% of online shopping and a
higher spend value, despite making up the Marking the start of the shopping season, the
lesser share of Internet users; 44%. day after Thanksgiving in the US was named
Black Friday in the 1960S, to playfully
Baby formulas, beauty products and health reflect the day businesses would turn a profit,
supplements are among the top selling online or go from being ‘in the red’ to ‘in the black’.
items, a trend that has been attributed to the Traditional brick-and-mortar stores would open
liberation of women with the anonymity of the early and offer discounts to shoppers.
24. Internet.24
Want China Times,
2014 Cyber Monday, the younger cousin of Black
Singles Day – an overnight Friday, emerged in response to remarkably high
success volumes of online sales on the Monday after
Thanksgiving. While the trend already existed,
In an increasingly commercial age, retailers the term Cyber Monday was coined in 2005
and ecommerce businesses have noted strong by the National Retail Federation. Today, Cyber
trends for popular shopping days. The acceler- Monday exists as the biggest day for ecom-
ated success of a well-timed promotion around merce in the US, and is fast gaining popularity
these trends is phenomenal. Retailers offer in other counties such as the UK, Canada and
big discounts and special offers to shoppers, to parts of Europe.
drive further traffic volume and sales conver-
sion in a condensed period. More recently Green Monday has emerged
– the second Monday in December – for last
The most well-known in the Western world is minute holiday shoppers.
Cyber Monday, a huge online shopping day in
the US, and more recently the UK and other In 2013, Cyber Monday generated USD 1.7
25. parts of the world. Yet little is known in the billion in online sales25, compared to USD 1.1
Cleverbridge – Business
Without Borders, 2014 West about the mammoth online shopping day billion on Black Friday. Certainly impressive
and PFSweb in China; Singles Day. numbers, but this is meager when compared to
the sales generated by Singles Day in China.
12

ONLINE PROMOTIONAL HOLIDAYS

SINGLES DAY

CYBER MONDAY

BLACK FRIDAY

GREEN MONDAY

THANKSGIVING

0 1 2 3 4 5 6

PAYVISION 29
Tapping into China

Credit card
issuing rose by 19
percent in 2013,
and usage in
China will grow
faster than that
of other cards
over the next
five years.

PAYVISION 30
Tapping into China

4.7
Singles Day in China is a more recent Singles Day today has become a reason for
phenomenon. Chinese consumers (single or otherwise) to
purchase items online for themselves and
November 11th, or 11.11, was originally to facil- others. The ecommerce aspect of Singles Day
itate single people connecting and celebrating was kicked off by Alibaba in 2008 from their
with other singles. Over the years, and partic- Tmall platform.
ularly on 11th November 2011, the celebration
was taken to another level, seeing widespread Singles Day should be firmly on the calendar of
Internet promotions and online sales. Singles any prospective international merchants looking
day became the Chinese equivalent of Cyber to enter China. The growth has been remark-
Monday. able. In only 5 years, Singles Day has
grown to generate more than double
that of Cyber Monday in the US.
13
SINGLES DAY VERSUS CYBER MONDAY
SINGLES DAY (CHINA)
IN USD BILLIONS CYBER MONDAY (THE US)

2013

2012

2011

2010

2009

0 1 2 3 4 5 6

PAYVISION 31
Tapping into China

4.8 Logistics
a number of trends generate online sales, both in the
West and the East, but the post-purchase experience is
equally significant in the customer journey.

NEW

It is not enough to consider a deal closed A large part of this consideration is the logistical
simply because the consumer has handed over aspects of ecommerce; how long the goods will
payment for a product or service. The steps that take to be delivered, how much delivery will
follow – order tracking, smooth delivery and cost the consumer, and how easily they can be
easy returns – are as important to secure brand returned if the product is unsatisfactory.
equity.
In Europe and the US, the logistics market is
In China in particular, considering the emphasis dominated by some large, well-known players.
on user-generated content and peer-based
review sharing, carefully considered after-pur- DHL Express, a logistics division of Deutsche
chase customer care is vital, to ensure positive Post DHL, is one of the biggest in the West, and
experiences are shared. has recently expanded their rail services into
China. The expansion will mean faster delivery
times from the West into China.

