E-COMMERCE IN CHINA A GUIDE FOR AUSTRALIAN BUSINESS - JUNE 2015 - Austrade

 
E-COMMERCE IN CHINA A GUIDE FOR AUSTRALIAN BUSINESS - JUNE 2015 - Austrade
E-COMMERCE
IN CHINA
A GUIDE FOR AUSTRALIAN BUSINESS

Using ChAFTA to sell premium Australian products       JUNE 2015

E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS               1
E-COMMERCE IN CHINA A GUIDE FOR AUSTRALIAN BUSINESS - JUNE 2015 - Austrade
DISCLAIMER
This report has been prepared as a general overview and is intended to be a guide, providing a
starting point for exporters. It is not intended to provide exhaustive coverage of the topic. The
information herein is made available on the understanding that the Australian Trade Commission
(Austrade) is not providing legal, financial or any other form of professional advice. Therefore, while
all care has been taken in the preparation of this report, Austrade does not accept responsibility
for any losses suffered by persons relying on the information contained in this report or arising
from any error or omission in the report. Any person relying on this information does so entirely
at their own discretion and risk. Austrade strongly recommends the reader obtain independent
legal, financial and any other form of professional advice prior to acting on this information.

Austrade assumes no responsibility for any company, product or service mentioned
in this document, for any materials provided in relation to such products, nor for any
act or omission of any business connected with such products and services.

Currency conversions from Chinese Renminbi to Australian dollars ar e historical
and should be considered indicative only. The Reserve Bank of Australia provides
data on current and historical Australian dollar exchange rates with major currencies
at http://www.rba.gov.au/statistics/frequency/exchange-rates.html

Austrade gratefully thanks the e-commerce marketplaces and experts who provided information
for this report and acknowledges the assistance and contribution of Dezan Shira and Associates.

Copyright Commonwealth of Australia 2015

Publication date: June 2015

    2                                                                                                     E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS
E-COMMERCE IN CHINA A GUIDE FOR AUSTRALIAN BUSINESS - JUNE 2015 - Austrade
CONTENTS
                                            FOREWORDS                                                          04
                                                  MINISTER FOR TRADE AND INVESTMENT
                                                  MINISTER FOR SMALL BUSINESS
                                            EXECUTIVE SUMMARY                                                  06
                                            INTRODUCTION                                                       10
                                                  THE E-COMMERCE MARKET IN CHINA
                                                  DRIVERS OF GROWTH
                                            UNDERSTAND CHINA’S ONLINE CONSUMERS                                12
                                                  WHO IS BUYING GOODS ONLINE AND WHY?
                                                  WHAT IMPORTED PRODUCTS ARE ONLINE SHOPPERS LOOKING FOR?
                                            GET YOUR PRODUCT READY FOR THE CHINESE MARKET                      19
                                                  PRICING
                                                  PACKAGING
                                            UNDERSTAND CHINA’S ONLINE MARKETPLACES                             22
                                                  ONLINE MALLS
                                                  HYPERMARKETS AND SPECIALTY MARKETPLACES
                                                  CONSUMER-TO-CONSUMER: ONLINE BAZAARS AND SOCIAL SELLING
                                                  FLASH SALES
                                                  STAND-ALONE E-COMMERCE WEBSITES
                                            PROTECT AND MANAGE YOUR INTELLECTUAL PROPERTY                      29
                                                  IDENTIFYING IP VIOLATIONS
                                                  REGISTERING A TRADEMARK
                                                  REMEDYING IP VIOLATIONS
                                            GET YOUR GOODS TO CHINA                                            30
                                                  CROSS-BORDER SALES
                                                  CONVENTIONAL DISTRIBUTION
                                                  ONLINE VERSUS OFFLINE: MARKET ENTRY FOR AUSTRALIAN FOOD
                                                  SALES VIA THIRD PARTIES
                                                  DISPATCHING YOUR GOODS IN CHINA
                                                  E-COMMERCE MARKETPLACES WITH INTEGRATED LOGISTICS
                                                  THIRD-PARTY LOGISTICS PROVIDERS
                                                  STORAGE, WAREHOUSE AND ORDER FULFILMENT
                                                  COLD-CHAIN LOGISTICS
                                                  REVERSE LOGISTICS
                                            UNDERSTAND KEY REGULATIONS                                         40
                                                  PRODUCT REGISTRATION, INSPECTION AND QUARANTINE PROCEDURES
                                                  TARIFFS, DUTIES AND OTHER REGULATORY PROCEDURES
                                                  COMPANY TAXES
                                                  CHINA’S CONSUMER PROTECTION LAWS
                                                  ESTABLISHING A LEGAL ENTITY IN CHINA
                                            CHINA-AUSTRALIA FREE TRADE AGREEMENT                               45
                                                  SECURED OUTCOMES
                                                  AUSTRADE CHAFTA OUTREACH PROGRAMME
                                            BUILD AND MANAGE YOUR ONLINE BUSINESS                              47
                                                  BUILDING A SHOPFRONT
                                                  GETTING PAID
                                                  ATTRACTING AND RETAINING CUSTOMERS
                                                  COMPANY WEBSITE
                                                  ONLINE ADVERTISING
                                                  MARKETPLACE PROMOTIONS
                                            SEEKING ASSISTANCE                                                 55
                                                  HOW AUSTRADE CAN HELP
                                                  AUSTRADE IN CHINA
                                                  WHAT IS EMDG?
                                                  EFIC
                                            THIRD-PARTY SERVICE PROVIDERS                                      57
                                            USEFUL TERMS: FROM ALIBABA TO ZHUIZONG                             62

E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS                                                                3
E-COMMERCE IN CHINA A GUIDE FOR AUSTRALIAN BUSINESS - JUNE 2015 - Austrade
FOREWORD BY MINISTER
FOR TRADE AND INVESTMENT
                                  THE HON                                         Selling products in China via an
                                                                                  online marketplace is a relatively
                                  ANDREW ROBB AO MP                               easy, low-cost and low-risk
                                                                                  alternative for Australian exporters.
                                  MINISTER FOR TRADE
                                  AND INVESTMENT                                  In 2014, China’s online retail market
                                                                                  grew by 50 per cent to reach the
                                                                                  equivalent of half-a-trillion Australian
                                  Since concluding the landmark                   dollars1, creating vast possibilities
                                  China-Australia Free Trade                      for our home-grown businesses.
                                  Agreement (ChAFTA), the
                                  government has been focused on                  Access to comprehensive,
                                  ensuring Australian businesses –                unbiased information and in-market
                                  large and small – understand how                assistance is vital to success
                                  to make the most of the enhanced                in China’s e-marketplaces, so
                                  access the agreement delivers                   this E-commerce in China: A
                                  in this lucrative Asian market.                 Guide for Australian Business
                                                                                  is an invaluable resource.
                                  Australia’s high quality goods and
                                  services are in strong demand in                Produced by Austrade, the guide
                                  China – particularly among the                  explains in simple terms how
                                  rapidly growing middle class –                  China’s e-marketplaces work
                                  and given ChAFTA provides the                   and how to access them. Other
                                  best market access any foreign                  practical information includes
                                  country has achieved to date, the               explanations on market regulations
                                  openings Australian businesses                  and export pathways, how to
                                  can seize upon are significant.                 manage an online store, managing
                                                                                  intellectual property, as well as
                                  In fact, on full implementation of              profiles on Chinese consumers
                                  the agreement, 95 per cent of                   and Australian companies already
                                  Australian goods exports to China               enjoying success in Asia.
                                  will be tariff free, which is why it’s
                                  important that businesses are                   The export opportunities into China
                                  equipped with the right know-                   are certainly there for the taking and
                                  how to take full advantage of the               this guide, along with Austrade’s
                                  opportunities which includes an                 network of contacts and market
                                  understanding of e-commerce.                    intelligence – both here in Australia
                                                                                  and overseas – are vital tools when
                                  Online sales of consumer products               building your brand and expanding
                                  in China represent an exciting                  your business into Asia and beyond.
                                  pathway to trade for Australian
                                  exporters, who in the past, may
                                  have found it difficult to break
                                  into this market due to cost,
                                  cultural or regulatory barriers.

