FLANDERS INVESTMENT & TRADE MARKET SURVEY

E H T G N I R E T N E T E K R A M E C R E M M O E-C A N I H C IN FLANDERS INVESTMENT & TRADE MARKET SURVEY

FacultyofBusinessandInformationManagement CampusSchoonmeersenGhent ValentinVaerwyckweg1 9000GHENT Entering(the(E*commerce(Market(in(China:(an(Action(Plan(for( Belgian(Food(and(Beverage(Companies ( Bachelor sthesisfrom:manonacke Degree:BachelorinBusinessManagement Specialization:Marketing Academicyear:2014 2015 Internshipcompany:FlandersInvestment&TradeHongKong Internshipmentor:KatrienLeinders Internshipsupervisor:ElseDeneys Thisbachelor sthesiscanbemadepublic.

FacultyofBusinessandInformationManagement CampusSchoonmeersenGhent ValentinVaerwyckweg1 9000GHENT Entering(the(E*commerce(Market(in(China:(an(Action(Plan(for( Belgian(Food(and(Beverage(Companies ( Bachelor sthesisfrom:manonacke Degree:BachelorinBusinessManagement Specialization:Marketing Academicyear:2014 2015 Internshipcompany:FlandersInvestment&TradeHongKong Internshipmentor:KatrienLeinders Internshipsupervisor:ElseDeneys Thisbachelor sthesiscanbemadepublic.

FOREWORD( ThisbachelorthesishasbeenwrittenwithintheframeworkofmyinternshipatFlanders Investment&TradeHongKongandmystudiesBachelorBusinessManagementand MarketingattheUniversityCollegeofGhent. IaccomplishedaninternshipatFlandersInvestment&TradeHongKongfromthe23thof Marchuntilthe5 th ofjune2015.duringthisinternshipiresearchedthoroughlythetopicof ewcommerceinchinaanditsopportunitiesforbelgianfoodandbeveragecompanies. TheaimofthisbachelorthesisistoprovideaninWdepthreviewintotheeWcommerce marketforfoodandbeveragesinchina.flandersinvestment&tradehongkongneeded suchastudytobeabletoguideandadvisebelgianfoodandbeveragecompaniesbetterinto thissubjectandpresentpotentialopportunitiesandchallenges. Firstly,IcouldnothavemanagedtowritethisbachelorthesiswithoutthehelpofMs. Leinders,myinternshipmentoratFlandersInvestment&TradeHongKong.Ms.Leinders wasverygenerousinprovidingmewithdatasuchaspresentationsandfilesaboutew commerce,contacts,guidanceandfeedback. Secondly,IwouldliketothankMs.Deneys,myinternshipsupervisor,whocontributed significantlyinthisbachelorthesisbyprovidingmewithherguidance,supportand feedback. Thirdly,Iwouldliketothankmycolleagues,Ms.LamandMs.Keungwhohelpedmewithall thecantonesetranslationsandculturalexplanations.furthermore,iwouldliketothankmy othercolleaguesatflandersinvestment&tradeinhongkong,beijing,shanghaiand GuangzhouforprovidingmewithdataabouttheeWcommercemarketinChina. Toend,IwouldliketoexpressmyimmensegratitudetoalltheeWcommerceand/orfood andbeverageexpertssuchasvincentwong(alibaba),stevebeckers(secretingredients), RonaldDrieduite(LotusBakeries),DidierBoon(EastChinaSeas),LaurenceVanDerLoo (Vistra)andMargauxVercruysse(Pranarôm)formakingthetimetomeetmeandpresent mewiththeirknowledge,adviceandexpertise.

(TABLE(OF(CONTENTS( Foreword'...'3 Pre+summary'...'6 Introduction'...'7 Chapter'1:'E+commerce'in'China'...'9 Introduction...9 More%online%shoppers%...%11 Growing%use%of%mobile%devices%to%browse%e9commerce%merchandise%...%12 More%purchasing%power%...%14 Improvements%in%online%credibility%and%security%...%14 The%continued%development%of%popular%Chinese%social%media%platforms%...%15 Marketanalyses...17 Market%structure%of%China s%e9commerce%...%17 Factsandfigures...18 Internet%development%...%18 E9commerce%...%19 Online%shopping%...%19 Chineseconsumerbehavior...20 Evolutionandforecast...21 The%e9commerce%market%outlook%...%21 KeyplayersinB2CeWcommerce...22 TrendsineWcommerce...22 Trend%1:%Social%e9commerce%...%23 Trend%2:%%The%showrooming%effect%...%24 Trend%3:%0nline9to90ffline%...%25 Trend%4:%Rural%e9commerce%...%25 Trend%5:%Online%food%shopping%...%26 EWcommercemarketing...27 Chapter'2:'E+commerce'in'Hong'Kong'...'29 Introduction...29 Chapter'3:'E+grocery'in'China'...'32 Introduction...32 Sectoryanalyses:(foreign)foodandbeverages...32 Factsandfigures...34 Evolutionandforecast...35 CharacteristicsofChina sewgrocerymarket...35 Product%characteristics%...%35 Logistics%characteristics%...%36

Marketing%characteristics%...%36 Consumer%characteristics%...%36 TypesofChinagroceryeWretailersandtheircharacteristics...37 KeyplayersinB2CeWgrocery...38 TrendsineWgrocery...41 Trend%1:%health%and%weLlness%...%41 Trend%2:%fresh%foods%...%41 Trend%3:%private%label%products%...%42 Trend%5:%Mobile%shopping%for%groceries%...%42 EWgrocerymarketing...43 Case%Lotus%Bakeries%...%44 Chapter'4:'The'role'of'Hong'Kong'in'China s'e+grocery'...'47 CloserEconomicPartnershipArrangement...49 Chapter'5:'Action'plan'and'recommendations'...'51 Route1:SellonlinedirectlytoChina...54 Route2:SellonlinedirectlytoChinaviaaworldwidecrossWbordereWcommerceplatform...56 Route3:SellonlinetoChinaviaHongKong...59 Conclusion'...'61 Bibliography'...'62 Onlinesources...62 Attachments'...'64 Attachment1:Belgianproductswithprotocol...64 Attachment2:ListoffoodandbeverageproductswithouttarrifsfromHongKongtoChina...64 Attachment3:ListoffoodandbeverageproductswithtarrifsfromHongKongtoChina...70 Attachment4:ListofTPsofTmallGlobal...72

PRE*SUMMARY(( ThisbachelorthesisdescribesChina sewcommercemarketandexaminesitsopportunities forbelgianfoodandbeveragecompanies.introducingforeignfoodandbeveragesinto China s(ewcommerce)marketis insomecaseswaquitecomplicatedprocessandshould onlybeconsideredwhencertainrequirementsarefulfilled.thisbachelorthesisprovesthat althoughtheintricateprocess,enteringchina sewcommercemarketcoulddefinitelyoffer opportunitiesforbelgianfoodandbeveragecompanies. TherecentEUfoodboycottbyRussiaaffectedtheBelgianfoodindustrystronglyand thereforealternativeroutesshouldbeconsidered.china sewcommercemarketcouldbean interestingalternativetoconsider.additionally,belgianfoodandbeveragecompanies, whichhavenotbeenaffectedbytheeufoodboycott,butaresimplylookingtoexpandtheir salesmarket,couldbenefitfromenteringchina sewcommercemarket. China sewcommercemarketisthelargestoneintheworld,yetfarfromsaturated.the continuouslygrowingdemand,logisticsoptimizationandtheriseoftheruralareasareonly afewfactorsthatmakechina sewcommercemarketafertilegroundfortradeand investment. InthisbachelorthesistheeWcommerceopportunitiesforfoodandbeveragecompaniesin especiallychinaarediscussed.ewcommerceopportunitiesinhongkongarelessinteresting thanthoseinchina sewcommercemarket.theewcommercemarketinhongkongisnotas developedasitisinchinaduetotheproximityoftheinwstores 1,thecultureofoffline shoppingandthesmallwscalemarket.however,hongkongcannotbeneglectedasa potentialinterestingewcommercemarketcompletely.hongkong sconsumersneedalot morethanisservedbythecurrentsetofretailers,andtheinternetcannowbridgethatgap. Furthermore,HongKongactsasthenaturalgatewayfortradeandinvestmenttothevast marketinmainlandchina.manybelgianfoodandbeveragecompaniesactiveinchina sew commercemarkethavetheirheadofficesinhongkongduetobusiness,legalandfiscal convenience. ThisbachelorthesisgivesanexhaustiveoverviewofChina sewcommercemarket,hong Kong sewcommercemarket,china sewgrocerymarket,discussestheroleofhongkongin China sewgrocerymarketandprovidesanactionplanonhowtoenterthismarketasa Belgianfoodandbeveragecompany.Itincludestheopinionsandrecommendationsof expertswithinchina sewcommercemarketandfood&beveragefield,andthoroughly analyseddeskwresearch. 1 Insideaphysicalstore. 2 Anorganicecosystemthatismadeofenterprisesandorganizationswithcloserelations,usingtheinternet 6

INTRODUCTION( ThisbachelorthesisanswersthecentralresearchquestionhowtoenterChina sew commercemarketasabelgianfoodandbeveragecompany.thefirsttwochaptersinthis bachelorthesissketchageneraloverviewofthemarket.fromchapterthreeonwardsit focusesontheewgrocerymarketandtheroleofhongkonginthisewgrocerymarket.the lastchaptergathersalltheaboveinformationandresumesitintoapracticalactionplanon howtoenterchina sewcommerce,orbetter,ewgrocerymarket. China sewcommercemarketisamaturemarketwithbighomegrowncompaniessuchas AlibabaandJingdong.Althoughmature,itishoweverfarfromsaturated.Themarketin Chinaislargeenoughforothercompetitorsandnicheplayerstothrive,includingsome regionalplatforms. Itisahighlydevelopedmarketthathasbecomeenormousoverthelastdecade. Furthermore,themarkethasbecometooimportantandlucrativeforinternationalbusiness toignore.china sewcommercemarketoffersadeeppenetrationofsmartphonesand internet,averyhighdemandandelectronicbusinessecosystems 2.Thesearehoweverjusta fewcharacteristicsthatmakeitsafetosaythatthemarketinquestionisafertilegroundfor tradeandinvestmentforinternationalbusinesses. ThefirstchapterE"commerce(in(Chinaresumesanintroductionandmarketanalyses.It answersthemainquestionsonchina sewcommercemarketsuchaswhatarethefactsand figures,theevolutionandforecast,themainactorsinb2cewcommerce,trendsandhowto marketaproductorserviceinchina sewcommerce?isewcommercejustanothersales channelordoesitneedawholenewmarketingstrategy?frompage11onwards,this chaptersketchesanoverviewaboutwhatisplayinginthechineseewcommercemarket today. Thesecondchapter(E"commerce(in(Hong(Kong,frompage30onwards,givesasummary onhongkong sewcommercemarket.theewcommercemarketinhongkongisnotas developedastheonesinchinaandinotherasianpacificcountries,thereforethisbachelor thesisonlygoesverybrieflyintothisarea.thischapterismerelyincludedtomakea comparisonbetweenchina sewcommercemarketandhongkong sewcommercemarket. RecommendationsforHongKong sewcommercemarketwillnotbeincludedintothis bachelorthesis. China sewcommercemarketgivesthechineseconsumerstheopportunitytobuyandsell literallyanyproductorserviceimaginableonline.oneoftheproductschineseconsumers 2 Anorganicecosystemthatismadeofenterprisesandorganizationswithcloserelations,usingtheinternet asaplatformtomakecompetitionandcommunicationthroughvirtualalliance,sharingresourcesandmaking fulluseoftheiradvantagesbeyondgeographicallimits.e.g.alibaba sonlineecosystem 7

enjoybuyingonline,are(foreign)foodandbeverages.onlinegroceryshoppinginchina startedin2005,butisonlycommonlyknownin2012.thechineseusuallylookforforeign foodandbeverageproductsduetothelackoffoodsafetyandpastfoodscandalsofchinese products,lowerpricesthaninwstoreandstatus. InchapterthreeE"grocery(in(China,frompage33onwards,theeWgrocerymarketinChina isthoroughlyexamined.thischapteranswersthemainquestionsonchina sewgrocery marketsuchaswhatarethefactsandfigures,theevolutionandforecast,thekeyplayersin B2CgroceryeWretailers,thecharacteristics,thetrendsandhowtomarketfoodand beveragesinchina sewcommerce.belgianfoodandbeveragecompaniessuchaslotus BakeriesaretakenasanexampleonhowtosuccessfullyentertheeWgrocerymarket. Variousfactorssuchastheproduct,distribution,marketingetc.havetobetakeninto accountwhenadaptinganddevelopingabusinesstochina sewgrocerymarket. InthefourthchapterThe(role(of(Hong(Kong(in(China s(e"grocery,frompage48onwards, thesettingupofanewgrocerybusinessinchinaisexplained.notallbelgianfoodand beveragecompaniesareabletoeasilyenterchina sewgrocerymarketsimplyduetothe natureoftheirproduct.productssuchasfruitsandvegetables,porkmeat,etc.cannotbe importedintochina,unlessregisteredandapprovedbythechinafoodanddrug Administration.TherearehoweversomealternativessuchastheCloserEconomic PartnershipAgreementbetweenHongKongandChina,workingwithlocal partners/importersetc.thatcouldofferasolution. InthefinalchapterAn(action(plan(and(recommendations,frompage52onwards,afinal actionplanisdevelopedonhowtostepbystepenterchina sewgrocerymarketasabelgian foodorbeveragecompany.furthermore,itpresentsmypersonalrecommendationsand advicesonthesubject. 8

CHAPTER(1:(E*COMMERCE(IN(CHINA( INTRODUCTION In(other(countries(e"commerce(is(a(way(to(shop,(in(China(it(is(a(lifestyle. (( Jack(Ma,(founder(Alibaba( This famous quote from the founder of Alibaba, Jack Ma, summarizes the Chinese ew commerce landscape of today very well. Anno 2015 the ewcommerce market in China is boominganditdoesnotseemitwillstopanytimesoon.today,china( boasts( the( world s( largest( e*commerce( market( in( the( world and is predicted to be larger than the ew commerce market of the US, Britain, Japan, Germany and France combined by the end of 2015(Amanda,2013).Intheillustrationbelowagraphispictured,showingthatChina sew commerce transactions surpassed those of the US mid 2012 and is forecasted to increase evenfurtherinthefollowingyears. Source:KPMG,2013 ThistendencyinChina sewcommercemarketistrulyremarkableasin(2000(china(had(yet( to(develop(e*commerce( applications,( and( had( only( 2.1( million( total( internet( users. (Wei, 2013) Payment systems and physical delivery mechanisms to facilitate the developmentofewcommercetransactionswerewelldevelopedinothermarkets,butwere simply lacking in China (KPMG China, 2014). Back then it was difficult to predict the ew commercemarketleadingpositionthatchinaholdstoday. 9

