Whitepaper Online Selling in China in 3 Easy Steps

Introduction China is at present the world s second largest economy and the EU s second largest trading partner behind the US 1. China is a major importer of foreign goods, and the purchasing power of the Chinese population is vastly growing. China is a country full of opportunity and promise, especially when it comes to e-commerce. Number of online shoppers (millions of persons) 2012 2013 2014 (as of end-2014) China US Japan UK 400 0 400 0 400 0 400 0 24% growth from 2012 21% growth from 2013 5% growth from 2012 4% growth from 2013 5% growth from 2012 18% growth from 2012 Sources: Payvision, Statista, CNNIC, Research, Colliers International, 2015 Unfortunately it is also a country which remains hard to crack for foreign merchants. We have all heard of Alibaba s Tmall and sometimes even of similar platforms like JD.com and Yihaodian. While those platforms offer a lot of convenience, from a merchant s perspective, they are not very financially attractive. Only 10% of merchants are profitable on Tmall with only a slightly higher percentage of merchants actually making money on Tmall International. This is due to high competition from both domestic and rest of world players thus creating extremely high marketing costs, sometimes equating to 40 percent of the sellers revenue. Currently there is a shift in the market where mostly foreign merchants are shifting away from platforms like Tmall and instead focusing on alternatives like brand owned web shops and WeChat stores. In this Whitepaper, we will shed some light on the Chinese e-commerce market and show you three simple steps to enter the market at a controllable business risk. 1) China Logistics and Distribution Guide, EU SME Centre, 2014 Copyright 8-2015 Salesupply AG, All rights reserved 1

The Chinese e-commerce opportunity 1,354.2 mn inhabitants 1.29 bn mobile users 47.6% internet access 58% social media users 22% online shoppers 19.4 bn cross-border e-commerce 405 bn e-commerce turnover Top 5 regions buying online from Chinese web shops, 2013 Rank Country % Chinese consumers shopping overseas, 2013 Rank Country % 1 United States 17% 1 United States 47% 2 Hong Kong 15% 2 Japan 15% 3 South Asia 10% 3 United Kingdom 13% 4 Japan 7% 4 France 12% 5 Korea 4% 5 New Zealand 7% Sources: Ecommerce Europe Asia Pacific Report 2014/2015, Payvision, The Paypers, China Consulate General of the Kingdom of the Netherlands Copyright 8-2015 Salesupply AG, All rights reserved 2

The present situation E-Commerce in China is booming business and factors influencing this development include: 1. B2C platforms engaging in price wars in order to compete for market share 2. More traditional companies increasing their online presence 3. A constant rise in the number of online customers China has recently surpassed the US as biggest e-commerce market in the world. The volume of Chinese e-commerce transactions reached 405bn in 2014 according to latest figures gathered by Ecommerce Europe, with e-commerce currently accounting for 10 percent of the country s total retail 1. The Chinese National Bureau of Statistics has launched new figures in July 2015, estimating that Chinese e-commerce turnover in 2015 could reach as much as 575bn assuming the consistency of the current growth rates. This puts it significantly ahead of the US in terms of turnover. The importance of cross-border e-commerce on the Chinese political agenda has also increased, which has resulted in several measures facilitating online trading towards China in the areas of logistics, customs and shop registration. It is for example not required to have a Chinese entity, import duty and VAT are not applicable and also several other barriers have been significantly eased. The Chinese government also launched several pilot-zones for cross-border e-commerce, in cities including Hangzhou, Shanghai and Chongqing. However, there are some challenges for foreign sellers on the Chinese market, including language barriers, logistics to the more rural areas and finding their way in the complicated and dynamic regulatory system. Working with a local partner is a very smart thing to do in order to address those challenges. Marketplaces The Chinese e-commerce market is dominated by marketplaces, led by Alibaba s Tmall with a 57 percent market share and followed by Jingdong (formerly known as 360Buy) with a 21.2 percent market share. Marketshare (by general merchandize volume) Suning.com Vip.com Gnome.com.cn Amazon.cn Dangdang.com 51buy.com Yhd.com Tmall.com JD.com Other 57.3% 21.2% 3.5% 2.8% 1.9% 1.5% 1.5% 1.4% 1.4% 7.5% Source: iresearch.com.cn 1) China Cross-Border E-Commerce Opportunities for Dutch Companies, Consulate General of the Kingdom of the Netherlands, 2015; Ecommerce Europe 2015 Copyright 8-2015 Salesupply AG, All rights reserved 3