1
    Ministry of Commerce, China

        4                                                                  E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS
E-COMMERCE IN CHINA A GUIDE FOR AUSTRALIAN BUSINESS - JUNE 2015 - Austrade
FOREWORD BY MINISTER
FOR SMALL BUSINESS
                                                 THE HON                              offers these businesses access
                                                                                      to over 300 million customers.
                                                 BRUCE BILLSON MP
                                                                                      The market is growing rapidly.
                                                 MINISTER FOR
                                                                                      China’s National Bureau of Statistics
                                                 SMALL BUSINESS                       estimates it expanded by 50 per
                                                                                      cent in 2014 to be worth around
                                                                                      half a trillion Australian dollars.
                                                 The hard working women and men
                                                 of Australian small business are     This guide is free and is published
                                                 the engine room of our economy.      in conjunction with a series of
                                                 Small businesses and family          roadshow seminars the government
                                                 enterprises employ over four         is conducting across our country.
                                                 and a half million Australians and
                                                 produce over $330 billion of our     We are committed to ensuring
                                                 nation’s economic output each        Australia is the very best place
                                                 year. Small business drives growth   to start and grow a small
                                                 and creates jobs for our country.    business. To do this we know it
                                                                                      is important to provide practical
                                                 Small businesses are often among     information and support to help
                                                 the first to adapt to changes in     small and medium enterprises
                                                 technology and resulting effects     be export ready, establish a
                                                 on consumer demand – at the          presence and build their sales.
                                                 coal face they are identifying
                                                 new trends and opportunities         This guide provides a clear
                                                 in Australia and offshore.           explanation of the key concepts and
                                                                                      regulations businesses will need to
                                                 This publication, E-commerce         understand. It also includes case
                                                 in China: A Guide for Australian     studies and a list of useful contacts.
                                                 Business, is designed to help
                                                 harness the historic opportunities   I would urge all Australian business,
                                                 available through our Free           no matter how small, to consider
                                                 Trade Agreement with China.          the huge potential e-commerce
                                                                                      in China presents. This guide
                                                 For small business and family        is a great starting point.
                                                 enterprise there is no substitute
                                                 for customers. The development
                                                 of a sophisticated online market
                                                 for consumer products, to such a
                                                 big export destination as China,

E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS                                                                      5
E-COMMERCE IN CHINA A GUIDE FOR AUSTRALIAN BUSINESS - JUNE 2015 - Austrade
EXECUTIVE SUMMARY
Despite a macroeconomic slowdown in China, online         costs, minimal risks and easier market access
consumer spending is growing at close to 50 per           compared to traditional exporting.
cent a year, particularly in fast-growing second and
third-tier cities like Kunming, Wuhan and Shenyang.       While buying quality overseas-made goods is an
These cities – often overlooked by the physical outlets   unrealised aspiration of many of these consumers,
of foreign brands – are where online hypermarkets         at least 18 million are already paying premium prices
such as JD.com and Yihaodian (YHD) dispatch               for foreign products like food, cosmetics and luxury
hourly deliveries on fully laden electric bikes from      items. These are directly imported through ‘cross-
thousands of distribution centres across China.           border’ e-commerce trading platforms in seven cities.
                                                          The reduced import taxes and simpler quarantine
E-commerce brings China’s 332 million                     and inspection procedures within these pilot
online consumers within the reach of even                 business-to-consumer (B2C) gateways are stirring
the smallest Australian producers, with lower             up much excitement among buyers and sellers.

  6                                                                   E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS
E-COMMERCE IN CHINA A GUIDE FOR AUSTRALIAN BUSINESS - JUNE 2015 - Austrade
E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS   7
E-COMMERCE IN CHINA A GUIDE FOR AUSTRALIAN BUSINESS - JUNE 2015 - Austrade
DIVERSE ONLINE                                                                    SELLER                                      AUSTRADE:
MARKETPLACES                                                                      BEWARE                                      HERE TO HELP
For the Australian exporter,                                                      However, any form of international          Austrade has identified a suite
selling online in China can be as                                                 marketing is not without its                of useful reference materials,
straightforward as shipping your                                                  challenges, and selling online in           including this guide, to help
goods through Australia Post,                                                     China is no exception. Information          you learn more about key areas
or to the procurement centre of                                                   on e-commerce in China is                   affecting China’s changing business
an affiliated e-commerce market                                                   dense, complex and prone to                 environment. More information
place in Sydney or Melbourne.                                                     contradictions and frequent change.         is available from our website2.
Professional third-party service
providers, online merchants and                                                   With more technology comes more             For some producers, selling to
e-commerce marketplaces have                                                      buyer discretion. Simply being              China’s online consumers will
quickly moved in to offer Chinese-                                                ‘Australian’ or having a reputation for     bring welcome but modest gains.
language storefront design,                                                       ‘safety’ will not guarantee success         For others, China’s e-commerce
customer service, importation,                                                    in the long term. To stand above the        market may be revolutionary.
warehousing and last mile delivery.                                               noise, products need a persuasive
                                                                                  story and attractive and culturally         This guide has been prepared
Established brands may choose to                                                  relevant design and packaging.              with the advice of e-commerce
follow in the path of companies like                                                                                          and marketing professionals to
Blackmores and Bellamy’s Organic                                                  Doing business in China – like all          provide essential information to
by establishing ‘flagship’ shopfronts                                             international commercial activities –       assist Australian companies make
on popular online malls. Such an                                                  carries certain risks that Australian       informed decisions on commencing
approach brings added costs, but                                                  companies might not be aware of.            on the path to their first online sale
also adds credibility in a market                                                 Australian companies should spend           in China. Austrade wishes you
where barriers to entry are low and                                               time investigating the market, obtain       every success on the journey.
concerns about product authenticity                                               professional advice and conduct
are paramount. Alternatively, online                                              thorough due diligence before
hypermarkets offer upfront terms for                                              establishing business relationships.
the most popular branded goods.

 For emerging brands looking
to win market share, media-rich
online storefronts – complete
with product reviews – are an
unrivalled way to receive consumer
feedback and tell a brand story
at lower costs compared to paid
advertising or in-store displays.

2
    http://www.austrade.gov.au/export/export-markets/countries/china/doing-business/Doing-business

        8                                                                                                              E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS
E-COMMERCE IN CHINA A GUIDE FOR AUSTRALIAN BUSINESS - JUNE 2015 - Austrade
Credit: Alibaba

E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS          9
E-COMMERCE IN CHINA A GUIDE FOR AUSTRALIAN BUSINESS - JUNE 2015 - Austrade
INTRODUCTION
   THE E-COMMERCE MARKET IN CHINA
   The online retail sector in China                                                  and social fabric. By June 2014, the      to China’s National Bureau of
   continues to attract the world’s                                                   China Internet Network Information        Statistics4, it is a sector with sales
   attention for its headline growth                                                  Center (CNNIC) estimated that             of more than half a trillion Australian
   and transformative effects on the                                                  more than 300 million Chinese             dollars in 2014, a 50 per cent
   country’s business environment                                                     were shopping online3. According          increase on the previous year.