InordertobetterunderstandChina sewcommercemarket,itisusefultolookathow(it(all( started. In1978,Chinawasstilloneofpoorestcountriesintheworld.TherealpercapitaGDPin ChinawasonlyoneWfortiethoftheUS.Butsincetheinitiatingmarketreformsin1978, China srealpercapitagdphasgrownatanaveragerateexceeding8percentperyear (Xiadong,2012).Thissustainedgrowthinlivingstandardhastriggeredrapidsocialand economicdevelopment. Inlessthan37yearsChinahasgrownintothelargesteconomyintheworld.The(market( reforms(of(1978explainwhychinawasabletogroweconomicallyandsocially,this implyingimprovedinfrastructure,overallwealthincrease,etc.thesetendenciesaffected China sewcommercemarketdirectly(e.g.ifthereisnoinfrastructure,shippinggoodsisnot possible). However,themarketreformsof1978donotexplaincompletelywhyChina sewcommerce becamesuchasuccess.themainreasonwhyis,thatunlikeamazonandotherusew commercecompanies,chinaewcommercecompanieshaverelativelyweak(offline( competition.theabsenceofstrongnationwideofflineretailersplaysasignificantrolein therapidgrowthoftheentirechineseewcommercemarket.everythinginchinesemodern retailingliterallycameupduringthepast20w30yearsinchina(hencethemarketreformof 1978). Since the development of a favorable ewcommerce ecosystem around a decade ago, the ChinesehavequicklytransformedtheirshoppinghabitsandmindsetsoneWcommerceand embraced this new way of shopping as their new lifestyle. Chinese ewcommerce websites offer a wide range of products and services online going from fresh food to electronic appliancesandevencars. China s( e*commerce( success( story( started( off( in( the( Tier( 1(e.g.Shanghai)andTier( 2 (e.g.xi an)cities.theillustrationonthenextpage,arechina slowertierandruralcities and their characteristics. Foreign businesses often underestimate the huge businesses potentialinthelowertierandruralareaswithoutreason.infact,shopping(online(and(e* commerce( market( in( lower*tier( and( rural( cities((e.g.woxi)( are( growing( even( faster( than( Tier( 1( and( Tier( 2( cities. This trend can be explained by the improvement of the shippinglogisticsinfrastructureandthewealthincreaseofinlandcities. 10

Nielsen,2014 BesidestheeconomicandsocialgrowthinChinaandlimitedcompetitionofofflineretailers afew(other(factors(have(driven(china s(e*commerce(revolution. MOREONLINESHOPPERS Source:CINIC,2014 Chinahad632(million(internet(usersbytheendofJune2014.Asillustratedonthegraph above,thenumberofinternetusersinchinahasgraduallyincreasedoverthelastcoupleof years. 11

Someofthereasons(why(internetinChinaissopopulararethefollowing: 1. Weak(existing(media:mediaiscensoredbytheChinesegovernment 2. One*child(policy:thispolicyhasbeenaroundforabout30yearsandimpliedthat mostkidsgrewupwithoutsiblings.thesekidshangoutontheinternettomeetkids fromtheirownagetohangoutwith. 3. Wide(choice(of(engaging(sites(and(services:althoughtheChinesecannotaccess Facebook,Twitter,etc.theycanaccessmultipleChineseequivalentsthatoffermuchW neededentertainmentandallowpeopletoconnectwithotherseasily. AccordingtoiResearch300(million(people(shop(onlineinChina.MostoftheChinese online(shoppersarebetween(18(and(35(years(old,withmen(shopping(slightly(more( than(women. TheChineselike(to(shop(online(forthreemainreasons: 1. Convenience:theycanby24/7andsameornextdaydelivery 2. Easytocompare(pricesofthedifferentvendors 3. To( find( products( they( could( not( find( elsewhere:thereisfarmorechoiceonline thanoffline(moreonlineretailersthanofflineretailers) GROWINGUSEOFMOBILEDEVICESTOBROWSEEWCOMMERCEMERCHANDISE Source:Cinic,2014 As shown on the graph above, by the end of June 2014, China had 527 million mobile internetusers,growthof26.99millioncomparedtotheendof2013.inchina,more(people( 12

now(access(the(internet(from(a(mobile(device 3 (than(a(pc.amongalltheinternetusers, the proportion of those who use a mobile device to access the internet increased further from 81.0 percent to 83.4 percent, and the size of mobile internet users exceed that of traditionalpcinternetusersforthefirsttime. Thistendencycanbeexplainedbythefollowingfactors: 1. Chinahasthelargest( mobile( devices( market( in( the(world:mobile( devices( are( cheapandrelativelylowaverageincomesmakeitmorepracticalforsomepeopleto foregoamoreexpensivecomputer 2. Phone*friendly(internet(servicese.g.WeChat 4 TheChinesehaveembracedtheuseofmobiledevicesandforaperiodoftimeinthefuture, the growth( of( mobile( internet( users( in China( will( mainly( rely( on( innovative( mobile( applications, which cater the potential network demands of nonwmobile internet users (ATKearney,2014). Source:CINIC,2014 Also important to note is that the proportion of the internet users who used desktop computers and notebook computers to access the internet dropped slightly. As shown on the graph above, the proportion of internet users who use mobile phones to access the internet has exceeded that of those who user traditional PC (80.9 percent) in China this year,andmobile(phones (role(as(the(no.(1(internet(terminalhasbeenconsolidated. This is an important tendency sincechinese( e*commerce( websites( have to make sure theirwebsitesare( mobile( friendly( or( responsive.theillustrationshowsascreenshotof the ewcommerce website Tmall Global on a mobile device (left) versus the website on a desktopcomputer(right). 3 Smartphoneortablet. 4 China sequivalentofwhatsapp,whichcanonlybeconsultedviamobiledevices. 13

MOREPURCHASINGPOWER China seconomic( affluence( has( increasedsignificantlyduringthepastdecade.thiscan beexplainedthroughseveralactionsofthechinesegovernmentsuchasthesetting( up( of( special( economic( zones,( favourable( economic( policies,( investment( in( infrastructure( and(education((especiallyinthescienceandtechnologysectors)etc. Due to the implementation of these actions, personal disposal income per capita reached USD3.000in2013andisexpectedtoriseby11percenttomorethanUSD5.000in2018 (ATKearney, 2014). With more( disposable( income( to( spend, the Chinese are likely to spendabigpartofthisincomeonlinethroughewcommercewebsites. Although the purchasing power in China has increased and will do so in the future, the income( inequality( gap( is( still( there.thediscrepancybetweentheincomesinruraland urbanareasinchinaishuge.thisisanimportanttendencytonotesinceitaffects(directly( the(consumer(behaviourofthedifferentincomegroupse.g.lowerincomegroupslivingin ruralareasaremorepricewconsciousandwillcomparepricesonline. IMPROVEMENTSINONLINECREDIBILITYANDSECURITY WhenWeb(2.0 5 arrived,e*commerce(sites(in(china(began(tracking(and(publishing( credibility(records(of(online(sellers,(reducing(the(risk(of(fraud.thishashelpedew commercetoovercomeperhapsitsbiggestpsychologicalbarrier.(atkearney,2014).now Chineseconsumersacrossallthegenerationsarebuyingonlineandfeelconfidentand secureddoingso. 5 ReferstothetransitionfromstaticHTMLWebpagestoamoredynamicWebthatismoreorganizedandis basedonservingwebapplicationstousers. 14

Reliable( payment( methods, such as collection on delivery and Alipay arealso making online( transactions( more( convenient( and( trustworthy (ATKearney, 2014) The collectionondeliverysystemisalsoadoptedbyewcommercewebsitezalandoe.g.youbuya productandonlypayafteryoureceivedit.thissystemenablesclientstoseetheproduct firstandsenditbackwithouthavingtopayanything. THECONTINUEDDEVELOPMENTOFPOPULARCHINESESOCIALMEDIAPLATFORMS China(is(one(of(the(most(restricted(countries(in(the(world(in(terms(of(internet,(but(these( constraints(have(directly(contributed(to(the(staggering(success(of(local(chinese(social( media(sites. ( Synthesio( Social(media(isa(hugesuccessinChina.ThereareafewfactorsexplainingwhytheChinese arelookingtohangoutwithfriendsonsocialmedia: Lack(of(trusted(information( Lack(of(entertainment( Lack(of(opportunities(to(socialize(due(to(the(one*child(policy(( The(Chinese(government(controls(the(social(media,whichmakesitmoredifficultfor foreigncompaniestoenterthesocialmediamarketinchina.withoutaccesstothemajority ofsocialmediausedelsewhereintheworld,thechinese(have(created(their(own( networks,justlikefacebook,myspace,youtubeandfoursquare butwithmoreusers whichiswhyevery(global(company(needs(to(pay(attention(to(these(chinese(social( network(services.(synthesio,2013) 15

((((((((((Social(Media(Service(Providers(in(China( Social'media'service' Active'users' (million)' Platforms' Our'known' equivalent'' QQ 800 Desktop,PC,Mobile Messenger Qzone 600 Desktop,PC,Mobile Facebook Weixin(WeChat) 300 Mobileonly Whatsapp SinaWeibo 350 Mobile,Desktopand PCaccessible Twitter TencentWeibo 250 Mobile,Desktopand PCaccessible Twitter RenRen 100 Desktop,PC,Mobile Facebook Source:KPMG,2013 Popular(social(media(platforms,suchasWeiboarehelping(to(increase(the(exposure(of( goods(and(drive(e*commerce(sales.withalmostinstantaneous(feedback(and(easy*to* use(interfaces,socialmediaplatformshavebecomeastapleinthelifeofchineseew consumers.consumersinchinausetheseplatformsforimmediate buy/don tbuy advice fromfriends,topostproductreviews,andtoseekproductknowledge/advicefromkey opinionleaders.accordingtorecentewcommercestatisticsinchina,40(percent(of(china s( online(shoppers(read(and(post(reviews(about(products(chinabriefing,2013). Oddlyenoughcompaniesoftenignoretheimportanceoftheinfluenceofsocialmediaon China sonlineconsumerbehavior.chineseconsumersoffertheiropinionsonproductson socialmedia,askforadvice,anddiscussbrands.abrand s(presence(on(social(media(is( thus(crucial(if(a(company(really(wants(to(succeed(on(china s(e*commerce(market. 16

MARKETANALYSES MARKETSTRUCTUREOFCHINA SEWCOMMERCE Share(of(China(E*commerce(Market( Segment(in(2014( 2% 1% B2BofSMEs 23% 50% B2Bofenterprisesabove designatedsize Onlineshopping 24% Onlinetravel 020oflocallifestyleservice Source:iResearch,2014 In2014theB2B(of(SMEs(intheChina sewcommercemarketcountedfor50(percentofthe totalmarket.24(percentofchina sewcommercemarketaccountsforb2b(of(enterprises( above(designated(size.thismeansthat¾ofchina sewcommercemarketisrepresentedby B2Bsales.Anotherbigpart,23(percent(nearly¼ofChina sewcommercemarket)accounts foronline(shopping.2(percentaccountsforonline(traveland1(percentforonline*to* offline(of(local(lifestyle(service. ChineseeWcommercecanbedividedintofourdifferentmarketsegments,withitsown subcategories: 1. BusinessWtoWbusiness(B2B): W BusinessWtoWbusiness(B2B)ofsmallmediumenterprises(SME) W BusinessWtoWbusiness(B2B)ofenterprisesabovedesignatedsize 2. Onlineshopping: W Onlineshopping(bothPC&mobile) W Mobileshopping W OnlineshoppingviaPC 3. Onlinetravel: W Airtickets W Hotels W Vacation 17

4. Onlinetooffline(O2O) 6 : W Leisureandrecreation W Weddingcelebration W ParentWchildcommunication W Beautycareservice FACTSANDFIGURES PleasenotethatthefollowingfactsandfiguresdisplaytheinternetdevelopmentinChinaof June2014aspresentedbytheChinainternetNetworkInformationCenter,China sew commerceofmarch2015aspresentedbyiresearchandtheonlineshoppinginchinaof December2014aspresentedbyiResearch. INTERNETDEVELOPMENT Internetpopulation:632million Internetpenetration:46.6percent Mobileinternetusers:527million Mobileinternetpenetration:83.4percent 28.2percentruralinternetusersversus71.8urbanInternet users 55.6percentmaleinternetusersversus44.4percentfemale Internetusers Internetusersbetween20W29yearsold,accountfor30.7 percentoftheinternetusers ThepopulationwithamonthlyincomeaboveUSD$480(a higherincome)countsfor32.3percentoftheinternetusers WeeklyaveragedurationspendontheInternet:25.9hours orroughly4hoursaday 6 Anintegrationofofflinebusinessopportunitieswiththeinternet. 18

EWCOMMERCE Grossmerchandisevalue(GMV)ofeWcommercein2014: USD$1.98trillion ChinaonlineshoppingGMVtotaled$0.45trillionin2014 withahighgrowthof48.7percent Onlineshoppingshared22.9percentintheeWcommerce marketin2014 Chinaonlineshoppingmarketwillmaintainthecompound growthrateofabout27percent B2Cmadeup45.8percentoftheonlineshoppingmarketin 2014 Tmall=No.1inB2Conlinemarketwith60percentofthe totalb2conlinemarket ONLINESHOPPING Frequency:80percentofChineseinternetusersshopat leastonceamonth 60percentofonlineshoppersuse2or3shoppingapps Commododiesmostoftenpurchasedbyonlineshoppers: clothing,shoes,hats,bags,outdooritemsandprepaid phonecard Priceandqualityarethemostinqluentialfactorstoonline shoppers 19