PAYVISION 32
Tapping into China

It is not enough to
consider a deal
closed simply because
the consumer has
handed over payment
for a product or
service. The steps
that follow – order
tracking, smooth
delivery and easy
returns – are as
important to secure
brand equity.

PAYVISION 33
Tapping into China

4.8
DHL Express is often considered very expensive Not only providing courier services, SF Express
in China, but still has a significant footprint has recently opened 500 Heike, or small
thanks to a unique offer of direct business to outlet stores, bringing together an omni-
merchants. DHL generates contracts for online channel shopping experience. The Heike allow
businesses, and has added value on top of their customers to mail and collect packages, try
premium logistics services. products and place orders online. SF Express
plans to expand its ecommerce presence
Other European players include Dynamic further in the future.
Parcel Distribution (DPD), a subsidiary
of GeoPost, operating a worldwide service and EMS is a state-owned express delivery service
WNDirect, a fast-growing UK based logistics within China. EMS was set up by China Post
business focused specifically on the growing Group, the official postal service of China,
ecommerce market. allowing customers to pay a surcharge on their
normal postal costs, for faster delivery. Covering
United Parcel Service (UPS), and FedEx domestic and international delivery, EMS
are both American logistics and courier operates with higher and lower cost options,
businesses with considerable market share, dependent on delivery speed. EMS was the first
delivering worldwide. Both businesses have logistics business to provide online tracking, a
increased potential for operating within China, service they initiated in 1994.
thanks to the Chinese government recent
initiatives to open up the international logistics While the aforementioned international and
playing field. Similarly to DHL, however, costs domestic operators are facilitating a smoother
of such international services are a concern for customer journey to, from and within China, the
consumers. final link in the chain is the facility to return an
unwanted product.
Consumers in China have
high expectations for In both Europe and China, new legislation was
introduced to protect consumers with regards
delivery. Once a purchase to cancelations and returns.
has been made, they expect
their goods at the soonest In Europe, the EU Directive on Consumer
Rights came into force in June 2014.
possible opportunity. Many Consumers now have the right to cancel and
domestic businesses offer return their order, whatever the reason. As part
same day delivery, and this of the new directive, the cancelation period –
known as the ‘cooling off period’ – was extended
has now become a common to 14 working days.
expectation.
In addition, merchants in Europe will give
Within the Chinese market there are a small refunds within 14 days of receiving the goods,
number of leading logistics businesses. The including the basic cost of delivery.
largest of these is SF Express, a domestic and
international logistics company embracing the In China, a similar reform of consumer rights
ecommerce boom head on. legislation came into force this year. On China’s
Consumer Protection Day of 2014 (March 15)
the Revision to the Consumer Rights

PAYVISION 34
Tapping into China

4.8
Protection Law of the People’s
Republic of China became effective. “ Considering the constant rise in
global cross-border online
spending, coupled with the latest
On top of reforms protecting personal data, the consumer legislation in Europe and
law ensures a statutory seven day return policy China, international reverse logistics
for both physical and online stores. Consumers is likely to grow even further in the
no longer need to specify a reason for said coming years, becoming an integral
return, but expenses for the return will fall to link in the ecommerce chain.
the consumer.

In the US, however, merchants are still not


obliged to offer a full refund for goods, unless
“ You can even boost international
growth through enhanced returns
management.” Ernst Hoestra, CEO at Cycleon
they are damaged or defective. While many
merchants do indeed offer this service to their
customers, they are not required to by law.

State law in the US provides some variations on


the general consumer legislation.

In California, merchants are required to clearly


post their refund policy unless they offer full
cash refund, exchange, or store credit within
seven days of the purchase date. Failing this,
customers may return goods for a full refund
within 30 days of the purchase.

Consumers in Illinois may cancel consumer


transactions (and get a full refund) within three
business days for very specific sales, but this
does not cover online. These sales types include
door-to-door, campground memberships, and
gym memberships.