   Figure 1: China e-commerce total sales value

                    3000.00

                    2500.00
100 million Yuan

                    2000.00

                    1500.00

                    1000.00

                        500.00

                            0

                                  2009                                2010                                2011   2012               2013                 2014

   Source: National Bureau of Statistics Annual Online Retail Sales, January 2015

   Exemplifying this growth, China’s                                                  evolution in other markets. In China      due to its low costs and accessibility
   biggest business-to-consumer                                                       it is driven not by PC shoppers           of information. In 2013, sales in
   (B2C) platform, Tmall, created                                                     but by consumers using mobile             China’s online B2B market reached
   the popular Singles’ Day on 11                                                     devices. More than 40 per cent of         RMB 7 trillion (US$1.2 trillion) with
   November 2009 (written out with                                                    Tmall’s transactions are made by          a year-on-year growth rate of 19.7
   the lonely call sign of ‘11/11’). With                                             mobile consumers. According to            per cent8. Alibaba’s 1688.com
   much anticipated discounts on                                                      the CNNIC, 520 million Chinese            remains the prevailing platform
   offer, subsequent Singles’ Days                                                    access the internet via a smart           for such transactions, spanning
   have broken consecutive world                                                      phone, from a total population of         16 industries including food, raw
   sales records for a single day.                                                    632 million internet users6. The          materials, clothing and accessories,
   On 11 November 2014, sales on                                                      Chinese Government’s target is            and furniture. The site controls over
   Tmall reached RMB 116 million in                                                   to connect 1.2 billion people – 85        40 per cent of the B2B market,
   the first minute of the day and by                                                 per cent of the population – to 3G        followed by Global Sources (a Hong
   midnight exceeded RMB 57 billion5.                                                 or 4G mobile internet by 20207.           Kong-based B2B media company)
                                                                                                                                and HC360 (a comprehensive
   The uptake of e-commerce in                                                        Business-to-business (B2B)                B2B platform covering more
   China is significantly different to its                                            e-commerce is also growing rapidly        than 70 industrial clusters).
   3
     China Internet Network Information Centre, Statistical Report on Internet Development in China, July 2014
   4
     National Bureau of Statistics, Total Retail Sales of Consumer Goods in December 2014, January 2015
   5
     Xinhua News Agency, Singles’ Day sales boom breaks records, November 2014
   6
     Ibid CNNIC
   7
     Dezan Shira and Associates, Trends in China’s E-Commerce Market, June 2014
   8
     China Internet Watch, China Online B2B Market Update in 2013, May 2014

                   10                                                                                                    E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS
DRIVERS OF GROWTH
The pervasiveness of technology                                        Uber delivered a lion dance troupe        Another key factor underpinning
across China’s cities is having                                        to perform in a subscriber’s office       the growth of e-commerce is rising
profound effects on the market for                                     for less than RMB 200. This is a          incomes. McKinsey estimates that
goods and services. A 2014 survey                                      reason why more than 200 million          14 per cent of China’s households
conducted by product research                                          consumers used their mobile               can be defined as mainstream,
company Psyma showed 75 per                                            phones to make purchases in               with annual incomes of between
cent of phone users have made                                          2014. According to Dezan Shira            US$16,000 and US$34,0009. These
online food or beverage purchases.                                     and Associates, approximately             families display more willingness to
Daily necessities such as rice and                                     70 per cent of all e-commerce             pay for quality imported products,
drinking water, as well as taxis,                                      related payments in China are             often as a result of first-hand
movie tickets, haircuts, holidays                                      now electronic, a reversal from           experience during overseas work
and meals can be purchased via a                                       five years ago when around 70             and travel. By 2022, the upper
mobile phone. During Chinese New                                       per cent were cash-on-delivery.           middle class will account for 54
Year in 2015, transport company                                                                                  per cent of all households.

Figure 2: Penetration of chained convenience stores – Number of outlets/million people

                                                                               140

National Average: 22

                                                                16

                                                          Non-Tier 1          Tier 1
                                                           Cities             Cities

Source: Euromonitor International, Cites in China: Economic and consumer dynamics for successful business, 2015, p.8

The shortcomings of traditional                                        shipment of goods to China’s              rice. For time-conscious consumers,
retail are another factor. Despite                                     inland provinces is often the only        online shopping is a necessity.
having more wealthy households                                         means of purchasing certain
than Australia, China’s consumers                                      goods at affordable prices.               Furthermore, well-publicised concerns
are comparatively underserved                                                                                    over unsafe and counterfeit products
by local retail channels                                               Meanwhile, in China’s first tier cities   have undermined trust in many
                                                                       of Beijing, Shanghai, Guangzhou           locally produced products, pushing
As shown in Figure 2, the availability                                 and Shenzhen, congested traffic           consumers towards goods with a
of branded products has not                                            means it is often more convenient to      strong reputation in overseas markets
kept pace with the demand from                                         purchase online, especially for heavy     and to reputable sales channels.
second and third tier cities. Online                                   bulk goods like water, cooking oil and

9
    McKinsey and Company, Meet the 2020 Chinese Consumer, March 2012

E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS                                                                                              11
UNDERSTAND CHINA’S
                                                                                  ONLINE CONSUMERS
SHOPPER PROFILE                                                                   WHO IS BUYING GOODS ONLINE AND WHY?

CHRISTY                                                                           According to Nielsen research, the       more than RMB 11,000 per month
                                                                                  typical online buyer of imported         (A$2,150 a month or A$25,800 a
PUBLIC SERVANT                                                                    products in China is female, younger     year)10. Frequently cited reasons
                                                                                  than 30 and with an income of            for shopping online include:
Christy is a 29-year-old public
servant and mother of an
18-month-old boy. She spends
two to three hours every day
looking for food, household                                                                  Accessibility: online shopping is available anywhere, any time.
items and baby or toddler
products on Taobao, JD.com,
Yihaodian and WeChat. She                                                                    Convenience: most major sites offer free delivery, which
estimates that she has spent                                                                 helps to avoid crowded traffic and public transport.
over RMB 15,000 on infant
formula, baby food and toys
in the past 12 months.                                                                       Low prices: online prices are typically 10-20 per
                                                                                             cent lower than in-store, with sales events like
‘I don’t fully trust domestic                                                                Singles’ Day offering even bigger savings.
brands. When available, I
always choose imported
products for my child. I usually                                                             Greater choice: a typical Chinese supermarket carries upwards
buy from trusted e-commerce                                                                  of 15,000 stock keeping units (SKUs), whereas online supermarket
sites because I know that I                                                                  Yihaodian stocked up to eight million SKUs by the end of 2014.
can trust the importer. I take
product safety issues seriously.’
                                                                                             Detailed product information: online stores are rich in
                                                                                             the type of details sought by consumers, such as country
                                                                                             of origin, production method and customer reviews.

                                                                                             Confidence: consumers place higher levels of trust
                                                                                             in the authenticity of purchases made on major B2C
                                                                                             platforms such as Tmall, JD.com and Yihaodian.

                                                                                  Given these factors, it is of little     by PwC shows that the number of
                                                                                  surprise that Chinese users are          Chinese consumers who report
                                                                                  some of the most regular online          making daily or weekly online
                                                                                  shoppers in the world. A global          purchases is double and triple the
                                                                                  online commerce survey conducted         global average, respectively. 11

10
     Nielsen, China sees more sophisticated online shoppers, September 2014
11
     PwC, Total retail 2015: Retailers and the age of disruption, February 2015

        12                                                                                                          E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS
Credit: Amazon China

E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS                13
WHAT IMPORTED PRODUCTS ARE
ONLINE SHOPPERS LOOKING FOR?