CHINESECONSUMERBEHAVIOR TheconsumerbehaviouroftheChinesecanbesubdividedintodifferentconsumergroups witheachtheirownsubdivisions. ((((((((((((((((((((((((((((((((((((((((((((((Chinese(consumer(groups( The(older(generation(( Frugal(retired( Wealthy(retired( Traditional spendinghabits(price> quality) Price*consciousduetogrowingupin poorconditionsintoughpoliticaland economictimes. Less(price*conscious(and(quality(is( often(valued(morethancostdueto growingupindecentconditionthough alsoinpoliticalandeconomictimes. The(middle*aged(generation( Frugal(forties( Wealthy(forties( Mixbetweentraditionandtrends Price*consciousduetothefactthat theseconsumerssavealarge proportionoftheirearningstotake careoftheirchildrenandparents. Less(price*conscious(and(are(willing( to(pay(premiums(for(quality(products duetohigherwages. The(younger(generation( Thirties( Twenties((one(child(policy( youngsters)( Westernizedandqualityconscious Save(less,spend(more(on( entertainment(and(often(shop( online.theypursuevalue(and( qualityratherthanlowprices.this tendencycanbeexplaineddueto bettereducationandgrowingupina moreopenenvironment. Barely(saveandspendmostoftheir incomeonentertainment,advanced electronics,andothertrendyproducts. Theyoften(shop(onlineandlookfor products(that(can(help(distinguish( their(personalities.theyfavourhigh qualityandconvenienceproducts. ( The(new(generation((>20(years(old)( The(rich( ( Most(Westernized(and(open(to(new( products.theseconsumerspursue individualismandoftenusethe internettofollowglobalbrands.they aregreat(influencers(to(their( parents(on(what(to(buy.socialmedia isaneffectivemarketingtooltoreach thisgroup( Thisgrouppursuesthebest(products( available,particularly(imports,and aretheperfectcandidatesformarketing newproducts.( 20

EVOLUTIONANDFORECAST THEEWCOMMERCEMARKETOUTLOOK AccordingtoiResearch,amongChinaeWcommercemarketsegments,mobile(shopping(will( develop(fastandmaintain48percentofcompoundgrowthrateinthenextfewyears.it willbethekey(push(for(the(rapid(development(of(online(shopping(market.moreover, online(travel(and(o2o(will(sustain(20(percent(of(compound(growth(rateaswell.inthe future,online(shopping(and(o2o(will(be(the(fastest(developing(segmentintheew commercemarket. Thesoaringusageofmobileinternet,shiftfromPCtomobiledeviceofinternetusers, improvedmobileshoppingscenarios,ewcommerceoperators risingeffortsonmobile businessanddevelopmentofmobileshoppingplatformallcontributetothesurgingof mobileshoppinginchina.therefore,itisexpectedthatmobileshoppingwillmaintainfast growthinthefutureyears. O2O(of(local(lifestyle(service(grow(tremendously,especiallycatering,leisureand recreationhavecomeintoitsearlystage.however,ithaslowpenetrationinthelocal lifestyleservicemarket.inthenextfewyears,itwillincreasebyleapsandbounds,ascribed totheincreasingofonlinepurchaseofonlinephysicalgoodsshoppersandsurgingof mobileinternet(iresearch,2015) 21

KEYPLAYERSINB2CEWCOMMERCE China(Top(B2C(Websites(Market(Share(by( Total(Transactions(in(Q2(2014( 3% 2% 1% 2% 2% 4% 1% 7% Tmall JD.com Suning.com Vip.com 21% 57% Gome.com.cn Amazon Dangdang Yixun yhd.com Source:ChinainternetWatch,2014 Fromthegraphaboveofthetop9B2CwebsitesappearsthatTmall(is(the(biggest(player( andaccountsfor57percentofthetotalonlinesales.tmallisanopenbusinesswtowconsumer (B2C)platformenablingbusinessesworldWwidetoreachChina svastandgrowing consumermarket.tmall.comhasestablisheditselfasthedestinationforquality,brandw namegoodscateringtoincreasinglysophisticatedchineseconsumersandisthemost visitedb2conlineretailwebsiteinchina. JingDong(is(the(second(biggest(playerandaccountsfor22percentofonlineB2Csales. TmallandJingDongarefollowedbyafewsmallerwebsites,suchasSuning.comand Vip.com.Surprisingly,AmazontakesonlyasmallpartofthemarketshareofB2Cwebsites inchina.toincreasetheirvisibilityandsales,amazonopeneditsownshopontmall. TRENDSINEWCOMMERCE ThefollowingtrendsarebasedonthereportChina s%iconsumer%2015:%a%growing%appetite%for% choice%and%changepublishedbytheconsultancyfirmmckinsey&company.thesearethe sametrendsthatcameforwardduringthepresentationofthealibabagrouppresentedby Mr.Wong,SeniorDirectorCrossWborderB2CWTmallGroup(Global,2014).Thesefivetrends shapethebiggestewcommercemarketintheworldin2015. 22

TREND1:SOCIALEWCOMMERCE Chinahas500millionsocialnetworkusers(McKinsey&Company,2015).Social(platforms( suchasqqandwechat(haveavery(large(impact(on(the(shopping(behaviour(of(its(users. SocialengagementandshoppingbehaviouraresointertwinedthatChineseshoppersrank theirfriend srecommendations bothonlineandofflinewasthemostimportantfactorin theironlinebuyingchoices(mckinsey&company,2015).quitea(few(companies(are(also( making(use(of(the(direct*sales(model(to(mobile(platforms.anexamplecaseofa companysellingdirectlyviaitsbrandpageonachinesesocialmediawebpageisdellon Renren. Dell,theAmericanmultinationalcomputertechnologycompanyhasadoptednumerous strategiestoengagechineseconsumers.toboostfanparticipationlevels,dellcreatedan onlinestoreonitsbrandpagewhereconsumerscanlearnaboutproductsand communicatedirectlywithsalesassociates. Duringthe2010Christmasperiod,Dellcombinedanonlineinteractivegamewithacoupon promotion.usersearnedpointsthroughplayingthegame,andthosepointscouldbe convertedintodellproducts.in2011,the DellMoneyJar programwaslaunched. FollowerscouldearncreditsbycompletingtasksthroughRenrenandgainingthesupport oftheirnetwork.thosecreditscouldbeconvertedintocouponstobuyproducts.theresult ofthisnovelsocialmediainitiativewasthatwithinthreemonths,dellhadacquired 125.179newfansandsoldnearly4.000computerswhichgeneratedapproximatelyUSD3 million. McKinsey&Companyexpectstoseecompanies(selling(referral*and(recommendation* driven(productssuchascosmetics,healthcareandinsurancein2015.retailerswhoareon topofsocialmarketingandadvertiseonsocialmediapromisetobeastepaheadofthe others. 23

ThearticlebelowshowsanexampleofonlinefashionretailerZalorawhopartneredupwith WeChatonSingle sday 7 onthe11 th ofnovember. WeChat will be collaborating with local online retailer Zalora to launch the latter s official WeChat account. 10/11/2014, Marketing Interactive ( WeChatusersinSingaporecannowconnectwiththebrandthroughtheofficialaccountandkeepupwith thelatestnewsandcampaigns.throughthefeature,customerscanalsoeasilynavigatezalora sonline shoppingappusinginwbuiltkeywordshortcutswithoutleavingthewechatplatform.( ( Tocommemoratethestartofthispartnership,ZaloraislaunchingtheirSingles Day(whichfallson11 November)campaignontheirofficialWeChataccount.Thefirst1,000fanstotextin ILoveZALORA on 11NovemberwillwinZaloravouchersworthSGUSD11,withnominimumspendrequired.Thecampaign willlastfrom11amto7pmon11november.( ( DioneSong,marketingdirector,ZaloraSingaporesaid: WeChatwithitshugepopularityandreachinthe region,isavaluablepartnerforustoimprovemobileshoppingexperienceinasia.ourpresenceon WeChatwilldeepenourengagementwithconsumersandwillallowustoreachthemevenwhenthey re messagingontheirmobile. ( WeareexcitedtopartneroneofthelargestonlineretailersinSingaporeandprovidingouruserswith personalizedaccesstozalora,sharingwiththemawholenewshoppingexperience.withonlineand mobilecommerceontheriseinthisregion,westronglybelieveinthepossibilitiesthiscollaboration couldbringourusers,bothnowandinthefuture, saidposhuyeung,vicepresidentofinternational businessgroupattencent,thecompanybehindthewechatapp. Source:MarketingInteractive2014 TREND2:THESHOWROOMINGEFFECT AnothertrendinChina sewcommercemarketisthe showroomingeffect.the showroomingeffectiswhereshoppers(browse(in(stores(but(buy(elsewhere(including online).thistrendisreallysettingoffe.g.only16percentcustomers,amongthosewho haveinternetaccess,boughtelectronicgoodsatphysicalstores(mckinsey&company, 2015). To(retain(sales,(more(brands(are(choosing(to(collaborate(with(online(shopping( platformsandplace(qr(codes(next(to(their(products(and(sending(customers(digital( coupons(and(daily(tweets((mckinsey&company,2015). 7 Thehighlypromoted24Whourperiodduringwhichonlineretailersheavilydiscounttheirwares,celebrated on11w11(november,11).itisthemostimportantdayin(online)chineseretail. 24

TREND3:0NLINEWTOW0FFLINE O2O(is(the(biggest(pie(in(e"commerce( (this(is(just(the(beginning (( Wang(Jianlin,(Chairman(of(Wanda( 0nlineWtoWoffline(020)eWcommercepromisestobeagameWchangingtrendinChina sew commerce.020istheintegration(of(offline(business(opportunities(with(the(internet. Suchplatformsattract(customers(online,(butthe(real(consumption(of(services(is( experienced(by(consumers(offline.italsoinvolvestheuseofinternettechnologiesto interactwithcustomersandtrackshoppers behaviour. AccordingtoMcKinsey&Company ssurvey,71(percent(of(chinese(consumersare alreadyusing(020*services,andonethirdofthosewhohaven tclaimtheywouldliketotry inthecomingsixmonths.o2oareexpectedtodrawthemostmarketdemandsin entertainment,healthcare,andhousingandmotorservices(mckinsey&company,2015). TREND4:RURALEWCOMMERCE Alibaba(plans(to(expend(a(lot(of(energy(in(the(entire(fields(of(rural(e"commerce.(We re( really(hoping(to(bring(e"commerce(to(all(of(china s([many](villages,(so(that(rural(people( can(get(a(taste(of(the(city(life(and(sell(their(own(products(in(the(cities. ( Jack(Ma,(founder(Alibaba( Despitethelowerinternetpenetrationintheruralareas,over(60(percent(of(rural(digital( consumers(shop(online,(making(them(just(as(active(as(their(urban(counterparts. Despiteloweronlinepenetration(28.2percentinruralareasversus71.8percentinurban areas)inruralareas,over60percentofruraldigitalconsumersshoponline,makingthem justasactiveastheirurbancounterparts.theaddedbenefitisthatofhigherenjoyment (highersatisfactionandlesspicky)inruralareascomparedtourbanareas (McKinsey&Company,2015). Thereareseveralchallenges(to(enter(the(Chinese(rural(e*commerce(marketsuchas increasinginternet(connectivity,(building(infrastructure(roadstoensuredeliveriesand otherlogistics,bankstofacilitateonlinebanking,electricitysourcestopowercomputers andmobilephones)(ckgsbknowledge,2015). AlibabaandotherbigeWcommercecompaniesinChinaaremakingbigeffortstoenterthe ruralewcommercemarket.astheurban(e*commerce(market(becomes(saturated,(the( next(opportunities(and(challenges(lay(in(the(rural(e*commerce(market.platformssuch astaobao 8 helppeoplelivinginruralareastoselltheirproductsandsetuptheirown businessonline.aninterestingsideeffectistheriseofthe Taobao(villages. 8 Alibaba sc2cewcommerceplatform. 25

Taobaovillagesarefarmingcommunitiestransformedthankstonewjobopportunities createdbytaobao. TheillustrationbelowshowsascreenshotoftheTaobaopageofentrepreneurLv Zhenhong.LvZhenhongusedtosellsesamebuns,earningUSD8,000ayear.Todayhis companybswolfgeneratesusd8millioninannualsalesofoutdoorgear.hisusd16 sleepingbagsareabestsellerontaobao. Source:Taobao,2015 TREND5:ONLINEFOODSHOPPING Packaged(and(fresh(food(tops(the(carts(among(online(shoppers,withaverage34times ayear,comparedwith22timesayearforapparels,accordingtothesurveybymckinsey (McKinsey&Company,2015). Whilethefoodcurrentlyofferedonlineismostlyofthedrypackagedvariety,freshfood optionsareexpandingrapidly.companieslikeyihaodianandyummy77arealready deliveringfresh,styrofoamwpackagedmeat,fruits,andvegetablestochinesedoorstepsin 24hours,andeWcommercegiantslikeJDarebusybuildingcoldchainsinlargeChinese cities.thewaytothechinesedigitalconsumer sheartappearstobethroughtheirstomach, andaddressingthisimportantbasicwneedcategorywillbecriticaltodrivestickinessand frequencytoewcommercesites(mckinsey&company,2015). Theillustrationbelowshowsthat40(percent(of(online(shoppers(have(bought(packaged foodsinthepastthreemonthsand14(percent(of(online(shoppers(have(bought(fresh( foods.thismakesfoodthesecondmostpopular(afterapparel)producttobuyonline 26

(McKinsey&Company,2015).Buyingfoodonlinehasbecomesopopularbecauseofthe sameornextdaydelivery,cheaperpricesandbroaderassortment. Source:iConsumerChina,2015 EWCOMMERCEMARKETING China s(e*commerce(market(is(a(mature(market.a onewsizewfitswall ewcommerce strategymighthaveworkedatthestart,butnowchineseewconsumersaremuchmore( sophisticated.anadditionalmatteristhatchinahasareally(big(market(andisrather( scattered(and(diverse(in(terms(of(consumer(behaviour.itisnotatallahomogeneous marketduetothedifferenttieredcities. InTier(1(citiessuchasShanghai,manyconsumersaree*purchasing(vacations,(cars,(or( high*end(personal(care(accessories,(including(cosmetics,(handbags,(and(high*end( fashionwithgreatertransactionalfrequencythantheircounterpartsintier2,tier3,and Tier4cities(KPMGChina,2014). Brand(loyalty(isalso(materializing(at(a(markedly(higher(rate(in(Tier(1(citiesthan anywhereelseinchina.incontrast,insmallermarketssuchasdalian,xi an,orfuzhou,one mayfindgreatervariabilityamongstwhatproductsandbrandsarefavoured forexample 27

lastseason itemsmaysellpoorlyinshanghai,butstillsellwellinothermarkets. ConsumersfromlowerTiercitiesarestillmorefocusedmoreonbasicvaluepropositions whenmakingpurchasedecisions(kpmgchina,2014). Themethodsofinfluencealsodifferbetweendifferentmarkets:Tier(4(cities(tendto(rely( more(on( key(opinion(leaders (andlessonwordwofwmouth,oruserreviewsandblogs. Contrarytoexpectation,Tier4cityresidentshaverelativelyless(discretionary(income,( yet(theyappeartobe(spending(similar(amounts(online(as(consumers(from(tier(3(or( even(tier(2(cities(kpmgchina,2014). DespiteChina sewcommercemarketpotential,successiscertainlynotagiven.findingand adaptingtherightmarketingstrategycouldpossiblybeoneofthemostchallenging obstacleswhentryingtoenterthechineseewcommercemarket.businessesneedtodotheir homeworktoreallyunderstandthetargetmarket,andhowbesttoinfluenceanddirect theironwlinepurchases.acommonmodelistosellthroughestablishedewcommerce platformssuchastmall. Asmentionedbefore,AmazonopeneditsownshoponTmalltogetmoreconversionand visibility.therearemanyroutestosuccess,butitisuptothecompanyandtheirmarketing teamtofindtheplatformthatsuitsthetargetedconsumerprofilebest. 28