European logistics company Cycleon is


focused purely on reverse logistics and
returns management. As part of the global
Reverse Logistics Group, Cycleon provides
an end-to-end process, helping merchants
manage this important concluding chapter to
the customer journey.

PAYVISION 35
Tapping into China

4.9 Cross-border ecommerce


Although ecommerce as an industry has existed for two
decades, spending was largely domestic.

NEW

Cross-border ecommerce was first fuelled in acquirers and PSP were polled about their
small levels by communities of expatriates cross-border experiences.
looking for unavailable goods from home.
But complexities over payments, legislation In 2013; only 50% of our global respondents
and logistics made this a tricky business for confirmed they engaged in cross-border ecom-
merchants and a disappointing experience for merce. In 2014, however, the result was over
consumers. 80%.

Nowadays, cross-border ecommerce is certainly


a more common landscape for merchants. This
26. was confirmed in our annual white paper Key
Payvision – Key
Business Driver and Business Drivers & Opportunities in Cross-
Opportunities in Cross- border Ecommerce 26 in which merchants,
border Ecommerce,
2014

PAYVISION 36
Tapping into China
14
MERCHANTS ENGAGING IN CROSS BORDER ECOMMERCE
4.9
2014
2013

0 20 40 60 80 100

The boom in online shopping, and the emer- in the US and Western Europe. Cross-border
gence of cross-border ecommerce, was fuelled ecommerce has become a means for merchants
in part by the global financial crisis. Consumers in the West to maintain growth.
browsed the Internet for the best deals and
painstakingly compared prices. In less estab- The greatest flow of cross-border ecommerce
lished markets consumers noticed that better, today occurs between the UK and the US. Both
cheaper products were available overseas. British and American consumers are confident
cross-border shoppers, with shared cultures,
A more recent driver for cross-border online language and a preference for credit cards. But
shopping is increased connectivity and ecom- as consumers in the East are growing more
merce penetration, thanks to mobile Internet comfortable with cross-border shopping, and
and m-commerce in emerging markets. This government initiatives open up the Chinese
gave previously disconnected communities market to foreign players, this will change in the
more cross-border transparency. Consumers coming years.
became more in tune to what they were
missing at home. The US is currently the largest market world-
wide for cross-border ecommerce, both import
In turn, merchants gradually found more effec- and export.
tive ways to tap into this growing trend, making
customer experiences more fulfilling. Cross- In the US alone there are 34.1 million cross-
border ecommerce went from an intimidating border shoppers, who spent USD 40.6 billion in
27. concept to a ‘nice to have’ strategy to drive 2013.27 They mostly purchase from the UK and
PayPal – The Modern
Spice Routes, 2013 additional profit. China, often buying fashion or electronic items
that are cheaper or simply unavailable to them
But now growth rates are starting to tail off in domestically.
the strong, established markets, particularly
17
CROSS-BORDER ECOMMERCE IMPORTS IN THE US
IN % US BUYING FROM

THE UK

CHINA

CANADA

HONG KONG

AUSTRALIA

0 10 20 30 40 50

PAYVISION 37
Tapping into China

4.9
The US is also a global leader for export, being China with an 84% share of cross-border
a top choice for cross-border shopping from the purchases from that region.
majority of countries across the globe, including
18
CROSS-BORDER ECOMMERCE EXPORTS FROM THE US
IN % US SELLING TO

CHINA

THE UK

AUSTRALIA

GERMANY

CANADA

THE NORDICS

FRANCE

SPAIN

0 20 40 60 80 100

28
In Europe, the UK is the leading country for one of the largest export markets in the world,
cross-border ecommerce, although export the highest proportion going to the US and
28. significantly outweighs import. The UK is in fact China.28
PayPal - The Modern
Spice Routes, 2013 15
CROSS-BORDER ECOMMERCE IMPORTS IN THE UK
IN % UK BUYING FROM

THE US

CHINA

HONG KONG

GERMANY

IRELAND

0 10 20 30 40 50 60 70 80

29. British consumers also purchase overseas mostly buying cheaper clothes, accessories and
yStats.com GmbH & Co.
KG – Global Cross- on a smaller scale. The top destination by consumer electronics.
Border B2C British online consumers are USA and China29,
Ecommerce, 2014

