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US-Asia Business

Selling Directly to Chinese Consumers through E-Commerce

E-commerce to reach new Chinese consumers
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The biggest e-commerce market in the world is ready for U.S. businesses.

China’s volatile stock market doesn’t seem to have hurt online sales in the country. Retail sales rose 48.7 percent during the first half of this year, according to the China E-Commerce Research Center, and Jack Ma, the billionaire founder of Chinese e-commerce giant Alibaba Group Holding Ltd., plans to add 10 million small businesses to the platform in 10 years. As some U.S. based companies are finding out, however, selling in China is anything but a sure bet; retailers like Best Buy are struggling to get a foothold, and even established companies like Wal Mart are experiencing a slide in retail sales. Experts say a deep understanding of China’s different consumer tastes, payment systems and logistics are crucial when planning a push into China’s vast online marketplace, especially for small and midsized businesses.

The opportunities are undeniable: with more than twice the number of Internet users of any other country, 360 million Chinese consumers shopped online in 2014, according to iResearch Consulting Group, spending about $441 billion last year. About a third of their purchases were made from a mobile phone. By 2017, online sales are expected to more than double their current volume.

Low Overhead

The benefits of selling to Chinese consumers directly through e-commerce are many: retailers don’t have to invest time and money to build a local facility, get a local business license or deal with the tax code. They can host the inventory and run the business from the United States, and enjoy a low overhead.

Dennis Zhang, the CEO of Voyage One Group Inc., which helps U.S. companies set up their China e-commerce platform, said cross-border e-commerce logistics have gotten more sophisticated in the last few years, with customs and local delivery processes getting more streamlined, and the infrastructure ready to handle large volumes. Delivery company DHL Express just opened a new facility in Shanghai and has plans to open up other new distribution centers in other parts of the country.

“Those with a unique brand and product – right now it’s a good time to enter China,” Zhang said. “The earlier you enter the market, then you can build your brand and start to acquire your customer base and test the waters to see what type of products the consumers respond to. “

Top Products

At the top of the list of desired products are those for babies and mothers. Parents, wary of the various food scandals in China, want to buy formula from overseas. “They don’t trust the formulas made in China. They can’t afford to risk that anymore,” Zhang said. Even he has personally bought and shipped formula from the United States as a favor to friends in China who requested it.

Overall concern about the safety of health-care products is also creating a big market for overseas supplements and other personal health-care products such as lotions and cosmetics. Even though most of the major brands have local distribution in China, consumers will still try to buy the products from the United States, because they believe the products are manufactured under higher standards.

“It’s all about trust. It’s all about image,” Zhang said.

Apparel and accessories are also in high demand. A brand may create hundreds of styles for its summer line, for example, but in China, only a fraction of those styles may be available.

Chinese consumers are becoming more fashion conscious. “Ten years ago, people tried to wear the same thing. If the green jacket is popular, you will see everyone wearing a green jacket,” Zhang said. Now it’s totally opposite – Chinese consumers want to express personality and character in the way they dress, and the ability to own something that is not available in the local market only increases the bragging rights.

Marketing Challenges

So, you’ve got the right product and brand and an established e-commerce business in the United States – that’s just the beginning. There are some crucial differences in the China e-commerce market that retailers have to deal with. The typical digital marketing plan for a company in the United States will involve Google and Facebook ad buys and ways to engage media outlets for exposure. That’s not how it works in China. Only 2 percent of searches in China are on Google. When Chinese consumers try to find products, they often go straight to the online marketplaces to search, find, browse and shop. In China, almost the entire market share is dominated by the online marketplaces Taobao, and So retailers need to learn how best to market through the online marketplaces so they can rank higher.

In China, the consumer will often try to verify the legitimacy of a purchase before they make it. Unlike in the United States, where only 5 percent of consumers will actually contact the merchant before they place an online order, in China that ratio can be up to 50 percent, and most of them will reach out through online chat first, according to Zhang, just to verify that there are real people behind the operation. So establishing a reliable customer service system is crucial to sales.

Alipay is no PayPal

In China, the payment system is complex from a technical and operations standpoint because the credit system in China is still not well developed. Alipay dominates the payment system in China, and differs dramatically from U.S. systems like PayPal. It’s an escrow system. When the consumer goes online to buy a product, the payment does not go to the seller immediately. It goes to Alibaba’s holding account until the goods are delivered to the consumer. Only after the customer verifies that they are satisfied with the purchase does the money get released to the seller from the escrow account. If a dispute arises, Alipay becomes the arbitrator.

If a brand is well known in China and consumers are already going directly to the U.S.-based flagship website to browse products, a company called Nihaopay can help merchants add Alipay and UnionPay – China’s only bank card network – to their existing payment platforms.

Nihaopay’s Head of Growth Gabriel Grisham said very few people in China use Visa, MasterCard and other major credit cards. “Instead of getting just that 1 or 2 percent that have those cards, why don’t you get 100 percent of the market with these two payment platforms?” In addition to marketing through the online marketplaces, Grisham also advises retailers to build their brand on their own website, leverage what they’re doing internationally and focus that to Chinese consumers, who are looking for products overseas.

Finding Partners

Retailers can hire their own individual experts to set up China e-commerce sites or work with a partner who is already working in that space. Companies like Zhang’s Voyage One, TLG Commerce Ltd., or BysoftChina Co. are a few of the companies that offer a one-stop-shop type of service; they can help with merchandising, marketing, translation, payments and customer service. Zhang said his company can help set up a China e-commerce site on the online marketplaces within weeks.

Retailers can also meet fellow marketers at the International E-Commerce Innovation Association, a nonprofit organization that connects e-commerce leaders and companies. It has offices in New York and Shanghai, and also hosts conferences about e-commerce in China.

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