                                                                                                                                                                        Credit: JD.com

Nielsen research estimated Chinese                                               In 2014, Austrade analysed the                     toys, beer and honey. The figures
online shoppers would spend                                                      average daily frequency of Taobao                  also revealed significant buyer
RMB 100 billion (approximately                                                   shopper keyword searches                           interest in furniture and home
US$16.3 billion) in 2014 on imported                                             performed over three months for                    improvement products: categories
products.12 Apparel, accessories                                                 25 types of product which could be                 where Australian products are
and handbags are the most                                                        supplied by Australian companies.                  under-represented in China.
popular imported items sold in                                                   The most sought-after categories
China, followed by cosmetics                                                     were packaged snacks, children’s
and personal care products, and
mother-and-baby products.

12
     http://www.nielsen.com/us/en/insights/news/2014/consumers-without-borders--chinese-shoppers-present-a-key-growth.html

        14                                                                                                                   E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS
Figure 3: Frequency of Keyword searches on Taobao for a selection of 25 products

Cheese

Olive oil

Pet care

Pet food

Packaged snacks

Jewellery

Home improvement

Outdoor and sporting equipment

Beauty and personal care

Toys

Clothing and accessories

Furniture

Vitamins and supplements

Honey

Juice and other beverages

Beer

Spirits

Wine

Seafood

Fresh and frozen meat

Fruit and veg

Yoghurt

Infant formula

Fresh milk

UHT milk

                                           0           10000   20000   30000   40000   50000   60000   70000

Source: Austrade/Taobao, November 2014

E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS                                                           15
In November 2014, Ben Sun of
ThinkChina, a Sydney-based
                                     terms. The results in Figure 4
                                     show that skincare, food and
                                                                                   SHOPPER PROFILE
e-commerce data analytics            wine, and milk powder were the
company, studied the product         Australian products most sought               LUCY
categories of Tmall and Taobao       after by China’s online shoppers.
searches where the keyword                                                         DESIGNER AND OWNER
‘Australia’ was part of the search
                                                                                   Lucy is a 59-year-old designer
                                                                                   and small business owner
                                                                                   from Guangzhou. She recently
                                                                                   renovated her office and bought
                                                                                   almost everything for the project
Figure 4: Search volume (%) of Australian products                                 online, from hardware to furniture
on Taobao and Tmall, November 2014                                                 and construction services.

                                                                                   ‘Interior design and construction
Fur products                                                                       services are all available online.
2.40%                                                                              I renovated my office with just
                                                                  Others           a few clicks of a button and
Health supplements                                                  2.8%
5.41%                                                                              minimal leg work,’ she says.

                                                                                   Lucy spent around RMB 280,000
Food & wine                                                                        on renovating her 500 square-metre
18.64%                                                                             office through online purchases – a
                                                                                   huge saving over traditional methods.
                                                                Skincare
                                                                 39.86%
                                                                                   ‘I was able to get quality pieces
                                                                                   without having to bargain. A secure
                                                                                   escrow account allowed me to view
Shoes & clothing
15.14%                                                                             the product first before confirming
                                                                                   the order, and returning it for a
                                                                                   refund was easy when the product
                                                             Milk powder           didn’t meet my expectations.’
                                                                   15.75%

Source: Think China, November 2014

‘To sell in China successfully,
you need to leave your Australia
hat at the door and understand
the Chinese consumer.’

Chris Morley, E-commerce Director,
Premium Australia Foods

  16                                                                     E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS
Credit: VIP.com

E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS         17
18   E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS
GET YOUR PRODUCT READY
FOR THE CHINESE MARKET
Successful exporting requires optimising brand messages and designing products to cater for
subtle but important differences in consumer behaviour across international markets.

Austrade has more than a dozen business development managers working in the food and beverage, consumer
and agribusiness sectors in China. Their experience suggests Chinese buyers look for products that:

 • have strong brand heritage outside of China
 • replace local brands that are not trusted (particularly if the end user is an infant or is elderly)
 • are innovative and novel
 • are lifestyle products (e.g. healthcare, vitamins and education)
 • are ‘natural’ alternatives to artificial products.

Andrew Kuiler, a Shanghai-based Australian branding and packaging expert and founder of the Silk Initiative,
advises that for food exporters, just being ‘foreign owned’ is no longer good enough for Chinese consumers.
‘Success requires a strategy supported by a strong understanding of consumers and how they will use a
product and respond to brand narratives,’ Kuiler advises. ‘Grounds on which Australian manufacturers can
compete in China include innovation, natural and functional ingredients, safety and technology,’ he says.

E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS                                                           19
PRICING

Exporters need to allow for                Food Co., notes that ‘pricing is one           A simple online search will show
sufficient margins to cover duties,        of the biggest issues Australian               prices for competing imported
tariffs, storage and delivery,             brands face in China. Prices                   goods. Table 1 compares the
marketing and discounting.                 must be comparable with similar                Australian and Chinese prices for a
                                           imported products from Europe                  sample basket of goods sold online.
Margaret Harris, co-founder and            and the US to be competitive.’
joint managing director of The Clean

Table 1: Prices of Australian-branded consumer goods sold online in China, December 2014

   PRODUCT                                          VOLUME                        PRICE IN A$             PRICE IN CHINA
                                                                                                           (A$ equivalent)

   SPF 30+ sunscreen                                40ml                          19.95                    56.41

   Face cream                                       125ml                         32.95                    52.48

   Age-Defying Ultra Firm and Lift Cream            50ml                          90.00                    138.09

   Cheese slices individually wrapped 12 pack      216g (AU) - 250g (CN)          3.30                     5.83

   Full cream Long Life milk                       1 Litre x 10                   15.80                    30.00

   Tasty cheese block                              250g                           5.70                     8.77

   Famous brand Shiraz 2013/14 vintage             750ml                          8.99                     28.79

   Smooth peanut butter                            500g                           5.38                     22.95

    Australian squeezable honey                    500g                           7.30                     19.06

Source: Austrade in-house research, 2015

Chinese consumers have shown a             success over the past decade, driven           buyer’s personality and travel
willingness to pay premium prices          by China’s economic rise and a desire          history. This is creating a good
for quality products. Australian           for status-confirming products.                market for well-crafted, Australian
manufacturers should prioritise their                                                     ‘affordable-luxury’ brands and
efforts to develop products that           As the middle-income segment                   products, especially in the lifestyle
have high quality and brand appeal.        and consumer tastes become                     and fashion segment, where well-
                                           more nuanced, many shoppers                    designed and creative alternatives
Luxury brands from Europe and              are looking to more modest,                    are increasingly popular.
the US have enjoyed tremendous             unique brands that reflect a

   20                                                                         E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS
PACKAGING

Because imported items                           packaging is consistent with this   adopted by competing imported
are considered a luxury,                         perception. Searching for your      products. Consideration
manufacturers need to                            product on any major platform       should also be given to:
ensure the standard of their                     will reveal the form of packaging

            Purpose: many imported goods are gifts to friends and family. Specialised ‘gift packs’ are popular options

            Unit volume: for some products, larger-sized products help absorb ‘last mile’ delivery costs and
            make better gifts. Many consumers order large quantities of a single SKU when shopping online

            Authenticity: use features that are hard to replicate, such as holograms and logos

            Traceability: use features such as barcodes and QR codes to demonstrate product provenance

            Labelling: all food and imported products sold in China are required to have
            a Chinese-language label explaining product contents and origin.