05

PAYVISION 38
Tapping into China

16

4.9 CROSS-BORDER ECOMMERCE EXPORTS FROM THE UK


IN % UK SELLING TO

THE US

CHINA

AUSTRALIA

BRAZIL

0 10 20 30 40 50

In China, cross-border ecommerce import have been shopping more seriously online from
is a more recent phenomenon. Although other countries; the culmination of coinciding
China’s export market has existed for some consumer culture, trends and government
time, Chinese manufactures frequently supply initiatives.
cheaper items – mostly clothes, electronics and
toys – 06
to the West. Chinese consumers, due to inherent cultural
influences, look for reassurance from the prod-
Export made up the vast ucts they buy. They want to know the brands
majority of China’s cross- they are buying are trustworthy and safe,
particularly from products where emphasis is
border activity, and still placed on quality and trust.
today Western online
consumers often purchase Thanks to the Chinese online ‘she-economy’
trend, a majority of online shoppers in China
from China, thanks to are women, purchasing products such as
favorable prices. cosmetics, skin care, health supplements,
maternity products and baby formulas.
LightInTheBox.com facilitates the purchase of
Chinese products by Western consumers. By After a scare in the domestic market
offering thousands of products at wholesale surrounding the safety of a Chinese baby
prices in a localized ‘Western’ look and feel, formula brand, female Chinese shoppers are
LightInTheBox.com provides a one-top platform more frequently browsing the Internet and
with local prices, offering delivery around the shopping across borders for products they can
world, and tailored customer service assistance. trust. These consumers, thanks to increased
credit card confidence in China, end up
Consumers had mixed experiences with searching for and buying Western products to
the platform, however, with narrow returns fulfil this need for reassurance.
windows and restocking fees for out-of-stock
items. Online shoppers, in a process known as ‘hai tao’
– or ‘ocean search’ – spent USD 12.5 billion in
Cross-border import in China historically 2013 according to China Ecommerce Research
suffered legislative and logistical problems. Center. This is up from USD 2 billion in 2010,
More recently, however, Chinese consumers

PAYVISION 39
Tapping into China

4.9
and spending is expected to reach USD 22.68 bulk of which are baby care products,
billion by the end of 2014. health and beauty products, and
fashion.
The majority of products are purchased
from the Western Europe and the US, the
19
MOST POPULAR CROSS-BORDER PURCHASES
IN %

DIAPERS

BABY FOOD

BABY MILK FORMULA

TOYS AND MATERNITY


PRODUCTS
BABY CLOTHING

COSMETICS

SKIN CARE

COSMECEUTICALS

PERFUME

HATS

WOMENS CLOTHES

HANDBAGS

SHOES

MENS CLOTHES

0 20 40 60 80 100

On top of these organic consumer trends The FTZ lowers a number of financial barriers
pushing online shoppers to spend overseas, and approval procedures for setting up business
there have been deliberate government in China, allowing foreign players to compete
initiatives serving as a catalyst for increased in the domestic market. The 29-square-km
cross-border ecommerce and the seamless flow area in the Chinese financial hub promises
of products entering China. free trade, greater financial opening and fewer
government controls in business activities.
The Shanghai Pilot Free Trade Zone (FTZ) is
the latest government driver to facilitate the According to the Shanghai Statistics Bureau,
purchasing of foreign products in China. Coming close to 10,000 businesses had registered
30. into existence in 2013, the FTZ aims to open within the FTZ as of June 2014—661 of which
China Briefing,
Shanghai – Choosing an up China to foreign players, thus to drive the were foreign-invested enterprises.30
Office Location in emerging trend for Western products.
Shanghai, 2014.