CHAPTER(2:(E*COMMERCE(IN(HONG(KONG( INTRODUCTION That(is(the(opportunity(for(e"commerce(in(Hong(Kong.(Hong(Kong s(warehouses( have(some(great(products,(brought(in(by(small(to(mid"sized(importers(and( distributors,(who(just(cannot(find(retail(shelf(space.(hong(kong s(consumers( need(a(lot(more(than(is(served(by(the(current(set(of(retailers,(and(the(internet( can(now(bridge(that(gap. ( Nishant(Kapoor,(CEO(and(founder(of(PetProject.HK,(LifeProject.HK(and( Toddler.HK( The(e*commerce(market(in(Hong(Kongisquitesmall(compared(to(the(e*commerce( markets(in(other(asian(pacific(countries(and(in(particular(china.themarketinhong KongseemstolagbehindwhenitcomestoeWcommerceanditssubset,mWcommerce 9.Hong Kongpeoplelovetoshop(in*store(and(can(buy(anything(24/7(in(the(in*store(stores. VerydifferentfromChina,wheree*commerceisconsideredalifestyle,inHongKongitis just(another(channel(to(buy(or(sell(products(on.hongkongisasmallmarketandew commercecompaniesbenefitfromservinglargepopulationsacrosswhichtheycanspread theircosts.itsimplyhasnotmadesenseformanyewcommercecompaniestotargethong Kongwhentheycanfirstfocusonitslargerneighbours. HoweverHongKongshouldnotcompletelybeneglectedasaninterestingmarketforeW commerce. At63percentHongKonghasthehighest(smartphone(usage(penetration(rate(in(the( world(bpostinternational,2014).astudybygoogleandipsosmediact,conductedin 2013,alsoshowedthat96percentofHongKongsmartphoneuserssurf(the(internet(daily (MarketingInteractive,2014).Additionally,theWi*Fi*penetration(inHongKongis(among( the(highest(ones(in(the(world.inapril2014,therewere20.820privatewiwfiw connections.injune2014,hongkongcounted10.000freepublicwiwfiwhotspots,spread over5.400places(bpostinternational,2014). Howeverthingsarechanging,slowlybutsurely,HongKong sewcommerceandmwcommerce marketsarestartingtodevelop.researchofthehongkongmarketbypaypalshowsew commercein2011countedforusd1.92billionandgrewtousd2.02billionin2012. PayPalforecastsitwillreachUSD3.49billionin2015(MarketingInteractive,2014). 9 Thedeliveryofelectroniccommercecapabilitiesdirectlyintotheconsumer shand,anywhere,viawireless technology 29

Thistendencycanbeexplainedthroughseveralfactors: Thecostsofimplementingane*commerce(business(fall:moreeWcommerce platformsinhongkongimplymoreopportunitiestoshoponline Distribution(and(storage(spaceare(expensive:rentingstoragespacesinHong Kongisextremelyexpensive.Itisthusmoreinterestingforretailerstooffertheir merchandiseonline People(are(busy,(so(no(time(to(shop(in*store:itismoreconvenienttoshope.g. groceriesonline,whichwillbedeliveredonceyougethomeandarereadytocook; Click(and(collect(services(are(popular( Retailersembracetheconceptofomni*channel(retailingwheretheinWstore experienceisextendedtowebandonline InallHongKongisnotthatbadofaneWcommercemarketforcompaniestoselltheir productson.hongkongisanideal(test(market(before(entering(the(chinese(e* commerce(market. AnotheradvantageisthattheHongKongconsumersareverypicky,sooncetheylikeyour productthechinesewillprobablydosotoo.forhongkong,shoppingisanationalpast timeandconsumersareusedtoconvenience.thefactthatconsumershavesuchhigh expectationsperhapsexplainsthedifficulty(in(providing(e*shoppers(with(total( satisfaction.infact,only38percentofhongkongshoppersaresatisfiedbytheirew commerceexperience,incontrastto83percentofamericansand78percentofeuropeans. ThetypicalHong(Kong(e*shopperisrelativelyyoung(between(25*34(years(old).Online HongKongpeopleareoftenlooking(for(good(deals.Thethreemostvisitedsites (accordingtomastercard)are: 1. Sites(with(good(deals( 2. Cinema/theatre(sites( 3. Restaurant/food(delivery(sites( Owingtothehousingconfiguration(littlestoragespaceforfoodandsmallkitchens)and localcustoms,thefood(sector(is(highly(regarded(by(consumers.acompanythatforesaw thistrendissecretingredient. SecretIngredientisaHongKongeWcommerceplatformthatoffershomedeliveredreadyWtoW cookmealswitharecipeandalltheingredients(prewchopped).itiscomparabletothe DutchinitiativeHelloFresh.Onthewebsiteyoucanorderanicelookingdish,placeyour orderandsecretingredientintheirturn,takesonthehassleofshopping,choppingand preppingamealwhichtheywilldeliverrightatyourdoorstep.secretingredientisan excellentexampleofasuccessfulewcommerceplatforminhongkong.theystudiedthe marketwellandfoundagapinthemarket,namelyhomedeliveryofreadywtowcook 30

restaurantworthymeals.asthemostvisitedewcommercewebsitesinhongkongare websiteswithgooddeals,cinema/theatresitesandrestaurant/fooddeliverywebsites,itis bestforcompaniestocomeupwithbusinessideasthatfitwithintheseewcommerce websites. TheillustrationshowsscreenshotofSecretIngredient swebsite. Source:SecretIngredient,2015 31

CHAPTER(3:(E*GROCERY(IN(CHINA( INTRODUCTION China(has(become(the(perfect(market(for(launching(online(supermarkets(with(foreign( new(products. (( Sam(Mulligan,(director(of(Data(Driven(Marketing(Asia((DDMA)( AsChina sewcommercemarketisbooming,soisitsewgrocerymarket 10.Online(shoppingis attractive(to(chinese(consumers.gettinggroceriesdeliveredwithouthavingtoleavethe houseisespeciallyappealingtobusymiddlewclassfamilies(mainlyinthefirsttiercities). Asthequoteabovestates,China s(e*grocery(is(particularly(interesting(for(foreign(new( products.forchineseshoppers,foreign(labels(guarantee(quality.thistendencyisdueto theconstant(stream(of(food(safety(scandalsoverthelastcoupleofyears(moreaboutthis subjectinthenextsection).thechineseareparticularly(interested(in(buying(products( from(the(us(and(europe.howeverthechinesearenotonlylookingforsafeproducts,as thelivingstandardsimprove,nutritional(valuealso(becomesan(important(factorduring ewgroceryshopping. TheChineseprefertobuymoreexpensivefoodandbeverageproducts(aslongastheir budgetallowsit)astheyassumetheproductwillbefresherandsafer.e.g.chinese consumersbelievethatdevondale(apremiumwpricedimportedmilkbrandfromaustralia) mustbefresherandmorenutritiousthancheaperbrandsstockednearby. SECTORYANALYSES:(FOREIGN)FOODANDBEVERAGES TherapidlygrowingChineseeWgrocerymarketisdrivenbythefollowingfactors: More(and(more(people(shopping(online:300millionChinesepeoplebuyingonline Domestic(food(scandals:severalfoodsafetyscandals,e.g.themelaminemilkscare, havetosomeextentunderminedtrustinchineseproductionprocesses.thosewho canaffordtodosowillcontinuetoshowpreferenceforimportedbrands. 10 AplatformwhereeWconsumerscanbuytheirgroceriesonline 32

Source:TheGuardian,2013 Price(advantage:apriceadvantageisreceivedascomparedtotraditionalimportW orientedfoodretailerssuchastesco,metro,carrefour,etc.thepriceadvantageis mainlyduetoonlineretailer sabilitytostreamlinetheirsupplychainandreduce overheadcost,allowingthemtoofferbetterpricestotheendconsumer. Counterfeit:overseasgoodsaremuchlesslikelytobecounterfeited,asignificant bonusinacountrywherefakegoods(includingfakefoodsandbeveragessuchas eggs,meat,etc.)aresocommon. Thesemarketfactorsoffermanyopportunitiesforforeignfoodproducersaimingtoexpand theirbusinessinchina.opportunities(exist(forforeignenterprisesinthefoodand beverageindustry,especiallythosein(dairy(products,(snack(foods(andalcoholic( beverages,(with(special(attention(given(to(the(rapidly(developing(second(and(third* Tier(cities(AsiaPerspective,2014). TheillustrationshowsoneofAlibaba ssuccessstoriesontmallglobalofausfarmerwho soldhisproductstochinaintwoweekswhichwasequivalentto9years worthofcherries soldatamediumwsizesupermarket. 33

Source:TmallGlobal,2015 FACTSANDFIGURES PleasenotethatthesefactsandfiguresarederivedfromastudyconductedbyiiMedia ResearchinSeptember2014. TotaltransactionvalueeWgrocerymarketChina:USD$13.85 Amountofonlinefoodorderingusers:158million(47 percentincreasecomparedto2013) 20.1percentofChinainternetusershaveusedonlinefood orderingservices 31.1percentorderedonPConly,27.80percentorderedon mobiledeviceonlyand41.10percentorderedonpcand mobiledevice Mobilewillbethekeychannelinonlinefoodordering market Mostimportantfactorswhenbuyingfoodonline:food hygiene,qlavor,deliverytime,wordofmounthandprice 34

EVOLUTIONANDFORECAST China sewgrocerymarketiscommonlyknown(to(appear(in(2012,(but(already(existed(in( 2005. YiguowasthefirstfreshfoodeWretailertoappearinChinafollowedbyFieldsChinain2009. Later,cameTootooandYoocaiin2010withonlinefreshfoodsupermarkets.In2011, TaobaoandWomaiaffiliatedwithCOFCO,andopeneditsfirstfreshfoodchannel.In2012, freshfoodchannelsappearedinsfbest,benlai,jingdongandtmall.in2013,yihaodianand Suningalsostartedafreshfoodandbeveragebusiness.ChinaEasternAirlinesrolledout Eaemall. TheChineseeWgrocerymarketwillkeepgrowinginthefollowingyears.Therearealready 3000eWcommerceplatformsprovidingtheserviceofonlinegroceryshopping.The competitionamongthemisreallybiganditseemstherewillnotbethatmuchmore opportunitiesfornewcompetitorstoenterthismarket. CHARACTERISTICSOFCHINA SEWGROCERYMARKET PRODUCTCHARACTERISTICS Product(characteristics: Small(peasant(economy 11 :scatteredproduction Product(properties:highwastageofproducts Lack(of(industry(standards:fewregulationsonfoodandbeverageproducts,e.g. fakemeat,eggs,etc.theillustrationshowsafakechickeneggmadeinchina.the mainingredientsoftheseeggsarecoagulants,starch,andresin.theshell,onthe otherhand,iscomposedofwax,calciumcarbonate,andgypsumpowder. Accordingtoreports,theconsumptionofthesefakeeggscanleadtomemory loss. Source:TheDailyPedia,2014 11 Aneconomybasedonagriculture,whichisproducedbyfamilyunits. 35

LOGISTICSCHARACTERISTICS Logistics(characteristics: Fresh(keeping(of(food:coldchain 12 isneededtokeepfreshandfrozenfood, freshuntildeliveredathome Reduction(of(food:coldchain Reduction(of(wastage:coldchain Large(input(and(long(construction(period(of(logistics(system:smallcoverage, notallareasarecoveredespeciallyinruralareastherearealmostnodelivery options MARKETINGCHARACTERISTICS Marketing(characteristics: High(price(&(intensive(marketing:onlyforupscalefreshfoodandbeverage brands:marketwskimmingstrategye.g.imported,expensivefoodandbeverage productsareconsideredtobesafer Enhancement(of(brand(awareness:mainlybrandads(foreign)brandsare importantforchineseconsumers CONSUMERCHARACTERISTICS Consumer(characteristics: Different(communities(in(different(cities:differentTiercitiesimplydifferent consumerbehaviours,e.g.middlewclassconsumersinshanghaiarelessprice consciousthaninruralareas Mainly(distributed(in(off(hours:concentratedontime Middle(&(high(end(consumers:consumersfromTier1andTier2citiesmainly buyforeignfoodandbeverageproductsmoredisposableincometospend 12 AtemperatureWcontrolledsupplychain 36

TYPESOFCHINAGROCERYEWRETAILERSANDTHEIRCHARACTERISTICS ThreedifferenttypesofChinagroceryeWretailersandtheircharacteristicscanbedescribed: 1. Vertical(B2C(grocery(e*retailers VerticalB2Cfreshfoodretailersholdmuch(strength(in(capital(and(cold(chain,but theyarecomparatively(weak(in(control(of(suppliers.theirsatisfactory distributionservicehelpstoconsolidatetheirstatus: Limited(product(varieties:smallerofferduetonopossibilityofperfect substitution,e.g.traditionalvegetablemarketbecauseoftheirmaker positioninganddistributionservice Less(traffic(and(userscomparedtoe.g.TmallorJingdong High(price(and(good(quality,(high(end(consumers:highrequirementsof middleandhighendconsumersonproducts Well*capitalized( Vulnerable(in(logistics(but(with(local(advantage:dependentonalogistics partner Some(cooperation(with(offline(stores:cooperationwithofflinestoresis helpfultodistributeflexiblyandenhanceuserstickiness e.g.benlai,sfbest, 2. Grocery(retailers(on(e*commerce(platforms(( Theseretailersaremoreadvantageousinplatform,aslarge(B2C(platforms(have( stickier(users(and(wider(geographical(coverage.however,restrained(bytheir cold(chain(distribution(system,(distribution(coverage(and(efficiencyhaveyetto beimproved: Some(user(base:largeeWcommerceplatformse.g.Tmallholduserbaseand userloyaltywhicharewithoutparallel Middle(and(high(end(market( Complete(logistics(but(no(cold(chain(system( Powerful(strength(and(channel(of(parent(company( One*stop(shopping(in(one(online(shop( e.g.:tmall,jingdong, 37