                                                                                                                Credit: YHD.com

E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS                                                                   21
UNDERSTAND CHINA’S
ONLINE MARKETPLACES

Exporters are not required to build   Figure 5: China’s top B2C websites, market
and operate a stand-alone website     share by total transactions, Q2 2014
in order to sell online to Chinese
consumers. Approximately 90
                                      Yixun.com
per cent of online transactions in    1.40%
China occur on open, third-party
                                                                                                                          Yhd.com
e-commerce marketplaces.              Amazon                                                                                  1.4%
                                      1.50%
These sites can display products,     Dangdang                                                                               Others
receive orders and handle payments    1.50%                                                                                   7.41%
on behalf of merchants located in
China and abroad. They operate        Gome.com.cn
                                      1.90%
under one or more of the following
five main types of e-commerce                                                                                                 Tmall
                                      VIP.com                                                                                57.36%
marketplace models in China:          2.80%

 • online malls                       Suning.com
                                      3.50%
 • hypermarkets and specialty sites
 • flash sale sites
 • C2C ‘online bazaars’
   and social selling
 • Stand-alone websites.

                                      JD.com
                                      21.22%

                                      Source: iResearch, China Internet Watch July 2014

  22                                                                              E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS
ONLINE MALLS
Online malls are a collection                    Shoppers can purchase items          operated by brand owners or
of independently managed                         from multiple shopfronts in a        their licensed agents, who are
shopfronts operating under the                   single convenient transaction.       required to pay an anti-counterfeit
banner of a larger marketplace.                                                       security deposit of US$25,000.
                                                 Tmall Global allows foreign
In exchange for a shopfront set-                 merchants to establish an official   Site design, inventory management,
up fee, yearly ‘rents’ (commonly                 shopfront without requiring a        warehousing, order fulfilment,
known as technology fees) and a                  business licence in China. Sellers   customer service and delivery
sales commission of two to five                  will need to open an account with    remain the responsibility of the
per cent, merchants benefit from                 Alipay – China’s equivalent of       shopfront owner, assisted by the
the reputation and visitor traffic               PayPal – to receive RMB payments     marketplace’s proprietary back-
associated with the marketplace.                 from Chinese customers. To           end platform. The marketplace
For example, Tmall has more                      ensure consumer confidence in        does not purchase, store or
than 255 million registered                      the authenticity of merchandise,     deliver merchandise.
users and 70,000 shopfronts.                     shopfronts on Tmall can only be

HYPERMARKETS AND SPECIALTY MARKETPLACES
Hypermarkets, such as JD.com,                    within their marketplaces to sell    onto the vertically integrated
Yihaodian and Amazon, also allow                 speciality or low-turnover items.    hypermarket model (see page 25).
independent merchants to list                    High-performing brands have
products or operate shopfronts                   the opportunity to be ‘graduated’

E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS                                                                   23
Amazon China (Z.cn) is Amazon’s online shopping platform in China, which
     provides over 25 million products spanning 32 categories. Amazon China
     has 13 fulfilment centres across the country offering premium delivery service
     including same day delivery and next day delivery in more than 1400 cities/
     counties and more than 5000 pick-up points, and provides a convenient
     and swift online shopping experience to Chinese customers. With the
     unique advantage of rich global vendor resources and logistic network,
     Amazon China today already hosts the largest international brands and high-
     quality authentic international products among online retailers in China.

     JD.com is China’s largest online direct sales company. JD.com owns and
     operates seven fulfilment centres and 143 warehouses in 39 cities, with
     a further 3,539 delivery stations in 1,961 counties and districts across
     China, 134 of which offer same-day delivery. JD.com allows merchants to
     open individual shopfronts and is also licensed to import food, beverage
     products, apparel and shoes directly from Australia. A cross-border
     service, JD Worldwide, was also recently launched, enabling merchants
     who don’t have a China presence to sell direct to Chinese consumers.

     SFHT.com is part of SF Holdings (Group) and is a cross-border marketplace
     for sought-after foreign goods using the international logistics network for SF
     Express to provide customers with a fast end-to-end import and online retail
     service. For brands, distributors and foreign retail partners entering China,
     SFHT offers a complete solution including international logistics, customs entry,
     domestic delivery and omni-channel promotion plans, both offline and online.
     SFHT has marketing partnerships with third-party sales channels and offers
     Online-to-Offline (O2O) integration with retail chain stores in Taiwan and Japan.

     Tmall.com is China’s largest online marketplace dedicated to domestic and
     international branded merchandise. Owned by Alibaba Group and launched in
     April 2008, Tmall provides a marketplace for foreign brands or their approved
     partners to open exclusive shopfronts. Tmall Global, launched in 2014, only sells
     imported goods, and allows international brands without physical operations in
     China to sell directly to consumers. More than 600 foreign merchants benefit
     from exposure to the hundreds of millions of Chinese consumers who frequent
     Alibaba’s marketplaces daily. Tmall Global has English-speaking support staff.

     VIP.com was founded in August 2008 as an online special offers retailer
     offering authentic, competitively priced and popular branded products to
     consumers in China. VIP was listed on the New York Stock Exchange in
     2012 and has more than 100 million registered members. Merchant support
     provided by VIP’s end-to-end online cross-border solution includes receiving
     merchandise in Australia, customs clearance, translation, design, segment
     analysis and delivery in China. Sales commissions start from 20 per cent.

     Womai.com is a Beijing-based specialty B2C e-commerce website
     created in 2009 by state-owned food giant COFCO. It is focused on
     staple foods, snacks, beverages and wine, which it purchases directly
     from suppliers and can deliver nationwide from three distribution hubs
     to its 15 million registered users, including refrigerated goods.

     Yihaodian (translation: Number One Store) is China’s largest online retailer
     of food and beverages, selling around 250 million imported items in 2013,
     including one-third of all imported UHT milk sold online in China. Co-
     founded by Chairman Yu Gang and Flinders University alumnus Junling
     Liu, Yihaodian operates 17 warehouses and has 10,000 employees across
     China. Yihaodian is 51 per cent owned by US retail giant Walmart and is
     licensed to import food and beverage products directly from overseas.

24                                        E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS
Online hypermarkets are vertically                     delivery stations in 1,961 counties              required to manage distribution
integrated, multi-category                             and districts across China.                      or a shopfront, but are typically
marketplaces that purchase directly                • Yihaodian stocks up to eight                       asked to provide official marketing
from suppliers for sale through                      million SKUs, with a focus on                      collateral to promote their goods.
their own network, much akin to a                    fresh food and beverages.
traditional ‘bricks-and-mortar’ retail             • Amazon China offers same-
                                                                                                        Smaller specialty marketplaces, in
store. Core to this model is the                     day shipping in major cities and                   most cases, also purchase directly
operation of a proprietary online                    access to popular imported items                   from suppliers, but focus on a
e-commerce platform and self-                        listed on its US parent site.                      particular product line, region (e.g.
owned distribution network offering                                                                     Shanghai), need (e.g. food safety)
                                                   Selling to a hypermarket is
same-day delivery. For example:                                                                         or community (e.g. paid-members,
                                                   done through negotiation with
                                                                                                        expatriates). The following tables
• JD.com processes tens of                         a procurement manager. Both
                                                                                                        outline some of the many specialty
  thousands of orders per day through              JD.com and Yihaodian are licensed
                                                                                                        marketplaces that sell imported food
  seven logistics hubs and 143                     to import directly from Australia.
                                                                                                        and beverages, fashion, accessories
  warehouses, with a total of 3,539                Exporters or their agents are not
                                                                                                        and general merchandise.

