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Chris Hutchins

February 22, 2017

Breaking Into China: Seizing Opportunities and Mitigating Risks (Part 2)


Here's a quick-start guide to creating authentic e-commerce experiences for the Chinese market—while avoiding costly pitfalls.

Chris Hutchins's avatar

Chris Hutchins

February 22, 2017

Editor’s Note: This is Part 2 in a two-part series. Read Part 1 here.

As we reported last week, China’s middle class continues to grow in size, influence and affluence. Per-capita disposable income is forecasted to triple between now and 2030. Digital shopping and consumption is skyrocketing. Millennial-aged consumers spend more time and money online than ever before. Elderly Chinese consumers are becoming increasingly savvy to e-commerce, too.

Last week, we painted a rosy portrait of the Chinese market—particularly regarding the opportunities that await businesses aiming to serve the market with cross-border e-commerce. These opportunities are increasingly compelling for Western companies, since domestic markets are becoming saturated and ultra-competitive. It ain’t rocket science: For many retailers, China represents a sound long-term growth strategy.

China’s middle class continues to grow in size, influence and affluence.

The market is brimming with potential. But it can also be a wildly different animal, which Western businesses can fail to understand. Brands that rush into China without preparation can have mismanaged expectations, which may lead to mismanagement and costly mistakes.

Navigating China’s rules and cultural nuances can be a challenge for newcomers. But armed with the right market intelligence and best practices, your company can achieve sustained success among Chinese consumers.

Global Expansion ‘Table Stakes’

A smart first step in expanding into China is determining if there’s existing demand for your organization’s products or services. (Read this post to discover a reliable method for determining that interest.)

Once you’ve given the market a thumbs-up for online expansion, translating your online product descriptions and other content into Simplified or Traditional Chinese is a mission-critical move. Indeed, simply launching a transactional site in a market’s preferred language generates immediate results. We recently helped a customer serve the market with a Chinese-language site. Traffic immediately surged by 73%. Conversions grew by 135%.

As we mentioned last week, cross-border e-commerce is growing, particularly among well-educated consumers under 35. This bodes well for foreign retailers. Such cross-border opportunities eliminate the need to build fulfillment facilities on the mainland (since products can be shipped from a retailer’s domestic market), or contend with local bureaucracies or tax codes.

Translating your online product descriptions and other content into Simplified or Traditional Chinese is a mission-critical move.

Operating independent e-commerce sites beyond China’s borders is absolutely possible—and in some cases, preferable. However, challenges await the ill-prepared. Due to China’s Internet surveillance project—nicknamed “the Great Firewall of China” by critics—page loads from these sites can be slow for Chinese consumers. This can lead to reduced engagement and sales. (Learn how to elegantly sidestep these challenges by reading this blog post.)

Ranking highly in China’s No. 1 search engine Baidu is also very important for independent websites. As with Google, frequent updates and high-quality content help boost a site’s authority in Baidu. But Baidu brings another element to the table.

“Baidu has something called verification levels,” explains Victoria Bloyer, a Global Online Strategist for MotionPoint’s Global Growth team. “These appear alongside a company’s Baidu search results. They start at ‘V1,’ go up to ‘V3,’ and essentially tell users how trustworthy the site is. Getting higher verification levels will increase clicks.”

Businesses acquire and increase their verification scores by registering and paying fees, Victoria says.

On the upside, global fulfillment solutions are more reliable and sophisticated than ever, “with customs and local delivery processes getting more streamlined,” an analyst recently explained, “and the infrastructure ready to handle large volumes.”

To Compete, Be In-Market

Operating an independent, branded e-commerce site for China is certainly becoming easier. However, Chinese consumers may not be inclined to shop there—at least, not at first.

Why? Chinese online shoppers prefer transacting on virtual marketplace websites such as Tmall and JD.com. These sites, sometimes called virtual malls, have generated lots of credibility and trust among local consumers. It’s a level of trust most Western companies can’t easily achieve.

Chinese online shoppers prefer transacting on virtual marketplace websites such as Tmall and JD.com.

However, savvy brands and retailers are adapting by opening virtual storefronts in these B2C digital marketplaces. The businesses benefit from being part of a trusted commercial ecosystem, and the storefronts almost always generate more traffic, conversions and revenue than their standalone branded sites would.

In fact, research suggests that by 2020, virtual marketplaces will represent nearly 40% of the global online retail market. Tmall, the world’s largest marketplace, is a stellar example: it generated $191 billion in sales in 2015.

