The dos and don’ts of setting up an ecommerce business in China

As of December 2011 there were more than 190m online shoppers in China, a massive 20% growth on the previous year.

Yet there is also huge untapped potential, as only 38% of the Chinese online population has actually used ecommerce.

This obviously makes it a very attractive marketplace for any online retailer, but there are a number of obstacles that have to be negotiated before a business can even consider selling online to Chinese consumers.

It’s a topic we investigated in more detail in our new ‘China: Digital Market Landscape Report’ as well as a blog post looking at the state of digital marketing and ecommerce in the country.

And to find out more about the challenges of setting up an ecommerce business in China, I spoke to eCommera’s director of insights services Debbie Bond…

What regulations should businesses be aware of when looking to trade online in China?

To launch online in China you will need to have a Chinese business license, which can take up to a year and requires significant transfer of funds to a local account; a retail license, which can only be applied for once a business license is obtained; and a wholesale license.

Once these are in place you can then start thinking about the operational side of the business because the next step will be to register the online operational detail and register as a Wholly Foreign Owned Enterprise.

The time it can take to get online should not be underestimated, but effort should be driven by the likely rewards.

Which industries are achieving the biggest growth online at the moment? Where are the greatest opportunities?

China’s ecommerce growth will be further accelerated by the growing propensity of the population to shop online. Although one in five Internet users in the world are Chinese, ecommerce is still an emerging industry in China. 

The expenditure per capita for online sales in China today is only 5% of that in the US, indicating tremendous potential for growth.

Mainland Chinese consumers now account for more than 6% of all worldwide luxury consumption, spending an estimated $16.1bn on luxury products in 2011. 

This excludes significant purchases made by Chinese consumers in Hong Kong, Macao and Taiwan, and while travelling overseas, which are estimated at an additional 80%. 

Burberry in London alone estimates that 30% of its sales are from overseas visitors, and this proportion is increasing.

Who are the major ecommerce players in China? Are there any successful online-only retailers?

Retailers such as H&M, Zara and Burberry have entered this market and are at the very beginning of their journey in China. 

Many brands however, are already international but nevertheless lack an online channel, as they rely currently mostly on intermediaries, mainly retailers.

Will china’s Internet continue to have distinctively Chinese characteristics? Some differences from the West will fade as the industry and China’s economy mature and the country’s internet population grows older and richer. 

Other features will probably persist, for example the dominance of three digital conglomerates, Alibaba, Baidu and Tencent.

What are the main challenges with web design? It surely can’t be as simple as just translating the English copy into Chinese.

To sell directly to Chinese consumers, retailers and brand owners will need a product catalogue and product designs that match local tastes, as well as an ecommerce site that contains local content and prices, offering a user experience that is tailored to local requirements.

Some companies have invested huge sums in getting their native sites right in territories that they understand and will know how hard that can be.  So a similar focus on Chinese sites will be critical.

What are the common methods of payment? Do Chinese consumers tend to pay with credit cards or are alternative payment methods (e.g. PayPal) popular?

The situation is changing dramatically. As the Chinese economy booms, the level of disposable income increases and this causes a rise in popularity of credit cards, and other forms of personal consumer credit. 

New economies traditionally tend to embrace new ideas faster than established economies, so it is reasonable to expect the Chinese to embrace new innovations in payment and mobile commerce. 

However, where a lot of infrastructure is required to enable that to happen, this may take a lot longer.

What do you need to consider for fulfilment and returns? 

Achieving the desired customer service levels and operational economics might require a local logistics operation. This in turn requires consideration of fulfilment issues, such as the clearance of goods into China, the lease of a warehouse and the recruitment of a team to operate the warehouse. 

Equally, local delivery partners need to be selected not just on their level of national coverage, but also on their ability to meet local expectations, such as the handling of cash for cash transactions, and the handling of returns.

Naturally, the concept of national coverage is very different in China, where there are vast distances between urban centres, so companies will be challenged on finding the ideal strategy for warehouse locations and carrier mix.

Is it feasible for an ecommerce business to be able to service the entire country from launch, or do you need to roll out in the major cities first then expand?

Some experts are of the opinion that you should test the market first before doing an all-out launch, as the market in China is quite conservative about new things that come onto their radar.  

Once the brand or retailer has provided some credible information to the consumer about what the product does or how it can benefit them they will then start talking about it.

What can be launched nationally is the delivery aspect of the ecommerce operation, but it all needs careful monitoring; ultimately what is important is that the customer is offered the right service.

And what about customer service? Which are the most common customer contact points?

Whether retailers and brand owners operate a customer services team from their home country or locally, or delegate customer services to a third party, they will need to ensure all members of the team have a comprehensive knowledge of both the brand and the products and are able to offer the exceptional level of service that customers expect in China.  

Chinese consumer’s expectations are different to consumers in other countries; service is written into their culture, so what they have always expected from local businesses, they will expect from international companies.

How advanced is digital marketing in China? Will ecommerce sites need to invest heavily in offline marketing?

Digital marketing is changing quite rapidly in China due to a growing population of affluent consumers.  The consumer in China is very wary of online advertising and information used across these channels. 

However, Chinese shoppers trust information and recommendations from their peers on blogs, social networks and user review sites far more than official brand communications. 

Over 40% of the Chinese shoppers in a survey by Boston Consulting Group said they had both read and posted online product reviews, which is nearly twice as many than in the US. 

Because of the online trust issue some offline marketing will need to take place to help establish a certain amount of trust for the brand or retailer.

The opportunity for foreign companies is clear, because they can effectively leapfrog many of the traditional marketing techniques that work at home and investigate marketing alongside social media. 

While this still has its own challenges in any territory, the truth is, the level of innovation is driving success quickly.

Is search as important for traffic in China as it is in the UK? What are the main points for businesses to consider when starting out?

Search engines in China have been very much regulated by government and businesses need to work around this. This market is learning fast but in some respects remains sceptical.  

The biggest challenge when setting up in China is the red tape. Trying to skip or bypass regulation will only mean setbacks and delays. 

Red tape is a fact of life, but more so in China, so it makes sense for companies to accept this as the price of doing business there.

TMall, for instance, has become the platform of choice for brands entering the Chinese ecommerce landscape, not only because of its massive user base but also because it is familiar, trusted and convenient for consumers. 

It’s the first port of call for people all over China when researching and purchasing branded products online.

How important is m-commerce in China? What are conversion rates like?

Mobile commerce is still an emerging concept in China and as the consumer starts to engage more with technology this will start to have an impact on what can be available across various channels.  

There is still a large gap between those who have access within large cities, and those who have limited access in rural locations.

That said, the mobile phone is fast becoming the standard communications tool for Chinese people of all ages, so they already see it as a hub for m-commerce, in contrast to the fixed PC, where total numbers of much smaller.  

However, Chinese people like the contact with the brand and therefore a simple checkout will also be very important.

See more here:
The dos and don’ts of setting up an ecommerce business in China

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