PAYVISION 40
Tapping into China

4.9
On top of this, the FTZ allows yuan conversion
and unrestricted currency exchange. Foreign
invested enterprises registered in the Zone may
“ Now, each person in China can
transfer USD 50,000 per year, which
means a normal Chinese family with
now make foreign exchange capital account 6 (himself, parents, wife and wife’s
settlements at their own discretion. parents) can spend up to USD 300,000
for international shopping. With
As part of the FTZ initiative, China has recently large popularity, it is a tremendous
launched six pilot cities —Zhengzhou, Shanghai, business opportunity for oversea
Chongqing, Ningbo and two operating in Hang- merchants. Furthermore, under
zhou— in which favorable economic and foreign the new trading police, merchants
trade conditions exist. Clearance procedures only need to pay the personal
have been simplified; customs traditionally were parcel tax which must be lower
charged per item, but can be arranged in bulk compared with Value Added Tax (VAT)
for a flat fee of RMB 300 within the Zone. and consumption tax. Brilliant
for international business.
Previously prohibited items are now allowed
within the FTZ, such as game consoles. Under
these conditions, Sony have made their first
console launch in China since 2000. The Xbox
“ For businesses operating within the
pilot cities, money can be
transferred overseas directly
One was launched in the FTZ in September without restriction. A customer pays
2014, and will begin selling the PlayStation 4 in in RMB via their preferred payment
December. platform such as AliPay, and it is
automatically converted into USD,
Outside of the FTZ in China, customs require GBP or EUR. As a result, they do not
that personal postage items to or from overseas need to pay extra charges during
must be limited to RMB 1000 (USD 160), or the money exchanging operations.
they will be rejected. If an item exceeds RMB

31.
General Administration
500 (USD 80) in value, customs charges will
be applied.31 Such rules significantly restrict
cross-border ecommerce opportunities outside
“ Foreign businesses now can join
Chinese online market platforms
such as Tmall Global to promote
of Customs China
the FTZ. and sell their products. Also if
the tax is lower than RMB 50,
Outside of the FTZ in China, customs require merchants even do not need to pay
that personal postage items to or from over- this personal parcel tax (mentioned
seas must be limited to RMB 1000 (USD 160), above). Otherwise, they just pay
or they will be rejected. If an item exceeds the personal parcel tax. Moreover,
RMB 500 (USD 80) in value, customs charges the pilot city helps international
will be applied. Such rules significantly restrict merchants achieve low logistics costs,
cross-border ecommerce opportunities outside short delivery times and customs
the FTZ. clearance.” Marks Xin, BD Director of BPH

Marks Xin, Business Development (BD)


Director at Shanghai Baipinhui Ecommerce Q.City is one such pilot city, a ‘quality lifestyle
Company (BPH), explains further how the pilot city’ funded by the Zhejiang Qiansheng Holding
cities help overseas merchants with these Group. The city aims to attract international
unique trading conditions. merchants selling into China by providing a

PAYVISION 41
Tapping into China

4.9
one-stop-shop service for international busi- Thanks to emerging consumer trends, inherent
ness. shopping culture and deliberate government
initiatives to open up China to foreign players,
The city is focused on exceptional customer the cross-border ecommerce import market is
experience, a key driver for successful busi- ticking a time-bomb ready to explode.
ness in an increasingly social media-based,
content-creating society. As long as China can address the looming
skilled workforce deficit, ecommerce in China
Q.City sets up international merchants with will see ground breaking results in years to
translated and localized ecommerce platforms, come.
a process often deemed complex and thus
off-putting to Western merchants. Moreover, China’s cross-border ecommerce
the city manages stock levels, customs clear- value is projected to reach USD 1.1
32. ance, tax complications, reporting and even trillion by 2016. 32
iResearch - China Cross
Border eCommerce product promotion, all the historical barriers to
Report 2013 entry for international businesses. In an increasingly saturated Western ecom-
merce market, this figure is an enormous
On top of this, the end-to-end service scope ecommerce pie that international merchants
for merchants includes a beautiful showroom simply cannot afford not to take a piece of.
for consumers to touch and feel the products,
quality control to reject damaged or infe-
rior products, 24/7 security surveillance for
high-end items, and temperature controlled
storage for consumables, such as wine and
dairy.

