Why You Should do Cross-Border E-Commerce in China Right Now
- Brainz Magazine
- Nov 26, 2020
- 4 min read
Written by: Yunlong Wang, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
Nasrin Solati is Project Manager in Vikcess Business Group. She provides direction to ensure that each contributor knows what's expected at every phase of the project. She has the overall responsibility for the successful initiation, planning, design, execution, monitoring, controlling, and closure of a team project. In this article, she gathered research-based information regarding Cross-border e-commerce (CBEC), analyzing CBEC in China, e-commerce channels, how it operates, its benefits, and why it is time for international companies to consider it.
What is E-commerce and Cross-border e-commerce?
Electronic commerce is becoming an increasingly popular form of trade globally. Most shoppers start to search for products and quality features online before buying. To make the shopping experience delightful for the customers, more and more companies and retailers are setting up an online platform where a person can buy at any time, even at night when regular stores are no longer open. Online stores allow you to save time when searching for a particular product. Cross-border e-commerce (CBEC) means importing goods from sellers from foreign countries.
Why is CBEC popular in China?
CBEC is a thriving channel for Chinese consumers to buy their quality products importing to the country from all over the world. The products that the Chinese do not have access otherwise. CBEC in China is a unique opportunity where international companies can sell certain products to Chinese consumers through online platforms. They are allowed to operate at special duty rates and without applying for a license, which lowers the cost of operating a business in China significantly.
E-commerce platforms annual rate and reasons for growth.
China is not only the global factory, but it is also a huge consumer market. At $5.8 trillion last year, China has the second-largest retail market in the world, indicated by Alizila.
As indicated by Alizila, the e-commerce channel in China reached an annual growth rate of 76% between 2015 and 2018 while generating RMB 78.5 billion in gross merchandise volume (GMV) last year. This amount is still around 2.2% of China’s online retail sales, which means that there is still considerable opportunity for long-term growth for international brands and retailers.
This growth is expected to increase in China and worldwide. Currently, more businesses are also tapping e-commerce platforms to sell directly to consumers rather than going through traditional store distribution systems.
Gao Hongbing, vice president at Alibaba and head of AliResearch, believes that two important factors are urging the annual growth rate of Chinese e-commerce platforms, the trade-friendly regulations, and rising demand among Chinese consumers for international goods.
Chinese government is continuously supporting import and exporting channels by enhancing international shipping capacity. There are currently new CBEC pilot zones and pilot cities for CBEC retail importation, which are being developed, the CBEC retail import list is being extended, and tax and tariffs are being lowered.
Most popular online platforms in China
Many online platforms are operating in cross-border e-commerce in China; however, the main Chinese key players are as followed:
Alibaba, owning different platforms such as TaoBao and Tmall
Net Ease Kaola, (purchased by Alibaba)
JD
VipShop Global
Pinduoduo, new player
Thriving sectors in CBEC
There is also a vast category of products that you can sell through cross-border e-commerce. However, some sectors are thriving. To name the most important categories for CBEC, we can name:
Cosmetic & care products
Baby products
Food & beverage
Fashion (including luxury goods)
Jewelry
Shopping festivals
Looking at the CBEC growth in China, we should also consider the impact of shopping festivals and how they shape the retail market. To name an example and looking at one of the most profitable events in the Chinese retail market, we can point out the November sales.
This year with two shopping events, one Nov. 1-11 and Nov. 11-11, and a total turnover of 498.2 billion yuan and more than 450 brands with a turnover of over 100 million yuan. In comparison, the total turnover of Tmall 11.11 in 2019 was 268.4 billion yuan, which means a sharp increase of 85.6% this year, while last year's increase was only 25.7%. This year, the real-time turnover exceeded 372.3 billion yuan in only 30 minutes and thus exceeded last year's total. This shows us how Chinese consumers rely much more on e-commerce than before.
Covid-19 and its impact on e-commerce
It is a fact that COVID-19 created a difficult situation for the retail sector. The one sector which was thriving is currently facing a huge challenge, and it is predicted that it might take months or even years before the retail sector can return to pre-pandemic situation. A survey by McKinsey indicated that “the pandemic is causing some retailers to reassess their footprint and future format.”
Recognizing this situation, many executives are targeting e-commerce platforms. However, amongst the pandemic situation, Chinese giant e-commerce platform, Alibaba, reported revenues for its fiscal fourth quarter increased by 22%, amounting to $16.1 billion, outperforming analysts’ predictions, reported by Alizila.
Conclusion
China, showing strong post-Covid recovery, presents outstanding opportunities for brands and retailers increasingly looking to expand their markets for growth.
It is also reported that the pandemic has given rise to new consumer preferences and shopping habits. For example, Chinese consumers are eating healthier and putting more emphasis on health and wellness. They are also willing to invest in luxury products while taking advantage of group-buying deals. All these patterns mean increased opportunities for brands to explore.
As a conclusion, we should mention that from January to February this year, China’s import and export volume of CBEC retail was RMB 17.4 billion (US$2.45 billion), up 36.7 percent year-on-year, despite the COVID-19 pandemic. In 2019, the number reached RMB 186.2 billion (US$26.25 billion), five times that of 2015, showing an average annual growth rate of 49.5 percent, according to the official data.
To learn more about Yunlong, you can visit his LinkedIn or contact him at: yunlong.wang@vikcess.com
Yunlong Wang is apart from being the CEO & Founder of Vikcess Business Group, a VC, Writer, and Startup Coach. His main focus is on how the innovation tech changes the business and our world. He devotes most of his time to innovation management, achievement transformation to adapt to new markets, technology transfer to apply in a wide range of industries, and startup acceleration with capital support. He is playing the role of a bridge, as Vikcess does, which connects Europe and China, to pursuit communication, collaboration, opportunities, and the future.