3. Integrative(B2C(grocery(e*retailers(( ComparingwithverticalfreshfoodeWretailers,integrativeB2CfreshfoodeWretailers havealarger(consumer(base,(butthe(user(stickiness(is(determined(by(their service(quality(and(distribution(speed: Large(traffic(and(user(base:largeamountsofstablecustomers,manyof whicharepotentialconsumersoffreshfood Fewer(stores:offlinestoresaremainlyinlargecities Some(attempt(of(advance(sale(for(reduction(of(wastage(( Abundant(capital( Complete(and(effective(logistics(but(no(cold(chain(system:selfWowned coldchainanddistributionsystem e.g.:womai,yihaodian, KEYPLAYERSINB2CEWGROCERY InChina,morethan3,000websitesofferonlinegroceryshopping.Therearetwomain reasonswhythereissomuch(competition(among(e*grocery(retailers: 1. Huge(GMV 13 2. Low(market(penetration( 13 GrossMerchandiseValue 38

Key(players(in(B2C(e*grocery(and(their(company( Key(player( Offer( ( Sellsabout20,000productsinfoodandbeverages, cookingingredients,cosmetics,homefurnishings, householdcleaningitemsandchildren s products.these productsaresoldinonestorefrontonly. ( Sellsabout5,000typesofgroceries,packagedfoods, beverages,andsnacks. ( China slargestfoodwonlyspecialistewstorethatsells everythingfromdisposablediaperstodigitalcamerasto laundrydetergent. Safeandfreshvegetables,fruitsandvegetables.Large importedassortmentofhighwqualityproducts. ( ( Organic,naturalandhighWqualityfoods. ( Wideselectionofimportedfruits,vegetablesandmeat. Alsostrongfocusonhealthyfoods. ( Sellsproductssuchassnacks,importedfoodstuff,oils& grains,preparedproducts,biscuits,cakes,rawfoodstuff, infantfood,fruitjuice,wine,tea,seasonings,instant foodstuff,breakfast,kitchensupplies,etc. ( GlobalhighWendqualityfood,includingfreshproduce, maternal&infantfood,drinks&beverage,nutrition& healthcare,snacks,biscuits,staple/nonwstaplefood, reconstituteddrinks,andotherfoodsupplies. ( Sellsgoodsthatrangefromlocallygrownorganic vegetablestoimportedbabymilkpowderfromamerica andsalmonfromnorway. 39

( Mainlyimportedfoods ( Freshandgourmetfoods,suchasseasonalfruit,fresh seafood,eggs,meat,dairyproducts,etc. AnexampleofatypicalonlineB2Cgrocer,isFieldsChina.FieldsChinawasestablishedin 2009inresponsetofoodsafetyscaresinChina.FieldsChinaisallaboutsourcingthesafest andfreshestfruits,vegetablesandmeats.chinafieldssellshighwqualityimportedproducts. Theyworkcloselywiththeirfarmersandsuppliersimplyingthefreshestfoods.Fields Chinaperformsregularsafetytests,continuallycheckfarmsandproducetoensurethe higheststandersarealwaysmet. FieldsChinadistributestoallplacesreachableforSFExpress(theirlogisticspartner)for commoditiesneedingnorefrigeration(11citiesinchina).theydifferentiatethemselves fromtheircompetitionbyquickdeliverywithawidegeographicalcoverage.theirfood qualityisreallyhighandsatisfiesthedemandofhighwendconsumerslivingintier1and Tier2cities.IntheillustrationbelowascreenshotoftheonlinegrocerystoreFieldsChina. Onthewebsiteyoucanselectimportedfoodandbeverageproducts.TheBelgian ConferencepearsarealsosoldonFieldsChina. Source:FieldsChina,2015 40

TRENDSINEWGROCERY TrendshavebeenselectedfromacomparisonmadebetweenthemainkeyplayersinB2C inewgrocery.onallwebsites5similartrendscameforwardmakingitsafetosaytheseare themaintrendsinchina sewgrocerymarket. TREND1:HEALTHANDWELLNESS Asliving(standards(improve,consumersareincreasinglyconcernedwithliving(healthy,( high*quality(lifestyles.thistrendisyetagainsupportedbythefoodsafetyconcernsand pastfoodscandals.thistrendoccursalsoinwesterncountries.peoplearegettingmore andmoreconcernedaboutnutritiousandhealthieringredients.thereisagrowing( demand(for(organic(food(among(the(middle*income(consumers.china sonlinegrocer willofferamore(diversified(product(offer(notjustthefancyones)andmore(quality( certifications(e.g.organicfoodcertification,origincertification,etc.)arealsoappearing. IntheillustrationbelowisascreenshotofthehomepageofFieldsChinathatalsoputs forwardthetrendofhealthyeatinginitsmarketingcommunications. Source:FieldsChina2015 TREND2:FRESHFOODS Withastrongdemandforfreshproductsamongconsumers,hypermarketshavebeen changinghowtheysourcefreshfoods,andareincreasingly(sourcing(directly(from( farmers.older(chinese(consumers(howeverstillprefertobuy(onthetypical(wet( markets. 41

TREND3:PRIVATELABELPRODUCTS DespitebeingpriceWsensitive,Chineseconsumerswanttobuyhigh*end(brands((especially topwqualityforeignbrands)asitboosts(online(status(hencetheimportanceof having face 14 inchina).highwend,importedfoodbrandsareused(both(for(personal( consumption(as(for(gift(giving. TREND5:MOBILESHOPPINGFORGROCERIES JustasinregulareWcommerce,mobile(devicesplayaprominentrolewhenshopping( groceries(online.toexplainthistrendbettertwoexamplescasesareillustrated.inthe illustrationbelowanadvertisementonfields Chinawebsitetodownloadtheirappand shoponlineviaamobiledevice.customersbuyingthroughthisappreceivea5percent discounteverythursdayinmay. Source:FieldsChina,2015 AnotherexampleofthemobileintegrationintoeWgroceryisthepublicitycampaignof YihaodianandOgilvyAsia.YihuaodianandOgilvyAsiaopened1,0003Dsupermarket storesonthedoorstepsofthecompetitionandatchina smosticoniclandmarks.thestores werenotrealbrick&mortarstores. Consumerscouldonlysee,visitandshopinthesestoresbyusingtheYihaodianVirtual StoreAppwhilebeingphysicallyatoneofthe1,000locations.Eachofthesestoreswere packedwithpromotionaldiscountcouponsandhighwvalue,freegiftvouchersthatwere waitingtobeclaimedbyshoppers.theillustrationshowstheyihaodianvirtualstoreapp. 14 Ametaphorforaperson sreputationamongsttheirpeersametaphorforaperson sreputationamongst theirpeers. 42

Source:WPP,2012 EWGROCERYMARKETING Marketingstrategiesforforeignfoodandbeveragebrandsshouldbekeptsimple,however atleastrespectingthefollowingrules: 1. Slogan:(focus(on(taste;e.gsloganofFerreroRocheris Meltinmouth,lasting flavour 2. Brand:brandtheproductasaforeign,authenticproductwitharichheritage.This willgivetheproductthe(added(extra(valuechineseconsumersarelookingfor. Foreignimportedfoodandbeverages,especiallyalcohol,biscuits,chocolatesare oftenusedforgiftssobrandsareimportant 3. Website(in(Chinese:withawebsiteinChinese,thebrandcanincreaseits popularity,influenceconsumersbycontentanddesignandcreateacompanyimage. TheillustrationbelowshowsascreenshotofGodiva schinesewebsite. Source:Godiva,2015 43

4. SNS 15 (promotion:promotethebrandthroughsocialnetworkingservice.itisan importantsourceforchineseconsumerstogetinformationaboutthebrand.apage onasocialmediaservicecanhelpthecompanygettingfeedbackaboutthetaste, brandandprice.brandscanbuildcommunities,reachtargetgroupbetterandcreate amorefriendlycompanyimage.thescreenshotbelowshowstoblerone saccount onweibo. Source:Weibo,2015 CASELOTUSBAKERIES Keep(it([e"grocery(marketing](simple;(no(complicated(messages(in(marketing( communication.(treat(it(the(same(as(offline(marketing(communication.(e"commerce(is( just(another(channel(to(buy(like(hypermarkets,(supermarkets,(restaurants,(bars,(etc.(be( consistent(and(adapt(only(to(reach(the(consumer/shopper(better(and(more(impactful. ( Ronald(Drieduite,(Asia(Sales(Manager(Lotus(Bakeries( LotusBakeriesandthelocalsupermarketchainGoodwellChinacreatedLotusBakeries China(LBCN)in2013.BeforethatLotusBakerieswasalreadypresentintheChinese marketbutworkingwithalocalimporter.oneoftheadvantagesofworkingwithalocal teaminshanghaiisthatlotusbakeriescanobservechineseconsumerbehavioursupclose andadaptitsmarketingstrategytotheneedsofthechineseconsumerimmediately. LBCNissellingtheoriginalcaramelizedbiscuitsbothofflineandonlineontheChinese market.fortheonlinesales,lotusbakeriesoperatesamixedmodel(b2bandb2c). LotusBakeriesdoesallitsbusinessdirectwith1haodian(thelargesteWretailerinChina). ThismeansLotusBakeriesmakesthedeals,determinestheassortment,promotionsandso 15 SocialNetworkingService. 44

on.lotusbakerieschina(lbcn)andaselecteddistributormanagejointlytheotherew retailers.inthiscaselotusbakeriessetstheassortmentandthepromotionalcalendar.the distributorisresponsibleforthedeal(conditions),thedeliveryandtheinvoicingoftheew retailers. LBCNalsooperatesa(B2C)LotusFlagshipStoreonTWMallincoWoperationwitha distributor.inthissituationlotusbakeriesisresponsibleforthemarketing,lookandfeelof thestore,theassortmentandthepromotions.thedistributortakestheordersandcollects thepayments. LotusBakeriesChinaiscurrentlyonlysellingthecaramelizedbiscuits.UnlikeinEuropeand theusa,itdoesnotofferthecaramelizedspreadorotherproductderivativesfromthe caramelizedbiscuit.theproductrangeiskepttoaminimum.beforeenteringthechinese market,lotusbakeriesadaptedtheproducttothechinesemarketplace.thepackaging, labellingandthenameoftheproductarealldifferent.inchinalotusoriginalspeculoosis soldaslotusbiscoff(andbeforelotustheoriginalcaramelizedbiscuit). AsquotedbyMr.Drieduite,AsiaSalesManagerofLotusBakeries,the(best(way(to(market( a(product(in(china(is(to(keep(marketing(communications(simple.offlineandonline marketingcommunicationsshouldbehomogeneousandconsistent. TheillustrationshowsLotus flagshipstoreontmallispictured. Source:Tmall,2015 InChina,eWgroceryisanimportantpartofdailylife.Chineseconsumersaredesiroustotry newproductsandtheonlineplatformshavebecomethebestwaytodoit.theydonotneed muchconvincing,andarewillingtotryandbuynewandforeignproducts. 45

However,onewaytosurelyattractChineseconsumersistooffer(promotions(for( productse.g.discounts.lbcnofferedaspeciallargevaluepackforsingle sdaylastyear. LNCNpromotedthisonthevariouseWcommercewebsitesaswellasattheirownBW2WC onlineflagshipstore.itispromotionsanddiscountslikethatappealtothechinese consumers. 46

CHAPTER(4:(THE(ROLE(OF(HONG(KONG(IN(CHINA S(E*GROCERY(( For(online(transactions(of(food(and(beverage(products,(all(Chinese(quarantine(and( customs(requirements(still(apply.(online(transactions(are(usually(most(popular(among( companies(with(products(already(in(the(chinese(market((i.e.(available(in(china)(and(are( dispatched(from(a(chinese(warehouse(to(the(buyer. (( New(Zeeland(Trade(and(Enterprise( Asthequoteabovestates,all(foreign(food(and(beverage(products(sold(online(should(still( fulfil(all(chinese(quarantine(and(customs(requirements.thisimpliesthatall(belgian(food( and(beverage(companies(can(only(enter(the(chinese(e*grocery(market(with(their( products(if(registered(and(approved(beforehand(by(the(china(food(and(drug( Administration 16.Theprocessofregistrationandapprovalforfoodandbeveragecompanies thatneedaprotocol,canbequiteintricateandmustmeettheprovisionsofthefoodsafetylaw ofchina. Belgianfoodandbeverageproductsaredividedintofourdifferentgroupsof importability dependingontheirnature. Inthetablebelowallfoodandbeverageproductsandtheir importability arelistedintothe followinggroups: 1) Belgianfoodandbeverageproductsthatdon tneedaprotocol 2) Belgianfoodandbeverageproductsthatdon tneedaprotocol,butneedaspeciallicense orexportcertificate 3) Belgianfoodandbeverageproductsthatneedaprotocolandneedtohaveaspecial licenseorexportcertificate 4) Belgianfoodandbeverageproductsthatneedaprotocolandneedtostayinquarantine 16 TheChineseagencyforregulatingfood,drugsandmedicaldevices. 47

Importability (of(belgian(food(and(beverage(products(into(china Does(not(need(a( protocol( Does(not(need(a( protocol,(but(has(a( special(license(or(export( certificate( Needs(a(protocol( and(a(special( license(or(export( certificate( Needs(a(protocol(and( needs(to(stay(in( quarantine( ( Wineandbeer Liquor,milkpowder Fruits&vegetables (exceptconference pears) Livestock(except pigeonsandhorses) Oliveoil Beef Coffee&tea Poultry Sweets,e.g.biscuits Heattreatedmeat Oatmeal/cereals Seafood Conferencepears Dairies Pigeonsandhorses (livestock) Petfood Porkmeat Source:BestPracticesforEUSMEsinChina sfood&beverageindustry,2013 ProductthatcanenterChina sewgrocerymarket Morecomplicatedforproductsthatneedaprotocolorthatarenotallowedtoenter China 17 17 Seeattachment1:BelgianproductswithprotocolandnotallowedBelgianproducts. 48