Making use of these platforms is often initially advised to foreign sellers, as they allow them to approach Chinese customers, who are often unfamiliar with foreign e-commerce web page designs, the English language and credit card payments. However, we advise sellers to look further than only Tmall: In order to set up a storefront on Tmall, companies will have to invest between 30,000-40,000 for deposits and set-up fees. Especially for smaller players, there are cheaper options to initially explore the Chinese online market. Social & Mobile A very interesting development is the explosive growth of mobile commerce paired with the importance of social media for Chinese consumers: M-Commerce in China this year grew by 293 percent compared to 2013 1 and makes up 30 percent of Chinese e-commerce sales. In the countryside, this share is as high as 64 percent. One of the platform vividly used via mobile devices is WeChat, which can best be described as a hybrid between WhatsApp and Facebook. With its 440mn active users, it offers the opportunity to open a storefront, reaching a considerable amount of potential clients, being in the centre of social interaction and being able to deliver customer service directly on the same platform. Interesting sectors Fashion Chinese customers are increasingly developing a fashion taste inspired by Western brands and culture. This is an opportunity for large brands, but even more so for niche and luxury labels. Personal Care Foreign, high end brands are becoming increasingly popular with the affluent Chinese urban population. Baby and infant nutrition products are highly valued by Chinese consumers as well known foreign brands are trusted more than domestic produce and viewed as safer. Luxury Purchasing power in China is increasing, and luxury goods from abroad are becoming the focus for the young, affluent generation of Chinese buyers. Aside from fashion, popular luxury categories also include gems, jewelry and beauty products. Food & Beverage Meat, alcoholic drinks and dairy products account for around 66 percent of China s food and beverage imports, reports the handbook Targeting Chinese Customers (2014, China British Business Council). Did you know that Chinese customer don t mind waiting for a cross-border order up to 2 weeks? However, competition is stiffening and choices for a logistics strategy need to be made carefully. 1) China Cross-Border E-Commerce Opportunity Report, Consulate General of the Kingdom of the Netherlands, Guangzhou, 2014 Copyright 8-2015 Salesupply AG, All rights reserved 4

3-step roadmap to online selling in China Step 1: Start selling on a B2B2C platform like ydx.hk Platforms like YDX sell Western products to Chinese consumers via their website and App s, they take care of the marketing and logistics enabling you to have an easy way to test the market before you start making large investments. It is essentially a B2B agreement with relatively low business risks. Step 2: Your own online store and We Chat Store In contrast, you may have heard your own Chinese online store can be profitable and worthwhile. This is actually a cost effective and realistic starting point to your Chinese online endeavors. It pays to start using We Chat as an extra channel given the fact there are over 440 Million active We Chat users in China. Social media play a significant role in Chinese m-commerce, which already makes up 40 percent of the total Chinese e-commerce turnover. Cross border E-Commerce Channel Did you know that since 2013 China customs has opened a cross border ecommerce channel which allows you to sell in China while keeping your stock in Europe and where you don t need Chinese packaging, product license (CIQ) or setting up a Chinese entity? You would need to make sure your website is: Hosted in China Is fully translated in simplified Chinese Has Chinese payment options like : Alipay, Tenpay and UnionPay Has customer service support (email, phone and most importantly live chat) for 7 days a week for 16 hours a day. Has local return handling even when you decide to ship directly from country of origin in a cross border model. Step 3: Tmall and Other platforms After having had success with step 1 and 2, you should see if it is worthwhile to also open Tmall and for instance JD shops. In China omni-channel is the way to go, but that strategy should be exercised with care if you don t want to end up spending a lot of money for a rather low revenue. Be aware that, whether you sell via your own store or via a platform, as a vendor you will need tax registration documents, a Chinese business license, a trademark registration and a variety of certifications depending on the product categories you are planning to sell Conclusion: Chinese e-commerce is a whole lot more than just Tmall alone. Don t believe too much in the fairy tales and choose your entry strategy carefully, the potential gains may be vast but a sound plan and carefully selected partners are key! Copyright 8-2015 Salesupply AG, All rights reserved 5

Do you want to learn more about e-commerce opportunities in China? Together with our Chinese office in Shanghai, we can evaluate your unique opportunities in the Chinese market and make a strategic roadmap tailored to your company s needs! Contact us at info@salesupply.com Study trip to China, the world s largest e-commerce market 29 August 2015-5 September 2015 The European branch organisation Ecommerce Europe organises a study trip to china together with Webpower and Salesupply. How can European companies seize opportunities in the growing Chinese market? What is the best way to sell products and services online in China? And how can European companies get ready to face Chinese competition? Visit companies such as Alibaba, WeChat and Lighttake and learn from Western companies active in China, including ASOS, Lacoste and Metro. What is their strategy? Which problems do they encounter and what is their advice for entering the Chinese market? Interested? Are you interested or do you wish to receive more information? Please send an e-mail to info@shoppingtomorrow.nl Salesupply is a global e-business services company that enables online retailers to achieve profitable international growth faster, more efficiently and with relatively low costs. Salesupply provides a full range of solutions ranging from research and strategy, to effective localization of web shops, followed by complete operational support, traffic generation and brand management. Through our advanced systems, our flexible operational structure and our international office network we are able to embed these services seamlessly in our customers business model. Today we are helping over satisfied webshops with their international e-commerce, including A.T.U, Marks and Spencer, G-Star, O moda.eu, Fonq.nl, Expresso Fashion, Impericon, Sloggi, EKOSPORT, Unisport and many more. The Salesupply network includes subsidiaries in the Netherlands, the US, Spain, France, Denmark, the UK, Italy, Brazil, Russia, Poland, China and the US. Learn more at www.salesupply.com www.salesupply.com Copyright 8-2015 Salesupply AG, All rights reserved