GUEST COMMENT Can SMEs take advantage of ecommerce opportunities in China?
As UK SMEs continue to grow and expand their business, many are increasingly looking further afield for global e-commerce opportunities. A recent YouGov report found that six in 10 small and medium sized businesses expect to be exporting overseas by 2016.
And following a survey by the International Trade Monitor, it’s clear that China has a big part to play in future expansion opportunities for companies in the UK; 25% of those surveyed expected that their future growth would come from China.
Why ecommerce in China?
As the second biggest economy in the world, predicted to outstrip the USA by 2020, China offers huge potential and a massive market for UK SMEs. In ecommerce alone, China is the world’s largest retailer, with reports that 70% of the population on the mainland shop online at least once a week.
Whilst there are more than 600m desktop internet users in China, ecommerce is increasingly driven by social media and digital payments on mobile devices, with 500 million mobile internet users and fast expanding access right across the country into remote rural areas.
Indeed, 55% of China’s smartphone users have made a mobile payment, compared with just 12% in the US. So whilst mobile ecommerce is just developing in the USA and Europe, in China it’s well-established.
And with China’s largest ecommerce company – Alibaba – handling over $240bn worth of transactions in 2013 (more than Amazon and eBay combined), there’s definitely the potential for profit in this rapidly growing market.
The Chinese consumer
As the middle class continues to develop in China, there are plenty of opportunities for small UK businesses to reach out and supply products and services. The consumer trend is increasingly turning towards online purchase, with a focus on high quality and brand loyalty.
Many of those consumers have a strong desire for foreign, luxury items, which is only catered to in big cities. Hence, the turn to ecommerce. There’s a big focus on authenticity too, which provides the perfect demand for UK products.
According to a survey by KPMG, the average cost of an item purchased online last year was $243 (much higher than Europe or the USA), with the largest category for e-commerce being cosmetics, followed by women’s apparel, and then bags & accessories.
Challenges for SMEs
Whilst there are clearly plenty of opportunities to tap into the market in China, it’s not without its challenges or potential pitfalls.
Getting a foothold in the country can be both extremely difficult and extremely costly. There’s a plethora of requirements which must be met and a number of hurdles to overcome; the traditional export route is likely not going to be the best for a UK based SME.
Setting up in China is a lengthy process: There are lots of legal requirements which must be followed and conditions which need to be met in order to establish a market presence in the country. For example, in order to commence business in China directly, you’ll need a Chinese business license, through the development of a foreign-invested commercial enterprise (FICE) or a wholly foreign-owned enterprise (WFOE).
You’ll also need to register for an Internet Content Provider license (ICP) too, if you plan on having a website operation in China, which can take a long time to be processed.
The language is complicated: if you’re thinking of having a local website, you’ll need to ensure it aligns with the local language. There are many different dialects spoken in China, and even Simplified Chinese can be very complicated to a foreigner.
You’ll need to budget for natural translation, as Google Translate simply won’t cut it.
There are strong regional variations: With such a diverse country, there are numerous differences in shopping habits and preferences, as well as language. Although the emerging middle class are focused on luxury items when shopping online, those further away from big cities and in more rural areas are seeking those best price bargains.
And low prices are low in China. Even Wal-Mart struggles to compete on price, so it might be best to consider other selling tactics, focusing instead on quality and authenticity.
There are marketing barriers to overcome: as well as creating an accurate website with regards to language, you’ll also need to understand local marketing strategy, and ensure you cater for Chinese search engines.
The culture and buying process in China relies heavily on assisted sales too, so you’ll need to consider what kind of customer service you can offer to prospective buyers. Over 70% of transactions are assisted. Will you have live chat support or a quick email response, taking into account the time zone difference?
To break into the Chinese e-commerce economy as an SME it probably doesn’t make sense to develop a website and establish on-the-ground operations, unless you have a lot of time and money.
Instead, the best option is to utilise marketplaces. They make up a 90% share of the e-commerce sector in China, with TMall & Taobao (both divisions of Alibaba) accounting for 80% of all online transactions.
Selling through marketplaces is the cost effective way to export to China.
Given the high barriers to the country, Alibaba created TMall Global as a way for international retailers to sell products in China from a business based outside the mainland.
There are still requirements which need to be met, but the associated costs are dramatically reduced, and it’s a lot easier to get started straight away:
• You can focus on just a few of your best selling products.
• You can ship directly from the UK (or you can ship in bulk to a bonded warehouse, from which orders will then be fulfilled).
• And you can make use of easy listing options and integrated customer service.
Of course, there are still things you’ll need to consider and account for:
• You’ll still need to pay for a professional translation of product descriptions and all policies (e.g. shipping and returns).
• Your products must all pass Chinese customs clearance, and you must provide a return shipping address in China.
• Delivery should be completed within 72 hours and must have a tracking system.
• And naturally you need to budget with the associated annual fees, one time deposit and commission charges in mind.
Do your research
This is the key when you’re considering expanding your SME and exporting to China.
• Is there a demand for products like yours which you can fill?
• Do you know what type of Chinese consumers you’ll be targeting and how to reach them?
• And are you prepared for all those associated costs and logistics?
There’s lots of advice available for those SMEs considering the move to China.
The Great Business initiative from the UK Government offers lots of support on generating profit through exports, including free expert advice from an export specialist at UK Trade and Investment (UKTI).
And the China-Britain Business Council has a number of authoritative guides on expanding into this promising, and potentially lucrative economy.
It’s not going to be easy, and given the political and economic volatility in the region, there’s no guarantee for a return on investment. But, there is the potential for a lot of profit from this huge e-commerce market.
Nick Pinson is director at iWeb Solutions