Belgianfoodandbeverageproductsfromthefirsttwocolumnsaresuitable(to(enter(China s( e*grocery(market(as(long(as(they(are(registered(with(aqsiq,(have(the(necessary(health( certificate(from(favv,(have(the(right(labelling,(and(are(conform(to(chinese(norms(&( standards 18. Belgianfoodandbeverageproductsfromthelasttwocolumnsarelesssuitableto enterthechineseewgrocerymarket.although,theseproductsarelesssuitabletoenterthe ChineseeWgrocerymarket,therearestillafewalternativesfortheseproductstoenjoythe opportunitiesofchina sewgrocerymarket. Oneofthealternatives(is(to(enter(this(market(through(Hong(Kong.HongKongisanideal placetoinvest,totradeortodobusinessandactsasthenaturalgatewayfortradeand investmenttothevastmarketinmainlandchina. HongKongisafreeportwithalmostnocustomtariffs 19 onexportsandimportsandnoimport quotas.thismeansthatallbelgianfoodandbeveragecompaniescaneasilyimporttheir productstohongkong.theonlybasicrequirementisthatnofoodintendedforsaleshouldbe unfitforhumanconsumption. HongKongisrecognizedbybusinesspeopleworldwidetobethebestserviceplatformthrough whichinwardinvestorscanobtainthebenefitsofhavingacloser(economic(partnership( Arrangement(CEPA) 20 withchina. CLOSERECONOMICPARTNERSHIPARRANGEMENT CEPAopensuphugemarketsforHongKonggoodsandservices,greatlyenhancingthealready closeeconomiccooperationandintegrationbetweenthemainlandandhongkong.inbrief,the( Mainland(has(applied(zero(import(tariffs(for(exports(from(Hong(Kong(meeting(CEPA( origin(rules(for(goods(and(preferential(market(access(for(hong(kong(companies(in( various(sectors(to(facilitate(trade(in(services.(flandersinvestmentandtradebeijing,2014) SomeHongKongfoodandbeverageproducts 21 canenterchinawithoutpayingimporttariffs. ConsignmentsclaimingforCEPAzerotariffpreferencemustbesupportedbyaCertificateof HongKongOriginWCO(CEPA)issuedbytheTradeandIndustryDepartment(TID)oroneofthe GovernmentApprovedCertificationOrganizations(GACOs).(FlandersInvestmentandTrade Beijing,2014) Goods(manufactured(in(Hong(Kong(must(satisfy(their(corresponding(CEPA(Rules(of( Origin,inordertoclaimforHongKongoriginandenjoythezerotariffpreferenceunderCEPA. ForclaimingzerotariffpreferenceunderCEPA,goodsmustbetransporteddirectlytothe MainlandfromHongKong.AnypersonswhosegoodsenterorleaveHongKong,arerequiredto 18 ContactFlandersInvestment&TradeBeijingforfurtherexplanationsonregistrationoffood&drink exportersandlabelsofinspection. 19 Exceptforstrongliquor. 20 AfreetradeagreementconcludedbytheMainlandofChinaandHongKong. 21 Seeattachment2:listoffoodandbeverageproductswithouttariffsfromHongKongtoChina. 49

50 lodgeaccurateandcompleteimport/exportdeclarationswithin14daysafterthe importation/exportationofthearticle.(flandersinvestmentandtradebeijing,2014) EventhoughthisfreetradeagreementisoriginallymeantforHongKongproductsonly(Hong Kongorigin).Belgian(food(and(beverage(companies(could(also(benefit(from(the(CEPA agreement.thecepaagreementstatesthatallproductsenteringchinashouldhavea CertificateofHongKongOriginorinotherwordsshouldhaveacertainHongKongproduct codeinordertoenterchina.(flandersinvestmentandtradebeijing,2014) BelgianfoodandbeverageproductscouldenterHongKong(withnoimporttariffsorimport quota)andchangetheproduct(codeinordertobecomeahongkongproductandbenefitthe CEPAagreement.However,changingthisproductcodeisnotasimpleprocess.Simply, repackingabelgianproductinhongkong,willnotbesufficienttomakeitahongkong product.ifthiswouldbethecase,foreignfoodandbeveragecompanieswouldalreadydoso. OntopofthefactthattheproductmusthaveaHongKongproductcode,themanufacturers( should(also(clearly(state(the(principal(manufacturing(processesperformedinthefield "PrincipalProcess(es)donebyManufacturerandOutworkerinHK".Where"ChangeinTariff Heading"and/or"ValueWaddedcontentrequirement"istheorigincriterionoftheconcerned products,itshouldbestatedthatway. However,thismightseemasolutionforafewBelgianfoodandbeverageproducts,itwillnotbe acomplete(solutionfor(products(which(are(not(under(the(cepa(zero(tariff(preference (FlandersInvestmentandTradeBeijing,2014) 22.Theseproductshavetopaytariffswhen transportingfromhongkongtochina.thesetariffsareinsomecasesstilllowerthanifbelgian companieswoulddirectlyimporttochina. Nonetheless,theChinesegovernmentturnsablindeyeincertainperiods(e.g.whenthereisa highneedforporkmeat)andallowshongkong(orforeignproductsinhongkong)toenter Chinawithouthavingtopayimporttariffs. Thisisnotastablealternativethoughandotheralternativessuchasworkingwithlocal importers/partnersorpresentingyourpersonalcasetoewcommercewebsitessuchastmall canhelpfindamoredurableandsustainablesolution.enteringthechineseewgrocerymarketis intheory althoughthemanyrestrictionsandregulationswneverimpossible.inthenext chapter,thereisanoverviewofalltheroutesthatbelgianfoodandbeveragecompaniescan taketoenterchina sewgrocerymarket. 22 Seeattachment3:listoffoodandbeverageproductswithtariffsfromHongKongtoChina.

CHAPTER(5:(ACTION(PLAN(AND(RECOMMENDATIONS(( InthefinalpartofthisbachelorthesisIwillpresentmypersonalrecommendationsthrough anactionplanforbelgianfoodandbeveragecompanies.inthepreviouschapters,i sketchedanoverviewofthechineseandhongkongewcommercemarket,thechineseew grocerymarketandtheroleofhongkonginthechineseewgrocerymarket.thesechapters answeredthe what and why ofthemarketinquestion. Thisfinalpartwillanswerthe how ofchina sewcommercemarket.howcanbelgianfood and beverage companies enter this market packed with opportunities and challenges? During my deskwresearch and meetings with experts in the field, three( main( routes ( to( enter(china s(e*grocery(market(came(forward. These three routes are by( far( all*inclusive. The Chinese ewgrocery market is an intricate market for foreign food and beverage companies. Additionally, there will always( be another( option( or( backdoor( to( enter( this( market. Personal( relationships with importers,distributors,agents,officialsandclientsareextremely(importantinchinaand can help to overcome certain hurdles (e.g. foreign food and beverage products that officially cannotenterchina).businessinchina relies heavily on personal contacts and influence(guanxi)andsometimestheyaremoreimportantthanrulesandpolicies. TheillustrationonthenextpagesummarizesChina sewgrocerymarketforbelgianfoodand beveragecompanies. The1 st ( routetakesbelgianfoodandbeveragecompaniesstraight( to( China s( e*grocery( market.thisrouteisinterestingforbelgiancompaniesthatwanttosellfoodandbeverage products that are allowed to enter China, e.g. biscuits. This route has several side routes (options):thebelgiancompanycanworkwithanewtailer 23,distributor,manageitsowneW commercewebsiteonlinestoreoroperateamixedmodel. The2 nd ( routetakesbelgianfoodandbeveragecompaniestochina s( e*grocery( market( via(worldwide(cross*border(e*commerce(platforms.tmallglobalistakenasanexample case to present the opportunities of working with a worldwide crosswborderewcommerce platform.tmallglobalisespeciallyinterestingforbelgiancompaniesthatknowlittleofthe Chinese ewgrocery market. There are many advantages such as no need for a Chinese businesslicense,hugetrafficandguidanceandsupportbytmallagencypartnersthatmake it very easy for Belgian food and beverage companies to enter the Chinese ewgrocery market. The3 rd (routewandinmyopinionmostcomplicatedroutewtakesbelgianfoodandbeverage companies to China s( e*grocery( market( via( Hong( Kong. It is the route to be taken by 23 Astoreorindividualwhodoesbusinessonlyorprimarilyontheinternete.g.Amazon 51

Belgian food and beverage companies that wish to sell food and beverage products not allowed to be imported directly in China. I strongly recommend only Belgian food and beveragecompanieswithalreadyapresenceandcontactsinhongkongandchinatofollow this route for exploring the ewgrocery opportunities in China. This route has also several sideroutesandcountlesssideoptions:thebelgiancompanycanworkviacepa,workwith alocalimporter,distributor,etc. 52

EWcommerceinChina Chinesemarket EWgroceryinChina Route1 Interestingforthefollowing products: Route2 Interestingforthefollowingproductsthat haveaminimumturnoverandarewellw knownbrands: Wine Beer Oliveoil Coffeeandtea Sweets Oatmealandcereals AdvantagescrossWbordereWcommerce platform(e.g.tmallglobal): OverseascompanieswithoutChina businesslicensescansellviatmall Global Orderscanbefulfilledandshipped fromoutsidechina Customerpaymentsaresettledin thepreferrednativecurrency Marketing:countryoforigin W Oatmealandcereals Route3 CEPA% Interestingforproductsthatcannot beimportedintochinai.e.fish,meat, fruitsandvegetables,etc.(products thatneedaprotocol) Theseproductswillneedanew productcodesotheyareconsidered HongKongproducts. AdvantagesCEPA: ROUTE2: Sellonlinedirectlyto ChinaviacrossW borderewcommerce platform Notallfoodandbeverage productscanenterdueto customregulations Wine Beer Oliveoil Coffeeandtea Sweets DisadvantagescrossWbordereWcommerce platform: ROUTE1:Sell onlinedirectly tochina ROUTE3:viaHong Kong:CEPAorwork withlocalimporters andpartners DisadvantagesCEPA: Belgianfoodandbeverages Offersasolutionto somefoodand beveragecompanies thatusuallycannot enterchina s(ew grocery)market Belgianmarket Marketingwisenot possibletomarketas abelgianproduct becauseithasbecome ahongkongproduct Mainprocedure shouldbedonein HongKongviaa processingcompany Moreexpensive Local%importer/partner% Therightlocalimporter/partnercan helpenteringthechineseewgrocery eveniftheproductisnotallowedto enterchina. 53

ROUTE1:SELLONLINEDIRECTLYTOCHINA We(operate(a(mixed(model.(We(do(all(business(direct(with(1haodian(the( largest(e"retailer(in(china.(this(means(we(make(the(deals,(determine(the( assortment,(promotions(and(so(on.(other(e"retailers(are(jointly(managed( by(lotus(bakeries(china((lbcn)(together(with(a(selected(distributor.(in(this( case(we(set(the(assortment(and(the(promotional(calendar(and(the( distributor(is(responsible(for(the(deal((conditions),(the(delivery(and(the( invoicing(of(the(e"retailers.(we(also(operate(a((b2c)(lotus(flagship(store( on(t"mall(in(co"operation(with(a(distributor.(in(this(situation(we(are( responsible(for(the((marketing)(look(and(feel(of(the(store,(the(assortment( and(the(promotions(and(the(distributor(takes(the(orders(and(collects(the( payments. ( Ronald(Drieduite,(Asia(Sales(Manager(Lotus(Bakeries( Iwouldrecommendthe1stroutetoBelgianfoodandbeveragecompaniesfulfillingallof thefollowingrequirements: CompanysellingafoodorbeverageproductthatisallowedtoenterChinae.g. biscuits CompanyownsaChinesebusinesslicenseandtrademarkregistration CompanyworkswithalocalteaminChina(orHongKong)andhasextensive knowledgeaboutthechinesemarket Companyhasanetworkofdistributors,eWtailers,agenciesandotherpartnersthat canhelpduringtheewcommerceprocess TheserequirementsaretheabsoluteminimumrequirementsinordertoentertheChinese ewgrocerymarketstraightaway.iwouldrecommendthisroutestronglytobigger companies,e.g.lotusleonidasbutalsotosmallercompanieswithunknownbrandswith alreadyacompanypresenceinchinaorhongkong.ifthecompanyhasalreadyasuccessful presenceinchinaorhongkongmostlikelyitwillhavefulfilledallabovementioned requirementsanditisreadytoenterthechineseewgrocerymarket. ThereareseveralsideroutesthataBelgianfoodandbeveragecompanycantakeoritcan optforamixedmodel.thedifferentsideroutesoroptionsare: WorkingdirectlywithoneormoreeWtailers,e.g.Yihaodian Workingtogetherwithadistributorwhoinhis/herturnworkswithaneWtaileror manageshis/herownvirtualstorefront 54

AsMr.Drieduite,AsiaSalesManagerofLotusBakeriesstatesinthequoteabove,Lotus Bakeriesoperatesamixedmodel.Personally,IwouldrecommendBelgianfoodand beveragecompaniestodothesameregardlessoftheirsize.whenoperatingamixedmodel, companiesareabletoreachawiderpublicandareabletodivide,andthus,reducethe risks. ThedifferentstepsthatneedtobeundertakentogainpresenceintheeWcommercemarket are: 1. Settingupawebsite(withorwithoutanonlinestore):registrationIPaddress andawebdesignagencythatcanhelpwiththetechnicalsupport,lookand feel 2. Dependingonwhichsideroute(s)acompanywantstotake: Workdirectlywitha distributor Distributorsellstheproductsonhisownvirutal storefrontonanewcommercewebsite DistributorsellstheproductstotherighteWtailer Workdirectlywith anewtailer SelltheproductsstraighttoaneWtailer,whowill sellthegoodsonitsewcommercewebsite Openavirtual storefrontonew commercewebsite e.g.tmall Selltheproductsdirectlyonitsownvirtual storefrontonanewcommercewebsitewithor withoutthehelpofaspecialisedagency Regardless,thesideroute(s)thecompanywishestofollowallimplythatthecompanyhas alreadyatleastonedistributortheyworktogetherwith.e.g.abelgiancompanyalready workstogetherwithadistributorwhodistributesitsproductstowellcome 24.Wellcome hasnowalsoitsownonlinesupermarket,sothedistributorcandiscusswithwellcometo alsooffertheproductonline. Usually,theBelgiancompanyhashadalreadyafewyearsofpresenceintheofflineChinese marketandhasbeenworkingwithdistributors,beforeitenterstheewgrocerymarket. 24 Chinesesupermarketchain. 55