Table 2: Specialty marketplaces selling imported food and beverages

                                    Shanghai-based seller of fresh food and beverages run by Shanghai
  www.962360.com                    Bright Food, targeting everyday Chinese consumers.

                                    Beijing-based online fresh food supermarket with national reach through its
  www.benlai.com                    own online portal and shopfronts on Tmall, YHD and JD.com.

                                    Online supermarket focused on offering same-day delivery to
  www.epermarket.com                Shanghai’s expatriate community. Own cold-chain delivery.

                                    Online supermarket established in Shanghai in 2009 focused
  www.fieldschina.com               on quality and safety. Own cold-chain delivery.

                                    New member-based online supermarket offering Shanghai residents a select
  www.freshfresh.com                range of imported staples ‘at cost prices’. Own cold-chain delivery.

  www.fruitday.com                  Highly popular membership-based store selling premium boxed fruit. Established in 2009.

  www.kateandkimi.com               Shanghai-based seller of gourmet food and wine, operated by two expatriates. Own cold-chain delivery.

                                    Beijing-based ‘fruit fan’ established in 2014, with own online portal
  www.okshuiguo.com                 and shopfronts on Tmall, JD.com and WeChat.

  www.pinstore.cn                   Japanese-operated seller of food and general merchandise.

  www.sfbest.com                    Food and consumer product retail marketplace owed by SF Holdings (Group).

  www.yiguo.com                     National seller of imported and domestic food and wine with one million users. Established in 2005.

  www.youanxianpin.com              National B2B-focused platform selling premium domestic and imported food.

  www.yummy77.com                   Amazon-invested seller of imported and domestic foods with 500,000 registered users in Shanghai.

  www.yesmywine.com                 One of China’s largest online wine stores with 6.6 million registered users.

Source: Austrade in-house research, 2015

E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS                                                                                        25
Table 3: Specialty and wholesale marketplaces selling fashion, accessories and general merchandise.

        www.amazon.cn                                Official Chinese site of US e-commerce giant, also known as z.cn

        www.dangdang.com                             China’s largest online retailer of books.

        www.gome.com.cn                              National home electronics and appliances store that has expanded into fashion and lifestyle products.

                                                     Online seller of imported luxury fashion, homewares, accessories and
        www.iluxday.com                              packaged foods. Handles importing, warehousing and logistics.

        www.lamall.com                               Mother-and-baby speciality site.

                                                     Shanghai-based Glamour Sales is a membership-based website that offers daily flash
        www.mei.com                                  sales of more than 1,500 luxury international fashion brands to loyal fashionistas.

        www.shangpin.com                             National flash sales e-retailer of fashion, jewellery and accessories with five million users.

        www.suning.com                               One of China’s largest brick-and-mortar home electronics stores and a leading e-retailer.

                                                     An online channel for merchants doing business on Alibaba Group’s retail
        www.1688.com                                 marketplaces to source products from domestic wholesalers.

CONSUMER-TO-CONSUMER:
ONLINE BAZAARS AND SOCIAL SELLING
Consumer-to-consumer (C2C)                                                Because establishing a store on                 Merchandise listed on JD.com
marketplaces operate under                                                Taobao is effectively free, this                can also be accessed through
a business model similar to                                               marketplace is dominated by small               Tencent’s popular social media
eBay. Alibaba’s Taobao C2C                                                sole traders who compete fiercely               platform WeChat (otherwise
marketplace was the pioneer of                                            on price, leading to concerns                   known as Weixin). Merchants
China’s e-commerce sector, and                                            among discerning shoppers                       on JD.com can set up their own
remains the most popular with a                                           about product authenticity 13.                  ‘micro-stores’ to sell socially to
90 per cent market share in the                                           Delivery times vary according to                friends and contacts on WeChat,
C2C segment. Today, Taobao has                                            the seller’s location and preferred             with the option to use JD.com’s
eight million sellers and over 200                                        courier, and payment options vary               nationwide fulfilment infrastructure
million active users. It is estimated                                     from store to store. Establishing               and Tencent’s finance tools.
that 50 per cent of China’s total                                         a shopfront on Taobao requires
online sales occur on Taobao.                                             registration with a Chinese ID card.

FLASH SALES
Flash sale sites specialise in selling                                    appeal for consumers familiar                   means for exporters to ‘test’ the
new-to-market, discontinued or                                            with overseas brands. Because                   market for new products before
surplus branded stock at discounted                                       flash sale sites deal with discrete             establishing a more substantial
prices. They hold particular                                              quantities, they can be an effective            online or offline sales presence.

13
     Xinhua News Agency, Watchdog finds fake goods in online malls, January 2015

       26                                                                                                         E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS
STAND-ALONE E-COMMERCE WEBSITES
Given the popularity and                                 exporters. Any company seeking                       to receive payments in RMB.
convenience of third-party                               to sell products through its own                     Engaging in-house delivery requires
marketplaces, building a stand-                          site is required to register a                       establishing a separate wholly
alone transactional website for                          business and follow a lengthy                        foreign-owned enterprise and
China is typically considered too                        record-filing procedure. A third-                    acquiring a transportation licence.
difficult and costly for inexperienced                   party payment solution is required

Table 4: Select marketplaces compared

                                        Alibaba Group

 Marketplace name

                               Taobao
 Business model              Marketplace        Tmall.com (B2C)    Hypermarket            Online mall     Hypermarket             Online mall      Flash sales
                                (C2C)

 Estimated number
                                         350 million                          105.2 million                         90 million                     100 million
 of users
                                                                                                                                                   Products for
 Focus                            General merchandise                   General merchandise                     Food and beverage
                                                                                                                                                     women

 Number of
                                  N/A              50,000+              1                   100,000            1                      N/A                1
 shopfronts

 Estimated number               More than 1 billion product
                                                                              40.2 million                           8 million                      Rotational
 of products                       and service listings

                                                   A$3,000 –
                                                    $33,000                                 A$2,000                                 A$2,000
 Shopfront deposit                N/A
                                                 (depending on
                                                                   Not required
                                                                                           - $19,500
                                                                                                          Not required
                                                                                                                                   - $20,000
                                                                                                                                                        Nil
                                                   store type)

                                                   A$6,000 –
 Annual marketplace                                 $12,000
                                  N/A                              Not required             A$1,300       Not required              A$1,130             Nil
 fee (approx.)                                   (depending on
                                                   categories)

 Commission                       N/A                   2-5%                      1-10%                                  1-10%                       20-35%

                                                                                            Yes
 China ID / business                           Yes (Tmall.com)
                                  Yes                                  No              (JD worldwide          No                      Yes              No
 registration required                         No (Tmall Global)
                                                                                            No)

 In-house delivery
                                  No                     No            Yes                     Yes            Yes                      No              Yes
 and logistics

 Australian-based            By individual       By individual                            By individual                           By individual
                                                                       No                                     No                                       Yes
 procurement?                 shopfronts          shopfronts                               shopfronts                              shopfronts

                                                                                          By individual                           By individual
 Direct import                    No                     No            Yes
                                                                                           shopfronts
                                                                                                              Yes
                                                                                                                                   shopfronts
                                                                                                                                                       Yes

                                                                                            Yes (by                                 Yes (by
 Cross-border                 Yes (Taobao          Yes (Tmall       Yes (JD
                                                                                           approved           Yes                  approved            Yes
 capable                     International)         Global)        Worldwide)
                                                                                          shopfronts)                             shopfronts)

 Ownership                     Alibaba                 Alibaba               Publicly listed                  51% share by Walmart                Publicly listed

 Payment methods                Alipay                 Alipay                Tenpay, JD pay                              Alipay                   Alipay, Tenpay

Source: Austrade in-house research, 2015

E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS                                                                                                          27
28   E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS
PROTECT AND MANAGE YOUR
INTELLECTUAL PROPERTY
The first step for any company considering selling Australian merchandise
in China is to register their trade mark immediately

IDENTIFYING IP VIOLATIONS
Common types of intellectual                     Whether outsourced or conducted         Companies can also pay RMB
property (IP) violations in China                in-house, most companies adopt          800 to Chinese Customs
include infringement of copyrights,              measures to proactively search          to have them monitor their
trademarks, patents and design.                  the internet for all known kinds        trademarks and contact them if
Specifically, similar domain names               of violations, including domain         any violation is discovered. It is
and website styles are among                     name squatting, unauthorised            increasingly common to send
the most frequent complaints                     sales, look-alikes, free-riding or      staff to corporate functions and
made by foreign companies trying                 actual sales of counterfeits.           trade fairs, where infringements
to enter the Chinese market.                                                             are commonly spotted.

