8 questions to ask before expanding e-commerce to China
In this blog, we want to share an article from The Remitsy Blog providing insights shared by Alex Philips, Sales & Marketing Director of LNP China.
Recommendations were given to companies seeking to expand businesses to China through a series of questions and answers. It is advised that companies should be more careful considering the difficulties and opportunities from all aspects.
1. What needs to be considered when selling in China without a registered entity?
Businesses that are selling B2B and are receiving payments directly deposited into the company’s account needs to ensure compliance with local tax regulations.
Prior to the changes in cross-border e-commerce in early 2016, products across many categories even without a Chinese label could be imported into China. Stricter laws are enforced as the number of fake products became a major concern for many merchants and consumers across different industries.
Also, goods sold via cross-border e-commerce were previously levied with varying rates of parcel tax but this has now been replaced with a standard VAT. A 30% tax discount can be applied to goods sold via cross-border e-commerce and no import tax will be collected.
2. What online tools, technology, or services can businesses take advantage of as they expand their remote presence into China?
In addition to JD and Tmall, WeChat is also one of the major platforms providing cross-border e-commerce services. Creating accounts in Wechat Store allows direct access to Chinese buyers. WeChat even offers a cross-border payments solution within the WeChat app allowing companies to accept payment from overseas. WeChat is a good solution for companies selling low-to mid-value products.
3. How do small companies advertise their stores and products when stores operated remotely?
JD and Tmall stores are very crowded marketplaces and the way traffic is directed is very different from Amazon. Simply having a presence on JD or Tmall would not be enough. There are specialists in China and many marketing agencies that are helping merchants develop a following on WeChat. The purpose is to increase rankings on these platforms and on search engines like Baidu. Businesses need insight from specialists to drive traffic into stores and to increase the overall opportunity to succeed.
4. To sell products in the Chinese market, businesses are generally going to need Chinese-speaking customer support, marketing, and business development specialists along with some hands-on support in China. What are some ways to hire employees prior to business registration?
There are several options. It is first very important to have native speakers on the team. Many companies choose to hire recent grads or study-abroad students. Another option would be to hire a professional agency to perform each of these tasks, but this can be expensive. Companies can contact freelancers and ask for them to work remotely from China. This creates trust issues due to culture and language differences. However, if managed well, it can be a great option as having local assistance would be very beneficial to overall business development and expansion.
5. How easy (or difficult) is it nowadays for an e-commerce company to expand their offering to China?
It has become easier for companies in terms of regulations as there are a less paperwork and applications to submit. Setting up a store on JD.com or Tmall Global, however, would not be cheap. Significant commitment is required to register. Also, significant annual fee on top of the promotion and SEO costs are all necessary for products to be seen. This is very large barrier for many smaller companies as many are not able to invest that much money up front. Companies should consider various options before diving headfirst into cross-border e-commerce.
6. How can business selling to China optimize supply chain?
A very big advantage for businesses selling to China via e-commerce would be the availability of bonded warehouses within free trade zones (eg. In Shanghai or Tainjin). These free trade zones extend customs and clearance boarders.
Companies can import products, and once orders are received, products can then be released to go through customs and clearance. This way, products are stored closer to the end user and can therefore be delivered within a shorter amount time – days, rather than weeks. Companies can consider cooperating with one of the Ecommerce platforms in China, and a list of recommended suppliers offering bonded warehouse services would usually be provided.
7. What is the most common mistake from cross-border e-commerce companies entering the Chinese market?
Underestimating cost and difficulty. For example, a manufacturer of infant milk formula from Europe had develops a business plan to sell products via WeChat and other major cross-border platforms in China, but a container of counterfeit infant formula fails to pass customs clearance. The company will
face import restrictions and stricter import regulations in the future and will therefore be forced rethink business strategy. Companies need to respond quickly and properly to these situations. The fast-paced environment requires constant fast thinking and quick judgment. At the same time, it is also important to be patient as it can take a lot of time for businesses to grow before becoming successful.
8. Anything other advice for companies launching businesses in China?
The Chinese market has a lot of potential, but it is important not to underestimate the amount of time and resources required to implement a strategy.
Companies should first fully understand the selling process from product advertisement to localization and marketing. Companies should be aware of other barriers such as regulations for certain product categories, limits to the WeChat sales channel etc. Operational support from partners or local experts will provide the focus necessary for businesses to develop and grow.