ROUTE2:SELLONLINEDIRECTLYTOCHINAVIAAWORLDWIDECROSSWBORDEREW COMMERCEPLATFORM BelgiancompaniescanenterChina sewgrocerymarketthroughworldwidecrosswborderew commerceplatforms.tmallglobalwasthefirstworldwidecrosswborderewcommerce platforminchina,launchedfebruary2014.recently(april2015)jingdonglaunchedajd Worldwide,asimilarconceptwhereinternationalbrandscanconnectwithChinese consumerseasily.toexplaintheconceptofcrosswborderewcommerceplatformsinchina further,tmallglobalistakenasanexamplecase. The(typical(Chinese(consumer(is(becoming(more(international(and(savvy( about(their(product(choices.(we(want(to(grow(with(them(and(at(the(same( time(help(global(brands(access(and(understand(this(business(opportunity. (( Maggie(Wu,(Head(of(Tmall(Global( TmallGlobalisaneWcommerceplatformthatprovidesastreamlinedchannelforWestern retailerstoselldirectlytochineseewconsumers. TmallGlobalisquiteuniqueasaneWcommerceconcept.TmallGlobalmadeanagreement withthechinesecustomstocleartheimporttaxes.therearenocustomstobepaidfor TmallGlobalaslongasyoustayintheamountsthataprivatepersonispermittedtotravel with. Currently,someofthemostsoughtWafterproductsamongChineseconsumersshoppingon TmallGlobalareinthefood,cosmetics,maternalproductsandsmallelectronicappliances categories(alizila,2014).thefactthatthechineselikemostlytobuyfoodontmallglobal confirmsthetrendofbuyingimportedfood. TmallGlobalisareallyinterestingrouteforBelgianfoodandbeveragecompaniesto consider,asitofferssomanyadvantagesanditisreallytheeasiestwaytoenterchina sew grocerymarkettherightway.istronglyrecommendthatbelgianfoodandbeverage companieswithfewornoknowledgefromthechinese(ewgrocery)marketconsiderthis route.tmallglobalanditsthirdpartyserviceproviders(tps) 25 canhelpfindtheright solutionforyourbusiness. TheadvantagesofsellingproductsthroughTmallGlobalare: OverseascompanieswithoutChinabusinesslicensesareeligibletoapplytoTmall Global:fasttracktoChina sretailmarketusinghomecountrybusinesslicenseand trademarkregistration Hugetraffic:accesstoover300millionannualactivebuyers 25 Seeattachment4:listofTPsofTmallGlobal 56

OrderscanbefulfilledandshippedfromoutsideofChina,andcustomerpayments aresettledinthepreferrednativecurrency(usd,eur,jpy,etc.):alipayoffersa crosswborderpaymentsolutioncollectinglocalcurrencydirectly OptionsforguidanceandsupportfromoneoftheTPsofTmallGlobal:TPscanhelp withtranslations,marketing,managingofthestore,etc. ChineseWlanguagemarketplacewhereforeigngoodsareonprominentdisplay:huge brandexposure MerchantshavetheadditionaloptionofofferingpaymentsthroughAlipay,China s largestewpaymentsprovider,givingthemaccesstohundredsofmillionsofchinese consumerswithalipayaccounts BrandscanpreWshiptheirproductstobondedwarehouses 26 inchina:advantagesof thebondedwarehousesarefastercustomsclearance,deliveriestoconsumersinless thanaweek,andinmanycaseslowercustomsdutiesandtaxes IntheillustrationbelowisthebusinessmodelofTmallGlobal. Source:TmallGlobal,2015 Therearehoweversomerequirementstobesatisfiedbeforeopeningavirtualstorefronton TmallGlobal: PresenceoftheproductinMainlandChina:0W2years Operationslocation:MainlandChinaorabroad Stocklocation:abroad 26 Securedfacilitysupervisedbycustomauthorities,wheredutiablelandedimportsarestorespendingtheir rewexport,orreleaseonassessmentandpaymentofimportduties,taxesandothercharges(isafreetrade zone). 57

Furthermorethemerchanthomerequirementsmustbefulfilled: RegisteredentityoutsidemainlandChina Retailortradinglicense Brandownershipordistributionauthorizationforbrandownerorfullchain purchasingdocuments Toend,therearealsosomeChinesemarketrequirementstobefulfilled: ChineselanguagecustomerservicesupportduringChinesebusinesshours CustomerreturnshandledlocallyinChina OverseasshippingdirectlytoChineseconsumers ThelastrequirementcanalsobefulfilledbyaTPofTmallGlobalorbedonebythe companyitself. AnexamplecaseshowcasingthesuccessofWesterncompaniesonTmallGlobalisCostco. CostcolauncheditsTmallGlobalstoreinOctober2014.DuringAlibabaGroup s11.11 ShoppingFestival,CostcosoldRMB22million(USD3.5million)inmerchandiseinjust24 hours. ToopenavirtualstorefrontonTmallGlobal,Belgianfoodandbeveragecompaniescan followaveryuncomplicatedprocess(tmall,2015): 1. Entrypreparation 27 : Determinecompatibilityandresourcerequirements Assessprerequisites Determineneedsfromthirdpartyserviceproviders(TPs) Createlogisticsplan Preparenecessarydocuments Reservetechnicalresources BeginAPIintegration CompletenegotiationsandsigncontractswithTPs 2. Storeapplication: SignTmall.com/Alipayagreement OpenAlipaycompatiblebankaccount Choosestoretype:flagshipstore,flagshipstore(marketplace),authorized storeorspecialitystore 3. Storedevelopment: Planproductoffering(SKUs) Planproductcategories 27 Todownloadtherequireddocumentsgoto: http://about.tmall.com/tmallglobal/opening_a_store?spm=3.7128717.0.0.vjtq91#place. 58

Planpricingmodel Establishcustomerserviceteam Buildstorepagewithproducts Buildproductdetailpages DevelopandexecuteAPIintegration 4. PreWlaunch: Developnewopeningplan Developpromotionplan UploadstorepagestoTmall.com APIintegrationonline 5. Launch: StoreliveonTmall.com WithallthesestepsBelgianfoodandbeveragecompaniescandecideinhowfarthey dlike tobehelpedandguidedbytmallglobalanditstps. ROUTE3:SELLONLINETOCHINAVIAHONGKONG The3 rd routethatbelgianfoodandbeveragecompaniescanfollowistoenterchina sew grocerymarketviahongkong.thisroutescontainscountlesssideroutes,butthetwomost importonesare: 1. Via(CEPA:severalBelgianfoodandbeverageproducts,e.g.dairiesthatusually cannotenterchinacanneverthelessenterchinaviacepa.however,iwouldnot recommendbelgiancompaniestodoso.themainreasonwhyiwouldnot recommendthisrouteisbecauseforthechinese,countryoforiginisreally importantwhenbuyingfoodandbeverageproducts.thisisduetopreviousfood scandalsasdiscussedbefore.productsmadeinchinaorhongkongareless trustedthanproductsfromeuropeortheus.additionally,thisproductcanin notbemarketedasabelgianbrand.irecommendthisrouteonlytocompanies thatthatdeliverbaseproductsandwanttobenefitlowerimporttariffs. 2. Via(personal(connections(with(importers,(distributors,(agents,(officials(and( clients:personalrelationshipswithimporters,distributors,agents,officialsand clientsareextremelyimportantinchinaandcanhelptoovercomecertain hurdles. China(also(opens(it(boarders(to(Hong(Kong(for(not(allowed(products,e.g. vealmeatinsome(periods(where(there(is(a(high(demand(for(these(products. VealmeatfromothercountriespresentinHongKong,isthenalsoallowedto enterthechina.ofcourse,theseactionsarenotpublicallyknownandareactions 59

thatappearundertheradar.iwouldthereforeonlyrecommendthisroutefor BelgiancompaniesthathavesolidpartnersandknowledgeintheChinese market. 60

CONCLUSION( China sewgrocerymarketoffersenormousopportunitiesforbelgianfoodandbeverage companies.althoughintroducingforeignfoodandbeveragesintochina sewgrocerymarket is insomecaseswaquitecomplicatedprocess,itisworthtoconsiderthealternativesin ordertobenefitthelucrativeopportunities.themostcommonalternativesareimporting foodandbeverageproductsviacepa(inordertobenefitnoorlowerimporttariffs)orvia localpartners.intheoryitisnotpossibleforallbelgianfoodandbeverageproductsto enterchina,inpracticeitusuallyis. China sewgrocerymarketisaninterestingmarkettoenterespeciallyforforeignimported foodandbeverageproductsfromtheusandeurope.sincethenumerousfoodscandals, theseproductsareusuallymoretrustedandguaranteeacertainlevelofquality. Furthermore,onlinesupermarketsinChinaaregrowingmorenumerousbydayandthey allmustmeetthecontinuouslygrowingdemandforforeignimportedfoodandbeverages products. ChineseeWconsumersareusuallypriceWconsciousandliketocomparepricesonline. However,flavour,quality,nutritionalvalueandbrandsareoftenevenmoreimportant factorswhenactuallybuyingfoodandbeverageproductsonline.brands,andespecially foreignbrands,giveacertainlevelofstatusandcreateanaddedvaluetotheproduct. ThetypicalChineseeWconsumersareusuallyfromtheyoungergenerationandthebestway totargetthisgroupisviasocialmedia.socialmediaisaveryimportantmarketingtoolasit enablescompaniestothoroughlyanalysetheirtargetgroup.additionally,socialmediais alsoapowerfulchannelinthebuyingprocesssincethechineseliketoread(andpost) reviewsbeforebuyingaproduct. China sboomingewgrocerymarketcanbeentereddirectly,viacrosswboarderewcommerce platformsorviahongkong.enteringthismarketisinmostcasescheaperandeasierthan sellingonchina sofflinemarketandhavingtohandletheburdenofthecomplicated distributionchannels. Toconclude,thisbachelorthesisWbasedonseveralrecentstudiesandopinionsofexpertsin thefieldwshowsthatalmostanybelgianfoodandbeverageproductcanenterthechineseew grocerymarketandbenefititsopportunities. 61

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ATTACHMENTS(( ATTACHMENT1:BELGIANPRODUCTSWITHPROTOCOL 1. Belgiumhasnoprotocolforthefollowingproductsandisthusnotallowedto importtheseproductsintochina: Heattreatedmeat Fruits&vegetables(exceptforConferencepears) Beef Poultry Livestock(exceptforhorses&pigeons) 2. Belgiumhasaprotocolforthefollowingproductsandcanthusafterapprovalof thecfdaimporttheseproductsintochina: Porkmeat:protocolbutinrealityonlyoneFlemishcompanythatis allowedtoexport(westvlees);everybodyisworkingveryhardtogeta largerlistofapprovedcompanies Seafood:closedlistof7Belgiancompaniessince2014 Dairyproducts:closedlistofapprovedBelgiancompaniessince2014 Petfood:closedlist(atthismoment)of2approvedBelgiancompanies ATTACHMENT2:LISTOFFOODANDBEVERAGEPRODUCTSWITHOUTTARRIFS FROMHONGKONGTOCHINA ForclaimingzerotariffpreferenceunderCEPA,Goods,whichtransferfromHongKong tochina,havetofulfilltherulesoforiginandmodifyfromhscodeintochinatariffcode. Ifoneoftheaboverequirementscouldnotbefulfilled,exportersaremandatorytopay tariffs. GNCode ChinaTariff Code ProductDescription Rulesoforigin 160100 Sausagesandsimilarproducts,ofmeat,meatoffalor blood;foodpreparationsbasedontheseproducts 16100010 Sausagesandsimilarproductswithanaturalcasings Manufacturedfromliveanimalsorfresh, chilled,frozenanimals.theprincipal processesarecutting,preserving,seasoning, andcooking. *16100020 Othersausagesandsimilarproducts ChangeinTariffHeading. Withouttariffs(fromHongKongtoChina) GNCode ChinaTariffCode ProductDescription RulesofOrigin

0301 03011100 03011900 03019491 03019492 03019590 03019991 03019992 03019999 Livefish 1. BornandbredinHongKong;or 2. BredfromfishfryinHongKong.Ifthespeciesis coralreeffish(includinggiantgrouperandvarious livemarinegrouper,theweightofthefishfry mustnotexceed150gramsandthecultureperiod inhongkongmustnotbelessthan12months;ifit belongstootherspecies,theweightofthefishfry mustnotexceed50gramsandthecultureperiod inhongkongmustnotbelessthan10months;or 3. FishandothermarineproductsobtainedinHong KongwatersorChinawatersintheSouthChinaSea (exceptbeibuwan ;or 4. Fishandothermarineproductsobtainedinthe highseasbyvesselsholdingahongkonglicence andapprovedbythefisheriesauthorityofthe CentralGovernment. 0302 03023200 03024200 Fish,freshorchilled,excludefishfilletsand otherfishmeatofheading0304 03024500 03024600 03024700 03025400 03025500 03025600 03025900 03027200 03027300 03027400 03027900 03028100 03028200 03028400 03028910 03028930 03028940 03028990 0303 03032400 03032500 03032600 Fish,frozen,excludingfishfilletsandother fishmeatofheading0304 1. BornandbredinHongKong;or 2. BredfromfishfryinHongKong.Ifthespeciesis coralreeffish(includinggiantgrouperandvarious livemarinegrouper,theweightofthefishfry mustnotexceed150gramsandthecultureperiod inhongkongmustnotbelessthan12months;ifit belongstootherspecies,theweightofthefishfry

03032900 03033110 03033190 03034400 03035500 mustnotexceed50gramsandthecultureperiod inhongkongmustnotbelessthan10months;or 3. FishandothermarineproductsobtainedinHong KongwatersorChinawatersintheSouthChina Sea(exceptBeibuWan ;or 4. Fishandothermarineproductsobtainedinthe highseasbyvesselsholdingahongkonglicence andapprovedbythefisheriesauthorityofthe CentralGovernment. 03035600 03035700 03036700 03036800 03036900 03038200 03038300 03038400 03038910 03038920 03038930 03038990 0304 03043100 03043200 03043300 03043900 03044100 03044200 03044300 03044400 03044500 03044600 03044900 03045100 03045200 03045300 03045400 Fishfilletsandotherfishmeat(whetheror notminced),freshchilledorfrozen Processinganyproductsfromthefollowingitemsin HongKong;orprocessingtheproductsfromthe followingitem4.onvesselsholdingahongkong licenceandapprovedbythefisheriesauthorityofthe CentralGovernment: 1. BornandbredinHongKong; 2. BredfromfishfryinHongKong.Ifthespeciesis coralreeffish(includinggiantgrouperandvarious livemarinegrouper,theweightofthefishfry mustnotexceed150gramsandthecultureperiod inhongkongmustnotbelessthan12months;if itbelongstootherspecies,theweightofthefish frymustnotexceed50gramsandtheculture periodinhongkongmustnotbelessthan10 months; 3. FishandothermarineproductsobtainedinHong KongwatersorChinawatersintheSouthChina Sea(exceptBeibuWan ; 4. Fishandothermarineproductsobtainedinthe highseasbyvesselsholdingahongkonglicence andapprovedbythefisheriesauthorityofthe CentralGovernment.

