The barriers to e-commerce in China get even more attention than the massive tech companies making billions from it. Fear of the Great Firewall, blocked sites, and imminent ripoff of intellectual property keeps many Western companies from entering the world’s biggest online market.
Cross-border e-commerce is touted by all manner of digital and logistics companies as a kinder, easier online route into China. The configuration of a cross-border digital model can take all shapes. In essence, though, cross-border means no official Chinese entity, no official web presence in China, and no worries about delivering to Chinese customers who order from your site, thanks to turnkey logistics providers.
That results in time, cost, and trouble saving, to be sure — but does it work? Nielsen tells us that 18 million Chinese cross-border shoppers spent more than $35 billion in 2013 on foreign sites, representing 31 percent compound annual growth over 2008. That’s a fraction of China’s online retail market, which passed $300 billion the same year, but an enticing fraction, given the lowered barriers to entry.
Thus it behooves Western companies ready to dip a toe in China’s rising online waters to understand what drives Chinese cross-border shoppers, the methods they use, and the options available for those interested in cross-border as a model.
The key motives driving Chinese online shoppers to haitao (“buying overseas”) are price, authenticity, and scarcity. VAT taxes and other exigencies make luxury cosmetics and haute couture pricier for them. Copycats proliferate on China’s Internet, casting doubt on the quality of those premium goods. Furthermore, big brands are frequently late to the Chinese market with their newest offerings. The desire to be the first person in China wearing Nike’s latest shoe, a guaranteed original at a bargain price, drives millions of Chinese to Western sites in search of what can’t be had in China’s Internet ecosystem.
Those motives should make it clear to the Western retailer that the vast majority of haitao shopping is for brands and products already well known in China and in big demand. An exception would be in the health and child care categories, where more and more Chinese are going haitao for exotic supplements and infant formula.
The truth of the big-brand haitao motive is evident in the three kinds of Chinese sites currently dominating this emerging industry:
First is the cross-border portal, a site that buys from Western e-commerce sites, stores the goods in Shanghai’s Free Trade Zone, and resells to China online. Usashopcn.com exemplifies this type of site. Click-through will reveal a homepage stuffed with apparel, handbags, shoes, and watches, all from global brands such as Hugo Boss.
Haitaocheng represents the model whereby a Chinese logistics company directly purchases and resells foreign goods, using its ostensibly fast, reliable delivery network as a differentiation point. The site has a broader range of goods on offer, but again, the brands are all readily recognizable.
Finally, there are sites such as HT51, where all manner of agents and logistics companies compete for customers with ratings-based delivery and pricing. Slashed prices dominate the homepage — again, for brands that would be well known to mall-visitors in any corner of the globe.
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It would appear that haitao is largely the province of Chinese operators filling in the massive gap between demand for popular Western goods and under-supply resulting from limitations to those brands’ digital effectiveness in China. Hugo Boss and similar companies have extensive operations in China. What about the company that wants to test the waters? Even if it can persuade the types of Chinese sites above to sell its wares, loss of brand, user experience, price, and customer controls certainly balance the positives of an “easy” way into China.
Going it alone with your own site presents three problems: localization, driving traffic, and fulfillment. The first can be solved with some rigor in translation and minor site modification. The third can be solved by partnership with one of the growing number of stateside Chinese logistics companies happy to fulfill the transaction for a fee.
Driving traffic is the real issue. Sites hosted outside of China load far more slowly than those hosted in-country, if at all, especially at peak online shopping hours. It takes a Chinese entity to get permission to host in China, as well as to advertise on most major platforms, including the all-important Baidu, China’s Google.
Alibaba is making strides in providing a solution to the traffic problem with the introduction of ePass. This new product not only lets a Western site incorporate China’s favorite gateway Alipay and use Alibaba’s logistics network for fulfillment. It also lets Western companies access certain segments of its massive advertising ecosystem. Still, the lack of licensing will mean limited access, as it does for Tmall Global stores, whose tenuous exposure to Tmall proper was recently revealed by the Wall Street Journal. Similarly, Amazon launched a Free Trade Zone cross-border initiative in August 2014 that has seen very little in the way of news, signaling early success.
So legal and technological realities currently limit severely the amount of traction a non-global Western brand can hope to achieve with traditional paid tactics. There are, however, content and social media marketing tactics to be considered, such as profiling on Baidu’s versions of Wikipedia and Quora, and gaining recognition on Weibo or WeChat. Of course, these tactics involve persistence, Mandarin assistance, and a distant horizon for robust sales traction.
In all, those too China-shy to establish there should consider Amazon.cn, Amazon.com’s Chinese sister site. Committed to providing a long tail of Western goods to China’s online market, Amazon.cn considers any product with a good sales record, takes title to the merchandise, cooperates seamlessly in promotion, and handles deliveries. Its thin 3 percent slice of China’s online business-to-consumer market may seem unappetizing, but that is a far healthier share than any Chinese cross-border site can claim. (Note: I neither work for Amazon in any capacity nor own shares of its stock.)
Ernie Diaz has more than a decade’s experience participating in China’s online revolution. He publishes China Digital Review, an online magazine that analyzes China’s digital trends for Western businesses, and was previously marketing director for digital agency Web Presence In China.