REGISTERING A TRADEMARK
In China, a trademark (except                    adequate protection under relevant      of the application within nine
for very well-known ones) offers                 Chinese trademark classes.              months from the date of receipt of
little protection without pre-                                                           the required documents. Further,
registration. It is therefore essential          Registering a trademark costs RMB       companies should ensure that
to register any key trademarks                   800. However, foreign companies         they have documentation (such
and logos with the trademark                     are required to entrust a trademark     as an international trademark
bureau of the State Administration               agency to handle the registration,      filing certificate, in both English
for Industry and Commerce                        which means there is an additional      and Chinese) showing that they
(SAIC) as soon as possible and                   agency charge ranging from RMB          own their registered IP in China.
seek the advice of a lawyer or                   500 to RMB 1,000. The trademark
trademark agent to guarantee                     bureau will complete examination

REMEDYING IP VIOLATIONS
In response to a violation,                      will be applied to vendors of
businesses within China can call the             counterfeit merchandise.
National Copyright Administration
at 12390 or the Intellectual Property            Prior to taking any formal legal
Office at +8610 6235 6655. At                    action, a company must first contact
present, these hotlines do not offer             SAIC, then hire a specialised
an English-language service.                     lawyer who can analyse the case                 ‘Never go into battle
                                                 to determine whether the defence              before casting weapons’
Brands and merchants who find                    is sufficiently justified. Litigation             Chinese Proverb
offending products or content                    costs can run up quickly, depending
on any of Alibaba’s platforms                    on the type of infringement,
may submit their findings via its                and employing an international
IP infringement complaint and                    IP firm tends to be costly.
take-down system. Penalties

E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS                                                                          29
GET YOUR GOODS TO CHINA

The four main pathways to export merchandise to China for sale on e-commerce marketplaces are summarised
in Table 5. The optimal pathway is influenced by the regulatory procedures that apply to a product, nature of
the product (e.g. size, value and freshness) and business model of the selected e-commerce marketplace.

Table 5: Export pathways

                                                                                                Customs
 Pathway to         Shipping               Consignment
                                                          Consignee        Marketplace          and product        Suitable for
 market             method                 size
                                                                                                clearance

                                                                                                                   • New to market products
                    International                                          Approved
 Direct to                                                                                                         • Small items
                    postal and             Individual     End user         cross-border         Cross-border
 consumer                                                                                                          • Low turnover, high
                    courier                                                marketplace
                                                                                                                     value items

                                                                           Consolidator
                                                                           managed
                                                                                                                   • New to market products
 Bonded                                                                    shopfront
                                           Consolidated   Local agent                                              • Large items
 warehouse +        Sea or air freight                                                          Cross-border
                                           or small       or partner                                               • Medium turnover,
 drip-shipping                                                             Approved
                                                                                                                     medium value items
                                                                           cross-border
                                                                           marketplace

                                                                           Online
                                                                                                                   • Established brands
                                                          Distributors     hypermarkets
 Conventional                                                                                   All duties, VAT    • High turnover, low to
                    Sea or air freight     Bulk           Online           Cold-chain
 distribution                                                                                   and quarantine       high value items
                                                          hypermarkets     equipped
                                                                                                                   • Fresh and frozen food
                                                                           specialty sites

                                                          Australia-
 Sales via third                           Consolidated   based agents                          All duties, VAT
                    Domestic                                               Any                                     Any
 parties                                   or bulk        of marketplace                        and quarantine
                                                          or distributor

Source: Austrade in-house research, 2015

   30                                                                                        E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS
CROSS-BORDER SALES:
DIRECT-TO-CONSUMER AND BONDED WAREHOUSE DRIP-SHIPPING
Cross-border sales are defined                                                       Shanghai, Hangzhou, Ningbo,                                                          certain products under China’s
as the direct import of goods                                                        Zhengzhou, Chongqing, Guangzhou                                                      Luggage and Postal Tax Policy.
from outside the customs territory                                                   and Shenzhen Qianhai.14
of China, utilising special pilot                                                                                                                                         Under this policy, combined total
channels, known as cross-border                                                      The primary advantages of cross-                                                     import taxes (import duties, value-
e-commerce platforms, and                                                            border sales are the reduced                                                         added tax and consumption tax)
based on the preferential policies                                                   import taxes and product                                                             apply to personal purchases15
of bonded zones in seven cities:                                                     compliance checks applied to                                                         of the following products:

Table 6: Import taxes on cross-border sales (personal purchases)

  10%                             Food (including healthcare products), underwear, shoes

  20%                             Suitcases, leather products, electrical appliances

  30%                             Watches, golf-related products

  50%                             Cosmetics, skincare products

Source: General Administration of Customs, 2015

The calculable luggage and                                                           (see pages 40-41) are exempted                                                             directly to Chinese consumers. (A
postal duty is not charged if                                                        under the following conditions:                                                            range of third-party service providers
the cost of goods is less than                                                                                                                                                  are listed on pages (58-61).
RMB 50. By comparison, regular                                                       • The exported product conforms
                                                                                       with domestic product
                                                                                                                                                                          For example:
import duties, value-added tax
and consumption tax applied to                                                         standards applicable in the
                                                                                       exporter’s home market.                                                            • healthcare products are not
merchandise imported through                                                                                                                                                required to carry China’s mandatory
traditional means can add up to                                                      • The exporter possesses a retail                                                      ’Blue Hat’ certification.
150 per cent, especially for luxury                                                    or trading licence in its country of
                                                                                       origin, and either owns the brand                                                  • infant formula does not need to be
items. (Information on the taxes                                                                                                                                            manufactured by a Certification
and other regulatory procedures                                                        or is an authorised distributor
                                                                                       of the products in question.                                                         and Accreditation Administration
applied to regular exports of a                                                                                                                                             (CNCA) accredited factory.
range of popular Australian items                                                    • The exporter complies with Chinese
can be found on page 42).                                                              consumer laws, offers Chinese-
                                                                                       language customer support, provides
Furthermore, normal quarantine                                                         a way to handle customer returns in
and other compliance testing                                                           China and arranges overseas shipping

14. Shenzhen Qianhai is yet to determine the eligible e-commerce platforms for its pilot cross-border trade. Authorities are looking to expand the pilot scheme nationwide in the near future.
15. Defined as orders of two or more products with a total value under RMB 1,000 (RMB 800 for goods from Hong Kong, Macao and Taiwan); or an order of one product of any value

E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS                                                                                                                                                               31
CROSS-BORDER SALES
BY THE NUMBERS

                                      number of
                                                                                           18                     number of cross-