And this is just one example of all the pilot cities


in China that run the same level of support
for international merchants. Q.City has been
incredibly successful in a short space of time,
already handling over 10,000 packages a day
within 3 months of being operational.

PAYVISION 42
Tapping into China

The FTZ allows foreign


players to compete in
the domestic market.
The 29-square-km area
promises free trade,
greater financial
openings and fewer
government controls
in business activities.

Close to 10,000
businesses had
registered within the
FTZ as of June 2014 —
661 of which were
foreign-invested
enterprises.

PAYVISION 43
Tapping into China

5. conclusion

NEW

5.1 WHAT NOW AND WHAT NEXT


China’s cross-border ecommerce value is expected to
reach USD 1.1 trillion by 2016

A truly overwhelming figure, especially consid- But what steps should Western merchants
ering the global ecommerce value in 2013 take to enter the Chinese market, and be truly
was USD 1.25 trillion; by 2016 China could be successful?
driving that amount alone. But to claim a piece
of this cross-border pie, Western merchants
must overcome their fear of Asian markets.

PAYVISION 44
Tapping into China

5.1.1 PROMOTE western brands

Chinese consumers of today, mostly females, Embrace this key selling point; Western
are actively searching the Internet for Western brands are trusted and valued in China for
brands, after safety concerns of local brands in reliability. Harness the energy for international
the domestic market. A large number of these products in China.
female consumers are looking for products they
can trust, such as baby food, cosmetics and skin
care.

5.1.2 engage in LOCAL PARTNERSHIPS

Following government initiatives to open China on the correct ecommerce platforms, social
to the cross-border ecommerce import market, networks as well as providing perfect customer
now is the perfect time to capitalize on local service, all incredibly important drivers for being
partnerships. The Shanghai Free Trade Zone, seen and trusted by Chinese consumers.
and the pilot city schemes create an ideal trade
environment for Western merchants, conditions On top, partner with a global acquiring
unavailable outside the FTZ. network to gain access to local financial
institutions within the market. A local network
Join a pilot city scheme to minimize will lower barriers and complexities for overseas
complications over taxes, customs clearance, merchants entering China.
localization and logistics. The pilot cities, as part
of an end-to-end service, will ensure presence

5.1.3 BE MOBILE

M-commerce and mobile payments are Mobile commerce in China is integrated with
increasing in popularity all over the globe, more social media, a huge sales driver in a market
people rely on their handheld devices every day. where consumers create and curate valuable
It is predicted that by 2020 almost all payments content on a far higher scale that in the West.
will be made via a mobile device.
Be mobile-ready and prepared to accept
Unlike the Western world, mobile is the primary payments via mobile devices to ensure success
vehicle to the Internet for 80% of users and in this market.
a large proportion of online consumers are
already making payments via this method.

PAYVISION 45
Tapping into China

5.1.4 BE sensitive to CULTURAL differences

Chinese consumers are becoming more digital, fear in China that businesses from the West are
tech-savvy and less cash-based. Thanks to attempting to colonize China, which in turn is
a desire to shop online overseas, Chinese drawing back the open doors for international
consumers have embraced spending on credit, business.
a payment method previously disrespected and
mistrusted in society. As a result, they are able Be familiar and comfortable with
to access other international markets; credit Chinese business culture. To be
cards are a key driver for cross-border ecom- successful in this market, business takes longer,
merce. trust must be earned and personal relationships
are of highest importance. Working with China
Chinese consumers are not, however, becoming with a Western business attitude will be met
‘Westernized’. Chinese culture remains as with skepticism and mistrust.
important in society and in business as ever.
For Western merchants to realize
Merchants entering China from the West are true cross-border ecommerce
experiencing barriers to doing business by growth, now is the time to tap into
executing Western business tactics and aggres- China.
sive sales techniques. There is an underlying