Beyond the credibility Tmall and JD.com storefronts provide Western brands, the marketplaces also help reduce sales of counterfeit goods. Affluent Chinese consumers want “the real thing,” not knockoff products. Western brands can preempt counterfeiters by offering authentic goods in virtual storefronts, where customers are most likely to shop.

“It’s important to protect the integrity of your brand from counterfeiters, and to reassure customers that your goods are legitimate, of good quality, and will actually be shipped out,” explains Victoria. “Tmall verifies the brands that sell in the Tmall Global marketplace, and protects consumers from fraud.”

Further, these marketplaces support locally-preferred payment platforms (like Alipay), which alleviates yet another administrative and technical burden for brands.

Connecting with Tmall

Companies must meet special requirements to sell through Tmall’s domestic site (Tmall.com) or Tmall Global. Tmall’s domestic site sees more traffic than its global site does, and its requirements are more demanding. To be listed in Tmall.com, your company must be established in China for at least three years. All appropriate trademarks, fulfillment warehouses and legal paperwork must be established on the mainland, too.

To be listed in Tmall.com, your company must be established in China for at least three years.

Tmall Global has a lower barrier of entry, and may be a better fit for businesses keen to dip their toes into the market. You’ll still need a trading license and meet certain business standards, but the requirements are less stringent. Further, the one-time deposit fee, technical fees and annual fees are lower for Tmall Global merchants than Tmall.com merchants.

Both platforms take a 5% to 10% commission off online sales. It can take around six months to a year from “first contact” with Alibaba (Tmall’s parent company) to a store launch, so factor that into your global expansion timeline.

While Tmall dominates the Chinese e-commerce space with a 57% market share, rival JD.com’s 25% is nothing to sneeze at. But other marketplaces exist that might bear investigating, depending on your product category. Take Secoo.com. It places great importance on selling authentic luxury goods.

Protect Your Domain and IP

Make sure to perform due diligence in other key areas of business, including website addresses, trademarks and more:

Domains: Consider registering your brand and store names with China’s top-level domains (such as its country TLD, .cn). As registrar service Chop Chop explains, “registering relevant domain endings and redirecting them to your main website unambiguously conveys to Chinese consumers, and the world, that you have complete ownership of your brand online.”

Trademarks and Patents: China has “first-to-file” trademark and patent systems. Theoretically, this means local Chinese companies can register another business’ trademarks or patents (like yours) even if they aren’t the creators of the intellectual property. That said, make sure to register all relevant IP with the appropriate Chinese agencies. We recommend registering trademarks in both Chinese and English.

Chinese companies can register another business’ trademarks even if they aren’t the creators of the intellectual property.

Marketing and Customer Service

The topic of digital and social marketing in China deserves its own blog post, but at a high level, know that marketing trends in China are similar—but not identical—to trends in Western markets. (Indeed, Chinese social networks are often quite similar to Western ones, sometimes sparking media scrutiny.)

According to a January eMarketer report, Chinese marketers are looking to dedicate their 2017 ad spends to social networks, video sites and search. About 70% of marketers aim to spend ad resources on mobile, social networking sites.

That’s familiar turf for Western marketers, but unique Chinese consumer behaviors lie just beneath the surface. For instance: In the West, Google dominates search and pay-per-click campaigns. In China, consumers skip search engines and go straight to marketplaces like Tmall and JD.com to search for the products they’re looking for.

Further, Chinese consumers are far more active in the pre-purchase process, often engaging retailers via online chat with questions or concerns. “Establishing a reliable customer service system is crucial to sales,” an analyst advises.

Chinese consumers are more active in the pre-purchase process, often engaging retailers online with questions or concerns.

Finally, an emerging customer-service opportunity may await savvy retailers: customer loyalty programs. According to recent Nielsen research, nearly 90% of Chinese consumers would buy (and buy again) from retailers that offer loyalty programs over retailers that would not. Based on customer participation rates—especially compared to rates in India and Southeast Asia—loyalty programs in China appear to still be in their nascent days.

This differentiator could generate interest, and repeat business, for a Western brand keen to make a splash in the market.

Wrapping Up

China’s middle class is growing in influence and affluence. E-commerce, particularly mobile e-commerce, is achieving widespread adoption. Chinese consumers of all ages, from millennials to grandparents, are spending more money and time online than ever before.

Now is a fantastic time to serve its online consumers.

Would you like to learn how to navigate the nuances of the Chinese market, and optimize your product descriptions and content to resonate with these shoppers? Contact us for more information.

Photo credit: Songquan Deng / Shutterstock.com

 

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