Opportunities and Challenges for an International Organization targeting

Chinese Market using Cross-border E-commerce

Company Background

We De’ Star Industry are specialized company engaged in manufacturing business of

a wide range of leather products. We are based in Karachi Pakistan and we have been
manufacturing leather products since many years and we have been exporting our
products to some clients in Middle East and Europe. We are already selling our
products on Daraz and AliExpress.
Now, we are planning to expand our business and we are planning to target one of the
biggest and growing E-commerce markets in the world. Yes, we are working on getting
into China market through E-commerce platform.

Opportunities

China is now the world’s largest online shopping market. Driven by rising levels of
personal wealth and high Internet connectivity, Chinese consumers are on track to
spend over US$1 trillion online in 2018.

For most international brands and retailers, China’s online shopping market offers
tremendous opportunity. For those using an online-only model to enter China, local
Chinese marketplace sites such as Tmall Global and JD.com tend to be the first option.
However, many brands and retailers report not being satisfied with the business
generated through these platforms, with only 30% of online-only retailers satisfied
with Chinese marketplace platforms. Issues such as high sales commissions, the drive
to discounting, and lack of direct customer engagement are significant issues.

While China offers enormous potential for online sales, a careful and considered
approach is required for international retailers and brand owners, covering all aspects
from providing the relevant products, pricing, using the appropriate online platform,
fulfilment, and perhaps most importantly, telling the right story to China’s
500 million online shoppers.
Increasingly, Chinese cross-border shoppers are looking beyond marketplaces, and are
shopping on retailer or brand owner standalone direct-to-consumer (D2C) online
stores, which offer them a greater level of personal engagement and a more authentic
online shopping experience.

To target Chinese market, we do have following E-commerce platforms available.

1: Haitao
2: Daigou
3: Taopao
4: Tmall Global
5: JD.com
6: Amazon

Haitao

In China, cross-border e-commerce is often referred to as haitao; our research shows

that the average haitao shopper is spending RMB 5,300 a year (US$848 a year) on
products bought through this channel, with fashion and beauty & cosmetics being the
most popular categories.
A notable trend is the strong preference of many Chinese online shoppers to buy from
overseas brands and retailers through cross-border online shopping-known as haitao
or CBEC (cross-border E-commerce). Simply, it involves a Chinese consumer placing an
order online with an overseas based online retailer, who ships the product from
outside the Chinese.
Typically, overseas brands and retailers have sold cross-border into China through
online marketplaces offered by China’s E-commerce giants, such as Alibaba and
JD.com. While this is the best-known model, there is no “one size fits all” approach for
brands and retailers.
Increasingly, Chinese cross-border shoppers are looking beyond marketplaces, and are
shopping on retailer or brand owner standalone direct-to-consumer (D2C) online
stores, which offer them a greater level of personal engagement and a more authentic
online shopping experience.
The maturing of international payment and logistics encourages many Chinese
consumers to shop directly from international retailers. For retailers, they now have a
new business model to expand to the Chinese market.

Daigou

Daigou or shopping proxy, are individuals (either tourists or residents overseas) who
buy products in physical stores to order and then send them to consumers in China.
There are estimated 100,000 to 200,000 daigous in Australia alone.

But Driven by the perception of higher quality and authenticity, Chinese consumers
favor ‘Haitao’ to purchase directly from global retailers instead of Daigou

Challenges

Competitive Market
✓ However, while many retailers see China as a land of opportunity, not all of them
are satisfied with their performance in China. Competition, low profits, and high
entry barriers are only a few of the many challenges they face. 19% of retailers say
that China regulations can be too confusing, and another 19% say that the China
market is too competitive.
✓ Global retailers see the China cross-border e-commerce market as a large
opportunity, but competition amongst brands is more intense than ever. For the
many brands and retailers that enter the China market via e-commerce platforms,
the vast majority of their sales and traffic are derived from large platforms such as
Tmall and Kaola.
And yet only 21% of retailers that use marketplaces as their sales channel are
satisfied with their online sales.

✓ Acquiring traffic is becoming more and more expensive, because the number of
brands has increased, driving up ad bidding costs
✓ Marketplaces can also eat up margins as some require merchants to pay as much
as 15% in commissions, not counting other expenses such as marketing, logistics,
and discounts for e-commerce holidays.
✓ Brands are also finding it difficult to differentiate themselves from one another on
platforms where there are thousands of competitors.

Confusing Regulations

✓ The regulations governing online sales are seen as confusing and prone
to unexpected changes; and the China market is viewed as highly
competitive, with a myriad of domestic and overseas retail brands
competing for consumer attention.
✓ In this context, retailers and brand owners highlight issues with keeping
up-to-date with regulations governing online sales in China and creating
brand awareness in such as crowded market

Haitao Customers are always looking for premium brands and higher

quality

Haitao consumers are notoriously picky - they purchase overseas products primarily
because they’re looking for superior quality.

In fact, 67% of the consumers in our survey report that the search for reliable, higher
quality products was their primary motivation for buying through cross-border e-
commerce.

Because of this, for cross-border transactions, shoppers are increasingly interested in

the authenticity of a brand and the brand story around it.

Brand heritage and storytelling are important for brands to build a relationship with
their customers now.