03045500 03045900 03045900 03046100 03046211 03046219 03046290 03046300 03046900 03047100 03047200 03047300 03047400 03047500 03047900 03048100 03048200 03048300 03048400 03048500 03048600 03048700 03048900 0305 03053100 03053200 03053900 03054110 03055990 03056400 03056910 03056920 03056930 Fish,dried,saltedorinbrine;smokedfish, whetherornotcookedbeforeorduringthe smokingprocess;fishmealfitforhuman consumption Processinganyproductsfromthefollowingitems1^4 inhongkong;orprocessingtheproductsfromthe followingitem4onvesselsholdingahongkonglicence andapprovedbythefisheriesauthorityofthecentral Government: 1. BornandbredinHongKong; 2. BredfromfishfryinHongKong.Ifthespeciesis coralreeffish(includinggiantgrouperand variouslivemarinegrouper,theweightofthe fishfrymustnotexceed150gramsandthe cultureperiodinhongkongmustnotbeless than12months;ifitbelongstootherspecies, theweightofthefishfrymustnotexceed50 gramsandthecultureperiodinhongkongmust notbelessthan10months; 3. FishandothermarineproductsobtainedinHong KongwatersorChinawatersintheSouthChina Sea(exceptBeibuWan ;

03056990 4. Fishandothermarineproductsobtainedinthe highseasbyvesselsholdingahongkonglicence andapprovedbythefisheriesauthorityofthe CentralGovernment. 0306 03061611 03061612 03061619 03061621 03061629 03061711 Crustaceans,whetherinshellornot,live, fresh,chilled,frozen,dried,saltedorin brine;smokedcrustaceans,whetherinshell ornot,ornotcookedbeforeorduringthe smokingprocess;crustaceans,inshell, cookedbysteamingorbyboilinginwater, whetherornotchilled,frozen,dried,salted orinbrine;flours,mealsandpelletsof crustaceans,fitforhumanconsumption 1. BornandbredinHongKong;or 2. FishandothermarineproductsobtainedinHong KongwatersorChinawatersintheSouthChina Sea(exceptBeibuWan ;or 3. Fishandothermarineproductsobtainedinthe highseasbyvesselsholdingahongkonglicence andapprovedbythefisheriesauthorityofthe CentralGovernment. 03061719 03061721 03061729 03062190 03062290 03062492 03062499 03062590 03062620 03062690 03062720 03062790 03062990

0307 03071900 03072190 03073190 03074190 03074900 03075100 03075900 03077191 03077199 03078190 Molluscs,whetherinshellornot,live,fresh, chilled,frozen,dried,saltedorinbrine; smokedmolluscs,whetherinshellornot, whethernotcookedbeforeorduringthe smokingprocess;flours,mealsandpelletsof molluscs,fitforhumanconsumption Productsfromthefollowingitems1^3orprocessing anyproductsfromthefollowingitems1^3inhong Kong;orprocessingthe productsfromthefollowingitem(3 onvesselsholding ahongkonglicenceandapprovedbythefisheries authorityofthecentralgovernment: 1. bornandbredinhongkong; 2. fishandothermarineproductsobtainedinhong KongwatersorChinawatersintheSouthChina Sea(exceptBeibuWan ; 3. fishandothermarineproductsobtainedinthe highseasbyvesselsholdingahongkonglicence and 4. approvedbythefisheriesauthorityofthecentral Government 03078900 03079190 0401 04012000 Milkandcream,notconcentratednor containingaddedsugarorothersweetening matter Processedfromfreshmilk.Theprincipalprocessesare mixing,sterilizationandcooling. 0403 04031000 Yogurt Processedfromfreshmilkormilkpowder.Theprincipal processesaremixing,fermentationorsouring, sterilizationandcooling. 04039000 Buttermilkandotherfermentedoracidified milkandcream Processedfromfreshmilkormilkpowder.Theprincipal processesaremixing,fermentationorsouring, sterilizationandcooling. 0406 04061000 Fresh(unripenedoruncured)cheese Processedfromfreshmilkormilkpowder.Theprincipal processesaremixing,fermentationorsouring, sterilizationandcooling 04062000 Gratedorpowderedcheeseofallkinds Processedfromfreshmilkormilkpowder.Theprincipal processesaremixing,fermentationorsouring, sterilization,cooling,aging,slicing,grinding(or) seasoning. 0709 07097000 07099100 Othervegetables,freshorchilled HarvestedorcollectedinHongKong 07099200 07099300 07099990

0804 08043000 Freshordriedpineapples Manufacturedfromfruits.Theprincipalprocessesare sterilization,slicingordicingandpreservation,andto fulfillthevalue^addedcontentrequirement. 0805 08054000 Freshordriedgrapefruit,includingpomelos Manufacturedfromfruits.Theprincipalprocessesare sterilization,slicingordicingandpreservation,andto fulfillthevalue^addedcontentrequirement. 0810 08109090 Otherfruit,fresh Manufacturedfromfruits.Theprincipalprocessesare sterilization,skinning,pulpremoval,slicingordicing andpreservation,andtofulfillthevalue^addedcontent requirement. ATTACHMENT3:LISTOFFOODANDBEVERAGEPRODUCTSWITHTARRIFSFROM HONGKONGTOCHINA Withtariffs(fromHongKongtoChina) GNCode 0201 Productname Meatofbovineanimals,freshorchilled 0202 Meatofbovineanimals,frozen 0203 Meatofswine,fresh,chilledorfrozen 0207 Meatandedibleoffal,ofthepoultryofheading0105(Livepoultry,thatistosayfowlsofthespeciesGallus domesticus,ducks,geese,turkeysandguineafowls),fresh,chilledorfrozen 0210 Meatandediblemeatoffal,salted,inbrine,driedorsmoked;edibleflours,andmealsofmeatormeatoffal 0404 Whey,whetherornotconcentratedorcontainingaddedsugarorothersweeteningmatter;productsconsistingof naturalmilkconstituents,whetherornotcontainingaddedsugarorothersweeteningmatter,notelsewhere specifiedorincluded 0405 Butterandotherfatsandoilsderivedfrommilk;dairyspreads 070700 Cucumbersandgherkins,freshorchilled 0708 Leguminousvegetables,shelledorunshelled,freshorchilled 0710 Vegetables(uncookedorcookedbysteamingorboilinginwater),frozen

0711 Vegetablesprovisionallypreserved(forexample,bysulphurdioxidegas,inbrine,insulphurwaterorinother preservativesolutions),butunsuitableinthatstateforimmediateconsumption 0712 Driedvegetables,whole,cut,sliced,brokenorinpowder,butnotfurtherprepared 0713 Driedleguminousvegetables,shelled,whetherornotskinnedorsplit 0714 Manioc,arrowroot,salep,jerusalemartichokes,sweetpotatoesandsimilarrootsandtuberswithhighstarchor inulincontent,fresh,chilled,frozenordried,whetherornotslicedorintheformofpellets;sagopith 0804 Coconuts,Brazilnutsandcashewnuts,freshordried,whetherornotshelledorpeeled 0802 Othernuts,freshordried,whetherornotshelledorpeeled 0803 Bananas,includingplantains,freshordried 0806 Grapes,freshordried 0807 Melons(includingwatermelons)andpapaws(papayas),fresh 0808 Apples,pearsandquinces,fresh 0809 Apricots,cherries,peaches(include.nectarines),plumsandsloes,fresh 0811 Fruitandnuts,uncookedorcookedbysteamingorboilinginwater,frozen,whetherornotcontainingaddedsugar orothersweeteningmatter 0813 Fruit,dried,otherthanthatofheadings0801to0806;mixturesofnuts 1901901100 Maltextracts 1901909100 Foodpreparationsofflour,meal,starchormaltextract,withcocoa(ifany)under40%,nesoi;foodpreparationsof goodsofheadingsnos.0401(milkandcream,notconcentratednorcontainingaddedsugarorothersweetening matter)to0404(whey,whetherornotconcentratedorcontainingaddedsugarorothersweeteningmatter; productsconsistingofnaturalmilkconstituents,whetherornotcontainingaddedsugarorothersweeteningmatter, notelsewherespecifiedorincluded);withcocoa(ifany)under5% 2106909200 Foodpreparationnotelsewherespecifiedorincludedcontainingnomilkfats,sucrose,isolucose,glucoseorstarchor containinglessthan1,5%milkfat,5%sucroseorisoglucose,5%glucoseorstarch 2106909804 Ediblemixturesorfoodstuffsofanimalorvegetablefatsoroilsoritsfractions,containingmorethan15%of butterfatbyweight

ATTACHMENT4:LISTOFTPSOFTMALLGLOBAL Thelistgetsupdatedeverythreemonths. TP Categories Regions BAYLINEEWCOMMERCECO.LTD.**** Maternity&Baby,Cosmetics&Skincare, Apparel,Shoes,Bags&Luggage NorthAmerica,Europe,Australiaand NewZealand,HongKong,Macaoand Taiwan EcmohoGroup**** Maternity&Baby,NutritionProducts NorthAmerica,Europe JIEBOSITRADING(SHANGHAI)CO., LTD.**** Baby&Maternity,NutritionProducts, Apparel Korea JollywizDigitalBusinessCo.,Ltd.**** Cosmetics&Skincare,NutritionProducts, Bags&Luggage,Food,Maternity&Baby, Apparel NorthAmerica,Europe,Japan,Hong Kong,MacaoandTaiwan LanhuoyiNetworkTechnologyCo. Ltd.**** Maternity&Baby,NutritionProducts NorthAmerica,Europe,Australiaand NewZealand,SoutheastAsia,HongKong, MacaoandTaiwan VoyageOneGroupInc.**** Apparel,Shoes,Bags&Luggage,Jewelry &Watches,BabyFood&Nutrition Products,Outdoor&Sports,Home& Kitchenware,andConsumerGoods NorthAmerica arvatosystemchina*** Apparel,Shoes,Bags&Luggage Europe,EastandSouthAsia BaozunEWcommerceInc.*** Maternity&Baby,NutritionProducts, Apparel,Shoes,Bags&Luggage, Cosmetics&Skincare NorthAmerica,Europe,Australiaand NewZealand,HongKong,Macaoand Taiwan Beijing'sNew7EWcommerceTechnolygy Co.,Ltd.*** HomeAppliances,3CDigitals,Food, Cosmetics NorthAmerica,Korea BeijingXingchangxindaTechnology Developmentco.,LTD.*** Baby&Maternity,NutritionProducts, Apparel,Shoes/Bags/Luggage,Cosmetics &Skincare NorthAmerica,Japan BysoftChina*** Maternity&Baby,NutritionProducts, Apparel,Shoes,Bags&Luggage, Cosmetics&Skincare,HomeAppliances, Sports&Outdoors,Food&Beverage NorthAmerica,NewZealand ChaMaGoeWCommerceCo.,Ltd.*** Food,Home,Baby&Maternity Europe

FacetouchDigitalTechnologyCo.,Ltd.*** Apparel,Jewelry&Watches,Bags, Maternity&Baby,ElectronicConsumer Goods NorthAmerica,Europe,Australiaand NewZealand,Japan,Korea GuangdongMini.iceNetworkScience& TechnologyCO.,LTD.*** HomeDecoration,HomeAppliances,3C Digital,OutdoorSports,Retailstore HongKong,MacaoandTaiwan GuangzhouBlackstoneDigital TechnologyCo.,Ltd*** ElectronicConsumerGoods,Maternity& Baby,Toys,NutritionProducts Food HongKong,MacaoandTaiwan,Australia andnewzealand,southeastasia,north America Joywell*** Apparel,Outdoor&Sports,Home Textiles Food,3CDigital,Jewelry& Accessories NorthAmerica,Europe LeogenesisCo.,Ltd.*** Baby&Maternity,NutritionProducts, Cosmetics&Skincare Japan LeqeeInc.*** Maternity&Baby,Food&Nutrition Products,Cosmetics&Skincare Europe,AustraliaandNewZealand, Japan,HongKong,MacaoandTaiwan Lily&Beauty(HongKong)Limited*** Cosmetics&Skincare Allregions LUCKYCREATIONENTERPRISE (SHANGHAI)LIMITED*** Apparel,Shoes,Bags,Luggage,Baby& Maternity,Sports&Outdoor,Jewelry& Accessories NorthAmerica,Korea,Japan,Europe, Australia,NewZealand,HongKong, MacaoandTaiwan NetopsTechnologyHangzhou*** NutritionProducts,Maternity&Baby, Food,Cosmetics&Skincare NorthAmerica,Europe,Australiaand NewZealand,Korea PortkeyInternationalLimited*** NutritionProducts NorthAmerica,HongKong,Macaoand Taiwan QingmuInformationTechnologyCo., Ltd.*** Shoes,Bags,NutritionProducts NorthAmerica,Europe,Australiaand NewZealand,HongKong,Macaoand Taiwan ShanghaiBaiPinHuieWCommerceCo., LTD*** Baby&Maternity,NutritionProducts, Apparel,Shoes,Bags&Luggage, Cosmetics&Skincare NorthAmerica ShanghaiBuyQuicklyEcommerceInc.*** Baby&Maternity,Apparel, Shoes/Bags/Luggage NorthAmerica,Europe,Australiaand NewZealand,Japan ShanghaiHappyDoInternetTechnology Co.,Ltd.*** Apparel,Toys,Cosmetics Europe,Japan,Korea ShangkeKaiyuan(Beijing)Education TechnologyCo.,Ltd.*** BeautyProducts,Maternal&Baby, HealthCareProducts NorthAmerica

ShanghaiKAYTUNEIndustrialCo., Ltd.*** Baby&Maternity,Cosmetics&Skincare HongKong,MacaoandTaiwan ShanghaiO5lifeEWcommerceCo.Ltd.*** Apparel,Shoes,Bags&Luggage NorthAmerica,Europe,Australiaand NewZealand,SoutheastAsia,HongKong, MacaoandTaiwan SHANGHAISHAREEWTECHNOLOGY CO.,LTD*** Baby&Maternity,HealthCare, Household,FashionClothes,Cosmetics &Skincare Europe,AustraliaandNewZealand ShanghaitranscosmosMarketingService Co.,Ltd.*** Maternity&Baby,NutritionProducts, Apparel,Shoes,Bags&Luggage, Cosmetics&Skincare NorthAmerica,Europe,SoutheastAsia, Japan ShanghaiYiyangEcommercePtyLtd.*** Apparel NorthAmerica,Europe,Australiaand NewZealand,SoutheastAsia,HongKong, MacaoandTaiwan SuZhouEWcstormBusinessConsulting Co.,Ltd.*** Nutrition,Food,Baby&Maternity NorthAmerica,AustraliaandNew Zealand SuZhouEWcstormBusinessConsulting Co.,Ltd.*** Cosmetics&Skincare NorthAmerica,Europe WisepartnersGroupCo.,Ltd.*** Shoes,Bags&Luggage,3CDigital, NutritionProducts,Maternity&Baby NorthAmerica,Europe XiamenJUYANElectronicBusinessCo., Ltd.*** Men's&Women'sShoes,Children's Shoes Outdoor&Sports,Bags&Cases Europe YidongEWcommerceCo.,Ltd.*** Baby&Maternity,NutritionProducts, Cosmetics&Skincare NorthAmerica,Europe,Australiaand NewZealand