    2,000
                                      ENTERPRISES                                                                 border SHOPPERS
                                                                                                                  in China
                                      ENGAGED in
                                      cross-border sales                             million

                                                   percentage of CHINESE
           39%                                     SHOPPERS who have
                                                   purchased from Australia

                                                                                            US$118.8 million
                                                   number of survey                         value of cross-border goods
          43%                                      respondents who cited
                                                   long delivery times as a
                                                                                            imported between July
                                                                                            2013 and November 2014
                                                   problem with CROSS-
                                                   BORDER SALES
                                                                                           //////////////////////////////////////

                                                                                          RMB 1 trillion
          78%
                                                   share of cross-border                                   estimated size of the
                                                   transactions made via                                   cross-border market
                                                   MOBILE PHONES                                           in China by 2018

Source: China Internet Watch, General Administration of Customs, Tmall Global 2014

   32                                                                                 E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS
These preferential policies result                  bonded warehouse in China                   (via QR sticker) and dispatch the
in lower costs (estimated to be                     (available through the Victorian            goods to a domestic courier.
20 to 30 per cent cheaper than                      Employers’ Chamber of Commerce
physical stores) and faster product                 and Industry (VECCI) and Premium            These services are delivered
clearance and dispatch times (one                   Australia Foods), or via express            through their own e-commerce
to two days, versus up to 30 days                   mail delivery (available through            stores (such as kuajingtong.
for bulk commercial shipments).                     Australia Post’s service with Tmall).       com), or through a government-
For these reasons, cross-                                                                       approved arrangement, with around
border sales are conservatively                     Orders are processed by designated          2,000 third-party e-commerce
estimated to double in 2015.                        e-commerce trading platforms.               marketplaces licensed to handle
                                                    These platforms, usually set up             cross-border transactions, such
Cross-border merchandise can be                     and maintained by a state-backed            as Tmall Global or JD Worldwide.
sent to China as a consolidated                     or licensed company, handle
shipment for dispatch from a                        customs clearance, track-and-trace

Table 7: Examples of approved platforms and e-commerce marketplaces

 Location                                      Licensed cross-border trading platform   Approved partner e-commerce marketplace

 Shanghai Free Trade Zone                      kuajingtong (跨境通)                        amazon.cn, yhd.com

 Ningbo                                        kuajinggou (跨境购)                         alldaycn.com, ikjtao.com

 Hangzhou                                      kjeport (跨境一步达)                          Tmall Global, yintai.com

 Zhengzhou National Economic and
 Technological Development Zone                e-maoyi (e贸易)                            wgyp.com
 (Henan-bonded logistics centre)

 Chongqing bonded zone                         cqkjs (重庆跨境贸易电子商务服务网)                    igetmall.net, 365hele.com

 Guangzhou                                     Top Ideal SCM (卓志供应链)                    JD Worldwide

Source: Austrade in-house research. Information current at February 2015

                                                                                                                          Credit: Amazon China

E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS                                                                                  33
CASE STUDY:
BELLAMY’S ORGANIC

Bellamy’s Organic flagship stores on Tmall (above) and Tmall Global (right)16

Bellamy’s Organic, a Tasmania-based organic infant food company, entered the Chinese market a decade ago and
is well established in both online and offline channels. Products that have been designed to comply with organic
and other certification requirements are sold through regular trading and sales channels. By establishing a flagship
store on Tmall Global and taking advantage of China’s cross-border e-commerce policies, Bellamy’s distributor is
able to directly sell to consumers infant nutrition products which meet Australia’s domestic requirements only.

CONVENTIONAL DISTRIBUTION
The majority of imported                                               ship full container loads directly                               entry strategy that complements
products sold in online malls and                                      to the warehouses of integrated                                  and drives offline distribution.
hypermarkets in China are handled                                      e-commerce marketplaces,                                         For example, many consumers
by conventional distributors, who are                                  such as online hypermarkets                                      use smartphones to read online
experienced in managing customs                                        and specialist websites. For                                     product reviews and promotional
and quarantine procedures, storage                                     this to occur, an e-commerce                                     materials before finalising an in-
and distribution of merchandise to                                     marketplace must have the                                        store transaction. User-generated
both online and offline retailers, such                                necessary import licence (e.g.                                   feedback from online channels
as department stores, supermarkets                                     dairy import licence). All remaining                             can help popularise a product
and convenience stores where the                                       distribution is managed through the                              in offline markets, or direct an
vast majority of retail sales occur.                                   marketplace’s internal network.                                  exporter to areas where product
                                                                                                                                        refinements are needed.
For high turnover items, such                                          An online sales channel should
as infant formula, exporters can                                       form part of a wholistic market

16. http://bellamys.tmall.com/?spm=a1z10.3-b.1997427721.d4918089.p5cUGg and
http://bellamyshk.tmall.hk/shop/view_shop.htm?spm=a220m.1000858.0.0.eNEdDW&scm=1048.1.1.12&rn=b35f833f0398ac8231d008b7b85ca93e
both accessed 29 March 2015

    34                                                                                                                           E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS
ONLINE VERSUS OFFLINE:
MARKET ENTRY FOR AUSTRALIAN FOOD

Figure 6: Sales channels of packaged food and beverages in China

                                                            Health food shops/online shops/
Other food                                                               direct selling/ other
groceries                                                                                2.5%
16.3%

Hypermarket                                                                       Supermarket
17.9%                                                                                    40%

                                                                         Convenience stores/
                                                                              food groceries
                                                                                      23.3%
Source: Euromonitor, 2013

Online sales form only part of                   traditional means of distribution,       associated with online shoppers,
a comprehensive market entry                     such as the food service sector.         particularly for undifferentiated
strategy.                                        According to Euromonitor, there are      products. ‘Much of the recent
                                                 more than 24,000 fast-food chain         turnover growth in online retail
As shown in Figure 6, online sales               outlets and more than 30,000 chain       has been from bargain hunters
of food and beverage account                     hotels in China. Such outlets have       who easily switch brands once
for no more than 2.5 per cent of                 modern procurement practices             promotions become less attractive,’
national food sales. Of this amount,             and are attuned to the quality           says Vision Management
heavy bulk products such as rice,                demands of their customers.              partner Frank Gibson. ‘It would
cooking oil and bottled beverages                                                         be dangerous to view an
represent a lion’s share, with a                 Xavier Naville, a partner at Vision      online presence as a universal
sizeable amount of chocolate,                    Management Consultants, says             solution for a China entry.’
fresh and dried fruit and other                  that China’s expansive third-
snack food also sold online.                     tier cities are often a mistakenly       In China, as elsewhere in the world,
                                                 overlooked source of sales               sustained profitability is built on
For smaller exporters, online sales              opportunity for food exporters.          communicating value and striking
can be a cost-effective means to                 ‘There are over 600 major cities         the right balance of interests
establish a sales footprint in China,            behind the main first-tier centres       between exporter, distributor and
particularly for niche products                  in China. They’re the ones where         retailer. ‘If you want to build a
not traditionally available in China             consumers have fewer choices             brand, and get any real volume, you
where educating consumers                        of brands. In the main cities, it’s a    still need to be able to effectively
through mass-market advertising                  cage fight between all importers.’       build brand, communicate with
can be prohibitively expensive.                                                           consumers and defend pricing.
                                                 Working with offline distributors        This requires investment and
Companies looking for high                       also helps to avoid the type of          capability,’ says Gibson.
turnover need to look towards more               price hypersensitivity that can be

E-COMMERCE IN CHINA: A GUIDE FOR AUSTRALIAN BUSINESS                                                                      35
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