34% of the brands we interviewed are generating content such as blog articles to meet
the tastes of Chinese consumers, and 33% are also tailoring their products to local
demands to drive more sales

Need for Localization

Localization is becoming increasingly important as competition intensifies in the China

market. This includes tailoring content for Chinese consumers, picking the right
merchandise to sell to Chinese consumers, and other things like having Chinese mobile
payments, Chinese customer service, etc
Intense Competition on the Platform

On a marketplace, brands and retailers can benefit from the large amount of user
traffic that already exist.
However, since there are so many competitors on the platform, it is difficult for a brand
to distinguish itself and there are only so many tools they can deploy to build a rapport
with their customers.
The intense competition amongst brands on a platform enables consumers to easily
compare prices.

Marketplaces are also less friendly to up-and-coming brands, as those without sales
volumes or brand awareness in China are often weeded out before they can even get
onto the platform.

Those who are able to launch on a marketplace face high upfront costs and
commissions; for smaller brands who are new to the market, it often does not make
financial sense to launch on a platform, especially since it doesn’t necessarily
guarantee sales.

Standalone e-commerce websites are challenging to operate because it's difficult to

drive traffic.

Difficult to Maintain Brand Relevancy

With the China market becoming more competitive, overseas retailers are increasingly
falling short of expectations as they strive to maintain their brands’ relevance.

38% of the overseas retailers in our survey say that the biggest challenge they face is
that they have to first focus on their own domestic market, which makes it difficult to
compete with local competitors in China that can move faster and understand local
trends better.

Difficult to build a new team in China if medium sized company

If you’re a small or medium-sized company, chances are you won’t have the time or
resources to invest in building out an entire China team to manage your operations in
the China market.

However, given the intense amount of competition from domestic and larger
international multinational corporations in China, having a team on the ground in
China is crucial.

Finding a key partner that can offer comprehensive services and solutions can be a key
aspect of a retailer’s China strategy.
Managing Local China E-Commerce Operations can get messy as a brand grows

Aside from top-notch, high quality products, consumers are increasingly expecting a
wider range of payment options, fast website performance, fast parcel delivery, and
Chinese language customer support.

Many merchants have to set up a Chinese language website, which is one of the first
steps of the market entry process.

Managing local operations can become complicated as a business grows, and in such
a competitive market, the small details matter.

Seemingly simple aspects such as managing website operations can become

increasingly complex when, say, an abnormally large volume of online shoppers on
Singles’ Day crashes your servers or your logistics provider can’t get your products to
customers on time.

When you’re an overseas retailer selling premium quality products, your customer
service must also match the quality of your products, as Chinese consumers are more
demanding than ever before.

Our Company Strategy

While looking at all the aspects of Haitao, there is no doubt that Haitao is getting very
popular between Chinese consumers to buy foreign brands. And now Chinese
consumers are focusing more on buying directly from Retailers instead of Daigou. And
there has record increase in the sales on Haitao during last 2 years.
But still, we as medium sized company would prefer to target the bigger platform and
bigger market which is Taobao
Taopao is one of the world biggest retail e commerce sites in the world. In June 2019,
Alibaba's China retail marketplaces had 755 million mobile MAUs, representing a
quarterly net increase of 34 million. Annual active consumers on Alibaba's China retail
marketplaces was 674 million for the 12 months ended June 30, 2019, compared to
654 million for the 12 months ended March 31, 2019.
AliExpress, Amazon, eBay?

AliExpress

Our company is already selling on AliExpress to the international customers from

Pakistan.
Sellers on AliExpress can be either companies or individuals. AliExpress is different
from Amazon because it acts only as an e-commerce platform and does not sell
products directly to consumers.
It directly connects businesses with buyers. AliExpress differs from fellow Alibaba-
subsidiary Taobao in that AliExpress is primarily aimed at international buyers.

AliExpress does not allow customers in mainland China to buy from the platform,
though most retailers are Chinese themselves. The website offers a popular affiliate
marketing program where partners are rewarded for sending visitors to the site with a
commission on sales.

Amazon is not widely used in China yet. The Chinese customers who want to buy from
international retailer they may buy from haitao. Amazon is not really popular between
Chinese consumers yet. But it is getting very popular in Chinese Businesses now.

And eBay is the same, eBay is the least popular site in China. Not many Chinese
consumers would be familiar with this e commerce site.

So, entering into Chinese market and targeting Chinese consumers, Taobao and
Alibaba is the best platform.

Alibaba Strategy

✓ Setting up a new company in Guangzhou

✓ Registering the company on Alibaba
✓ Targeting Chinese retailers through Alibaba
✓ Targeting International retailers through Alibaba
✓ Based in China (verified), company would be more credible and trusted for the
Chinese buyers and International buyers

Taobao Strategy

✓ Setting up a store on Taobao

✓ Brand Development
✓ Marketing Strategy
✓ International Brand introduction to Chinese consumer
✓ Easy to manage as company is based in China
✓ Easy to take care of logistics
After localizing to Chinese market, Company can work more efficiently to target the
Chinese consumers.
If company plans to sell on Amazon in next few years, operating from China would
really help to sell on Amazon as its very easy to sell on Amazon from China while in
Pakistan there is no amazon so you can not sell on Amazon unless you use some hidden
tricks.
So, there are a lot of benefits to the company if company is planning to target the
Chinese consumers, it would be better to localize into the China market and sell onto
the biggest available platform in China instead of selling it only on haitao. Company
can target way more consumers through Taobao and also can sell to the retailers in
China through Alibaba.