PAYVISION 46
Tapping into China

6. About the Publishers


and Editors
6.1 About Payvision
Payvision is a fast growing, independent innovation, changing business needs and an
Payment Solution Provider specialized in Global increasingly demanding regulatory landscape.
Card Payments for the ecommerce market.
Payvision offers acquiring banks, agents, Payvision’s experience in the different interna-
Payment Service Providers, ISOs, MSPs and tional regions has resulted in a global network
their merchants a secure PCI DSS compliant, of global acquiring banks, connecting over
PSD Licensed international payment processing 300 trusted business partners with more than
network enhanced with innovative technology. 5000 web merchants worldwide, for which we
Over the past decade, Payvision has consistently process over 100 million transactions a year.
expanded its geographical footprint across the
continents, resulting in vast knowledge and
insight in the complexity of Card Payments and
ecommerce in a global market subject to great
challenges such as unprecedented technological
PAYVISION
Global Card Processing

6.2 About the Author


Keira McDermott Keira is a graduate in English from Oxford
Brookes University. She is the author of the Key
Keira McDermott is a B2B Content Writer for Business Drivers and Opportunities in Cross-
Payvision. Prior to becoming a part of the border Ecommerce white paper, as well as the
Payvision marketing department, she worked Payvision infographics, available for download
for Belkin as an Online Marketing Specialist. on the Payvision website.

PAYVISION 47
Tapping into China

6.3 About the Editor


Rolf Visser

Rolf Visser is the Vice President of Global


Marketing at Payvision, an independent global
card processor for the ecommerce industry. In
an expanding cross-border ecommerce market,
Payvision is one of the fastest-growing global
acquiring networks, connecting Acquiring Banks,
PSPs, ISOs and their merchants to ONE Global
Acquiring Platform, based on a non-competitive
partnership model.

Rolf is also the Chairman and Co-founder of the


CBEC (Cross-Border Ecommerce Community),
a strategic global cross-border knowledge hub
for the ecommerce industry. The CBEC focuses
on sharing research and knowledge, thus
educating the ecommerce market in a variety of
disciplines and industries.

Rolf is a graduate in Digital Internet Marketing


with Highest Honors from Beeckestijn Business
School at VU University of Amsterdam, with
12 years’ experience in the retail POS industry
prior to 12 further years’ experience in interna-
tional marketing. The last six years of his work
have been in ecommerce and the payment
industry.

Rolf has a forward thinking marketing vision,


introducing multichannel, inbound marketing
techniques and an award-winning business
model, helping transform and elevate busi-
nesses through brand equity. (http://nl.linkedin.
com/pub/rolf-visser/0/473/ab6)

PAYVISION 48
Tapping into China

Payvision, an independent global card

O
processor, offers international payment
service providers and ISOs unprecedented
business opportunities by connecting them to

NE acquiring banks in our global card payment


network. Payvision has the in-house expertise
to offer global domestic acquiring for cross-
border ecommerce. Payvision provides its
customers with:

One payment platform for


global card processing
• Global domestic acquiring • One internationally
with the same quality in approved risk and under-
each region writing protocol
• 150+ transaction currencies • Cost reduction and optimiza-
and regional card settle- tion for profitable cross-
ment currencies border ecommerce
• Risk and fraud management • 24/7 support
solutions
• One single high-end
reporting interface for
worldwide transactions

For more information visit www.payvision.com

PAYVISION 49
Tapping into China

Connecting the Dots


One Full service Payment Platform For all your
transactions. Global domestic Aquiring with the same
quality in each region.

GLOBAL CARD
PROCESSING

INNOVATIVE
PAYMENTS
Payvision Payvision Payvision Payvision Payvision Payvision Payvision Payvision
Utah Toronto New York London Amsterdam Berlin Paris Madrid
PAYMENT
EXPERTISE

RISK & FRAUD


MANAGEMENT

Payvision Payvision
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Francisco

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OFFICES

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DEVELOPMENT CENTER

ACQUIRING BANKS /
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and Grow

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Design: Studio van Pelt, Amsterdam


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Global Card Processing

Worldwide Offices
Amsterdam | New York | Utah |
Madrid | Paris | London | Berlin |
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Macau | Auckland | Toronto | San
Francisco |

Please visit
www.payvision.com for more information.
Media contact:
press@payvision.com

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